<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1995
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number: 1-9824
McCLATCHY NEWSPAPERS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 94-0666175
(State of Incorporation) (IRS Employer
Identification Number)
</TABLE>
2100 "Q" Street, Sacramento, CA. 95816
(Address of principal executive offices)
(916) 321-1846
(Registrant's telephone number)
__________
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___.
The number of shares of each class of common stock outstanding as of August 10,
1995:
Class A Common Stock 6,812,315
Class B Common Stock 23,131,334
=============================================
1 of 23
<PAGE> 2
McCLATCHY NEWSPAPERS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheet - June 30, 1995
(unaudited) and December 31, 1994 3
Consolidated Statement of Income for the
Three Months and Six Months Ended June 30,
1995 and 1994 (unaudited) 5
Consolidated Statement of Cash Flows for
the Six Months Ended June 30, 1995
and 1994 (unaudited) 6
Consolidated Statement of Stockholders'
Equity for the Period from January 1,
1994 to June 30, 1995 (unaudited) 7
Notes to Consolidated Financial Statements
(unaudited) 8
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition 17
Part II - OTHER INFORMATION 20
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
McCLATCHY NEWSPAPERS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, December 31,
1995 1994
---------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 103,753 $ 68,574
Short-term investments 14,157 29,448
Trade receivables (less
allowances of $2,083 in 1995 and $2,000 in
1994) 50,248 58,185
Other receivables 1,789 1,704
Newsprint, ink and other
inventories 11,336 8,578
Deferred income taxes 11,428 11,425
Other current assets 2,793 2,476
--------- ---------
TOTAL CURRENT ASSETS 195,504 180,390
PROPERTY, PLANT AND EQUIPMENT:
Land 19,615 19,591
Buildings and improvements 126,627 126,055
Equipment 302,857 299,717
Construction in progress 17,781 9,885
--------- ---------
TOTAL 466,880 455,248
Accumulated depreciation (194,113) (180,601)
--------- ---------
NET PROPERTY, PLANT AND
EQUIPMENT 272,767 274,647
INTANGIBLES - NET 114,031 115,446
LONG-TERM INVESTMENTS - 11,303
INVESTMENT IN NEWSPRINT MILL
PARTNERSHIP 5,073 4,111
OTHER ASSETS 914 740
--------- ---------
TOTAL ASSETS $ 588,289 $ 586,637
========= =========
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
McCLATCHY NEWSPAPERS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, December 31,
1995 1994
--------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 11,721 $ 17,791
Accrued compensation 21,016 32,253
Income taxes 2,361 5,615
Unearned revenue 12,587 12,096
Carrier deposits 3,445 3,331
Other accrued liabilities 8,106 8,006
--------- ---------
TOTAL CURRENT LIABILITIES 59,236 79,092
LONG-TERM OBLIGATIONS 22,231 14,961
DEFERRED INCOME TAXES 50,517 50,364
COMMITMENTS AND CONTINGENCIES
(NOTE 8)
STOCKHOLDERS' EQUITY:
Common stock $.01 par value:
Class A - authorized
50,000,000 shares, issued 6,770,943 in 1995
and 6,638,022 in 1994
68 66
Class B - authorized 30,000,000 shares, issued
23,176,789 in 1995 and 23,276,789 in 1994
232 233
Additional paid-in capital 61,886 61,290
Retained earnings 394,490 381,002
Treasury stock, 20,000 Class A shares (371) (371)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 456,305 442,220
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 588,289 $ 586,637
========= =========
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
McCLATCHY NEWSPAPERS, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES - NET:
Advertising $ 96,763 $ 92,978 $183,836 $176,807
Circulation 21,712 21,196 43,419 42,390
Other 6,173 4,496 11,191 8,370
-------- -------- -------- ---------
TOTAL 124,648 118,643 238,446 227,567
OPERATING EXPENSES:
Compensation 50,276 50,879 102,043 101,077
Newsprint and
supplements 22,886 15,866 41,952 30,574
Depreciation and
amortization 9,295 9,511 18,533 19,031
Other operating
expenses 22,457 21,845 45,826 44,738
-------- -------- -------- ---------
TOTAL 104,914 98,101 208,354 195,420
-------- -------- -------- ---------
Operating income 19,734 20,542 30,092 32,147
NONOPERATING
EXPENSES (INCOME):
Interest expense 14 2 24 5
Investment income (1,574) (610) (3,155) (964)
Partnership losses 350 1,500 1,050 3,000
Other - net (278) 11 (285) 31
-------- -------- -------- --------
TOTAL (1,488) 903 (2,366) 2,072
-------- -------- -------- --------
INCOME BEFORE INCOME
TAX PROVISION 21,222 19,639 32,458 30,075
Income tax provision 8,691 8,622 13,285 13,161
-------- -------- -------- --------
NET INCOME $ 12,531 $ 11,017 $ 19,173 $ 16,914
======== ======== ======== ========
NET INCOME PER
COMMON SHARE $ 0.42 $ 0.37 $ 0.64 $ 0.58
======== ======== ======== ========
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES 30,004 29,512 29,995 29,232
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 6
McCLATCHY NEWSPAPERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
CASH PROVIDED (USED) BY OPERATING
ACTIVITIES:
Net income $ 19,173 $ 16,914
Reconciliation to net cash
provided:
Depreciation and amortization 18,606 19,112
Partnership losses 1,050 3,000
Changes in certain assets and
liabilities - net (8,046) 3,261
Other 130 (1,350)
-------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 30,913 40,937
CASH PROVIDED (USED) BY INVESTING
ACTIVITIES:
Maturities of investments held
to maturity 29,845 -
Proceeds from investments
available for sale 6,326 -
Purchases of investments held
to maturity (5,940) (21,521)
Purchases of investments
available for sale (3,637) -
Purchase of property, plant and
equipment (12,879) (15,127)
Acquisition of newspaper
operations (2,042) -
Advances to newsprint mill
partnership (2,012) (2,565)
Other - net (307) (15)
-------- --------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 9,354 (39,228)
CASH PROVIDED (USED) BY FINANCING
ACTIVITIES:
Proceeds from public offering - 20,010
Payment of cash dividends (5,685) (4,694)
Other - principally stock
issuances 597 560
-------- --------
NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES (5,088) 15,876
-------- --------
NET CHANGE IN CASH AND CASH
EQUIVALENTS 35,179 17,585
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 68,574 42,326
-------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $103,753 $ 59,911
======== ========
OTHER CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes (net of refunds) $ 16,389 $ 11,971
</TABLE>
See notes to consolidated financial statements
6
<PAGE> 7
McCLATCHY NEWSPAPERS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PAR VALUE
--------- ADDITIONAL TREASURY
CLASS A CLASS B PAID-IN RETAINED STOCK
COMMON COMMON CAPITAL EARNINGS AT COST TOTAL
------ ------ ---------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1993 $51 $238 $39,472 $344,133 $(371) $383,523
Net income (6 months) 16,914 16,914
Dividends paid ($.16 per share) (4,694) (4,694)
Conversion of 367,000 Class B to Class A 4 (4)
Issuance of 32,453 Class A under
employee stock plans 568 568
Issuance of 956,250 Class A shares to
public 9 20,001 20,010
---- ---- ------- -------- ----- --------
BALANCES, JUNE 30, 1994 64 234 60,041 356,353 (371) 416,321
Net income (6 months) 29,731 29,731
Dividends paid ($.17 per share) (5,082) (5,082)
Conversion of 110,000 Class B shares
to Class A 1 (1)
Issuance of 71,869 Class A shares
under employee stock plans 1 1,258 1,259
Other (9) (9)
---- ---- ------- -------- ----- --------
BALANCES DECEMBER 31, 1994 66 233 61,290 381,002 (371) 442,220
Net income (6 months) 19,173 19,173
Dividends paid ($.19 per share) (5,685) (5,685)
Conversion of 100,000 Class B to Class A 1 (1)
Issuance of shares under employee stock
plans 1 596 597
--- ---- ------- -------- ----- --------
BALANCE, JUNE 30, 1995 $68 $232 $61,886 $394,490 $(371) $456,305
=== ==== ======= ======== ===== ========
</TABLE>
See notes to consolidated statements
7
<PAGE> 8
McCLATCHY NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
McClatchy Newspapers, Inc. (the Company) and its subsidiaries are engaged
primarily in the publication of newspapers located in western coastal states
and South Carolina.
THE CONSOLIDATED FINANCIAL STATEMENTS include the accounts of the Company
and its subsidiaries. Significant intercompany items and transactions have
been eliminated. In preparing the financial statements, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
Company's financial position, results of operations, and cash flows for the
interim periods presented. All adjustments are normal recurring entries except
for the recording of $768,000 of costs associated with the closure of the
Company's monthly Spectrum tabloids in March 1994. Such financial statements
are not necessarily indicative of the results to be expected for the full year.
REVENUE RECOGNITION - Advertising revenues are recorded when
advertisements are placed in the newspaper and circulation revenues are
recorded as newspapers are delivered over the subscription term. Unearned
revenues represent prepaid circulation subscriptions.
CASH EQUIVALENTS are highly liquid investments with maturities of three
months or less when acquired.
INVESTMENTS AT JUNE 30, 1995 consist of $14,157,000 of U.S. and local
government debt securities maturing through November 15, 1997, which are
available for sale and recorded at amortized cost because the unrecognized
gains and losses to adjust to market value is not significant by security or in
total. Certain available for sale securities which were classified as
long-term investments in 1994 have been reclassified to short-term investments
as they were sold in connection with the purchase of newspaper operations (see
note 10).
INVESTMENTS AT DECEMBER 31, 1994 consisted of the following classified as
short-term securities: $23,849,000 of commercial paper which matured on March
15, 1995, were held to maturity, and valued at amortized costs; and $5,599,000
of U.S. and local government debt securities maturing through October 5, 1995
were available for sale and recorded at amortized costs because the
unrecognized loss to adjust to market value was not significant by security or
in total. Long-term investments consisted of U.S. and local government debt
securities totalling $11,303,000 and maturing November 15, 1997, were
classified as available for sale and recorded at amortized cost because the
unrecognized loss to adjust to market value was not significant by
8
<PAGE> 9
McCLATCHY NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
security or in total.
Costs for investment securities are determined by specific identification.
No gains or losses were realized in 1994 or 1995.
CONCENTRATIONS OF CREDIT RISKS - Financial instruments which potentially
subject the Company to concentrations of credit risks are principally cash and
cash equivalents, trade accounts receivables and investments. Cash and cash
equivalents and investments are placed with major financial institutions and
are currently invested in the highest rated commercial paper and government
securities. The Company routinely assesses the financial strength of
significant customers and this assessment, combined with the large number and
geographic diversity of its customers, limits the Company's concentration of
risk with respect to trade accounts receivable.
INVENTORIES are stated at the lower of cost (based principally on the
last-in, first-out method) or current market value. If the first-in, first-out
method of inventory accounting had been used, inventories would have increased
by $5,010,000 at June 30, 1995 and $2,856,000 at December 31, 1994.
PROPERTY, PLANT AND EQUIPMENT are stated at cost. Major renewals and
betterments, as well as interest incurred during construction, are capitalized.
For six months ended June 30, 1995 and 1994 such interest was nominal.
DEPRECIATION is computed generally on a straight-line basis over estimated
useful lives of:
. 10 to 60 years for buildings
. 9 to 20 years for presses
. 3 to 10 years for other equipment
INTANGIBLES consist of the unamortized excess of the cost of acquiring
newspaper operations over the fair market values of the newspapers' tangible
assets at the date of purchase. Identifiable intangible assets, consisting
primarily of lists of advertisers and subscribers and covenants not to compete,
are amortized over periods ranging from three to twenty-five years. The excess
of purchase prices over identifiable assets is amortized over forty years.
Management periodically evaluates the recoverability of intangible assets by
reviewing the current and projected profitability of each of its newspaper
operations.
DEFERRED INCOME TAXES result from temporary differences between amounts
reported for financial and income tax reporting purposes. See note 4.
9
<PAGE> 10
McCLATCHY NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
EARNINGS PER SHARE are based on the weighted average number of outstanding
shares of common stock and dilutive common stock equivalents (stock options -
see note 9).
2. INVESTMENT IN NEWSPRINT MILL PARTNERSHIP
A wholly-owned subsidiary of the Company owns a 13.5% interest in Ponderay
Newsprint Company ("Ponderay"), a general partnership formed to own and operate
a newsprint mill in the State of Washington. The Company has guaranteed
certain debt (see note 8) and has committed to take 28,400 metric tons of
annual production until March 1, 2001. The Company purchased $7,831,000 and
$6,007,000 of newsprint from Ponderay in the six months ended June 30, 1995 and
1994, respectively. For the three months ended June 30, Ponderay net revenues
and net losses were $35,556,000 and $1,990,000 in 1995 and $23,862,000 and
$10,597,000 in 1994. For the six months ended June 30, net revenues and net
losses were $67,137,000 and $7,395,000 in 1995 and $46,980,000 and $22,153,000
in 1994.
3. LONG-TERM OBLIGATIONS
Long-term obligations consist of (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Postretirement benefits obligation $ 9,137 $ 9,209
Pension obligations 10,758 3,142
Other long-term obligations 2,336 2,610
------- --------
Total long-term obligations $22,231 $14,961
======= ========
</TABLE>
Long-term obligations mature as follows (in thousands):
<TABLE>
<S> <C>
Year ending June 30,
1997 $ 2,089
1998 1,707
1999 1,469
2000 1,331
Thereafter 15,635
--------
Total $22,231
========
</TABLE>
The Company has an outstanding letter of credit for $4,581,000.
10
<PAGE> 11
Other long-term obligations consist primarily of deferred compensation.
On July 28, the Company entered into a bank credit agreement (the credit
agreement) providing for borrowings up to $310,000,000. In connection with the
August 1 acquisition of the News and Observer Publishing Company, the Company
drew down $138,000,000 of borrowings and the bank issued a $10,000,000 letter
of credit on behalf of the Company (see note 10).
Under the credit agreement, only interest is payable through July 1, 2000.
Thereafter, the outstanding principal must be reduced in increasing annual
amounts until it is paid in full by July 1, 2005. The Company may select
between alternative floating interest rates for each borrowing. On August 1,
1995, the interest rate applicable to the amount drawn was 6.1%. Such debt is
unsecured and the related agreement contains covenants requiring, among other
things, maintenance of cash flow and limitations on debt-to-equity ratios.
Among the liabilities assumed in acquiring the stock of the News and
Observer Publishing Company were long-term notes payable consisting of
$98,000,000 face value of unsecured senior notes bearing interest at 9.65% to
9.76% maturing through August 2003 and a $17,000,000 unsecured variable rate
note maturing on December 31, 2004. The senior notes contain certain
restrictions that limit the amount of prepayments without significant
penalties.
11
<PAGE> 12
McCLATCHY NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. INCOME TAX PROVISIONS
Income tax provisions consist of (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -----------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current:
Federal $ 6,960 $ 7,178 $10,771 $14,660
State 1,530 1,551 2,364 2,344
Deferred:
Federal 188 (15) 165 (3,723)
State 13 (92) (15) (120)
------- ------- ------- -------
Income tax provision $ 8,691 $ 8,622 $13,285 $13,161
======= ======= ======= =======
</TABLE>
The effective tax rate and the statutory federal income tax rate
are reconciled as follows:
<TABLE>
<S> <C> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0% 35.0%
State taxes, net of
federal benefit 4.7 5.0 4.7 5.5
Amortization of
intangibles 0.9 2.8 0.9 2.8
Other 0.3 1.0 0.3 0.6
----- ----- ---- ----
Effective rate 40.9% 43.8% 40.9% 43.9%
===== ===== ==== ====
</TABLE>
The components of deferred taxes recorded in the Company's Balance
Sheet on June 30, 1995 and December 31, 1994 are (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Depreciation and amortization $ 41,015 $ 40,535
Partnership losses 10,876 11,147
State taxes 232 201
Deferred compensation (13,175) (13,085)
Other 141 142
-------- -------
Deferred tax liability (net of $11,428 in 1995 and $11,425 in
1994 reported as current assets)
$ 39,089 $ 38,940
======== ========
</TABLE>
12
<PAGE> 13
McCLATCHY NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. INTANGIBLES
Intangibles consist of (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Identifiable intangible assets,
primarily customer lists $ 126,328 $ 125,511
Excess purchase prices over
identifiable intangible assets 65,757 64,400
--------- ---------
Total 192,085 189,911
Less accumulated amortization (78,054) (74,465)
--------- ---------
Intangibles - net $ 114,031 $ 115,446
========= =========
</TABLE>
6. EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan (retirement plan) for a
majority of its employees. Benefits are based on years of service and
compensation. Contributions to the plan are made by the Company in amounts
deemed necessary to provide benefits. Plan assets consist primarily of
marketable securities including common stocks, bonds and U.S. government
obligations, and other interest bearing accounts.
The Company also has a supplemental retirement plan to provide key
employees with retirement benefits. The terms of the plan are similar, but
enhanced over those of the retirement plan. Benefits under it are reduced by
benefits received under the retirement plan. The accrued pension obligation
for the supplemental retirement plan is included in other long-term
obligations.
Expenses of these plans for the three months ended June 30, 1995 and 1994
were $1,320,000 and $1,480,000, respectively. Expenses for the six months then
ended were $3,023,000 and $2,888,000 in 1995 and 1994, respectively.
The Company also has a Deferred Compensation and Investment Plan (401(k)
plan) which enables qualified employees voluntarily to defer compensation.
Company contributions to the 401(k) plan for the three months ended June
30, 1995 and 1994 were $981,000 and $972,000, respectively. Contributions for
the six months then ended were $1,951,000 and $1,940,000 in 1995 and 1994,
respectively.
The Company also provides or subsidizes certain retiree health care and
life insurance benefits. For the three months ended March 31, 1995 and 1994,
postretirement benefit expenses were $150,000 and $225,000, respectively and
were $300,000 and $450,000 for the six months then ended in 1995 and 1994,
respectively.
13
<PAGE> 14
McCLATCHY NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. CASH FLOW INFORMATION
Cash provided or used by operations in the six months ended June 30, 1995
and 1994 was affected by changes in certain assets and liabilities, excluding
the purchase of newspaper operations, as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Increase (decrease) in assets:
Receivables $ (7,987) $ (108)
Inventories 2,831 (2,284)
Other assets 312 327
--------- --------
Total (4,844) (2,065)
---------- --------
Increase (decrease) in liabilities:
Accounts payable (6,078) (5,137)
Accrued compensation (4,161) 1,871
Income taxes (3,254) 3,284
Other liabilities 603 1,178
--------- --------
Total (12,890) 1,196
--------- --------
Net change in assets and
liabilities $ (8,046) $ 3,261
========= ========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
The Company guarantees $21,177,000 of bank debt related primarily to its
joint venture in the Ponderay newsprint mill.
There are libel and other legal actions that have arisen in the ordinary
course of business and are pending against the Company. Management believes,
after reviewing such actions with counsel, that the outcome of pending actions
will not have a material adverse effect on the Company's consolidated results
of operations or financial position.
14
<PAGE> 15
McCLATCHY NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. COMMON STOCK AND STOCK PLANS
The Company's Class A and Class B common stock participate equally in
dividends. Holders of Class A common stock are entitled to one-tenth of a vote
per share and to elect as a class 25% of the Board of Directors, rounded up to
the nearest whole number. Holders of Class B common stock are entitled to one
vote per share and to elect as a class 75% of the Board of Directors, rounded
down to the nearest whole number. Class B common stock is convertible at the
option of the holder into Class A common stock on a share-for-share basis.
The Company's Amended Employee Stock Purchase Plan (the Purchase Plan)
reserved 1,500,000 shares of Class A common stock for issuance to employees.
Eligible employees may purchase shares at 85% of fair market value (as defined)
through payroll deductions. The Purchase Plan can be automatically terminated
by the Company at any time. As of June 30, 1995, 474,761 shares of Class A
common stock have been issued under the Purchase Plan.
The Company's 1987 Stock Option Plan (1987 Plan), as amended, reserved
600,000 shares of Class A common stock for issuance to key employees. Options
are granted at the market price of the Class A common stock on the date of the
grant. The options vest in installments over four years, and once vested are
exercisable up to ten years from the date of award. Although the 1987 Plan
permits the Company, at its sole discretion, to settle unexercised options by
making payments to the option holder of stock appreciation rights (SARs), the
Company does not intend to avail itself of this alternative except in limited
circumstances.
The Company's 1994 Employee Stock Option Plan (1994 Plan) reserves
650,000 Class A shares for issuance to key employees. The terms of this plan
are substantially the same as the terms of the 1987 Plan.
The Company's stock option plan for outside (nonemployee) directors
(Directors' Plan) provides for the issuance of up to 150,000 shares of Class A
common stock. Under the Directors' Plan each outside director is granted an
option at fair market value for 1,500 shares annually. Terms of the Directors'
Plan are similar to the terms of the employee Plans.
In the 1987 Plan, there are 356,550 options exercisable as of June 30,
1995. Substantially all of the shares reserved in the plan have been granted.
In the 1994 Plan 516,600 remain for future grants and none of the options are
exercisable. A total of 647,350 options are outstanding in the employee plans
at an average option price of $19.30 per share. In the Directors' Plan, 64,500
options are outstanding at an average price of $21.42 per share, 39,375 shares
were exercisable at June 30, 1995 and 85,500 are available for future awards.
15
<PAGE> 16
10. SUBSEQUENT EVENTS
On August 1, the Company purchased The News and Observer Publishing Company
(N&O) for which it paid $251,000,000 in cash for all of the common stock of N&O
and assumed $117,000,000 of N&O funded debt. An additional $10,750,000
(collateralized by a $10,000,000 letter of credit) is payable subject to the
resolution of certain contingencies and final determination of N&O's working
capital (as defined). The cash payment was financed with $138,000,000 in new
bank debt (see note 3) and $113,000,000 from existing Company cash.
N&O publishes The (Raleigh) News and Observer newspaper, seven other non-daily
publications in North Carolina and the NandO.net online service. The News and
Observer has daily circulation of about 155,000 and 200,000 Sunday.
The results of N&O will be included in the Company's consolidated results
beginning on August 1, 1995. Historical financial statements of N&O for the
years ended December 31, 1994 and 1993 will be filed by amendment on Form 8-K
with the Securities and Exchange Commission on or about August 25, 1995.
Interim financial statements for 1995 and proforma combined financial
statements of the Company and N&O will be filed by amendment on a Form 8-K on
or about October 13, 1995.
In August 1995, The Sacramento Bee made available an early retirement
program to certain employees. The program is expected to end in late
September. As it is yet unknown how many employees will participate in the
program, its cost is not determinable. However, a pretax charge is expected to
be recorded in September which management believes may range from $2,000,000 to
$3,500,000.
16
<PAGE> 17
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RECENT EVENTS AND TRENDS
On August 1, the Company purchased The News and Observer Publishing
Company (N&O) (see note 10). N&O publishes The (Raleigh, NC) News and Observer
newspaper, seven other non-daily publications in North Carolina and NandO.net
online service. The N&O newspaper has daily circulation of about 155,000 and
200,000 Sunday. The results of the N&O company will be included in the
Company's consolidated results beginning on August 1, 1995. Investment income
is not expected to continue to accrue at the same pace in the second half of
1995 as excess cash together with bank borrowings has been used to consummate
the purchase of The News and Observer Publishing Company.
Three newsprint price increases were implemented by newsprint producers
in May, August and December of 1994, and two more were implemented in March and
May 1995 because of a world-wide imbalance of newsprint supply and demand. An
additional price increase was announced for September 1995. These increases
have reduced the Company's operating income and will continue to put pressure
on earnings in 1995. Advertising and circulation volume and rate increases,
coupled with Company-wide cost control programs focused on newsprint usage and
control of all other categories of expenses have, in the past, mitigated the
impact of newsprint price increases. The Company intends to continue to pursue
all of these measures; however, they may not have the same effect on future
results.
In August 1995, The Sacramento Bee made available an early retirement
program to certain employees. The program is expected to end in late
September. As it is yet unknown how many employees will participate in the
program, its cost is not determinable. However, a pretax charge is expected to
be recorded in September which management believes may range from $2,000,000 to
$3,500,000.
SECOND QUARTER 1995 COMPARED TO 1994
The Company earned $12.5 millon or 42 cents per share in the second
quarter of 1995 versus $11.0 million or 37 cents per share in 1994. Revenues
increased 5.1%, however operating income declined 3.9% due largely to a 44.2%
increase in the cost of newsprint and supplements. The increase in net income
was primarily due to a $1.0 million increase in investment income and $1.2
million decline in losses from the Company's joint venture in the Ponderay
newsprint mill.
Net revenues increased 5.1% to $124.6 million due largely to higher
advertising and commercial printing revenues. Advertising revenues increased
4.1% to $96.8 million reflecting advertising rate increases implemented in most
of the Company's newspapers in the first quarter of 1995, offsetting a small
decline in advertising linage.
At the Company's seven largest newspapers, full-run "run of press" (ROP)
linage, which is found in the body of a newspaper and accounts for a majority
of the newspaper's advertising revenues, declined 0.7%. Despite the inclusion
of Easter advertising in April, full-run ROP linage was down at all three of
the California dailies and at The (Tacoma, WA) News Tribune. These declines
were partially offset by
17
<PAGE> 18
gains at the newspapers in Anchorage; Tri-Cities, Washington; and Rock Hill,
South Carolina.
Other categories of advertising at the seven largest dailies reflected
mixed results. Part-run ROP linage, which is included in zoned editions of the
newspapers targeted to selected areas of the local communities, declined 11.6%.
Linage in total market coverage (TMC) products distributed to nonsubscribers
was up 3.4% while the number of preprinted advertising inserts distributed
declined 1.4%. Linage in the Company's 14 other newspapers increased 1.2%.
Circulation revenues increased 2.4% to $21.7 million resulting primarily
from selective home-delivery and single-copy rate increases and, to a lesser
extent, higher average paid daily circulation. The number of daily subscribers
increased 0.8% over the 1994 quarter while Sunday circulation was about flat
with last year.
Other revenue increased 38.1% to $6.2 million as commercial printing
activity continued to increase at McClatchy Printing Company, The News Tribune
and Anchorage Daily News.
The 6.9% increase in operating expenses is largely attributable to
increased newsprint prices. While newsprint usage declined nominally due to
lower advertising volumes and cost containment measures, the Company has
absorbed five newsprint price hikes since last August, resulting in a 44.2%
increase in newsprint and supplements.
Compensation costs declined 1.2% from the 1994 quarter due mostly to an
11.5% decline in the cost of fringe benefits. The reduction in benefit costs
was due to lower workers' compensation and retirement benefits. Other
operating expenses, including depreciation and amortization, were held to a
1.3% increase reflecting Company-wide cost containment measures and assets at
the Tri-city Herald and South Carolina newspapers becoming fully depreciated
or amortized.
Nonoperating costs declined $2.4 million due principally to higher
investment income and smaller losses from the Company's joint venture in the
Ponderay newsprint mill.
The Company's income tax rate declined from 43.8% to 40.9% due primarily
to a drop in nondeductible amortization of intangibles. See note 4 to the
consolidated financial statements.
SIX MONTH COMPARISONS
Earnings in the six months ended June 30, 1995 were $19.2 million versus
$16.9 million in 1994. Earnings in the six month period would have been higher
but for heavy rains and flooding in Northern California, home to three of the
Company's largest newspapers. The severe weather depressed advertising volume
as consumers stayed at home. Otherwise, results generally reflected the same
business factors discussed in the quarterly comparisons.
Revenues increased 4.8% to $238.5 million. Advertising revenues were up
4.0% to $183.8 million largely reflecting rate increases, while circulation
revenues increased 2.4%. Other revenues grew 33.7% due mostly to increased
commercial printing.
18
<PAGE> 19
Advertising volumes at the Company's seven largest newspapers were as
follows: full run ROP down 0.2%, part run ROP down 6.3%, TMC linage up 4.5%
and the number of preprints distributed up 0.9%.
The number of daily subscribers to the Company's newspapers increased
0.8% while Sunday subscribers were up 0.2%.
Operating expenses increased 6.6% due largely to a 37.2% increase in
newsprint and supplemental expenses. Compensation costs were held to a 1.0%
increase. Salaries increased 2.0% and were offset by a 2.9% decline in the
cost of fringe benefits. All other operating expenses were up less than 1.0%.
Non-operating expense items declined $4.4 million. Investment income
was $2.2 million higher than 1994 and the losses from Ponderay newsprint mill
declined $2.0 million.
The Company's effective tax rate was 40.9% versus 43.9% in 1994. See
note 4 to the consolidated financial statements.
19
<PAGE> 20
LIQUIDITY & CAPITAL RESOURCES
The Company's cash and cash equivalent and short-term investments
improved $20 million from year-end 1994 to $118.0 million at June 30, 1995.
While $30.9 million of cash was generated by operations, a portion of the funds
were used for capital expenditures, advances to Ponderay newsprint mill,
short-term investment securities and dividends. See the Company's Statement of
Cash Flows on page 6.
Capital expenditures are projected to be $31.0 million in 1995 including
an ongoing plant expansion and press installation at the News and Observer.
The Company has a partnership interest in a newsprint mill which has
incurred losses since 1989. However, its losses have diminished as newsprint
prices have continued to increase. The Company presently intends, when
necessary, to contribute funds to help finance its share of the mill's cash
needs. See notes 2 and 8 to the consolidated financial statements for a
discussion of the Company's commitments to the joint venture.
See notes 3 and 10 to the consolidated financial statements for
discussion of impact of the purchase of the News and Observer Publishing
Company on the Company's cash balances and debt structure. The Company has
$162 million of available credit under its bank credit agreement.
Management is of the opinion that operating cash flow and available
credit facilities are adequate to meet the liquidity needs of the Company,
including currently planned capital expenditures and other investments.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Default Upon Senior Securities - None
20
<PAGE> 21
Item 4. Submission of Matters to a Vote of Security Holders:
The Annual Meeting of Stockholders of McClatchy Newspapers, Inc. was held
on May 17, 1995 and stockholders of record on March 20, 1995 approved all
matters submitted for voting as follows:
<TABLE>
<CAPTION>
Votes
-----
For Withheld
--- --------
<S> <C> <C>
Election of Directors of the Board:
Nominees for Class A Directors voted
by Class A stockholders:
Joan F. Lane 5,269,235 130,914
S. Donley Ritchey, Jr. 5,269,732 130,417
Frederick R. Ruiz 5,269,060 131,089
Nominees for Class B Directors voted
by Class B stockholders:
William K. Coblentz 21,283,173
William L. Honeysett 21,283,173
Betty Lou Maloney 21,283,173
James B. McClatchy 21,283,173
William E. McClatchy 21,283,173
Erwin Potts 21,283,173
William M. Roth 21,283,173
James P. Smith 21,283,173
H. Roger Tatarian 21,283,173
</TABLE>
<TABLE>
<CAPTION>
Votes
-----
Broker
Non-
For Against Abstentions Votes
--- ------- ----------- -------
<S> <C> <C> <C> <C>
Ratification of appointment of 21,532,211 319 290,659 0
Deloitte & Touche LLP as the Company's
independent auditors for 1995
</TABLE>
Item 5. Other Information:
On May 17, 1995, the Company announced an agreement to purchase the stock
of The News and Observer Publishing Company of Raleigh, North Carolina,
which was subsequently completed on August 1, 1995. Please see notes 3
and 10 to the consolidated financial statements.
Separately, the Company announced a management realignment. Erwin Potts
became chairman of the Board of Directors and continues as chief executive
officer. James McClatchy, the former chairman, continues as a director
and publisher of the Company. Gary Pruitt, previously vice president of
operations and technology, became president and chief operating officer.
William Honeysett, previously executive vice president, became senior vice
president.
21
<PAGE> 22
On June 25, 1995, H. Roger Tatarian, a Director of the Company for 13
years, died of heart disease.
On July 25, 1995, the Company's Board of Directors elected Gary Pruitt,
the recently appointed president and chief operating officer of the
Company; Larry Jinks, a former Knight-Ridder, Inc. editor and newspaper
executive; and Molly Maloney Evangelisti, a fifth generation member of the
McClatchy family, as new members.
Item 6. Exhibits and Reports on Form 8-K:
10.1 Merger Agreement by and among McClatchy Newspapers, Inc; MNI Merger
Sub, Inc.; and The News and Observer Publishing Company dated as of
May 16, 1995, as amended.
10.2 Credit Agreement dated as of July 28, 1995 between McClatchy
Newspapers, Inc. and Bank of America National Trust and
Savings Association.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
McClatchy Newspapers, Inc.
Registrant
Date: August, 14 1995 /s/ James P. Smith
----------------------------------
James P. Smith
Vice President,
Finance and Treasurer
23
<PAGE> 24
EXHIBIT INDEX
Exhibit
Number Exhibit
10.1 Merger Agreement by and among McClatchy Newspapers, Inc; MNI Merger
Sub, Inc.; and The News and Observer Publishing Company dated as of
May 16, 1995, as amended.
10.2 Credit Agreement dated as of July 28, 1995 between McClatchy
Newspapers, Inc. and Bank of America National Trust and
Savings Association.
<PAGE> 1
EXHIBIT 10.1
MERGER AGREEMENT
BY AND AMONG
McCLATCHY NEWSPAPERS, INC.
MNI MERGER SUB, INC.
AND
THE NEWS AND OBSERVER PUBLISHING COMPANY
DATED AS OF MAY 16, 1995
(As amended by that certain Amendment to Merger Agreement
dated as of July 24, 1995)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
Page
----
ARTICLE I
MERGER
<S> <C> <C>
Section 1.1 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 Bylaws; Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.4 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.5 Shareholders' Meeting and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.7 Shareholders' Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
CONVERSION OF SHARES
Section 2.1 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.2 Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.3 Selling Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.4 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.5 Merger Sub Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III
THE CLOSING
Section 3.1 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.2 Filings at the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV
PAYMENT
Section 4.1 Estimated Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.2 Closing Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.3 Determination of Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.4 Payments for Shares No Longer Deemed Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.5 Exchange of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
-i-
<PAGE> 3
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
<TABLE>
<S> <C> <C>
Section 5.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.2 Authority Relative to This Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.3 Noncontravention; Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.4 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 6.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.2 Authority Relative to this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.3 Noncontravention, Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.6 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.7 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.8 Certain Contracts and Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.10 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.11 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 6.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.13 Licenses and Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.14 Title to Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.15 Title to Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.16 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.18 Inventories; Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.19 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.20 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.21 Newspapers and Magazines; Circulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.22 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.23 Equity Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.24 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.25 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.26 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.27 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
-ii-
<PAGE> 4
ARTICLE VII
COVENANTS OF THE PARTIES
<TABLE>
<S> <C> <C>
Section 7.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 7.3 Employees and Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 7.4 HSR Act Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.5 Other Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.7 Consummation of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.8 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.9 Purchaser's Severance Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.10 Philanthropy Journal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.11 Holdback Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.12 Certain Indemnification Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF
ALL PARTIES
Section 8.1 Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.2 Hart-Scott-Rodino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF
MERGER SUB AND THE PURCHASER
Section 9.1 Representations and Warranties True . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.3 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.4 Certain Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.5 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.6 Closing Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.7 Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 9.8 Guarantee of Stock Ownership and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
-iii-
<PAGE> 5
<TABLE>
ARTICLE X
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
<S> <C> <C>
Section 10.1 Representations and Warranties True . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 10.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 10.3 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 10.4 Certain Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 10.5 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 10.6 Closing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE XI
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
Section 11.1 Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 11.2 Shareholders' Agreement to Indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 11.3 Purchaser's Agreement to Indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 11.4 Holdback Amount Interest and Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 11.5 Holdback Amount Reduction; Notice; Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE XII
TERMINATION
Section 12.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 12.2 Procedure and Effect of Termination or Failure to Close . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 13.2 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.3 Amendment and Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.4 Waiver of Compliance; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.7 Governing Law; Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 13.9 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 13.10 Bulk Sales Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 13.11 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
-iv-
<PAGE> 6
Pursuant to Item 601(b)(2) of Regulation S-K, the Schedules to the Merger
Agreement have been omitted. The Registrant hereby agrees to furnish such
Schedules upon request of the Securities and Exchange Commission.
SCHEDULES
<TABLE>
<S> <C>
Schedule 2.1 Shareholders
Schedule 6.3 Consents and Approvals
Schedule 6.4 Capitalization
Schedule 6.5 Financial Statements
Schedule 6.7 Absence of Certain Changes
Schedule 6.8 Certain Contracts and Arrangements
Schedule 6.9 Litigation
Schedule 6.11 Employee Benefits
Schedule 6.12 Taxes
Schedule 6.13 Licenses and Authorizations
Schedule 6.14 Title to Real Property
Schedule 6.15 Title to Personal Property
Schedule 6.16 Bank Accounts
Schedule 6.17 Insurance
Schedule 6.18 Buildings
Schedule 6.20 Trademarks
Schedule 6.21 Newspaper and Magazines; Circulation
Schedule 6.22 Environmental Matters
Schedule 6.23 Equity Interests
Schedule 6.27 Books and Records
Schedule 7.1 Conduct of Business
Schedule 7.9 Philanthropy Journal Employees
Schedule 11.2 Indemnification Matter
EXHIBITS
Exhibit 4.5 Paying Agent Agreement
Exhibit 7.3 Employment Contracts
</TABLE>
-v-
<PAGE> 7
Defined Terms
<TABLE>
<CAPTION>
Section
-------
<S> <C>
Acceptable Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11(a)
Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2
Adjustments Computation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3(a)
Adjustments Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3(c)
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction
Arbitrating Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3(b)
Articles of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6
Base Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
Business Corporation Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(a)
Certificate of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5(b)
Class B Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1
Closing Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11(b)
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction
Company Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3(a)
Company Indemnitees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3(a)
Company Third-Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3(c)
Compensation and Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11(a)
Constituent Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction
Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3(a)
DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(a)
Disputed Holdback Reduction Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5
Dissenters' Selling Expense Portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3(c)
Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
DOJ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4
Dollar/$ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11(b)
ERISA Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11(b)
Estimated Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3(b)
FTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4
Final Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3(a)
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5
HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3(b)
Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.22(a)
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
Holdback Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2
Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2(b)
Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(a)
Merger Sub. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction
Multiemployer Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11(b)
Net Merger Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
Option Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Background Statement
Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5(a)
Paying Agent Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5(a)
Pension Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11(b)
Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.13
Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction
Purchaser Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2(a)
Purchaser Indemnitees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2(a)
Purchaser Third-Party Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2(c)
Selling Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(a)
Shareholders' Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5
Shareholders' Representative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7
Stock Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5(b)
Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(a)
</TABLE>
-2-
<PAGE> 9
MERGER AGREEMENT
This MERGER AGREEMENT, dated as of May 16, 1995, (the "Agreement"), is
by and among THE NEWS AND OBSERVER PUBLISHING COMPANY, a North Carolina
corporation (the "Company"), McCLATCHY NEWSPAPERS, INC., a Delaware corporation
(the "Purchaser"), and MNI MERGER SUB, INC., a Delaware corporation that is a
wholly owned subsidiary of the Purchaser ("Merger Sub"). The Company and
Merger Sub are hereinafter sometimes collectively referred to as the
"Constituent Corporations."
BACKGROUND STATEMENT
The Boards of Directors of the Company, the Purchaser, and Merger Sub
have determined that the merger of Merger Sub into the Company upon the terms
set forth in this Agreement would be fair and in the best interests of their
respective shareholders, and such Boards of Directors have adopted resolutions
approving this Agreement and the transactions contemplated hereby. In
addition, pursuant to the terms of an Option Agreement dated as of the date
hereof (the "Option Agreement") between the Purchaser and the holders of a
majority of the issued and outstanding shares of voting common stock of the
Company, such majority holders have agreed to approve this Agreement and the
transactions contemplated hereby at a shareholders' meeting to be called for
that purpose.
The Company, the Purchaser, and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with the
proposed merger of the Company and Merger Sub and desire to prescribe various
conditions to the merger.
NOW, THEREFORE, in consideration of the premises and the mutual
representation, warranties, covenants, agreements and conditions contained
herein, the parties hereto agree as follows:
ARTICLE I
MERGER
SECTION 1.1 MERGER. (a) In accordance with the provisions of
this Agreement, the North Carolina Business Corporation Act (the "Business
Corporation Act") and the Delaware General Corporation Law (the "DGCL"), at the
Effective Time (as defined in SECTION 1.6), Merger Sub shall be merged with and
into the Company (the "Merger"), and the Company shall be the surviving
corporation (hereinafter sometimes called the "Surviving Corporation") and
shall continue its corporate existence under the laws of the State of North
Carolina. The name of the Company prior to the Merger shall be the name of the
Surviving Corporation. At the Effective Time, the separate existence of Merger
Sub shall cease.
<PAGE> 10
(b) The Surviving Corporation shall possess all the rights,
privileges, immunities, powers and purposes of each of the Constituent
Corporations and shall by operation of law assume and be liable for all the
liabilities, obligations and penalties of each of the Constituent Corporations.
SECTION 1.2 ARTICLES OF INCORPORATION. The Articles of
Incorporation of the Company in effect at the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation, except as amended by
the Articles of Merger (as defined in SECTION 1.6).
SECTION 1.3 BYLAWS; FISCAL YEAR. The bylaws of the Company in
effect at the Effective Time shall be the bylaws of the Surviving Corporation.
The fiscal year of the Surviving Corporation shall end on the last day of
December of each year.
SECTION 1.4 DIRECTORS AND OFFICERS. From and after the
Effective Time, until successors are duly elected or appointed in accordance
with applicable law, the directors of Merger Sub at the Effective Time shall be
the directors of the Surviving Corporation and the officers of the Company at
the Effective Time shall be the officers of the Surviving Corporation.
SECTION 1.5 SHAREHOLDERS' MEETING AND CONSENTS. The Company
will take all action necessary in accordance with applicable law and its
Articles of Incorporation and bylaws to convene a special meeting of its
shareholders (the "Shareholders' Meeting") as soon as practicable hereafter to
act on this Agreement and to approve an amendment to the Company's articles of
incorporation (or at the option of the holders of the Company's Common Stock
(as defined in SECTION 2.1), the giving of unanimous consents pursuant to
Article IV.C. of the Company's articles of incorporation) to permit the
disposition of Shares (as defined in SECTION 2.1) pursuant to the Option
Agreement. The Company, through its Board of Directors (subject to the
fiduciary duties of the Board of Directors under applicable law), shall
recommend to its shareholders adoption of this Agreement and approval of the
transactions contemplated hereby (including without limitation the foregoing
amendment to the Company's articles of incorporation) and shall use all
reasonable efforts to obtain approval of the adoption of this Agreement and of
the transactions contemplated hereby (including without limitation the
foregoing amendment to the Company's articles of incorporation) by the
shareholders of the Company at a meeting duly noticed to be held as soon as
practicable after the date hereof. The Company agrees that it will deal
exclusively with the Purchaser and will not solicit, directly or indirectly,
inquiries, proposals or offers from any other potential buyer of the Company or
for any substantial portion of its assets or securities.
SECTION 1.6 EFFECTIVE TIME. The Merger shall become effective
on the date and at the time of filing of (a) articles of merger, in the form
required by and executed in accordance with the Business Corporation Act
("Articles of Merger"), with the Secretary of State of the State of North
Carolina in accordance with the provisions of Section 55-11-05
-2-
<PAGE> 11
of the Business Corporation Act and (b) a certificate of merger (the
"Certificate of Merger"), in the form required by and executed in accordance
with the DGCL, with the Secretary of State of the State of Delaware in
accordance with the provisions of Section 252 of the DGCL or at such other time
specified in the Articles of Merger or the Certificate of Merger. The time
when the Merger shall become effective is herein referred to as the "Effective
Time."
SECTION 1.7 SHAREHOLDERS' REPRESENTATIVE. Frank Daniels, Jr.
(or in the event of his resignation or inability to perform his duties
hereunder, Robert M. Woronoff, Jr.) shall act as the Shareholders'
Representative (in such capacity, the "Shareholders' Representative") with
respect to (i) the determination of the Adjustments Computation and the
Adjustments Payment (as such terms are defined in SECTIONS 4.3(a) AND 4.3(c),
respectively), (ii) the settling and payment of Selling Expenses (as defined in
SECTION 2.3), (iii) the settling and payment of any indemnification claims, and
(iv) for any other purposes that may be specified in this Agreement or are
reasonably necessary or desirable in connection with the protection of the
Shareholders hereunder. The Shareholders' Representative shall have no duties
or obligations other than those specifically set forth herein and shall not be
liable under any circumstances for any actions or inactions in his capacity as
Shareholders' Representative other than for his wilful misconduct. All costs
and expenses of the Shareholders' Representative shall be Selling Expenses.
The holders of a majority of the Shares (as defined in SECTION 2.1(a)) shall
have the right at any time to appoint a new Shareholders' Representative for
such purposes by giving at least ten (10) days' written notice thereof to the
Purchaser and the Shareholders' Representative then acting.
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1 SHARES. (a) Except as provided in SECTION 2.4
below with respect to Dissenting Shares, each share of the Company's Common
Stock, par value $0.10 per share ("Common Stock"), and Class B Non-Voting
Common Stock, par value $0.10 per share ("Class B Stock"), issued and
outstanding immediately prior to the Effective Time (each such share of Common
Stock or Class B Stock being referred to herein as a "Share" or collectively,
the "Shares") shall, by virtue of the Merger and without any action on the part
of the holder thereof, be canceled and converted at the Effective Time into the
right to receive, upon surrender of the certificate evidencing such Share in
the manner provided in SECTION 4.5(B), a pro rata portion of the "Net Merger
Consideration." The Net Merger Consideration shall be three hundred seventy-two
million, six hundred forty thousand dollars ($372,640,000) (the "Base Price"),
less the sum of (i) the Adjustments (as defined in SECTION 2.2), (ii) the
Selling Expenses (as defined in SECTION 2.3)), and (iii) up to $10,000,000 of
Purchaser Damages (as defined in SECTION 11.2(a)).
-3-
<PAGE> 12
The pro rata portion of the Net Merger Consideration payable to each
holder of Shares (a "Shareholder" and, collectively, the "Shareholders"), other
than Dissenting Shares, shall be equal to a fraction, the numerator of which is
the number of Shares held by such Shareholder and the denominator of which is
the aggregate number of Shares issued and outstanding immediately prior to the
Effective Time (specifically including any Dissenting Shares). SCHEDULE 2.1
hereto sets forth the proportionate interest, as of the date hereof, of each
Shareholder in the Net Merger Consideration. For purposes of this Agreement,
"Dollars" and "$" shall mean currency of the United States of America.
(b) Except as provided in SECTION 2.1(c) below, all Shares
(specifically including any Dissenting Shares) shall, by virtue of the Merger
and without any action on the part of the holders thereof, at the Effective
Time no longer be outstanding and shall be canceled and shall cease to exist,
and each holder thereof shall thereafter cease to have any rights with respect
to such Shares, except the right to receive the Net Merger Consideration for
such Shares upon the surrender of the Share certificates in accordance with
SECTION 4.5(b) or the right, with respect to Dissenting Shares, to receive
payment from the Surviving Corporation of the "fair value" of such Shares as
determined in accordance with Article 13 of the Business Corporation Act.
(c) Notwithstanding anything contained in this Section to the
contrary, each Share held in the treasury of the Company immediately prior to
the Effective Time shall be canceled without any conversion thereof and no
payment shall be made with respect thereto.
SECTION 2.2 ADJUSTMENTS. The Base Price shall be adjusted as
follows (each such adjustment being referred to herein as an "Adjustment" and
the aggregate amount of which shall be referred to as the "Adjustments"):
(i) The Base Price shall be increased (or decreased, as
the case may be) by the dollar amount by which (A)
the current assets of the Company (on an aggregate
basis) on the close of business on the last day of
the month immediately preceding the Closing Date
exceed (or are less than) (B) the current
liabilities of the Company (on an aggregate basis)
on the close of business on the last day of the
month immediately preceding the Closing Date;
provided, however, that solely for the purposes of
this calculation the Company shall exclude the
effect on current assets and current liabilities of
bonuses paid or payable to employees of the Company
after the date hereof up to an aggregate amount of
one million two hundred thousand dollars
($1,200,000);
(ii) The Base Price shall be decreased by the dollar
amount of the Company's non-current charitable
pledges existing on the
-4-
<PAGE> 13
close of business on the last day of the month
immediately preceding the Closing Date; and
(iii) The Base Price shall be decreased by the dollar
amount of the Company's long-term debt, less
current portion, existing on the close of business
on the last day of the month immediately preceding
the Closing Date.
For purposes of calculating the Adjustments referred to above, current assets,
current liabilities, non-current charitable pledges and long-term debt, less
current portion, and the value thereof, shall be determined in accordance with
generally accepted accounting principles consistently applied (except as
indicated in the following sentence). With respect to the Adjustments, the
Purchaser and the Company acknowledge that the indebtedness evidenced by the
Stock Notes (as defined in SECTION 4.5(b)) will be a current asset on the Final
Balance Sheet except with respect to Dissenting Shares and the indebtedness
owed to the Company from current or former employees under the computer
purchase program disclosed in paragraph 20 of SCHEDULE 6.8 shall be reflected
on the Final Balance Sheet in accordance with generally accepted accounting
principles (rather than entirely as a current asset).
SECTION 2.3 SELLING EXPENSES. Selling Expenses shall mean the
sum of (i) all legal, accounting, brokers' and other professional fees and
expenses of or incurred by the Company or the Shareholders' Representative in
connection with the Merger.
SECTION 2.4 DISSENTING SHARES. Notwithstanding anything in
this Agreement to the contrary, Shares that are outstanding immediately prior
to the Effective Time and that are held by Shareholders who have not voted in
favor of the Merger or consented thereto in writing, and who have properly
exercised their rights for appraisal of such Shares in the manner provided in
Article 13 of the Business Corporation Act ("Dissenting Shares"), shall not be
converted into or be exchangeable for the right to receive a pro rata portion
of the Net Merger Consideration, unless such Shareholder thereafter fails to
perfect or withdraws or otherwise loses his or her right to dissent and
appraisal. If, after the Effective Time, such Shareholder fails to perfect or
withdraws or otherwise loses his or her right to dissent and appraisal, such
Shares shall thereupon be deemed to have been converted as of the Effective
Time into a right to receive cash as provided in SECTION 2.1, without interest
thereon. The Company shall give the Purchaser prompt written notice of any
demands and withdrawals thereof received by the Company for appraisal of
Shares, and the Purchaser shall have the right to participate in all
negotiations and proceedings with respect to such demands. Prior to the
Effective Time, the Company shall not, except with the prior written consent of
the Purchaser, make any payment with respect to, or settle or offer to settle,
any such demands. If a Shareholder immediately prior to the Effective Time
shall become entitled to receive payment for the appraisal value of such
Shares, such payment shall be made by the Surviving Corporation.
-5-
<PAGE> 14
SECTION 2.5 MERGER SUB STOCK. Each share of common stock,
$0.01 par value per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted at the Effective Time
into one validly issued, fully paid and nonassessable share of common stock of
the Surviving Corporation.
ARTICLE III
THE CLOSING
SECTION 3.1 TIME AND PLACE. Subject to the provisions of
ARTICLES VIII, IX, X and XII, the closing of the Merger (the "Closing") shall
take place on the first day of a calendar month at the principal offices of the
Company in Raleigh, North Carolina, commencing at 10:00 a.m., local time, or at
such other time or place as the Purchaser and the Company may agree. The date
on which the Closing actually occurs is herein referred to as the "Closing
Date."
SECTION 3.2 FILINGS AT THE CLOSING. Subject to the provisions
of ARTICLES VIII, IX, X and XII hereof, Merger Sub and the Company shall file
on the Closing Date (i) the Articles of Merger in accordance with the
applicable provisions of the Business Corporation Act and (ii) the Certificate
of Merger in accordance with the applicable provisions of the DGCL, and shall
take any and all other lawful actions and do any and all other lawful things
necessary to cause the Merger to become effective.
ARTICLE IV
PAYMENT
SECTION 4.1 ESTIMATED ADJUSTMENTS. Not more than six days
prior to the Closing Date, the Company shall deliver to the Purchaser a
certificate, dated as of the date of delivery, setting forth the Company's good
faith estimate of the dollar amount, as of the close of business on the last
day of the month preceding the Closing Date, of the Adjustments (the "Estimated
Adjustments").
SECTION 4.2 CLOSING PAYMENT. At the Closing the Purchaser
shall pay the Closing Payment by wire transfer of immediately available funds
by 2:00 p.m. Raleigh, North Carolina time to the Paying Agent. The "Closing
Payment" shall be the product of (i) the Base Price, less the Estimated
Adjustments and less the Holdback Amount, and (ii) a fraction, the numerator of
which shall be the total number of Shares other than Dissenting Shares and the
denominator of which shall be the total number of Shares. The "Holdback
Amount" shall initially equal ten million, seven hundred fifty thousand dollars
($10,750,000),
-6-
<PAGE> 15
shall be reduced from time to time in accordance with SECTION 4.3(e) and
ARTICLE XI and shall accrue interest as provided in SECTION 11.4.
SECTION 4.3 DETERMINATION OF ADJUSTMENTS. (a) Within 45 days
after the Closing Date, the Purchaser will provide to the Shareholders'
Representative, on behalf of the Shareholders, a final balance sheet (the
"Final Balance Sheet") of the Company dated as of the close of business on the
last day of the month immediately preceding the Closing Date and a computation
setting forth the dollar amount of each Adjustment, the difference between the
Estimated Adjustments and the Adjustments (the "Adjustments Computation"), and
the amount of the Adjustments Payment (as defined in SECTION 4.3(c)). The
Shareholders' Representative or an agent on his behalf may audit the
preparation of the Final Balance Sheet, and shall have complete access to the
books and records of the Company for such purpose.
(b) If the Shareholders' Representative does not accept the Final
Balance Sheet, the Adjustments Computation or the Adjustments Payment, he shall
give written notice to the Purchaser within twenty-one (21) days after receipt
thereof. The notice shall set forth in reasonable detail the disputed amount
or amounts and the basis for the Shareholders' Representative's objections to
any such amount.
If the Shareholders' Representative does not object within such 21-day
period, the Final Balance Sheet, the Adjustments Computation and the
Adjustments Payment shall be deemed accepted and approved by the Shareholders.
If the Shareholders' Representative shall raise any objections within the
21-day period, the parties shall attempt to resolve the disputed amount or
amounts. If the amounts in dispute cannot be resolved by the parties within
thirty (30) days after delivery of the Shareholders' Representative objections,
the amounts in dispute shall be submitted to a firm of independent certified
public accountants, mutually selected by the Purchaser and the Shareholders'
Representative (the "Arbitrating Accountants"), which firm shall make a final
and binding determination as to such amount or amounts. The Arbitrating
Accountants shall deliver to the parties their written determination regarding
the matters submitted to them within sixty (60) days, which determination shall
be binding and conclusive upon all parties with respect to the calculation of
the Final Balance Sheet, the Adjustments Computation and the Adjustments
Payment. Any such determination shall not require the Surviving Corporation or
any affiliates to alter its financial statements.
Fees and expenses of the Arbitrating Accountants shall be paid
one-half by the Purchaser (or, at the Purchaser's option, by the Surviving
Corporation) and one-half by the Shareholders' Representative as additional
Selling Expenses.
(c) The amount of the post-closing adjustment payment is referred
to herein as the "Adjustments Payment." If the absolute dollar amount of the
Adjustments as finally determined is less than the Estimated Adjustments, the
Adjustments Payment shall be the sum of (i) $750,000, (ii) the absolute dollar
amount of the difference between the Estimated
-7-
<PAGE> 16
Adjustments and the Adjustments, and (iii) the pro rata portion of the Selling
Expenses (as certified in writing by the Shareholders' Representative) then
payable by the Shareholders and attributable to the Dissenting Shares (the
"Dissenters' Selling Expense Portion"). If the absolute dollar amount of the
Adjustments is greater than the Estimated Adjustments, the Adjustments Payment
shall be (i) $750,000 minus (ii) the absolute dollar amount of the difference
between the Adjustments and the Estimated Adjustment, plus (iii) the
Dissenters' Selling Expense Portion.
(d) If the Shareholders' Representative does not submit a written
objection to the Final Balance Sheet, Adjustments Computation or Adjustments
Payment pursuant to SECTION 4.3(b), the Adjustments Payment, if a positive
amount, shall be disbursed to the Paying Agent within five business days after
expiration of the 21-day period referred to in SECTION 4.3(b) (or, if sooner,
within five days of the date such 21-day period is waived in writing by the
Shareholders' Representative). If the Shareholders' Representative does submit
a written objection pursuant to SECTION 4.3(b), the undisputed portion of the
Adjustments Payment (as reasonably determined by Purchaser and the
Shareholders' Representative in light of the objections raised by the
Shareholders' Representative and the possible range in calculations of the
disputed portion of the Adjustments Payment) shall, upon the request of the
Shareholders' Representative, be disbursed to the Paying Agent within five
business days after the 21-day period referred to in SECTION 4.3(b). Any
Adjustments Payment due the Shareholders with regard to the disputed portion of
the Final Balance Sheet and Adjustments Computation shall be disbursed to the
Paying Agent within five business days after the final determination of the
entire Adjustments Payment. All disbursements to the Paying Agent pursuant to
this paragraph shall be paid, together with interest accruing from the Closing
Date at a per annum rate equal to the effective yield to maturity of a two-year
U.S. Treasury Note as reported in The Wall Street Journal on the Closing Date,
by wire transfer of immediately available funds.
(e) Following the final determination of the Adjustments Payment,
the Holdback Amount shall be reduced by $750,000. In addition, if the
Adjustments Payment is a negative number, the Holdback Amount shall be further
reduced by the amount of such negative number.
SECTION 4.4 PAYMENTS FOR SHARES NO LONGER DEEMED DISSENTING
SHARES. If, at any time, any Dissenting Shares lose their status as Dissenting
Shares such that the Shareholder thereof becomes entitled to receive the Net
Merger Consideration, the Purchaser will pay or caused to be paid to the Paying
Agent the pro rata portion of the Closing Payment, plus any Adjustments Payment
and Holdback Amount, allocable to such Dissenting Shares. Upon any
determination by the Company that any Dissenting Shares have become entitled to
receive the Net Merger Consideration pursuant to this paragraph, the Company
shall notify the Shareholders' Representative, and the Shareholders'
Representative shall then instruct the Paying Agent to deliver materials to and
make disbursements of such payment to such Shareholder, less such Shareholder's
pro rata portion of Selling Expenses, all in accordance with SECTIONS 4.5(b)
and (c).
-8-
<PAGE> 17
SECTION 4.5 EXCHANGE OF SHARES. (a) At or prior to the
Effective Time, the Shareholders' Representative, the Company and Purchaser
shall designate a bank or trust company to serve as paying agent (the "Paying
Agent") for all Shares other than Dissenting Shares pursuant to a Paying Agent
Agreement in substantially the form of EXHIBIT 4.5 hereto (the "Paying Agent
Agreement") and, in accordance with SECTION 4.5, shall cause the Closing
Payment to be wire transferred to the Paying Agent for the benefit of the
Shareholders other than the holders of Dissenting Shares. Such funds shall be
invested by the Paying Agent as directed by the Shareholders' Representative,
subject to investment limitations of the Paying Agent Agreement, in obligations
of or guarantees by the United States of America, in commercial paper
obligations rated A-1 or P-1 or better by Moody's Investor Services, Inc. or
Standard & Poor's Corporation, respectively, or in certificates of deposit,
bank repurchase agreements or bankers acceptances of commercial banks with
capital exceeding $500 million.
(b) Promptly after the Effective Time (or with respect to
instructions given pursuant to SECTION 4.4, promptly after the requirement to
give such instructions arises), the Shareholders' Representative shall instruct
the Paying Agent to mail or otherwise deliver to each Shareholder (other than
to holders of Dissenting Shares) a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss of the certificates
representing the Shares (the "Certificates") shall pass, only upon actual
delivery of the Certificates to the Paying Agent) and instructions for use in
surrendering the Certificates for payment. Upon surrender to the Paying Agent
of a Certificate, together with such letter of transmittal duly executed and
properly completed, and the satisfaction of all other conditions set forth in
the Paying Agent Agreement, the holder of such Certificate shall be entitled to
receive in exchange therefor his or her pro rata portion of the Closing
Payment, less his or her pro rata portion of the Selling Expenses then payable
and less the amounts due under any outstanding promissory note in favor of the
Company relating to the purchase of his or her Shares (a "Stock Note").
Immediately prior to any disbursement to any such holder, the Paying Agent
shall be instructed to cancel such Certificate and any applicable Stock Note.
If payment is to be made to a person other than the person in whose name the
Certificate surrendered is registered, it shall be a condition of payment that
the Certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer and that the person requesting such payment shall pay
any transfer or other taxes required by reason of the payment to a person other
than the registered holder of the Certificate surrendered or such person shall
establish to the satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable.
(c) Promptly after the receipt by the Paying Agent of all or part
of the Adjustments Payment or the Holdback Amount, the Shareholders'
Representative and the Company shall instruct the Paying Agent to mail checks
for the pro rata portion of the Adjustments Payment less any additional Selling
Expenses to the persons entitled thereto in accordance with the letters of
transmittal received by the Paying Agent and instructions from the
Shareholders' Representative.
-9-
<PAGE> 18
(d) From and after the Effective Time, there shall be no transfers
on the stock transfer books of the Surviving Corporation of the Shares which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
purpose they shall be canceled and exchanged as provided in this Article.
(e) At any time following six months after the final disbursement
of the Holdback Amount to the Paying Agent, the Surviving Corporation shall be
entitled to require the Paying Agent to deliver to it any funds (including any
interest received with respect thereto) that have been held by the Paying Agent
for six months after such final disbursement and that have not been disbursed
to holders of Certificates, except to the extent there exist a dispute or claim
with respect to disbursement of such funds and, thereafter, such holders shall
be entitled to look to the Surviving Corporation (subject to abandoned
property, escheat or other similar laws) only as general creditors thereof with
respect to the Net Merger Consideration less the amount if any of any
outstanding Stock Note payable upon due surrender of their Certificates.
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Certificate for the Net Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser represents and warrants to the Company as follows:
SECTION 5.1 ORGANIZATION. Each of the Purchaser and Merger Sub
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware. The copies of the certificates of
incorporation and bylaws of each of Merger Sub and the Purchaser heretofore
delivered to the Company are true, correct and complete, and in full force and
effect, as of the date of this Agreement.
SECTION 5.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of
Merger Sub and the Purchaser has the full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized and approved by the Boards of Directors of Merger Sub and the
Purchaser and by the shareholder of Merger Sub, and no other corporate
proceedings on the part of Merger Sub or the Purchaser are necessary to
authorize this Agreement or the consummation of the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
each of Merger Sub and the Purchaser and, assuming this Agreement constitutes a
legal, valid and binding agreement of the Company, this Agreement
-10-
<PAGE> 19
constitutes a legal, valid and binding agreement of each of Merger Sub and the
Purchaser, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and to general principles of equity.
SECTION 5.3 NONCONTRAVENTION; CONSENTS AND APPROVALS. (a)
Assuming that all filings, permits, authorizations, consents and approvals or
waivers thereof have been duly made or obtained as contemplated by SECTION
5.3(b), the execution and delivery of this Agreement by each of Merger Sub and
the Purchaser and the consummation by Merger Sub and the Purchaser of the
transactions contemplated hereby will not (i) conflict with or result in any
breach of any provision of the Certificate of Incorporation or bylaws of Merger
Sub or the Purchaser, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default under the
terms, conditions or provisions of any note, bond, mortgage, indenture, license
agreement or other instrument or obligation to which Merger Sub or the
Purchaser is a party, or by which Merger Sub or the Purchaser or any of its
respective properties or assets is bound, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Merger Sub or the
Purchaser or any of its respective properties or assets, excluding from the
foregoing clauses (ii) and (iii) violations, breaches or defaults which, either
individually or in the aggregate, would not impair the ability of Merger Sub or
the Purchaser to consummate the transactions contemplated hereby.
(b) Assuming the accuracy of the representations and warranties of
the Company set forth in ARTICLE VI, no filing or registration with,
notification to and no permit, authorization, consent or approval of, any
governmental entity is required by Merger Sub or the Purchaser in connection
with the execution and delivery of this Agreement by Merger Sub and the
Purchaser or the consummation by Merger Sub and the Purchaser of the
transactions contemplated hereby, except (i) in connection with the applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (ii) in connection, or in compliance, with the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (iii) the
filing of the Articles of Merger with the Secretary of State of the State of
North Carolina and the Certificate of Merger with the Secretary of State of the
State of Delaware, (iv) such filings and consents as may be required under any
environmental law pertaining to any notification, disclosure or required
approval triggered by the Merger or the transactions contemplated by this
Agreement, and (v) such other filings, registrations, notifications, permits,
authorizations, consents or approvals the failure of which to be obtained, made
or given would not, individually or in the aggregate, materially impair the
ability of Merger Sub or the Purchaser to consummate the transactions
contemplated hereby.
SECTION 5.4 FINANCING. The Purchaser has the ability to obtain
all funds necessary to enable the Purchaser to perform this Agreement in
accordance with its terms. The Purchaser has provided to the Company evidence
of the Purchaser's financial capability, which evidence the Purchaser
represents to be true and correct according to the terms
-11-
<PAGE> 20
thereof. The Purchaser agrees that at all times between the date hereof and
the Closing Date it will take all necessary or advisable actions to assure that
funds sufficient to permit the Purchaser to pay the Closing Payment will be
available on the Closing Date.
SECTION 5.5 LITIGATION. There are no legal, administrative,
arbitration or other proceedings or governmental investigations pending or, to
the knowledge of the Purchaser, threatened against the Purchaser or any of its
subsidiaries that would give any third party the right to enjoin, rescind or
condition the transactions contemplated hereunder.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of Merger Sub and the
Purchaser as follows:
SECTION 6.1 ORGANIZATION. The Company is a corporation duly
incorporated and validly existing under the laws of the State of North
Carolina. The Company's articles of incorporation are not suspended for
failure to comply with the Revenue Act of the State of North Carolina and the
Company is not administratively dissolved for failure to comply with the
provisions of the Business Corporation Act, has delivered to the North Carolina
Secretary of State its most recent annual report required by N.C.G.S. Section
55-16-22, and has not filed articles of dissolution. The Company has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary, other than in
such jurisdictions where the failure to be so qualified would not have a
material adverse effect on the business, assets, financial condition or results
of operations of the Company (a "Material Adverse Effect"). The Company has
delivered to the Purchaser true and correct copies of its Articles of
Incorporation and bylaws, as amended to the date of this Agreement.
SECTION 6.2 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company
has the full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby, subject to
the approval of the Merger and the adoption of this Agreement by the Company's
shareholders. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby, have been duly and
validly authorized and approved by all necessary corporate action, except for
the approval of the Merger and the adoption of this Agreement by the
shareholders of the Company. This Agreement has been duly and validly executed
and delivered by the Company, and assuming this Agreement constitutes a legal,
valid and binding agreement of each of Merger Sub and the Purchaser, this
Agreement constitutes a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms,
-12-
<PAGE> 21
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and to general principles of equity.
SECTION 6.3 NONCONTRAVENTION, CONSENTS AND APPROVALS. (a)
Except as set forth in SCHEDULE 6.3, assuming that all filings, permits,
authorizations, consents and approvals or waivers thereof have been duly made
or obtained pursuant to SECTION 6.3(b), the execution and delivery of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby will not (i) subject to obtaining the
requisite approval of the Company's Shareholders, conflict with or result in
any breach of any provision of the Articles of Incorporation or bylaws of the
Company, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture or other
evidence or instrument of, or agreement relating to, indebtedness to which the
Company is a party or by which it or any of its properties or assets are bound,
(iii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any license, agreement or other instrument or obligation
("Contract") to which the Company is a party or by which it or any of its
properties or assets is bound, or (iv) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Company or any of its
properties or assets, excluding from the foregoing clauses (ii), (iii) and (iv)
violations, breaches or defaults that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, or that
would not impair the Company's ability to consummate the transactions
contemplated hereby.
(b) No filing or registration with, or notification to, and no
permit, authorization, consent or approval of, any government entity is
necessary for the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated by this
Agreement except (i) in connection with the applicable requirements of the HSR
Act, (ii) the filing of the Articles of Merger with the Secretary of State of
the State of North Carolina and the Certificate of Merger with the Secretary of
State of the State of Delaware, (iii) such filings, registrations,
notifications, permits, authorizations, consents or approvals that result from
the specific legal or regulatory status of the Purchaser or as a result of any
other facts that specifically relate to the business or activities in which the
Purchaser is engaged, and (iv) such other filings, registrations, notices,
permits, authorizations, consents and approvals that if not obtained, made or
given would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect or impair the Company's ability to consummate
the transactions contemplated hereby.
SECTION 6.4 CAPITALIZATION. The authorized capital stock of
the Company consists of 1,000,000 shares of Common Stock, par value $0.10 per
share, and 100,000 shares of Class B Stock. As of the date hereof, there are
130,007.5 shares of Common Stock issued and outstanding and 14,725 shares of
Class B Stock issued and outstanding, and all formerly
-13-
<PAGE> 22
outstanding shares of the Company's preferred stock have been duly redeemed in
accordance with law, and the Company has no obligation to make payments of any
kind in respect of any such shares. Except as disclosed in SCHEDULE 6.4, there
are not any options, warrants, calls, subscriptions, or other rights or other
agreements or commitments obligating the Company to issue, transfer or sell any
shares of capital stock of the Company or any other securities convertible into
or evidencing the right to subscribe for any such shares or obligating the
Company to grant, extend or enter into any such option, warrant, call,
subscription, right or agreement. All issued and outstanding Shares are duly
authorized and validly issued, fully paid and non-assessable and are held of
record entirely by those persons and entities shown on SCHEDULE 2.1.
SECTION 6.5 FINANCIAL STATEMENTS. The Company has furnished to
the Purchaser (i) balance sheets as of December 31, 1994, and December 31,
1993, and statements of income and cash flows for the years then ended, in each
case together with the notes thereto, prepared in accordance with generally
accepted accounting principles consistently applied and audited by Ernst &
Young, L.L.P., independent public accountants, whose reports upon the Financial
Statements are included as a part thereof, and (ii) unaudited balance sheets as
of March 31, 1995 and statements of income for the quarter then ended
(collectively, the "Financial Statements"). Except as disclosed in SCHEDULE
6.5, the Financial Statements and notes thereto fairly present the results of
operations and financial position of the Company for the periods and as of the
dates set forth, in accordance with generally accepted accounting principles
consistently applied (subject, with respect to the unaudited statements, to the
absence of notes and to normal year-end adjustments).
SECTION 6.6 UNDISCLOSED LIABILITIES. The Company has no
material obligation or liability, except such liabilities and obligations that
are reflected in the Financial Statements or disclosed in the notes thereto, or
that were incurred after March 31, 1995 in the ordinary course of business or
as otherwise specifically disclosed in this Agreement.
SECTION 6.7 ABSENCE OF CERTAIN CHANGES. Except as disclosed in
SCHEDULE 6.7 or as otherwise disclosed in this Agreement or a document
delivered pursuant to this Agreement, since December 31, 1994, the Company has
conducted its business only in the ordinary and usual course and there has not
been (i) any material adverse change in the financial condition, properties,
business or results of operations of the Company; (ii) any declaration, setting
aside or payment of any dividend or other distribution with respect to the
capital stock of the Company; (iii) any change by the Company in accounting
principles, practices or methods; (iv) any material increase in the number of
employees of the Company or any division of the Company or any material
increase, individually or in the aggregate, in the rate or terms of
compensation payable to or to become payable to the Company's employees, except
increases occurring in accordance with the Company's customary practices or as
required by existing employment agreements and except that the Company may pay
bonuses to employees after the date hereof in an aggregate amount not to exceed
$2,028,853, and the Company may enter into the Employment Agreements described
in SECTION 7.3; (v) any material modifications in employee benefits to the
-14-
<PAGE> 23
Company's employees; (vi) entry into, termination of (except by reason of the
occurrence of a contractually specified termination date) or material amendment
to any contract or commitment or license or permit material to the Company's
business, except in the ordinary course of business or as contemplated herein;
(vii) any creation of or assumption of any mortgage, pledge, or other lien or
encumbrance upon any of the Company's assets, except in the ordinary course of
business; (viii) any sale, assignment, lease, transfer or other disposition of
any of the Company's assets, except in the ordinary course of business; (ix)
any imposition or incurring of any obligation or liability, fixed or
contingent, except in the ordinary course of business; (x) except as otherwise
disclosed in this Agreement or a Schedule hereto, entry into any agreement
pursuant to which the aggregate annual financial obligation of the Company may
exceed $100,000, or which is not terminable by the Company without penalty upon
ninety (90) days' notice or less; (xi) any commitment to make any purchase or
sale of or any inventories except in the ordinary course of business; (xii) any
commitment in excess of $50,000 for any capital expenditure for which the
Company shall have any financial obligation to discharge subsequent to Closing;
or (xiii) any other material transaction not in the ordinary course of
business.
SECTION 6.8 CERTAIN CONTRACTS AND ARRANGEMENTS. All contracts
existing as of the date hereof to which the Company is a party are either (i)
listed in SCHEDULE 6.8 hereto or elsewhere disclosed in this Agreement; (ii)
contracts for the purchase or sale of goods or services entered into in the
ordinary course of business; (iii) contracts for the sale of advertising
pursuant to customary invoicing and payment terms; (iv) contracts cancelable
without penalty on 90 days' notice or less; or (v) contracts that do not
impose an obligation on the Company in excess of $50,000 per year. Except as
set forth in SCHEDULE 6.8 or otherwise disclosed in this Agreement, there is
not, under any of the agreements designated in SCHEDULE 6.8, any existing
default, event of default or other event which, with or without due notice or
lapse of time or both, would constitute a default or event of default on the
part of the Company and which would, individually or in the aggregate, have a
Material Adverse Effect.
SECTION 6.9 LITIGATION. Except as set forth on SCHEDULE 6.9 or
disclosed in this Agreement, there are no legal, administrative, arbitration or
other proceedings or governmental investigations pending or, to the Company's
knowledge, threatened against the Company that may have a Material Adverse
Effect, or may impair the ability of the Company to consummate the Merger, if
adversely determined against the Company.
SECTION 6.10 LABOR MATTERS. The Company is not a party to any
collective bargaining agreement or any other union labor agreement covering or
relating to any of its employees, and has not recognized and has not received a
demand for recognition of any collective bargaining representative with respect
thereto. There are no strikes, labor disputes or work stoppages in effect or,
to the knowledge of the Company, threatened against the Company that may have a
Material Adverse Effect. The Company has substantially complied in all
material respects with all applicable laws and regulations relating to the
employment of labor, including those related to wages, hours, collective
-15-
<PAGE> 24
bargaining, discrimination, and the payment of Social Security or similar
taxes. There are no unfair labor practice claims or charges pending involving
the Company.
SECTION 6.11 EMPLOYEE BENEFIT PLANS. (a) SCHEDULE 6.11 contains
a complete list of all bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock and stock option plans, all employment or severance
contracts, all medical, dental, health and life insurance plans, all other
employee benefit plans, contracts or arrangements (the "Compensation and
Benefit Plans").
(b) Except as disclosed in SCHEDULE 6.11, all "employee benefit
plans" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), other than "multiemployer plans"
within the meaning of Section 3(37) of ERISA ("Multiemployer Plans"), covering
employees and former employees of the Company (the "ERISA Plans"), to the
extent subject to ERISA, are in substantial compliance with ERISA. Each ERISA
Plan which is an "employee pension benefit plan" within the meaning of Section
3(2) of ERISA ("Pension Plan") and which is intended to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
has received a favorable determination letter from the Internal Revenue Service
or a timely application has been made for a favorable determination letter, and
the Company is not aware of any circumstances likely to result in revocation
of, or failure to issue, any such favorable determination letter. There is no
material pending or, to the knowledge of the Company, threatened litigation
relating to the ERISA Plans. The Company has not engaged in any transaction
with respect to any ERISA Plan that could subject the Company to a tax or
penalty imposed by either Section 4975 of the Code or Section 502 of ERISA in
an amount which would be material.
(c) No liability under Subtitle C or D of Title IV of ERISA has
been or is expected to be incurred by the Company with respect to any
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA.
The Company does not presently contribute to a Multiemployer Plan, nor has the
Company contributed to a Multiemployer Plan within the past five calendar
years. No notice of a "reportable event," within the meaning of Section 4043
of ERISA for which the 30-day reporting requirement has not been waived, has
been required to be filed for any Pension Plan within the 12-month period
ending on the date hereof.
(d) All contributions required to be made within the last five
years under the terms of any ERISA Plan have been timely made. No Pension Plan
nor any single-employer plan of the Company has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA. The Company has not provided, and is not
required to provide, security to any Pension Plan or to any single-employer
plan of the Company pursuant to Section 401(a)(29) of the Code.
-16-
<PAGE> 25
(e) Under each Pension Plan that is a single-employer defined
benefit pension plan, as of the last day of the most recent plan year ended
prior to the date hereof, the actuarially determined present value of all
"benefit liabilities," within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in the Pension
Plan's most recent actuarial valuation), did not exceed the then current value
of the assets of such Pension Plan, and there has been no material change in
the financial condition of such Pension Plan since the last day of the most
recent plan year.
(f) The Company has no obligations for retiree health and life
benefits under any ERISA Plan, except as set forth on SCHEDULE 6.11. There are
no restrictions on the rights of the Company to amend or terminate any such
ERISA Plan without incurring any liability thereunder.
(g) Except as set forth in SCHEDULE 6.11, neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute or
otherwise) becoming due to any director or any employee of the Company under
any Compensation and Benefit Plan or otherwise from the Company, (ii) increase
any benefits otherwise payable under any Compensation and Benefit Plan, or
(iii) result in any acceleration of the time of payment or vesting of any such
benefit.
SECTION 6.12 TAXES. (a) The Company has filed, or caused to be
filed, on a timely basis all federal, state and local tax returns required to
be filed by the Company. Except as disclosed on SCHEDULE 6.12, all such tax
returns are true, correct and complete and the Company has delivered to
Purchaser copies of all federal and state income and Form 5500 returns filed
since January 1, 1990. Except as set forth in SCHEDULE 6.12, (a) the Company
has paid, or made provisions for the payment of, (i) all taxes due for the
periods covered by such returns, except such accrued and unpaid taxes for which
appropriate accruals have been made in accordance with generally accepted
accounting principles and (ii) all deficiencies assessed as a result of any
examination of such returns; and (b) the Company has not granted any extension
of the limitation period applicable to any claim for taxes or assessments
except for the years under audit as described in SCHEDULE 6.12. The United
States federal and state income tax returns for all taxable years through 1990
have been audited by the relevant authorities or are closed by the applicable
statute of limitations. All taxes that the Company is or was required by law
to withhold or collect have been duly withheld or collected and have been paid
to the proper governmental authority or other person. No consent to the
application of Section 341(f) of the Code has been filed with respect to any
property or assets held by or acquired or to be acquired by the Company.
(b) The Company has not made any payment in prior years for which
it claimed a deduction, has not made any cash payment, is not obligated to make
any payment and is not a party to any agreement that could obligate it to make
any payment that will be non-deductible under Section 280G of the Code, as
amended.
-17-
<PAGE> 26
(c) The Company is not a party to any tax allocation or sharing
agreement.
(d) The Company has no liability for the tax of any person under
Section 1.1502-6 of the Treasury Regulations (or any similar provision of
state, local or foreign law), as a transferee or successor, by contract or
otherwise.
SECTION 6.13 LICENSES AND AUTHORIZATIONS. SCHEDULE 6.13 lists
all material licenses, permits, authorizations and consents and approvals of
governmental authorities ("Permits") that are held by the Company as of the
date hereof and are required for the conduct of the Company's business, as
presently conducted, and which, if not present or not in full force and effect,
would have a Material Adverse Effect. All such Permits are in full force and
effect, with no material violations of any of them having occurred or, to the
Company's knowledge, alleged to have occurred, and with no proceedings pending
or, to the Company's knowledge, threatened, that would have the effect of
revoking or materially limiting or affecting the transfer or renewal of any
such Permits. Except as set forth in SCHEDULE 6.13, (a) such Permits are not
subject to any restrictions or conditions that would limit the business of the
Company as presently conducted and (b) there are no applications by the Company
or material complaints by others pending or threatened in writing as of the
date hereof before any governmental agency relating to the Company.
SECTION 6.14 TITLE TO REAL PROPERTY. SCHEDULE 6.14 lists all
real property currently owned or leased by the Company. Except with respect to
any leased property or as set forth in SCHEDULE 6.14, the Company has good and
marketable fee simple title to all of the real property listed in such
Schedule, free and clear of all material liens, mortgages, pledges and
encumbrances whatsoever other than for (i) real estate taxes not yet due and
payable and (ii) easements, party wall agreements, encroachments, riparian
rights, rights of way, mineral rights or other similar reservations and
restrictions which are described in SCHEDULE 6.14 or which in the aggregate do
not materially and adversely affect or interfere with the value or present use
or presently contemplated development of any such property. No condemnation of
any such real property has occurred, is pending or, to the Company's knowledge,
is threatened. The Company has delivered to the Purchaser true and complete
copies of all leases listed in such Schedule, all of which are valid and
binding on the Company and with respect to which the Company is not in material
default.
SECTION 6.15 TITLE TO PERSONAL PROPERTY. The Company has
delivered to the Purchaser a schedule of all material tangible personal
property owned or leased by the Company as of January 1, 1995. Except with
respect to any leased property or as set forth in SCHEDULE 6.15, the Company
owns and has good and valid title to such properties, free and clear of all
material liens and encumbrances, except for liens for taxes not yet due and
payable. The Company has delivered or made available to the Purchaser true and
complete copies of all material leases and other agreements or documents
affecting the properties listed in SCHEDULE 6.15, all of which are valid and
binding on the Company, and with respect to which the Company is not in
material default.
-18-
<PAGE> 27
SECTION 6.16 BANK ACCOUNTS. SCHEDULE 6.16 lists all bank
accounts and safe deposit boxes of the Company. No powers of attorney have
been given in connection with such accounts. On or prior to the Closing, the
Company shall deliver to the Purchaser a list of the names of all persons
authorized to draw thereon or to have access thereto.
SECTION 6.17 INSURANCE. SCHEDULE 6.17 lists all of the
Company's insurance policies in effect as of the date hereof, and indicates the
insurer's name, policy number, expiration date and amount and type of coverage.
All such insurance is in full force and effect and no premiums in respect
thereof are past due.
SECTION 6.18 INVENTORIES; ASSETS. The Company's inventories do
not include any items in any material amount that are below standard quality,
damaged, obsolete or of a quantity or quality not usable or suitable in the
ordinary course of the Company's business. Except as disclosed on SCHEDULE
6.18, the buildings, plants, structures and equipment of the Company used in
the Company's business are structurally sound with no known defects and are in
good operating condition and repair, normal wear and tear excepted, and none of
such buildings, plants, structures and equipment is in need of maintenance or
repairs except for ordinary, routine maintenance and repairs that are not
material in nature or cost.
SECTION 6.19 ACCOUNTS RECEIVABLE. All of the Company's trade
accounts receivable are valid and genuine and were acquired or arose in the
ordinary course of business.
SECTION 6.20 INTELLECTUAL PROPERTY. The Company has the right to
use all trademarks, trade names, and copyrights as the Company presently uses
them. To the Company's knowledge, no patent, trademark, trade name, or
copyright used by the Company is the subject of any infringement action or
action seeking to deny, modify or revoke any registration or application
therefor or renewal thereof. The Company is entitled to use all designs,
processes and licenses and all other industrial property or intellectual
property rights used by it, and except as disclosed in SCHEDULE 6.20, the
Company has not granted to any third party any right, title or interest in or
to any such intellectual property. All registered trademarks, registered
copyrights, patents or patent applications owned by the Company are disclosed
in SCHEDULE 6.20.
SECTION 6.21 NEWSPAPERS AND MAGAZINES; CIRCULATION. The Company
publishes the newspapers and magazines listed on SCHEDULE 6.21 hereto. The
average paid circulation sold for The News and Observer during the twelve-month
period ending December 31, 1994, as determined by the Audit Board of
Circulations, is disclosed in SCHEDULE 6.21. Paid circulation is not
overstated in such Schedule, and there has been no material decline in total
average paid circulation since December 31, 1994. The approximate
circulations/distribution of the other publications are also disclosed in
SCHEDULE 6.21.
-19-
<PAGE> 28
SECTION 6.22 ENVIRONMENTAL MATTERS.
(a) To the knowledge of the Company, except as set forth on
SCHEDULE 6.22, neither the Company nor any third party has discharged, disposed
of, deposited or released, directly or indirectly, any pollutants, contaminants
or hazardous or toxic substances, wastes or materials (as defined under
federal, state or local law presently in effect) ("Hazardous Materials") in, on
or under any real property owned, leased or used by the Company, and no soil or
groundwater contamination or pollution by any Hazardous Materials exists in, on
or under any such real property that, in either of such cases, could require
remedial action under any applicable law. The Company has provided all
required notices to landlords and the Purchaser in respect of Hazardous
Materials as required by applicable law.
(b) To the knowledge of the Company, except as set forth on
SCHEDULE 6.22, all Hazardous Materials present on any real property owned or
leased by the Company are stored in all material respects in accordance with
applicable laws and regulations, and neither the Company nor any of its
employees or agents have disposed of, discharged, deposited, released or placed
any Hazardous Materials except as permitted by law, and the Purchaser has no
potential liability therefor under applicable law presently in effect.
(c) The remediation work at the warehouse located at 1400
Mechanical Boulevard, Garner, North Carolina, described in SCHEDULE 6.22, is
proceeding in accordance with the plan of remediation that has been approved by
the North Carolina Department of Environment, Health and Natural Resources.
(d) To the knowledge of the Company, no soil or groundwater
contamination or pollution by any Hazardous Materials exists in, or under the
real property located at Martin and McDowell Streets, Raleigh, North Carolina,
discussed in the September 23, 1994 report by Groundwater Technology, Inc.,
that could require remedial action under any applicable law, except as
indicated in the reports by Groundwater Technology, Inc. that the Company has
supplied to the Purchaser and the reports by McLaren Hart Environmental
Engineering Corporation that have been prepared for the Purchaser.
SECTION 6.23 EQUITY INTERESTS. Except as set forth on SCHEDULE
6.23, the Company does not directly or indirectly own any capital stock of or
other equity interests in any corporation, partnership, joint venture or other
entity.
SECTION 6.24 BROKERS AND FINDERS. Neither the Company nor any
of its officers, directors or employees has employed any broker or finder in
connection with the transactions contemplated by this Agreement, other than
Dirks, Van Essen & Associates, or incurred any liability for any brokerage
fees, commissions or finders' fees in connection with the transactions
contemplated by this Agreement, other than to Dirks, Van Essen & Associates.
SECTION 6.25 DISCLOSURE. No representation or warranty by the
Company in this Agreement (including the Schedules) contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make any statement made therein, in light of the
circumstances under which it is made, not misleading.
SECTION 6.26 COMPLIANCE WITH LAWS. The Company has complied and
is in compliance in all material respects with applicable laws relating to
ownership, leasing and operating its assets and carrying on the business
operations of the Company.
-20-
<PAGE> 29
SECTION 6.27 BOOKS AND RECORDS. The minute books are true,
complete and correct in all material respects. At the Closing, all of the
Company's books and records will be in the possession of the Company.
ARTICLE VII
COVENANTS OF THE PARTIES
SECTION 7.1 CONDUCT OF BUSINESS. Except as contemplated by
this Agreement, during the period from the date of this Agreement to the
Closing Date, the Company will conduct its business in a manner consistent with
prior practice and in the ordinary and usual course. Without limiting the
generality of the foregoing, except as otherwise expressly provided in or
contemplated by this Agreement or as disclosed in SCHEDULE 7.1, prior to the
Closing Date, without the prior written consent of the Purchaser, the Company
will not:
(a) except in its ordinary course of business, consistent with
past practices (i) create, incur, assume or prepay any long-term debt or any
short-term debt for borrowed money other than under existing lines of credit;
(ii) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person; or (iii) make any loans, advances or capital contributions to, or
investments in, any other person;
(b) (i) increase the compensation of any of its employees, except
in its ordinary course of business, consistent with past practices except that
the Company may pay bonuses to employees after the date hereof in an aggregate
amount not to exceed $2,028,853, and the Company may enter into the Employment
Agreements described in SECTION 7.3; (ii) materially increase the number of
employees of the Company or any division of the Company; or (iii) except as may
be required to comply with applicable law, become obligated under any new
pension plan, welfare plan, multiemployer plan, employee benefit plan, benefit
arrangement, or similar plan or arrangement, which was not in existence on the
date hereof, including any bonus, incentive, deferred compensation, stock
purchase, stock option, stock appreciation right, group insurance, severance
pay, retirement or other benefit plan, agreement or arrangement, with or for
the benefit of any person, or amend any of such plans or any of such agreements
in existence on the date hereof; provided, however, that the Company shall, to
the extent permitted by law, amend the Company's Restated Pension Trust Plan
and Cash or Deferred (401K) Plan and other benefit plans or agreements to the
extent necessary to eliminate the effect on the Company's obligations to pay or
become otherwise obligated for any increased benefits under such plans arising
from the payment of the bonuses to employees permitted by clause (b)(i) above,
except to the extent that any such effect is de minimis.
(c) sell, transfer, lease, license, pledge, mortgage, or otherwise
dispose of, or encumber, or agree to sell, transfer, lease, license, pledge,
mortgage or otherwise dispose of or
-21-
<PAGE> 30
encumber, any assets or properties, real or personal, (i) the fair market value
of which, individually, is in excess of $100,000 or (ii) that are material,
individually or in the aggregate, to the Company, except in the ordinary course
of business consistent with past practice;
(d) declare or make any dividend payment or other distribution of
assets, properties, cash, rights, obligations or securities on account of any
shares of any class of its capital stock, or issue any such shares, except for
the payment of quarterly cash dividends consistent with past practices;
(e) enter into any other agreements, commitments or contracts that
are material, individually or in the aggregate, to the Company, except
agreements, commitments or contracts as contemplated by SECTION 6.8 hereof or
for the purchase, sale or lease of goods or services in the ordinary course of
business, consistent with past practice;
(f) except as otherwise disclosed in this Agreement or a document
delivered to this Agreement, or otherwise consistent with past practice,
authorize or commit to make capital expenditures in an amount in excess of the
Company's current budget for capital expenditures;
(g) permit any insurance policy naming it as a beneficiary or a
loss payee to be canceled or terminated, except in the ordinary and usual
course of business;
(h) make any change to its accounting methods, principles or
practices, except as may be required or permitted by generally accepted
accounting principles;
(i) maintain the books and records of the Company in a manner not
consistent with past business practices; or
(j) settle or compromise any claim with respect to Dissenting
Shares prior to the Closing Date without the prior written consent of the
Purchaser.
SECTION 7.2 ACCESS TO INFORMATION. (a) From the date of this
Agreement to the Closing Date, the Company will (i) give the Purchaser and its
authorized representatives reasonable access during normal business hours to
the Company's facilities, personnel and operations and to all of its books and
records, (ii) permit the Purchaser and such authorized representatives to make
such inspections thereof as the Purchaser may reasonably request and to conduct
such tests, studies and surveys and take samples at its sole cost and expense
as it deems necessary for evaluating the structural and environmental condition
of the property and improvements thereon, and (iii) cause its officers or other
appropriate officials to furnish the Purchaser with such financial and
operating data and other information with respect to the business operations of
the Company as the Purchaser may from time to time reasonably request;
provided, however, that any such investigation by the Purchaser shall be
conducted in such a manner as not to interfere unreasonably with the Company's
business operations.
-22-
<PAGE> 31
(b) Until the Closing, the Purchaser (i) will hold, and will use
its best efforts to cause its officers, directors, employees, lenders,
accountants, representatives, agents, consultants and advisors to hold, in
strict confidence all information (other than such information as may be
publicly available) furnished to the Purchaser in connection with the
transactions contemplated by this Agreement, including all information
concerning the Company contained in any analyses, compilations, studies or
other documents prepared by or on behalf of the Purchaser (collectively, the
"Information"); and (ii) will not, without the prior written consent of the
Company, release or disclose any Information to any other person, except to the
Purchaser's officers, directors, employees, lenders, accountants,
representatives, agents, consultants and advisors who need to know the
Information in connection with the consummation of the transactions
contemplated by this Agreement, who are informed by the Purchaser of the
confidential nature of the Information and who agree to be bound by the terms
and conditions of this SECTION 7.2(b). In the event the Purchaser or any
person to whom the Purchaser transmits the Information pursuant to this
Agreement becomes legally compelled to disclosed any of the Information, the
Purchaser will provide the Company with prompt notice so that the Company may
seek a protective order or other appropriate remedy or waive compliance with
the provisions of this SECTION 7.2(b), or both. In the event that such
protective order or other remedy is not obtained, or that the Company waives
compliance with the provisions of this SECTION 7.2(b), the Purchaser will
furnish only that portion of the Information that the Purchaser is advised by
written opinion of counsel is legally required and will exercise its best
efforts to obtain a protective order or other reliable assurance that
confidential treatment will be accorded the Information. If the transactions
contemplated by this Agreement are not consummated, the Information, including
any analyses, compilations, studies or other documents prepared by or on behalf
of the Purchaser, will be returned to the Company immediately upon the
Company's request therefor.
(c) After the Closing, each of the Purchaser and the Shareholders'
Representative will use its best efforts to furnish the other and its
authorized representatives such financial and operating data and other
information with respect to the business operations of the Company as each may
from time to time reasonably request.
SECTION 7.3 EMPLOYEES AND EMPLOYEE BENEFITS. (a) The Company
agrees to enter into employment contracts at the Closing in the form attached
as EXHIBITS 7.3 hereto, with Messrs. Frank Daniels, III, Fred D. Crisp, Richard
L. Henderson, Robert M. Woronoff, Jr., John S. Barton, Jr., and John W.
Andrews, each of whom is a current employee of the Company. The salaries
inserted in such employment contracts shall be the base salaries indicated in
the letter from Frank A. Daniels, Jr., dated May 3, 1995.
(b) The Purchaser hereby irrevocably, absolutely and
unconditionally guarantees to (i) each employee of the Company named in SECTION
7.3(A) prompt payment in full of all amounts due to such person under the
employment agreements referred to in such Section, and (ii) to each employee of
the Company prompt payment in full of all amounts due to such person under the
Company's Supplemental Executive Benefit Plan. With respect to such
guaranties, the Purchaser hereby waives any right to require that any notice be
given to or action be brought against the Company, and waives presentment,
demand, notice of dishonor, protest and any other defenses available to a
surety or guarantor under any applicable law.
-23-
<PAGE> 32
SECTION 7.4 HSR ACT FILING. As soon as practicable after the
date of this Agreement, the Company and the Purchaser will file, or cause to be
filed, with the United States Federal Trade Commission (the "FTC") and the
Antitrust Division of the United States Department of Justice (the "DOJ")
pursuant to the HSR Act all requisite documents and notifications in connection
with the transactions contemplated hereby. Each of the Purchaser and the
Company will make or cause to be made all such other filings and submissions
under laws and regulations applicable to it, if any, as may be required of it
for the transactions contemplated hereby. The Purchaser and the Company will
coordinate and cooperate with one another in exchanging such information and
assistance as the other may reasonably request in connection with all of the
foregoing.
SECTION 7.5 OTHER ACTIONS. The Company and the Purchaser
hereby agree that each, at its own expense, shall use its best efforts and
shall cooperate fully with the other in preparing, filing, prosecuting, and
taking any other actions with respect to any applications, requests, or actions
that are or may be reasonable and necessary to obtain the consent of any
governmental instrumentality (in addition to the DOJ and FTC) or any third
party or to accomplish the transactions contemplated by this Agreement.
SECTION 7.6 FURTHER ASSURANCES. If, at any time after the
Effective Time, the Surviving Corporation shall consider that any deeds, bills
of sale, assignments, assurances or any other actions are necessary or
desirable to vest, perfect or confirm of record in the Surviving Corporation
its right, title or interest in or to any of the rights or properties of either
of the Constituent Corporations acquired by the Surviving Corporation as a
result of the Merger or otherwise to carry out this Agreement, the officers and
directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of each of the Constituent Corporations or
otherwise, all such deeds, bills of sale, assignments and assurances and to
take and do, in the name and on behalf of each of the Constituent Corporations
or otherwise, all such other actions as may be necessary or desirable to vest,
perfect or confirm any and all right, title and interest in and to such rights
and properties in the Surviving Corporation or otherwise to carry out this
Agreement.
SECTION 7.7 CONSUMMATION OF AGREEMENT. The Company and the
Purchaser will each use its best efforts to perform or fulfill all conditions
and obligations to be performed or fulfilled by it under this Agreement so that
the transactions contemplated hereby shall be consummated as expeditiously as
possible. Except for events that are the subject of specific provisions of
this Agreement, if any event should occur, either within or outside the control
of the Purchaser or the Company, that would materially delay or prevent
fulfillment of the conditions upon the obligations of any party hereto to
consummate the transactions contemplated by this Agreement, the Purchaser and
the Company will use their respective best, diligent and good faith efforts to
cure or minimize the same as expeditiously as possible.
SECTION 7.8 PUBLIC ANNOUNCEMENTS. The Purchaser and Merger
Sub, on the one hand, and the Company, on the other hand, will consult with
each other before issuing any press release or otherwise making any public
statements with respect to the Merger and shall not issue
-24-
<PAGE> 33
any such press release or make any such public statement that is not approved
by the other party, except as may be required by law or court order, in which
case the parties will make reasonable efforts to consult with each other prior
to the making of such public statement.
SECTION 7.9 PURCHASER'S SEVERANCE OBLIGATION. (a) The
Purchaser hereby agrees that it will cause the Company to pay severance pay to
each employee of the Company who is employed by the Company immediately prior
to the Closing but whose employment by the Company is terminated without cause
within 180 days after the Closing Date, other than Frank Daniels, Jr., the
employees listed in SECTION 7.3(a) and the employees listed in SCHEDULE 7.9.
The amount of severance pay to each such employee shall be equal to two weeks'
of such employee's base weekly pay (at the time of the Closing) for each full
year the employee had been employed by the Company on the date of termination.
Such severance pay shall be paid in cash in full within five days of the date
of termination of employment. For the purposes of this Section, a termination
without cause includes any termination of employment for any reason other than
the death or disability of the employee, the commission of any dishonest or
illegal act involving the business or affairs of the Company or the intentional
failure to perform, or the gross negligence in the performance of, the
employee's duties to the Company.
(b) All employees of the Company immediately prior to the Closing
are third-party beneficiaries of this SECTION 7.9 (other than Frank A. Daniels,
Jr. and the employees listed in SECTION 7.3(a) above) and shall be entitled to
take all actions necessary to enforce the Purchaser's obligations hereunder,
including bringing legal actions in their own names.
SECTION 7.10 PHILANTHROPY JOURNAL. Prior to the Closing Date,
the Company shall cease providing the services of its employees to the
Philanthropy Journal, shall terminate all employees of the Company who are to
work for the Philanthropy Journal and shall cease providing office space for
the use of the Philanthropy Journal.
SECTION 7.11 HOLDBACK LETTER OF CREDIT. (a) The Purchaser shall
secure its obligation to pay the Holdback Amount by delivering to the
Shareholders' Representative, on the Closing Date, a letter of credit in a
stated amount of not less than $10,000,000, issued by a national bank with
capital in excess of $500,000,000 that has a short-term credit rating of not
less than A-1 by Moody's Investor Services, Inc. or P-1 by Standard & Poor's
Corporation, or any other financial institution reasonably acceptable to the
Shareholders' Representative (an "Acceptable Bank"). The Purchaser may replace
a letter of credit at any time, and shall replace an expiring letter of credit
at least 10 days before its expiration date, with a substitute letter of credit
issued by an Acceptable Bank in a stated amount of not less than the then
current Holdback Amount (including any disputed amount) at the time of
substitution, as certified to the Escrow Agent by the Shareholders'
Representative.
(b) The Shareholders' Representative may draw on the letter of
credit if he does not receive a substitute letter of credit prior to the 10th
day before the expiration date of an expiring letter of credit, or he is
directed to do so by court order or is authorized in writing to do so by the
Purchaser. The funds received by the Shareholders' Representative upon drawing
on the
-25-
<PAGE> 34
letter of credit shall be deposited in escrow with an escrow agent appointed
by, and pursuant to an escrow agreement approved by, the Shareholders'
Representative and the Purchaser, and no funds shall be disbursed from escrow
without the prior written authorization of the Shareholders' Representative and
the Purchaser or as they otherwise agree. The Shareholders' Representative and
the Purchaser shall be obligated to authorize disbursements from escrow to the
extent and in the manner consistent with the Purchaser's rights and obligations
to reduce or disburse to the Shareholders' Representative the Holdback Amount.
7.12 CERTAIN INDEMNIFICATION OBLIGATIONS. The Purchaser shall
cause the Company to honor its indemnity obligations as described in paragraph
2 of SCHEDULE 11.2.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF
ALL PARTIES
The respective obligations of all parties to effect the Merger shall
be subject to the fulfillment at or prior to the Closing of each of the
following conditions:
SECTION 8.1 SHAREHOLDER APPROVAL. This Agreement shall have
been adopted by the vote of the holders of a majority of the Shares at the
Shareholders' Meeting, or by written consent in lieu thereof.
SECTION 8.2 HART-SCOTT-RODINO. The Company and the Purchaser
and any other Person (as defined in the HSR Act) required in connection with
the transactions contemplated hereby to file a Notification and Report Form for
Certain Mergers and Acquisitions with the DOJ and the FTC pursuant to the HSR
Act shall have made such filing, all applicable waiting periods with respect to
each such filing (including any extensions thereof) shall have expired or been
terminated and no actions shall have been instituted by the DOJ or FTC
challenging or seeking to enjoin the consummation of the transactions
contemplated under this Agreement unless such actions shall have been withdrawn
or terminated.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF
MERGER SUB AND THE PURCHASER
The obligations of Merger Sub and the Purchaser to effect the Merger
and to perform their other obligations to be performed at or subsequent to the
Closing shall be subject to the fulfillment at or prior to the Closing of each
of the following additional conditions, any one or more of which may be waived
by the Purchaser:
-26-
<PAGE> 35
SECTION 9.1 REPRESENTATIONS AND WARRANTIES TRUE. All
representations and warranties of the Company contained herein shall be true
and correct in all material respects on the Closing Date as though such
representations and warranties were made as of such date except for changes
permitted or contemplated by this Agreement.
SECTION 9.2 PERFORMANCE. The Company shall have performed and
complied in all material respects with all covenants and agreements contained
in this Agreement required to be performed or complied with by it on or prior
to the Closing Date.
SECTION 9.3 CERTIFICATES. The Company shall furnish such
certificates of its officers to evidence compliance with the conditions set
forth in SECTIONS 9.1 and 9.2 as may be reasonably requested by the Purchaser,
together with a description of any changes to such representation or warranties
permitted or contemplated by this Agreement.
SECTION 9.4 CERTAIN PROCEEDINGS. No writ, order, decree or
injunction of a court of competent jurisdiction or governmental entity shall
have been entered against Merger Sub, the Purchaser or the Company that
prohibits or restricts the consummation of the Merger, limits or restricts the
operation of the businesses of the Company as they are currently conducted, or
otherwise restricts the Surviving Corporation's exercise of full rights to own
and operate the Company.
SECTION 9.5 OPINION OF COUNSEL. Merger Sub and the Purchaser
shall have received the favorable opinion of Robinson, Bradshaw & Hinson, P.A.,
counsel to the Company, on such legal matters as Merger Sub and the Purchaser
may reasonably request.
SECTION 9.6 CLOSING DOCUMENTS. As of the Closing Date, the
Purchaser shall have received from the Company the following documents:
(a) A long-form certificate of existence as to the corporate
status of the Company from the State of North Carolina;
(b) A true and complete copy of the Articles of Incorporation of
the Company and all amendments thereto certified by the State
of North Carolina;
(c) A true and complete copy of the bylaws of the Company
certified by its Secretary;
(d) A true and complete copy of the resolutions adopted on behalf
of the Company authorizing the execution, delivery and
performance of this Agreement and all transactions
contemplated hereby;
(e) A certificate from the Company's Secretary that its Articles
of Incorporation have not been amended since the date of the
certificate described in subsection (b) above and that nothing
has occurred since the date of issuance of the certificate
-27-
<PAGE> 36
of existence specified in subsection (a) above that would
adversely affect the Company's corporate existence; and
(f) A certificate from the Company's Secretary as to the
incumbency and signatures of any of the Company's officers who
will execute documents at the Closing or who have executed the
Agreement.
SECTION 9.7 DISSENTING SHARES. The number of Dissenting Shares
shall not exceed five percent (5%) of the outstanding Shares.
SECTION 9.8 GUARANTEE OF STOCK OWNERSHIP AND RECORDS. The
Company shall have used reasonable efforts to cause each Shareholder to have
acknowledged and agreed in writing to such Shareholder's obligations to
reimburse the Company for any amount of Net Merger Consideration received by
such Shareholder that is in excess of the amount of Net Merger Consideration
that should have been received by such Shareholder, and the holders of at least
75% of the Shares shall have so acknowledged and agreed. The Company shall
have delivered to the Purchaser copies of such documents as the Purchaser may
reasonably request relating to the ownership, prior issuances, transfers and
redemptions of Shares. The obligations of the Shareholders under the
reimbursement agreements shall survive the Closing, shall bind the successors
and assigns of such Shareholders, and shall be continuing obligations not
limited in duration except by any applicable statute of limitations. The
Purchaser shall be entitled to proceed against the Shareholders under such
reimbursement agreement even if a claim by the Purchaser for indemnification
under such reimbursement agreements would also entitle the Purchaser to reduce
the Holdback Amount for Purchaser Damages, as such term is defined in SECTION
11.2.
ARTICLE X
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
The obligations of the Company under this Agreement to effect the
Merger and to perform its other obligations to be performed at the Closing
shall be subject to the fulfillment at or prior to the Closing of each of the
following additional conditions, any one or more of which may be waived by the
Company:
SECTION 10.1 REPRESENTATIONS AND WARRANTIES TRUE. All
representations and warranties of the Purchaser contained herein shall be true
and correct in all material respects on the Closing Date as though such
representations and warranties were made as of such date except for changes
permitted or contemplated by this Agreement.
SECTION 10.2 PERFORMANCE. The Purchaser shall have performed and
complied in all material respects with all covenants and agreements contained
in this Agreement required to be performed or complied with by it on or prior
to the Closing Date.
-28-
<PAGE> 37
SECTION 10.3 CERTIFICATES. Each of Merger Sub and the Purchaser
shall furnish such certificates of its officers to evidence compliance with the
conditions set forth in SECTIONS 10.1 and 10.2 as may be reasonably requested
by the Company.
SECTION 10.4 CERTAIN PROCEEDINGS. No writ, order, decree or
injunction of a court of competent jurisdiction or governmental entity shall
have been entered against Merger Sub, the Purchaser or the Company which
prohibits or restricts the consummation of the Merger.
SECTION 10.5 OPINION OF COUNSEL. The Company shall have received
the favorable opinion of Pillsbury Madison & Sutro, counsel to Merger Sub and
the Purchaser, as to such matters as may be reasonably requested by the
Company.
SECTION 10.6 CLOSING DOCUMENTS. As of the Closing Date, the
Company shall have received from the Purchaser and Merger Sub the following
documents:
(a) A long-form certificate of good standing as to the corporate
status of each of the Purchaser and Merger Sub from the state
of its incorporation;
(b) A true and complete copy of the Certificate of Incorporation of
each of the Purchaser and Merger Sub and all amendments thereto
certified by the state of its incorporation;
(c) A true and complete copy of the bylaws of each of the Purchaser
and Merger Sub certified by its Secretary;
(d) A true and complete copy of the resolutions adopted on behalf
of each of the Purchaser and Merger Sub authorizing the
execution, delivery and performance of this Agreement and all
transactions contemplated hereby;
(e) A certificate from each of the Purchaser's and Merger Sub's
Secretary that its Articles of Incorporation have not been
amended since the date of the certificate described in
subsection (b) above and that nothing has occurred since the
date of issuance of the certificate of good standing specified
in subsection (a) above that would adversely affect its
corporate good standing; and
(f) A certificate from each of the Purchaser's and Merger Sub's
Secretary as to the incumbency and signatures of any of its
officers who will execute documents at the Closing or who have
executed the Agreement.
-29-
<PAGE> 38
ARTICLE XI
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
SECTION 11.1 SURVIVAL OF REPRESENTATIONS. All representations,
warranties and agreements made by the parties to this Agreement or pursuant
hereto shall survive the Closing, but all claims made by virtue of such
representations, warranties and agreements shall be made under, and subject to
the limitations set forth in, this ARTICLE XI.
SECTION 11.2 SHAREHOLDERS' AGREEMENT TO INDEMNIFY.
(a) Indemnification. Subject to the limitations, conditions and
provisions set forth herein, the Purchaser shall be entitled to reduce the
Holdback Amount (i) in the amount of all losses, damages, liabilities, costs
and expenses, including, without limitation, reasonable attorneys' fees,
asserted against or incurred by the Purchaser or any of its shareholders,
directors, officers, employees and agents (the "Purchaser Indemnitees")
resulting from a breach of any covenant, agreement, representation or warranty
of the Company contained in this Agreement (except to the extent, if any, that
the matters specifically addressed below may constitute such a breach, in which
event the provisions set forth below shall control) and 50% of all losses,
damages, liabilities, costs and expenses, including, without limitation,
reasonable attorneys' fees, asserted against or incurred by the Company or by
the Purchaser Indemnitees as a result of or arising out of the matters set
forth in paragraph 1 of SCHEDULE 11.2, net of any present or future tax
benefits to the Company arising from the matters set forth in paragraph 1 of
SCHEDULE 11.2, (ii) in the amount of all losses, damages, liabilities, costs
and expenses, including, without limitation, reasonable attorneys' fees,
asserted against or incurred directly or indirectly by the Company or by the
Purchaser Indemnitees as a result of or arising out of the matters set forth in
paragraph 2 of SCHEDULE 11.2, (iii) for actual losses, damages, liabilities,
costs and expenses, including, without limitation, reasonable attorneys' fees,
but with appropriate offset for any recovery actually made from available
governmental cleanup funds or third parties, arising out of the matters set
forth in paragraph 3 of SCHEDULE 11.2, such reduction to be made at the rate of
60% of any loss, cost or expense to the extent deductible when incurred for
federal income tax purposes and 100% of any amount not then currently
deductible, up to a maximum reduction of $180,000 in the aggregate for all such
losses, damages, liabilities, costs and expenses (collectively, the losses,
damages, liabilities, costs and expenses referred to in subparagraphs (i), (ii)
and (iii) above are referred to herein as "Purchaser Damages"); provided,
however, that all claims for indemnification under SECTION 11.2(a)(i) shall be
brought in writing to the attention of the Shareholders' Representative within
one year from the Closing Date and all claims for indemnification under
SECTION 11.2(a)(ii) and (iii) shall be brought in writing to the attention of
the Shareholders' Representative within four years from the Closing Date. The
Purchaser's right to recover for any claims for Purchaser Damages shall be
limited to its rights to reduce the Holdback Amount.
(b) Limitation of Liability. The Purchaser's right to reduce
the Holdback Amount for any Purchaser Damages shall be subject to all of the
following limitations:
(i) The Purchaser may not reduce the Holdback Amount
as a result of any claims for indemnification
under SECTION 11.2(a)(i) or (ii) until the
aggregate amount of all such claims exceeds
$500,000, in which case the Holdback Amount
shall be reduced by the full extent of the
Purchaser Damages related to such claims.
(ii) The Purchaser shall have the right to recover only
those Purchaser Damages as to which the Purchaser
has given the Shareholders' Representative timely
written notice. Any written notice delivered by
the Purchaser to the Shareholders' Representative
pursuant to this
-30-
<PAGE> 39
subparagraph (ii) shall set forth with specificity
the basis of the claim for Purchaser Damages and,
if possible, an estimate of the amount thereof.
(iii) All Purchaser Damages shall be computed net of any
insurance coverage with respect thereto that
reduces the Purchaser Damages that would otherwise
be sustained unless such claim against the
insurance coverage would result in a retroactive
or retrospective premium adjustment.
(iv) Anything in this Agreement to the contrary
notwithstanding (except as provided in SECTION
9.8), no shareholder, director, officer, employee
or agent of the Company shall have any personal
liability to the Purchaser or any other persons as
a result of the breach of any representation,
warranty, covenant or agreement of the Company
contained herein.
(v) The Purchaser and the Company agree to consult
with the Shareholders' Representative on an
ongoing basis regarding the environmental
contamination described in paragraph 3 of SCHEDULE
11.2 and any remediation thereof, and to share
information on developments and work relating
thereto. The Purchaser and the Company will
address all obligations and requirements relating
to such contamination and any remediation thereof
in a reasonably cost effective manner, including
(if deemed appropriate by the Purchaser after
consultation with the Shareholders'
Representative), seeking recovery of costs from
any available governmental cleanup funds or
liable third parties. Although the Purchaser is
entitled to reduce the Holdback Amount for
Purchaser Damages relating to the matters set
forth in paragraph 3 of SCHEDULE 11.2, the
Shareholders in their individual capacities shall
have no liabilities or obligations relating to
such contamination or any remediation thereof, and
the Company shall indemnify, defend and hold
harmless the individual Shareholders, and their
heirs and assigns, from and against all claims,
actions, judgments, fines, losses, damages,
liabilities, costs, and other expenses, including
without limitation attorneys' fees, asserted
against or incurred by the individual
Shareholders, or their heirs or assigns as a
result of or arising out of such contamination
or remediation.
(c) Condition of Indemnification. The right of the Purchaser to
reduce the Holdback Amount for Purchaser Damages resulting from the assertion
of liability by third parties, including any claims by the Paying Agent for
reimbursement of its attorneys' fees and for indemnification pursuant to the
Paying Agent Agreement ("Purchaser Third-Party Claims") shall be subject to the
following additional terms and conditions:
(i) Within ten days after receiving notice thereof,
the Purchaser shall give the Shareholders'
Representative notice of any Purchaser Third-Party
Claims asserted against or incurred by the Company
or Purchaser Indemnitee together with a statement
and copies of any available information regarding
such claim. The Shareholders' Representative and
the Purchaser shall have joint control of, and
shall cooperate in, the defense thereof. Each of
the Purchaser or the Company and the Shareholders'
Representative shall have the right to retain
counsel.
(ii) All costs and expenses of such Purchaser
Third-Party Claim (including, without limitation,
the Company's or the Purchaser's reasonable
attorneys' fees, settlement costs and arbitration
costs) shall reduce the Holdback Amount and the
reasonable costs and expenses of the Shareholders'
Representative in connection with its defense
(including reasonable attorneys' fees) shall
reduce the Holdback Amount and be distributed by
Purchaser to the Shareholders' Representative as
such costs and expenses are incurred.
(iii) Without the prior written mutual consent of each
of the Purchaser and the Shareholders'
Representative, neither party shall reject or
enter into any settlement of any Purchaser
Third-Party Claim.
-31-
<PAGE> 40
(d) Reduction of Holdback Interest. In addition to the
reduction of the Holdback Amount for the actual amount of Purchaser Damages,
the Purchaser shall have the right to reduce the Holdback Amount by amounts
equal to the following:
(i) For any reduction in the Holdback Amount because
of the payment of any amounts by the Purchaser or
the Company to a third party after the Closing
Date, including the payment of costs and expenses
in connection with Purchaser Third-Party Claims,
the Holdback Amount shall also be reduced by the
amount of interest that accrued pursuant to
SECTION 11.4(A) hereof on the amount of such
Holdback Amount reduction (after the date of
payment of such amounts to the third party).
(ii) For all other reductions in the Holdback Amount,
the Holdback Amount shall also be reduced by the
amount of interest accruing pursuant to SECTION
11.4(A) hereof from the Closing Date on the amount
of the Holdback Amount reduction.
SECTION 11.3 PURCHASER'S AGREEMENT TO INDEMNIFY.
(a) Indemnification. Subject to the limitations, conditions and
provisions set forth herein, the Purchaser hereby agrees to indemnify, defend
and hold the Shareholders and the Company and its directors, officers,
employees and agents (the "Company Indemnitees") harmless from and against all
demands, claims, actions, losses, damages, liabilities, costs and expenses,
including, without limitation, reasonable attorney's fees, asserted against or
suffered or incurred directly or indirectly by any of the Company Indemnitees
resulting from a breach of any covenant, agreement, representation or warranty
of the Purchaser contained in this Agreement (collectively, "Company Damages");
provided, however, that all claims for indemnification under this SECTION 11.3
shall be brought in writing to the attention of the Purchaser within one year
from the Closing Date. The Shareholders' Representative shall have the right
to bring claims for Company Damages on behalf of all Shareholders.
(b) Limitation of Liability. The Purchaser's obligation to
indemnify the Company Indemnitees against any Company Damages shall be subject
to all of the following limitations:
(i) All Company Damages shall be computed net of any
insurance coverage with respect thereto that
reduces the Company Damages that would otherwise
be sustained, unless such claim against the
insurance coverage would result in a retroactive
or retrospective premium adjustment.
(ii) Anything in this Agreement to the contrary
notwithstanding, no shareholder, director,
officer, employee or agent of the Purchaser shall
have any personal liability to the Company
Indemnitees or any other
-32-
<PAGE> 41
person as a result of the breach of any
representation, warranty, covenant or agreement of
the Purchaser contained herein.
(c) Conditions of Indemnification. The obligations and
liabilities of the Purchaser under SECTION 11.3(a) hereof with respect to
claims for Company Damages resulting from the assertion of liability by third
parties ("Company Third-Party Claims") shall be subject to the following terms
and conditions:
(i) Within ten days after receiving notice thereof,
the Shareholders' Representative shall give the
Purchaser notice of any Company Third-Party Claims
asserted against or incurred by a Company
Indemnitee together with a statement of available
information regarding such claim. The Purchaser
shall have the right to undertake the defense
thereof by counsel of its own choosing. The
Shareholders' Representatives may, by counsel,
participate in such proceedings, negotiations or
defense, at its own expense, but the Purchaser
shall retain control over such litigation except
as hereinafter set forth.
(ii) In the event that within ten days after notice of
any such Company Claim, the Purchaser fails to
notify the Shareholders' Representative of its
intention to defend, or if the Purchaser at any
time notifies the Shareholders' Representative of
its decision to abandon its defense, the
Shareholders' Representative will (upon further
notice to the Purchaser) have the right to
undertake the defense, compromise or settlement of
such Company Claim, subject to the right of the
Purchaser to assume the defense of such Company
Claim at any time prior to final settlement,
compromise or determination thereof.
(iii) All costs and expenses of such Company Claim
(including, without limitation, all attorneys'
fees, settlement costs and arbitration costs)
shall be reimbursed by the Purchaser to the
Shareholders' Representative as such costs and
expenses are incurred.
(iv) Without the prior written consent of the
Shareholders' Representative, the Purchaser will
not enter into any settlement of any Company Claim
if pursuant to or as a result of such settlement,
(i) injunctive or other equitable relief would be
imposed against any Company Indemnitee or (ii)
such settlement would lead to liability or create
any financial or other obligation on the part of
the Company Indemnitee for which the Company
Indemnitee is not entitled to indemnification
hereunder.
SECTION 11.4 HOLDBACK AMOUNT INTEREST AND DISTRIBUTION. (a)
The Holdback Amount (other than the $750,000 portion of the Holdback Amount in
the Adjustments Payment calculation) shall accrue interest, on a daily basis
from the Closing Date until paid to the Paying
-33-
<PAGE> 42
Agent, at a per annum rate equal to the effective yield to maturity of two-year
U.S. Treasury Notes as reported in The Wall Street Journal on the Closing Date
and as adjusted monthly thereafter to the effective yield on such Notes
reported on the first business day of each month after the Closing Date. The
rate shall be increased to a per annum rate equal to the prime rate, as
reported in The Wall Street Journal, plus one percent per annum, on any
nondisputed amounts that are not delivered to the Paying Agent on the date
required by this Agreement (as to which the increased rate shall be effective
as of such date) and on any amounts that are eventually delivered to the Paying
Agent but whose delivery to the Paying Agent is delayed because of a claim or
dispute (as to which the increased rate shall be effective as of the date the
disputed amounts would have been released had there been no dispute).
(b) Purchaser shall pay to the Paying Agent, by certified check
or wire transfer:
(i) all of the Shareholders' Representative's
reasonable attorneys' fees and expenses as
provided in SECTION 11.2 within three (3) business
days after receipt of a certificate signed by the
Shareholders' Representative setting forth the
amount of such costs;
(ii) on the second anniversary of the Closing Date, the
excess of the Holdback Amount as of such date
(including all accrued interest on and reductions
to or distributions affecting, such Holdback
Amount as of such date) over an amount equal to
$5,180,000 less the aggregate amount by which the
Holdback Amount has been reduced to such date for
claims made under SECTION 11.2(a)(iii); and
(iii) on the fourth anniversary of the Closing Date, the
balance of the Holdback Amount, if any:
provided, however, that upon the later of the
first anniversary of the Closing Date or the date
(the "Camalier Resolution Date") of final
resolution of any direct or indirect exposure to
the Company or the Purchaser concerning the matter
set forth in paragraph 2 of SCHEDULE 11.2, the
balance of the Holdback Amount in excess of (A)
$180,000 less (B) the aggregate amount the
Holdback Amount has been reduced to such date for
claims made under SECTION 11.2(a)(iii) shall be
paid to the Paying Agent together with interest
as set forth above; and, provided further, that
upon the later of (i) the first anniversity of the
Closing Date, (ii) the earlier of (A) the second
anniversary of the Closing Date and (B) the
Camalier Resolution Date and (iii) the date that a
governmental authority with jurisdiction over the
matter acknowledges that it will require no further
remedial action at the then current time with
respect to the matter identified in paragraph 5 of
SCHEDULE 6.22, an amount of the Holdback Amount
equal to $180,000 less the aggregate amount that
the Holdback Amount has been reduced to such date
for claims made under SECTION 11.2(a)(iii) shall
be paid to the Paying Agent together with interest
as set forth above, and if payment is made to the
Paying Agent under this provision on or prior to
the second anniversary of the Closing Date, the
amount of the Holdback Amount retained on the
second anniversary of the Closing Date shall in
no event be more than $5,000,000.
SECTION 11.5 HOLDBACK AMOUNT REDUCTION; NOTICE; DISPUTES. The
Purchaser shall deliver to the Shareholders' Representative, at least thirty
(30) days prior to reducing the Holdback Amount, a notice setting forth the
amount of and basis for the proposed reduction, including the amount of any
reduction in the accrued interest on the Holdback Amount. If the Shareholders'
Representative does not object to the proposed reduction within the thirty-day
period after receipt thereof, the proposed reduction to the Holdback Amount
shall be deemed accepted by the Shareholders' Representative and the Holdback
Amount shall be reduced accordingly. If the Shareholders' Representative does
not accept the amount of the proposed reduction to the Holdback Amount, he
shall give written notice to the Purchaser within thirty (30) days after
receipt of the reduction notice. Such dispute notice shall set forth in
reasonable detail the disputed amount (the "Disputed Holdback Reduction
Amount") and the basis for the
-34-
<PAGE> 43
objections of the Shareholders' Representative. The parties shall attempt to
resolve the Disputed Holdback Reduction Amount. If the amounts in dispute
cannot be resolved by the parties within the ninety-day (90) period after
delivery of the Shareholders' Representative's objections, the Disputed
Holdback Reduction Amount shall be submitted for resolution by binding
arbitration in accordance with the laws of the State of North Carolina and
American Arbitration Association Commercial Arbitration Rules. Any such
arbitration proceeding shall be held in Wake County, North Carolina and shall
be conducted by three arbitrators, one of whom shall be selected by Purchaser,
one by the Shareholders' Representative, and one by the two arbitrators so
selected. Judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction and may include the award of attorneys' fees
and other costs to the extent recoverable under this Agreement.
ARTICLE XII
TERMINATION
SECTION 12.1 TERMINATION. This Agreement may be terminated:
(a) at any time by mutual consent of the Company and the
Purchaser;
(b) by either party, if Closing hereunder has not taken place on
or before November 3, 1995;
(c) by the Company if all conditions set forth in ARTICLES VIII
and X have not been satisfied or waived by the Closing Date;
(d) by the Purchaser if all conditions set forth in ARTICLES
VIII and IX have not been satisfied or waived by the Closing Date; and
(e) By the Purchaser in the event that, prior to July 15, 1995,
(i) the Purchaser furnishes to the Company the findings of a qualified
environmental assessment firm demonstrating the existence of (other than as
disclosed on SCHEDULE 6.22), (A) Hazardous Materials in, on or under any real
property owned, leased or used by the Company, or (B) soil or groundwater
contamination or pollution by any Hazardous Materials in, on, or under any such
real property that, in either of such cases, requires remedial action under any
applicable law relating to Hazardous Materials, and (ii) the Company, after
receipt of notice of such evidence, does not agree, prior to the Closing Date,
to increase the Holdback Amount and extend the time limitations set forth in
SECTION 11.2(A) to cover all costs and expenses reasonably necessary to bring
the real property and the business conducted thereon in compliance with all
applicable laws relating to Hazardous Materials.
SECTION 12.2 PROCEDURE AND EFFECT OF TERMINATION OR FAILURE TO
CLOSE. (a) In the event of termination of this Agreement and abandonment of
the transactions contemplated hereby
-35-
<PAGE> 44
by any of the parties pursuant to SECTION 12.1, prompt written notice thereof
shall be given to the other party and this Agreement shall terminate and the
transactions contemplated hereby shall be abandoned, without further action by
any of the parties hereto. If this Agreement is terminated as provided herein:
(i) None of the parties hereto nor any of their
partners, directors, officers, shareholders,
employees, agents, or affiliates shall have any
liability or further obligation to the other party
or any of its partners, directors, officers,
shareholders, employees, agents, or affiliates
pursuant to this Agreement with respect to which
termination has occurred, except as stated in
ARTICLE XI or in SECTIONS 12.2(b), SECTION 7.2(b)
and 13.1 hereof and except for breaches by the
Company of its obligations under SECTION 1.5; and
(ii) All filings, applications and other submissions
relating to the Merger shall, to the extent
practicable, be withdrawn from the agency or
person to which made.
(b) Notwithstanding anything to the contrary contained in this
Agreement, including, without limitation, ARTICLE XI, in the event of
termination of this Agreement, or if pursuant to the terms of this Agreement
(i) the Company and the Purchaser shall be obligated to consummate the Merger,
(ii) the Purchaser or the Company, as the case may be, shall have duly
satisfied each of the conditions set forth in ARTICLE IX or X hereof to be
satisfied by it (or in the case of any condition that is to be satisfied at the
Closing, shall have demonstrated a willingness and ability to satisfy such
condition if the Closing were to take place), and the conditions set forth in
ARTICLE VIII have been satisfied, and (iii) the Company or the Purchaser, as
the case may be, shall nevertheless fail to consummate the Merger, then and in
that event, the Purchaser and the Company, as the case may be, shall be
entitled to seek any remedy to which they may be entitled at law or in equity
in the event of a material violation or breach of any agreement, representation
or warranty contained in this Agreement (which remedies shall include, without
limitation, with respect to both the Purchaser and the Company, an injunction
or injunctions to prevent breaches of, or to obtain specific performance of any
obligation hereunder, without limiting any monetary damages to which the
Purchaser or the Company, as the case may be, shall be entitled); provided,
however, that in the event of termination of this Agreement by the Purchaser
pursuant to SECTION 12.1(e), no party shall be liable to the other for breach
of this Agreement.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.1 EXPENSES. Whether or not the transactions
contemplated hereby are consummated, except as otherwise provided herein, all
costs and expenses incurred in connection
-36-
<PAGE> 45
with this Agreement and the transactions contemplated hereby, including without
limitation the preparation and execution of this Agreement and performance of
the transactions contemplated hereby, and all fees and expenses of investment
bankers, finders, brokers, agents, representatives, consultants, counsel and
accountants will be paid by the party incurring such costs and expenses.
SECTION 13.2 FURTHER ASSURANCES. Subject to the terms and
conditions of this Agreement, each of the parties hereto will use all
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 under applicable
laws and regulations to consummate and make effective the Merger pursuant to
this Agreement.
SECTION 13.3 AMENDMENT AND MODIFICATION. This Agreement may be
amended, modified or supplemented only by written agreement of the Company and
the Purchaser at any time prior to the Closing Date with respect to any of the
terms contained herein.
SECTION 13.4 WAIVER OF COMPLIANCE; CONSENTS. Except as
otherwise provided in this Agreement, any failure of any of the parties to
comply with any obligation, representation, warranty, covenant, agreement or
condition herein may be waived by the party entitled to the benefits thereof
only by a written instrument signed by the party granting such waiver, but such
waiver or failure to insist upon strict compliance with such obligation,
representation, warranty, covenant, agreement or condition shall not operate as
a waiver of, or estoppel with respect to, any subsequent or other failure.
Whenever this Agreement requires or permits consent by or on behalf of any
party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section.
SECTION 13.5 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given when delivered by hand,
by facsimile transmission (with electronically confirmed receipt), one business
day when sent by recognized overnight courier, or five business days after
deposit in the U.S. mails, by registered or certified mail (return receipt
requested), postage prepaid, to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice; provided
that notices of a change of address shall be effective only upon receipt
thereof):
(a) If to the Company, to:
The News and Observer Publishing Company
215 S. McDowell Street
Raleigh, North Carolina 27602
Attention: Frank A. Daniels, Jr.
Telecopy: (919) 829-4872
-37-
<PAGE> 46
Copies to:
Robinson, Bradshaw & Hinson, P.A.
One Independence Center
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246
Attention: Russell M. Robinson, II
Telecopy: (704) 378-4000
(b) If to the Purchaser, to:
McClatchy Newspapers, Inc.
2100 Q Street
Sacramento, California 95816
Attention: Gary B. Pruitt
Telecopy: (916) 321-1869
Copies to:
Pillsbury Madison & Sutro
235 Montgomery Street
San Francisco, California 94104
Attention: Terry Kee
Telecopy: (415) 983-1200
SECTION 13.6 ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any party hereto without the prior written
consent of the other party, nor is this Agreement intended to confer upon any
other person except the parties hereto any rights or remedies hereunder;
provided that prior to filing any necessary applications pursuant to the HSR
Act as contemplated hereby, the Purchaser may assign or transfer this Agreement
or any rights it may have hereunder to any direct or indirect wholly-owned
subsidiary of the Purchaser and in such event the Purchaser, as well as such
subsidiary, shall remain liable hereunder for all purposes.
SECTION 13.7 GOVERNING LAW; JURISDICTION. The execution,
interpretation and performance of this Agreement shall be governed by the
internal laws and judicial decisions of the State of North Carolina. The
Purchaser and the Company hereby irrevocably consent, to the maximum extent
permitted by law, that any legal action or proceeding against them under,
arising out of or in any manner relating to, this Agreement may be brought in
any court of general jurisdiction of Wake County, North Carolina, or in the
United States District Court for the Eastern District of North Carolina,
Raleigh Division. By its execution and delivery of this Agreement, each such
party expressly and irrevocably assents and submits to the personal
-38-
<PAGE> 47
jurisdiction of either of such courts in any such action or proceeding. Each
such party further irrevocably consents to the service of any complaint,
summons, notice or other process relating to any such action or proceeding by
delivery thereof to it by hand or by mail in the manner provided for in SECTION
13.5 above, and expressly and irrevocably waives its respective claims and
defenses in any such action or proceeding in either such court based on any
alleged lack of personal jurisdiction, improper venue or forum non conveniens
or any similar basis to the maximum extent permitted by law.
SECTION 13.8 COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 13.9 INTERPRETATION. The article and section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not in any way affect the
meaning or interpretation of this Agreement.
SECTION 13.10 BULK SALES LAW. The parties hereto waive
compliance with the provisions of any bulk sales law applicable to the
transactions contemplated hereby.
SECTION 13.11 ENTIRE AGREEMENT. This Agreement, including the
Exhibits and Schedules hereto and the documents delivered pursuant to this
Agreement, embody the entire agreement and understanding of the parties hereto
in respect of the subject matter hereof. The Exhibits and Schedules hereto are
an integral part of this Agreement and are incorporated by reference herein.
The Purchaser acknowledges that the Company has not made any, and makes no,
promises, representations, warranties, covenants or undertakings, other than
those expressly set forth herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to the
transactions contemplated by this Agreement.
-39-
<PAGE> 48
IN WITNESS WHEREOF, The Company, the Purchaser and the Merger Sub have
caused this Agreement to be signed by their respective duly authorized officers
as of the date first above written.
THE NEWS AND OBSERVER PUBLISHING
COMPANY
[CORPORATE SEAL] By: /s/ FRANK DANIELS, JR.
---------------------------------------------
Name: Frank Daniels Jr.
Title: President
Attest:
/s/ JOHN A. BARTON
-------------------------
Secretary
McCLATCHY NEWSPAPERS, INC.
[CORPORATE SEAL] By: /s/ ERWIN POTTS
----------------------------------------------
Name: Erwin Potts
Title: President and Chief Executive Officer
Attest:
/s/ WILMA C. FLACH
-------------------------
Secretary
MNI MERGER SUB, INC.
[CORPORATE SEAL] By: /s/ ERWIN POTTS
----------------------------------------------
Name: Erwin Potts
Title: President
Attest:
/s/ JAMES P. SMITH
-------------------------
Secretary
-40-
<PAGE> 1
EXHIBIT 10.2
CREDIT AGREEMENT
DATED AS OF JULY 28, 1995
BETWEEN
McCLATCHY NEWSPAPERS, INC.
AND
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<C> <C>
1. Definitions and Financial Requirements ................................ 1
1.1 Definitions .................................................. 1
1.2 Financial Requirements ....................................... 5
2. The Credit Facilities ................................................. 5
2.1 The Facilities ............................................... 5
2.2 Use of Proceeds .............................................. 6
2.3 Allocation of Commitments .................................... 6
2.4 Limitation on Outstandings ................................... 6
2.5 Reduction of Facility A Commitment ........................... 7
2.6 Repayment of Facility B ...................................... 7
2.7 Commercial Paper Backup ...................................... 7
2.8 Reference Rate ............................................... 8
2.9 Optional Rates ............................................... 8
2.10 LIBOR Rate ................................................... 8
2.11 Offshore Rate ................................................ 9
2.12 Federal Funds Offer Rate ..................................... 10
2.13 Fixed Rate ................................................... 11
2.14 The Overdraft Financing Facility ............................. 12
2.15 Letters of Credit ............................................ 13
2.16 Mandatory Payment ............................................ 14
2.17 Hostile Acquisitions ......................................... 14
3. Fees and Expenses ..................................................... 14
3.1 Unused Commitment Fees ....................................... 14
3.2 Expenses ..................................................... 15
4. Extensions of Credit, Payments and Interest Calculations .............. 15
4.1 Requests for Credit .......................................... 15
4.2 Oral Requests ................................................ 15
4.3 Disbursements and Payments ................................... 16
4.4 Branch Accounts .............................................. 16
4.5 Evidence of Indebtedness ..................................... 16
4.6 Banking Day .................................................. 16
4.7 Increased Costs .............................................. 16
4.8 Interest Calculation ......................................... 16
4.9 Late Payments; Compounding ................................... 16
4.10 Default Rate ................................................. 17
5. Conditions to Availability of Credit .............................. 17
5.1 Evidence of Authority ........................................ 17
5.2 N&O Acquisition .............................................. 17
5.3 Commercial Paper ............................................. 17
5.4 Other Documents .............................................. 17
6. Representations and Warranties ........................................ 17
6.1 Organization ................................................. 17
6.2 No Conflicts ................................................. 17
6.3 Enforceability ............................................... 18
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
<S> <C>
6.4 Good Standing ................................................ 18
6.5 Compliance with Laws ......................................... 18
6.6 Permits, Franchises .......................................... 18
6.7 Litigation ................................................... 18
6.8 No Event of Default .......................................... 18
6.9 Other Obligations ............................................ 18
6.10 Information Submitted ........................................ 18
6.11 No Material Adverse Change ................................... 19
6.12 ERISA Plan Compliance ........................................ 19
6.13 Location of Borrower ......................................... 19
7. Covenants ............................................................. 19
7.1 Notices of Certain Events .................................... 20
7.2 Financial and Other Information .............................. 20
7.3 Books, Records, Audits and Inspections ....................... 21
7.4 Total Liabilities to Net Worth ............................... 21
7.5 Debt Service Coverage Ratio .................................. 21
7.6 Subsidiaries' Indebtedness ................................... 22
7.7 Liens ........................................................ 22
7.8 Sale of Newspapers ........................................... 23
7.9 Preservation of Rights .................................... 23
7.10 Other Obligations ............................................ 23
7.11 Liquidation; Mergers ......................................... 23
7.12 Insurance .................................................... 23
7.13 Compliance with Laws ......................................... 23
7.14 Accuracy of Financial Information ............................ 23
7.15 Change in Name, Structure or Location ........................ 24
8. Events of Default ..................................................... 24
8.1 Failure to Pay ............................................... 24
8.2 Breach of Representation or Warranty ......................... 24
8.3 Falsity of Information ....................................... 24
8.4 Failure to Pay Debts; Voluntary Bankruptcy.................... 24
8.5 Involuntary Bankruptcy ....................................... 24
8.6 Suspension of Business ....................................... 25
8.7 Governmental Action .......................................... 25
8.8 Default of Other Financial Obligations ....................... 25
8.9 Default of Other Bank Obligations ............................ 25
8.10 Material Adverse Change ...................................... 25
8.11 ERISA Plan Termination ....................................... 25
8.12 Other Breach Under Agreement ................................. 25
9. Miscellaneous ......................................................... 26
9.1 Successors and Assigns ....................................... 26
9.2 Consents and Waivers ......................................... 26
9.3 Governing Law ................................................ 26
9.4 Attorneys' Fees .............................................. 26
9.5 Integration .................................................. 26
9.6 Participations ............................................... 26
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
<S> <C>
9.7 Confidentiality .............................................. 27
9.8 Arbitration; Reference Proceeding ............................ 27
9.9 Notices ...................................................... 28
9.10 Headings ..................................................... 28
9.11 Severability ................................................. 28
9.12 Waiver of Set-Off ............................................ 28
9.13 Counterparts ................................................. 28
</TABLE>
-iii-
<PAGE> 5
CREDIT AGREEMENT
This Agreement is entered into as of July 28, 1995
between Bank of America National Trust and Savings Association ("Bank") and
McClatchy Newspapers, Inc. ("Borrower").
1. Definitions and Financial Requirements.
1.1 Definitions. In addition to the terms defined elsewhere in
this Agreement, the following terms have the meanings indicated for the purposes
hereof:
"Acquisition" means any transaction or series of related
transactions for the purpose of or resulting, directly or indirectly, in
(a) the acquisition of all or substantially all of the assets of a
Person, or of any business or division of a Person, (b) the acquisition
of in excess of 50% of the capital stock, partnership interests,
membership interests or equity of any Person, or otherwise causing any
Person to become a Subsidiary, or (c) a merger or consolidation or any
other combination with another Person (other than a Person that is a
Subsidiary) provided that Borrower or the Subsidiary is the surviving
entity.
"Availability Period-Facility A" means the period
commencing on the date of this Agreement and ending on July 1, 2005.
"Availability Period-Facility B" means the period
commencing on the date of this Agreement and ending on July 1, 2000.
"Banking Day" means, unless otherwise defined in this
Agreement, a day other than a Saturday or a Sunday on which Bank is open
for business in California. For amounts bearing interest at the LIBOR
Rate or the Offshore Rate, a Banking Day is a day other than a Saturday
or a Sunday on which the Bank is open for business in California, New
York and London and dealing in offshore dollars.
"Commercial Paper" means commercial paper issued by
Borrower.
"Commitment" means Three Hundred Ten Million Dollars
($310,000,000).
"ERISA" means the Employee Retirement Income Act of 1974,
as amended from time to time.
"ERISA Plan" means any employee pension benefit plan
maintained or contributed to by Borrower and insured by the Pension
Benefit Guaranty Corporation under Title IV of ERISA.
-1-
<PAGE> 6
"Event of Default" means any event listed in Article
9 of this Agreement.
"Fed Funds Rate" means, for the relevant Fed Funds Rate
Interest Period, the rate per annum calculated by Bank by averaging the
rates per annum at which two or more Federal funds brokers would offer
to Bank, on Bank's request, a Federal funds loan commencing on the first
day of such Fed Funds Rate Interest Period, maturing on the last day of
such Fed Funds Rate Interest Period and in an aggregate principal amount
approximately the same as the amount of the Fed Funds Rate Portion. From
time to time, Bank shall determine, in its sole discretion, (i) which
Federal funds brokers to call for Fed funds offer rate quotes, and (ii)
the number of quotes, if any, in excess of two (2) which will be
averaged in calculating the Fed Funds Rate.
"Fed Funds Rate Interest Period" means for each Fed Funds
Rate Portion the period commencing on the date such portion shall begin
to bear interest at the Fed Funds Rate and ending no earlier than one
(1) day and no more than ten (10) days thereafter, as agreed by Bank and
Borrower at the time Borrower requests the portion.
"Fed Funds Rate Portion" means all or such part of the
principal balance of credit provided under this Agreement for which
interest is payable at the Fed Funds Rate.
"Fixed Rate" means for each Fixed Rate Portion the rate of
interest which Bank and Borrower agree, at the time Borrower requests
the portion, will be applicable to the portion.
"Fixed Rate Interest Period" means for each Fixed Rate
Portion the period commencing on the date such portion shall begin to
bear interest at the Fixed Rate and ending no more than twelve (12)
months thereafter, as agreed by Bank and Borrower at the time Borrower
requests the portion.
"Fixed Rate Portion" means all or such part of the
principal balance of credit provided under this Agreement for which
interest is payable at the Fixed Rate.
"Hostile Acquisition" means an Acquisition of a Person
where the Acquisition is opposed by such Person's board of directors or
other governing body or by a shareholder or shareholders or other owners
controlling thirty percent (30%) or more of the voting shares or other
ownership interests of the Person.
"Interest Period" means an interest period during which a
portion of the credit outstanding under this Agreement is bearing
interest at an Optional Rate.
-2-
<PAGE> 7
"LIBOR Rate" means for each LIBOR Rate Interest Period the
rate of interest (rounded upward, if necessary, to the nearest 1/100th
of one percent) determined pursuant to the following formula:
London Rate
LIBOR Rate = --------------------------------
(1.00 - Reserve Percentage)
Where the "London Rate" means for each LIBOR Rate Interest Period
the average (rounded upward, if necessary, to the nearest 1/16th
of one percent) of the rates of interest at which United States
dollar deposits in the amount of the LIBOR Rate Portion would be
offered for the LIBOR Rate Interest Period by major banks in the
London U.S. dollar interbank market as of 11:00 a.m. London time
on the day that is two (2) Banking Days preceding the first day
of the LIBOR Rate Interest Period, as shown on Reuter's "Page
SLIBO" screen. If such rates do not appear on Reuter's "Page
SLIBO" screen, or if such information source has an apparent
error, then the rate for that Interest Period will be determined
by such alternate method as reasonably selected by Bank.
"LIBOR Rate Interest Period" means for each LIBOR Rate
Portion the period commencing on the date such portion shall begin to
bear interest at a rate related to the LIBOR Rate and ending one (1)
week or one (1), two (2), three (3), six (6) or twelve (12) months
thereafter, as agreed by Bank and Borrower at the time Borrower requests
the portion; provided, however, that the last day of each LIBOR Rate
Interest Period shall be determined in accordance with the practices of
the offshore Dollar inter-bank markets as from time to time in effect.
"LIBOR Rate Portion" means all or such part of the
principal balance of credit provided under this Agreement for which
interest is payable at the rate related to the LIBOR Rate.
"N&O" means the News and Observer Publishing Company.
"N&O Acquisition" means the acquisition by Borrower
of all of the stock of N&O.
"N&O Debt" means, on any specified date, the principal
amount outstanding on such date under any loans or lines of credit which
were originally extended to N&O prior to the N&O Acquisition by any
bank, insurance company or other financial institution, and which remain
outstanding after the N&O Acquisition and are not refinanced with the
proceeds of this Agreement.
-3-
<PAGE> 8
"Offshore Rate" means for each Offshore Rate Interest
Period the rate of interest (rounded upward, if necessary, to the
nearest 1/100th of one percent) determined pursuant to the following
formula:
Grand Cayman Rate
Offshore Rate = ---------------------------------
(1.00 - Reserve Percentage)
Where the "Grand Cayman Rate" means for each Offshore Rate
Interest Period the rate of interest (rounded upward, if
necessary, to the nearest 1/16th of one percent) at which Dollar
deposits for such Offshore Rate Interest Period would be offered
by Bank's Grand Cayman Branch, Grand Cayman, British West Indies,
to other major banks in the offshore Dollar inter-bank markets
upon the request of such banks.
"Offshore Rate Interest Period" means for each Offshore
Rate Portion the period commencing on the date such portion shall begin
to bear interest at a rate related to the Offshore Rate and ending one
(1) to fourteen (14) days, or one (1), two (2), three (3), six (6) or
twelve (12) months thereafter, as agreed by Bank and Borrower at the
time Borrower requests the portion; provided, however, that the last day
of each Offshore Rate Interest Period shall be determined in accordance
with the practices of the offshore Dollar inter-bank markets as from
time to time in effect.
"Offshore Rate Portion" means all or such part of the
principal balance of credit provided under this Agreement for which
interest is payable at the rate related to the Offshore Rate.
"Optional Rates" means the interest rate options under
this Agreement other than the rate based on the Reference Rate.
"Person" means an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or Governmental Authority.
"Portion" means a portion of the principal amount
outstanding under this Agreement which is bearing interest at an
Optional Rate.
"Reference Rate" means the rate of interest publicly
announced from time to time by Bank in San Francisco, California, as its
reference rate. Any change in the Reference Rate shall take effect on
the day specified in the public announcement of such change. The
Reference Rate is set by Bank based on various factors, including Bank's
costs and desired return, general economic conditions and other
-4-
<PAGE> 9
factors, and is used as a reference point for pricing some loans. Bank
may price loans at, above or below the Reference Rate.
"Reserve Percentage" means for each LIBOR Rate Interest
Period or Offshore Rate Interest Period the total (expressed as a
decimal) of the maximum reserve percentages (including, but not limited
to, marginal, emergency, supplemental, special, and other reserve
percentages) in effect on the first day of such Interest Period as
prescribed by the Board of Governors of the Federal Reserve System for
determining the reserves to be maintained by member banks of the Federal
Reserve System for Eurocurrency Liabilities, as defined in Federal
Reserve Board Regulation D, rounded upward, if necessary, to the nearest
1/100th of one percent.
"Subsidiary" means each of the entities listed on Exhibit
A attached hereto and any corporation, association or other business
entity of which Borrower owns, directly or indirectly, more than fifty
percent (50%) of the voting securities thereof or which Borrower
otherwise controls.
"Tangible Net Worth" means the gross book value of the
assets of Borrower less (a) reserves applicable thereto, and (b) all
liabilities (including accrued and deferred income taxes).
"Total Liabilities" means the sum of (a) Borrower's
consolidated liabilities determined in accordance with generally
accepted accounting principles and practices consistently applied and
(b) all obligations for which Borrower or any Subsidiary is liable as a
surety, guarantor, accommodation endorser or otherwise.
1.2 Financial Requirements. Unless otherwise specified in this
Agreement, all accounting terms used in this Agreement shall be interpreted, all
financial computations required under this Agreement shall be made, and all
financial information required under this Agreement shall be prepared in
accordance with generally accepted accounting principles consistently applied.
2. The Credit Facilities
2.1 The Facilities. Two facilities shall be available
under this Agreement:
(a) Facility A, which is a reducing revolving line of
credit for advances available during the Availability Period-Facility A.
Any amount borrowed and repaid may be reborrowed during the Availability
Period-Facility A, so long as the amount outstanding under Facility A
does not exceed the Facility A Commitment.
-5-
<PAGE> 10
(b) Facility B, which is a non-reducing revolving line of
credit for advances available during the Availability Period-Facility B.
Any amount borrowed and repaid may be reborrowed during the Availability
Period-Facility B, so long as the amount outstanding under Facility B
does not exceed the Facility B Commitment.
In addition, a portion of either Facility A or Facility B may be allocated to an
Overdraft Facility (the "Overdraft Limit"), under which the Borrower may
overdraw its accounts as provided herein during the applicable Availability
Period. The Overdraft Limit may be increased or decreased by Borrower from time
to time; provided, however, that the Overdraft Limit must not exceed Ten Million
Dollars ($10,000,000) at any time. In addition, a portion of either Facility A
or Facility B may be allocated to a Letter of Credit Facility (the "L/C Limit"),
under which the Borrower may obtain standby letters of credit issued for its
account as provided herein during the applicable Availability Period. The L/C
Limit may be increased or decreased by Borrower from time to time; provided,
however, that the L/C Limit must not exceed Ten Million Dollars ($10,000,000) at
any time.
2.2 Use of Proceeds. Borrower shall use the proceeds of advances
under this Agreement for the purpose of financing the N&O Acquisition; the
refinancing of N&O Debt; financing or refinancing other non-Hostile Acquisitions
permitted by this Agreement; and for working capital purposes. In addition,
Facility B may be used as a backup line for Commercial Paper issued by Borrower,
where the proceeds of the Commercial Paper are used for the purposes specified
in the preceding sentence.
2.3 Allocation of Commitments. On or before the closing of this
Agreement, and at the beginning of each fiscal quarter thereafter through the
quarter beginning April 1, 2000, Borrower shall, by written notice to Bank,
allocate the Commitment between the Facility A Commitment and the Facility B
Commitment. The sum of the Facility A Commitment and the Facility B Commitment
must not exceed the Commitment at any time. The last allocation between the
Commitments made by Borrower on or before April 1, 2000, shall be fixed
thereafter (subject to the reductions of the Facility A Commitment as provided
below).
2.4 Limitation on Outstandings. The sum of (a) the total
principal amount of advances outstanding under Facility A and Facility B, plus
(b) the Overdraft Limit, plus (c) the outstanding principal amount of the N&O
Debt, plus (d) the outstanding amount of Commercial Paper issued by Borrower
which is not supported by any other commercial paper backup facility, plus (e)
the undrawn and the drawn and unreimbursed amount of letters of credit
outstanding under this Agreement, must not exceed at any time the Commitment.
After the expiration of the Availability Period-Facility B, the sum of (a) the
total principal amount of advances outstanding under Facility A, plus
-6-
<PAGE> 11
(b) the Overdraft Limit, plus (c) the outstanding principal amount of the N&O
Debt, plus (d) the undrawn and the drawn and unreimbursed amount of letters of
credit outstanding under this Agreement, must not exceed at any time the
Facility A Commitment.
2.5 Reduction of Facility A Commitment. The Facility A Commitment
shall be reduced as provided below, and Borrower shall repay any principal
outstanding which exceeds any of the limits specified in Paragraphs 2.1 through
2.4 above. From and including July 1, 1999, through June 30, 2000, the Facility
A Commitment shall be equal to the lesser of Two Hundred Ninety Million Dollars
($290,000,000) or the amount designated by Borrower under Paragraph 2.3 above. A
reduction schedule shall be established on June 30, 2000. If the difference of
the Facility A Commitment minus the N&O Debt on June 30, 2000 (the "Available
Amount") is equal to Two Hundred Ninety Million Dollars ($290,000,000), then the
Facility A Commitment shall thereafter be equal to the amounts stated in the
following table. If the Available Amount on June 30, 2000 is less than
$290,000,000, then the Facility A Commitment shall thereafter be the amounts
stated in the following chart multiplied by a fraction whose numerator is the
Available Amount and whose denominator is $290,000,000:
<TABLE>
<CAPTION>
Date Facility A Commitment
------------ ---------------------
<S> <C>
July 1, 2000 $260,000,000
July 1, 2001 $220,000,000
July 1, 2002 $170,000,000
July 1, 2003 $115,000,000
July 1, 2004 $ 60,000,000
July 1, 2005 $ -0-
</TABLE>
In any event, any remaining amount of principal and interest outstanding under
Facility A shall be repaid in full on July 1, 2005.
2.6 Repayment of Facility B. The entire principal amount
outstanding of Facility B shall be repaid on the last day of the Availability
Period-Facility B.
2.7 Commercial Paper Backup.
(a) Borrower shall not issue or have outstanding
Commercial Paper unless there is credit available under Facility B (or
any other commercial paper backup facility) at least equal to the amount
of the Commercial Paper.
(b) Bank shall, upon request, make advances under Facility
B in same day funds to permit Borrower to make any necessary payments
under Commercial Paper, provided that the request for advance is
received by Bank by 11:00 a.m. California time on a Banking Day.
-7-
<PAGE> 12
2.8 Reference Rate. Unless Borrower elects another interest rate
as provided below, advances under this Agreement shall bear interest at a rate
per annum equal to the Reference Rate minus one-half of one (0.5) percentage
point. Borrower shall pay interest monthly on the first day of each month, and
on the date that the principal amount outstanding hereunder is paid in full.
2.9 Optional Rates. In lieu of the interest rate related to the
Reference Rate, Borrower may elect to have all or portions of advances under
this Agreement bear interest at the Optional Rates described below during an
Interest Period. Each rate is a rate per annum. The following requirements apply
to each of the Optional Rates:
(a) The Interest Period for the Optional Rate shall not
end later than the last day of the applicable Availability Period. In
addition, an Optional Rate must not be selected for any amount of
principal which is scheduled to be repaid prior to the end of the
applicable Interest Period.
(b) Borrower shall pay interest on each Optional Rate
Portion on the last day of the applicable Interest Period for such
Portion, and, if the Interest Period is longer than 30 days, on the
first day of each month during the Interest Period.
(c) An Optional Rate Portion shall not be converted to a
different interest rate during its Interest Period. Upon the expiration
of the Interest Period, the Portion shall thereafter bear interest at
the rate related to the Reference Rate unless Borrower elects a new
interest rate as provided hereunder.
(d) Upon the occurrence of an Event of Default, Bank may
terminate the availability of Optional Rates for Interest Periods
commencing after the occurrence of the Event of Default.
2.10 LIBOR Rate. In lieu of the interest rate related to the
Reference Rate, Borrower may elect to have all or portions of advances under
this Agreement bear interest at the LIBOR Rate plus the following number of
percentage points: (i) For Facility A, thirty-five one-hundredths (0.35) of one
percentage point; and (ii) for Facility B, thirty-three one-hundredths (0.33) of
one percentage point. The election of LIBOR Rate Portions is subject to the
following requirements:
(a) Borrower shall make an irrevocable request for a LIBOR
Rate Portion no later than 11:00 a.m. California time three (3) Banking
Days before the commencement of the Interest Period.
-8-
<PAGE> 13
(b) Each LIBOR Rate Portion shall be for an amount not
less than Five Hundred Thousand Dollars ($500,000) for LIBOR Rate
Interest Periods which are thirty (30) days or longer, and not less than
an amount which, when multiplied by the number of days in the applicable
LIBOR Rate Interest Period, is not less than Fifteen Million Dollars
($15,000,000) for LIBOR Rate Interest Periods which are less than thirty
(30) days.
(c) Any payment of a LIBOR Rate Portion prior to the last
day of the Offshore Rate Interest Period for such portion, whether
voluntary, by reason of acceleration or otherwise, including any
mandatory payments required under this Agreement and applied by Bank to
a LIBOR Rate Portion, shall be accompanied by the amount of accrued
interest on the amount repaid and by the amount (if any) by which (i)
the additional interest which would have been payable on the amount
repaid had it not been paid until the last day of its LIBOR Rate
Interest Period exceeds (ii) the interest which would have been
recoverable by Bank by placing the amount repaid on deposit in the
London inter-bank markets for a period starting on the date on which it
was repaid and ending on the last day of the LIBOR Rate Interest Period
for such portion. Bank is under no obligation to actually reinvest any
amount prepaid as described above. The interest rates which would be
earned on the reinvestment will be determined by Bank based on
information sources Bank deems appropriate.
(d) Bank shall have no obligation to accept an election
for a LIBOR Rate Portion if dollar deposits in the principal amount, and
for periods equal to the interest period, of a LIBOR Rate Portion are
not available in the offshore Dollar inter-bank markets.
2.11 Offshore Rate. In lieu of the interest rate related to the
Reference Rate, Borrower may elect to have all or portions of advances under
this Agreement bear interest at the Offshore Rate plus the following number of
percentage points: (i) For Facility A, thirty-five one-hundredths (0.35) of one
percentage point; and (ii) for Facility B, thirty-three one-hundredths (0.33) of
one percentage point. The election of Offshore Rate Portions is subject to the
following requirements:
(a) Borrower shall make an irrevocable request for an
Offshore Rate Portion no later than 11:00 a.m. California time on the
first day of the Interest Period.
(b) Each Offshore Rate Portion shall be for an amount not
less than Five Hundred Thousand Dollars ($500,000) for Offshore Rate
Interest Periods which are thirty (30) days or longer, and not less than
an amount which, when multiplied by the number of days in the applicable
Offshore Rate Interest Period, is not less than Fifteen Million Dollars
-9-
<PAGE> 14
($15,000,000) for Offshore Rate Interest Periods which are less than
thirty (30) days.
(c) Any payment of an Offshore Rate Portion prior to the
last day of the Offshore Rate Interest Period for such portion, whether
voluntary, by reason of acceleration or otherwise, including any
mandatory payments required under this Agreement and applied by Bank to
an Offshore Rate Portion, shall be accompanied by the amount of accrued
interest on the amount repaid and by the amount (if any) by which (i)
the additional interest which would have been payable on the amount
repaid had it not been paid until the last day of its Offshore Rate
Interest Period exceeds (ii) the interest which would have been
recoverable by Bank by placing the amount repaid on deposit in the
offshore dollar inter-bank markets for a period starting on the date on
which it was repaid and ending on the last day of the Offshore Rate
Interest Period for such portion. Bank is under no obligation to
actually reinvest any amount prepaid as described above. The interest
rates which would be earned on the reinvestment will be determined by
Bank based on information sources Bank deems appropriate.
(d) Bank shall have no obligation to accept an election
for an Offshore Rate Portion if dollar deposits in the principal amount,
and for periods equal to the interest period, of an Offshore Rate
Portion are not available in the offshore Dollar inter-bank markets.
2.12 Federal Funds Offer Rate. In lieu of the interest rate
related to the Reference Rate, Borrower may elect to have all or portions of
advances under this Agreement bear interest at the Fed Funds Rate plus the
following number of percentage points: (i) For Facility A, thirty-five
one-hundredths (0.35) of one percentage point; and (ii) for Facility B,
thirty-three one-hundredths (0.33) of one percentage point. The Fed Funds Rate
shall be available only for interest periods ending no later than the third
anniversary of the date of this Agreement, unless Bank agrees to extend the
availability of this pricing option in its sole discretion. The election of Fed
Funds Rate Portions is subject to the following requirements:
(a) Borrower shall make an irrevocable request for a Fed
Funds Rate Portion no later than 11:00 a.m. California time on the first
day of the Interest Period. The Fed Funds Rate shall be orally quoted by
Bank to Borrower and accepted by Borrower at the time such quote is
made.
(b) Each Fed Funds Rate Portion shall be an amount which,
when multiplied by the number of days in the applicable Fed Funds Rate
Interest Period, is not less than Fifteen Million Dollars ($15,000,000).
-10-
<PAGE> 15
(c) Any payment of a Fed Funds Rate Portion prior to the
last day of the Fed Funds Rate Interest Period for such portion, whether
voluntary, by reason of acceleration or otherwise, including any
mandatory payments required under this Agreement and applied by Bank to
a Fed Funds Rate Portion, shall be accompanied by the amount of accrued
interest on the amount repaid and by the amount (if any) by which (i)
the additional interest which would have been payable on the amount
repaid had it not been paid until the last day of its Fed Funds Rate
Interest Period exceeds (ii) the interest which would have been
recoverable by Bank by placing the amount repaid on deposit in the
Federal funds market for a period starting on the date on which it was
repaid and ending on the last day of the Fed Funds Rate Interest Period
for such portion. Bank is under no obligation to actually reinvest any
amount prepaid as described above. The interest rates which would be
earned on the reinvestment will be determined by Bank based on
information sources Bank deems appropriate.
(d) Bank shall have no obligation to accept an election
for a Fed Funds Rate Portion if funds in the principal amount, and for
periods equal to the interest period, of a Fed Funds Rate Portion are
not available in the Federal funds market.
2.13 Fixed Rate. In lieu of the interest rate related to the
Reference Rate, Borrower may elect to have all or portions of advances under
this Agreement bear interest at the Fixed Rate during a Fixed Rate Interest
Period subject to the following requirements:
(a) Borrower shall make an irrevocable request for a Fixed
Rate Portion no later than 11:00 a.m. California time on the first day
of the Interest Period.
(b) Each Fixed Rate Portion shall be for an amount not
less than Five Hundred Thousand Dollars ($500,000) for Fixed Rate
Interest Periods which are thirty (30) days or longer, and not less than
an amount which, when multiplied by the number of days in the applicable
Fixed Rate Interest Period, is not less than Fifteen Million Dollars
($15,000,000) for Fixed Rate Interest Periods which are less than thirty
(30) days.
(c) Any payment of a Fixed Rate Portion prior to the last
day of the Fixed Rate Interest Period for such portion, whether
voluntary, by reason of acceleration or otherwise, including any
mandatory payments required under this Agreement and applied by Bank to
a Fixed Rate Portion, shall be accompanied by the amount of accrued
interest on the amount repaid and by the amount (if any) by which (i)
the additional interest which would have been payable on the
-11-
<PAGE> 16
amount repaid had it not been paid until the last day of its Fixed Rate
Interest Period exceeds (ii) the interest which would have been
recoverable by Bank by placing the amount repaid on deposit in the
certificate of deposit markets for a period starting on the date on
which it was repaid and ending on the last day of the Fixed Rate
Interest Period for such portion. Bank is under no obligation to
actually reinvest any amount prepaid as described above. The interest
rates which would be earned on the reinvestment will be determined by
Bank based on information sources Bank deems appropriate.
2.14 The Overdraft Financing Facility.
(a) From time to time during the Availability
Period-Facility A, Borrower may overdraw its checking account number
01483-00012 with Bank. The total amount of all unreimbursed overdrafts
outstanding at any one time may not exceed the Overdraft Limit.
(b) As part of the monthly calculation of service charges
to be assessed against Borrower's account, Bank shall include an
interest charge calculated on the daily amount of unreimbursed
overdrafts outstanding in the account. Interest shall accrue at a rate
per annum equal to the following:
(i) If the Fed Funds Rate is available as provided
in Paragraph 2.12 above, the interest rate shall be the Fed Funds
Rate for a one-day Interest Period, plus the following number of
percentage points: (A) so long as Facility B is available,
thirty-three one-hundredths (0.33) of one percentage point; or
(B) if Facility B is no longer available, thirty-five
one-hundredths (0.35) of one percentage point.
(ii) If the Fed Funds Rate is no longer available,
the interest rate shall be the Offshore Rate for a one-day
Interest Period, plus the following number of percentage points:
(A) so long as Facility B is available, thirty-three
one-hundredths (0.33) of one percentage point; or (B) if Facility
B is no longer available, thirty-five one-hundredths (0.35) of
one percentage point.
(c) If items are presented against an account covered by
this overdraft facility which, if paid, would exceed the allocated
Overdraft Limit for that account, Bank will have no obligation to pay
those items, but may in its discretion pay any or all of the items. The
excess amount of unreimbursed overdrafts outstanding will incur interest
at the same interest rates as stated in subparagraph (b) above.
(d) Bank may, in its discretion, at any time upon
ten (10) days written notice to Borrower, terminate this
-12-
<PAGE> 17
overdraft facility and require repayment of all outstanding overdrafts.
Borrower will in any event repay all outstanding overdrafts no later
than the last day of the Availability Period-Facility A.
(e) For the purposes of this Agreement, the amount of
unreimbursed overdrafts outstanding on any day will equal the daily net
collected balance of the account on any day when such balance is
negative. In calculating the amount of interest accruing under this
facility, the daily net collected balance will not include provisional
credits for items in the process of collection ("Uncollected Items") as
determined under Bank's normal practices for Borrower's account.
However, in determining whether Borrower has exceeded the Overdraft
Limit or any other dollar limits on borrowing established in this
Agreement, Borrower shall be given credit for such Uncollected Items.
The negative daily net collected balance may include fees and charges
which have been posted to Borrower's account, including overdraft
interest charges. This may result in compounding of interest.
(f) Bank may terminate this overdraft facility if a levy
is imposed on any account covered by this facility.
2.15 Letters of Credit.
(a) From time to time during the Availability
Period-Facility A, Borrower may obtain standby letters of credit issued
for the account of Borrower. The undrawn and drawn and unreimbursed
amount of letters of credit outstanding at any one time must not exceed
the L/C Limit.
(b) Each standby letter of credit shall have a tenor not
exceeding three years, but not to extend beyond the last day of the
Availability Period-Facility A. The standby letters of credit may
include a provision providing that the maturity date will be
automatically extended each year for an additional year unless the Bank
gives written notice to the contrary; provided, however, that each
letter of credit shall include a final maturity date which shall not be
subject to automatic extension.
(c) Any sum drawn under a letter of credit may, at the
option of the Bank, be added to the principal amount outstanding under
this Agreement. The amount will bear interest and be due as described
elsewhere in this Agreement.
(d) If there is a default under this Agreement, Borrower
shall immediately prepay and make the Bank whole for any outstanding
letters of credit.
-13-
<PAGE> 18
(e) Borrower shall sign the Bank's form Application and
Agreement for Standby Letter of Credit for each letter of credit.
(f) Borrower shall pay the Bank a non-refundable fee equal
to three-eights of one percent (0.375%) per annum of the outstanding
undrawn amount of each standby letter of credit, payable quarterly in
advance, calculated on the basis of the face amount outstanding on the
day the fee is calculated.
(g) Borrower shall pay any other fees that the Bank
notifies the Borrower will be charged for processing letters of credit
for the Borrower.
2.16 Mandatory Payment. If at any time and for any reason the
total amount of credit outstanding under this Agreement exceeds the limitations
set forth herein, Borrower shall pay to Bank, upon Bank's election and demand,
the amount of the excess. Payments under this Paragraph may be applied to the
obligations of Borrower to Bank in the order and manner as Bank in its
discretion may determine. If any amount paid to Bank under this paragraph is
applied to Commercial Paper or to any extension of credit other than an Advance,
the amount paid shall be held by Bank as cash collateral until the obligation is
due.
2.17 Hostile Acquisitions. Borrower shall notify Bank of any
Acquisition which Borrower intends to undertake for an aggregate consideration
of Five Million Dollars ($5,000,000) or more. In the event that any such
proposed Acquisition covered by the preceding sentence is, or may be, Hostile,
then Bank may, in its discretion, cancel the availability of any additional
credit under this Agreement. Any amount already outstanding under this Agreement
shall be due and payable as stated earlier in this Agreement.
3. Fees and Expenses.
3.1 Unused Commitment Fees. Borrower shall pay Bank a fee equal
to a percent per annum of the Unused Facility A Commitment, and a fee equal to a
percent per annum of the Unused Facility B Commitment. "Unused Facility A
Commitment" and "Unused Facility B Commitment" means the Facility A Commitment
or the Facility B Commitment, respectively, minus the total daily average of the
principal amount of advances, overdrafts and letters of credit outstanding under
Facility A or Facility B, respectively. The fee will be calculated and paid
quarterly in
-14-
<PAGE> 19
arrears. The percentage rate per annum for the fee for Facility A shall be
0.115%. The percentage rate per annum for the fee for Facility B shall depend on
the daily average amount of the sum of the credit outstanding under Facility B
during the quarter plus the principal amount of Commercial Paper outstanding
during the quarter that is not supported by any other commercial paper backup
facility, as provided in the following table:
<TABLE>
<CAPTION>
Average Outstandings Percent
-------------------- -------
<S> <C>
$250,000,000 or more 0.110%
$200,000,000 to $249,999,999 0.105%
$150,000,000 to $199,999,999 0.100%
$100,000,000 to $149,999,999 0.095%
$ 50,000,000 to $ 99,999,999 0.090%
$ -0- to $ 49,999,999 0.085%
</TABLE>
3.2 Expenses. Borrower agrees to pay to Bank, on demand, all
costs and expenses incurred by Bank in connection with the preparation of this
Agreement and any agreement or instrument required by this Agreement up to a
maximum of Ten Thousand Dollars ($10,000); provided, however, that this maximum
shall not apply if there are extenuating circumstances that are mutually agreed
by Bank and Borrower that justify increased costs. Expenses include, but are not
limited to, reasonable attorneys' fees, including any allocated costs of Bank's
in-house counsel, which shall be supported by copies of the applicable billing
invoices.
4. Extensions of Credit, Payments and Interest Calculations
4.1 Requests for Credit. Each request for an extension of credit
shall be made in writing on a form acceptable to Bank or in any other manner
acceptable to Bank.
4.2 Oral Requests. At Bank's sole discretion in each instance,
Bank may honor telephone instructions for advances or repayments or for the
designation of optional interest rates. Advances will be deposited into and
repayments will be withdrawn from Borrower's commercial account number
01483-00012 with Bank, or such other account(s) as may be specified in writing
by Borrower. Telephone requests may be made by any one of the individuals
authorized to sign loan agreements on behalf of Borrower, or any other
individual designated by any one of such authorized signers. Bank shall be
entitled to rely upon telephone instructions from persons it reasonably believes
to be authorized by Borrower to make such requests without making independent
inquiry. Borrower hereby indemnifies Bank for, and holds Bank harmless from, any
and all losses, damages, claims and expenses (including reasonable attorneys'
fees and allocated costs of Bank's in-house counsel), however arising, which
Bank suffers or incurs based on or arising out of extensions of credit or
payments made on any telephone request except that Bank shall not be indemnified
against its own gross negligence or willful
-15-
<PAGE> 20
misconduct. The provisions of this Paragraph shall survive termination of this
Agreement.
4.3 Disbursements and Payments. Each disbursement by Bank and
each payment by Borrower under this Agreement shall be made in immediately
available funds, or such other type of funds selected by Bank, and at such
branch of Bank as Bank may from time to time select.
4.4 Branch Accounts. Each extension of credit under
this Agreement shall be made for the account of such branch of
Bank as Bank may from time to time select.
4.5 Evidence of Indebtedness. Principal, interest and all other
sums due Bank under this Agreement shall be evidenced by entries in records
maintained by Bank, and, if required by Bank, by a promissory note or notes.
Each payment on and any other credits with respect to principal, interest and
all other sums due under this Agreement shall be evidenced by entries to records
maintained by Bank.
4.6 Banking Day. Any sum payable by Borrower hereunder which
becomes due on a day which is not a Banking Day shall be due on the next Banking
Day after such due date. Any payments received by Bank on a day which is not a
Banking Day shall be deemed to be received on the next Banking Day after such
date of receipt.
4.7 Increased Costs. If Bank determines that compliance with any
law or regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law, but in each case
promulgated or made after the date hereof) affects or would affect the amount of
reserves, capital or similar requirements required or expected to be maintained
by Bank and that the amount of such reserves, capital or similar requirements is
increased by or based upon the existence of Bank's commitment to lend hereunder
or the extension of credit hereunder, Borrower shall immediately pay to Bank
additional amounts sufficient to compensate Bank in the light of such
circumstances, to the extent that Bank reasonably determines such increase in
reserves, capital or similar requirements to be allocable to the existence of
Bank's commitment to lend hereunder or the extension of credit hereunder.
4.8 Interest Calculation. Except as otherwise stated in this
Agreement, all interest and fees, if any, payable under this Agreement shall be
computed on the basis of a three hundred sixty (360) day year and actual days
elapsed, which results in more interest or a larger fee than if a three hundred
sixty-five (365) day year were used.
4.9 Late Payments; Compounding. Any sum payable by Borrower
hereunder (including unpaid interest) if not paid when
-16-
<PAGE> 21
due shall bear interest (payable on demand) from its due date until payment in
full at a rate per annum equal to the Reference Rate plus one (1.0) percentage
point.
4.10 Default Rate. Upon the occurrence and during the
continuation of any Event of Default, and without constituting a waiver of any
such Event of Default, advances under this Agreement shall at the option of Bank
bear interest at a rate per annum which is one (1.0) percentage point higher
than the rate of interest otherwise provided under this Agreement.
5. Conditions to Availability of Credit.
Bank's obligation to make the first extension of credit under
this Agreement is subject to Bank's receipt of the following, each of which must
be in form and substance satisfactory to Bank:
5.1 Evidence of Authority. Evidence that the execution, delivery,
and performance by Borrower of this Agreement and the execution, delivery, and
performance by Borrower of any instrument or agreement required under this
Agreement, as appropriate, have been duly authorized.
5.2 N&O Acquisition. Evidence that the initial disbursements
hereunder shall be used to consummate the N&O Acquisition.
5.3 Commercial Paper. If Borrower will be using Facility B as a
Commercial Paper backup line, executed copies of all documents related to the
Commercial Paper.
5.4 Other Documents. Such other documents as Bank may reasonably
require.
6. Representations and Warranties
Borrower represents and warrants (and each request for an
extension of credit under this Agreement shall be deemed a representation and
warranty made on the date of such request) that:
6.1 Organization. Borrower is a corporation duly organized and
existing under the laws of the state of its organization and the execution,
delivery, and performance of this Agreement and of any instrument or agreement
required by this Agreement are within Borrower's powers, have been duly
authorized, and are not in conflict with the terms of any charter, bylaw, or
other organization papers of Borrower.
6.2 No Conflicts. The execution, delivery, and performance of
this Agreement and of any instrument or agreement required by this Agreement are
not in conflict with any law or
-17-
<PAGE> 22
any indenture, agreement, or undertaking to which Borrower is a party or by
which Borrower is bound or affected.
6.3 Enforceability. This Agreement is a legal, valid and binding
agreement of Borrower, enforceable against Borrower in accordance with its
terms, and any instrument or agreement required under this Agreement, when
executed and delivered, will be similarly legal, valid, binding and enforceable.
6.4 Good Standing. Borrower is properly licensed and in good
standing in each state in which Borrower is doing business and Borrower has
qualified under, and complied with, where required, the fictitious name statute
of each state in which Borrower is doing business.
6.5 Compliance with Laws. Borrower has complied with all federal,
state, and local laws, rules, and regulations affecting the business of
Borrower.
6.6 Permits, Franchises. Borrower possesses all permits,
memberships, franchises, contracts and licenses required and all trademark
rights, trade name rights, patent rights and fictitious name rights necessary to
enable it to conduct the business in which it is now engaged.
6.7 Litigation. There is no litigation, tax claim, proceeding or
dispute pending, or, to the knowledge of Borrower, threatened, against or
affecting Borrower or its property, the adverse determination of which might
affect Borrower's financial condition or operations or impair Borrower's ability
to perform its obligations hereunder or under any instrument or agreement
required hereunder.
6.8 No Event of Default. No event has occurred and is continuing
or would result from the extension of credit under this Agreement which
constitutes or would constitute an Event of Default or which, upon a lapse of
time or notice or both, would become an Event of Default.
6.9 Other Obligations. Borrower is not in default under any other
material agreement involving the borrowing of money, the extension of credit, or
the lease of real or personal property to which Borrower is a party as borrower,
guarantor, instalment purchaser or lessee.
6.10 Information Submitted. All financial and other information
that has been or will be submitted by Borrower to Bank, including Borrower's
financial statement dated as of March 31, 1995, is and will be:
(a) prepared in accordance with generally accepted
accounting principles consistently applied.
-18-
<PAGE> 23
(b) true and correct in all material respects and is
complete insofar as may be necessary to give Bank a true and accurate
knowledge of the subject matter thereof.
(c) in form and content required by Bank; and
(d) in compliance with all government regulations
applicable thereto.
6.11 No Material Adverse Change. There has been no
material adverse change in the financial condition of Borrower
since the date of the most recent financial statements submitted
to Bank.
6.12 ERISA Plan Compliance.
(a) Borrower has fulfilled its obligations, if any, under
the minimum funding standards of ERISA and the Internal Revenue Code of
1986, as amended from time to time, (the "Code") with respect to each
ERISA Plan and is in compliance in all material respects with the
presently applicable provisions of ERISA and the Code, and has not
incurred any liability with respect to any ERISA Plan under Title IV of
ERISA.
(b) No reportable event has occurred under Section 4043(b)
of ERISA for which the Pension Benefit Guaranty Corporation requires 30
day notice.
(c) No action by Borrower to terminate or withdraw from
any ERISA Plan has been taken and no notice of intent to terminate an
ERISA Plan has been filed under Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to an
ERISA Plan under Section 4042 of ERISA, and no event has occurred or
condition exists which might constitute grounds for the commencement of
such a proceeding.
6.13 Location of Borrower. Borrower's place of business (or, if
Borrower has more than one place of business, its chief executive office) is
located at the address listed under Borrower's signature on this Agreement.
7. Covenants
So long as credit is available under this Agreement and until
full and final payment of all of Borrower's obligations under this Agreement and
any instrument or agreement required under this Agreement, Borrower shall,
unless Bank waives compliance in writing:
-19-
<PAGE> 24
7.1 Notices of Certain Events. Promptly give written
notice to Bank of:
(a) any substantial dispute which may exist between
Borrower or any Subsidiary and any governmental regulatory body or law
enforcement authority.
(b) any Event of Default or any event which, upon a lapse
of time or notice or both, would become an Event of Default.
(c) the occurrence of any reportable event under Section
4043(b) of ERISA for which the Pension Benefit Guaranty Corporation
requires thirty (30) day notice; any action by Borrower to terminate or
withdraw from an ERISA Plan or the filing of any notice of intent to
terminate under Section 4041 of ERISA; any notice of noncompliance made
with respect to an ERISA Plan under Section 4041(b) of ERISA; or the
commencement of any proceeding with respect to an ERISA Plan under
Section 4042 of ERISA;
(d) any other matter which has resulted or might result in
a material adverse change in Borrower's consolidated financial condition
or operations.
7.2 Financial and Other Information. Deliver to Bank in
form and detail satisfactory to Bank, and in such number of copies as Bank may
request:
(a) as soon as available but no later than sixty (60) days
after the close of each of the first three (3) quarters of each of its
fiscal years, Borrower's balance sheet as of the close of such quarter,
and Borrower's statement of income and retained earnings and of changes
in financial position for such quarter stating in comparative form the
figures for corresponding dates and period in the previous fiscal year,
prepared on a consolidated basis and certified by a responsible officer
of Borrower as being complete and correct and fairly presenting
Borrower's financial condition and results of operations;
(b) as soon as available but no later than one hundred
twenty (120) days after the close of each of its fiscal years, a
complete copy of Borrower's audit report, which shall include at least
Borrower's balance sheet as of the close of such year, and Borrower's
statement of income and retained earnings, and reconciliation of capital
accounts, and statement of changes in financial position for such year,
prepared on a consolidated basis stating in a comparative form the
figures as at the close of and for the previous fiscal year and
certified by an independent public accountant selected by Borrower and
satisfactory to Bank. Such certificate shall not be qualified or limited
because of
-20-
<PAGE> 25
restricted or limited examination by such accountant of any material
portion of Borrower's or any Subsidiary's records, and shall include or
be accompanied by a statement from such accountant that during the
examination there was observed no Event of Default or circumstance
which, upon a lapse of time or notice or both, would become an Event of
Default, or a statement of such Event of Default or circumstance if any
is found;
(c) Within fifteen (15) days after the date of filing with
the Securities and Exchange Commission, copies of Borrower's Form 10-K
Annual Report, Form 10-Q Quarterly Report and Form 8-K Current Report.
(d) As soon as available but no later than one hundred
twenty (120) days after the close of each of its fiscal years, a
complete copy of Borrower's annual operating and capital budget
projections.
(e) Promptly upon request of Bank, such other statements,
lists of property and accounts, budgets, forecasts or reports as to
Borrower as Bank may request.
7.3 Books, Records, Audits and Inspections. Maintain adequate
books, accounts and records and prepare all financial statements required
hereunder in accordance with generally accepted accounting principles
consistently applied, and in compliance with the regulations of any governmental
regulatory body having jurisdiction over Borrower or Borrower's business and
permit employees or agents of Bank at any reasonable time to inspect Borrower's
properties and to examine or audit Borrower's books, accounts, and records and
make copies and memoranda thereof. In the event any properties, books, accounts
or records are in the possession of or under the control of a third party,
Borrower shall direct and hereby authorizes such third party to permit access to
Bank's employees or agents for the purpose of performing the inspections,
appraisals, examinations or audits permitted under this Paragraph.
7.4 Total Liabilities to Net Worth. Not permit on a consolidated
basis the ratio of Borrower's Total Liabilities to Net Worth to exceed the
following: (a) from the date of this Agreement through June 30, 2000, 1.35:1.00;
and (b) thereafter, 1.25:1.00.
7.5 Debt Service Coverage Ratio. Achieve on a consolidated basis
Cash Flow at least equal to one and one-quarter (1.25) times the sum of interest
expense and the current portion of long-term debt. This ratio shall be
calculated quarterly using the results of the most recently concluded quarterly
accounting period and each of the three (3) immediately preceding quarterly
accounting periods. For purposes of this Agreement, "Cash Flow" means income
before provision for income
-21-
<PAGE> 26
taxes, less cash payments made to pay income taxes, plus interest expense, plus
depreciation and amortization expense, minus cash payments made to pay
dividends. The current portion of long term debt (other than amounts outstanding
under this Agreement) shall be measured as of the last day of the most recent
quarter end. The current portion of long term debt, as applied to amounts
outstanding under this Agreement, shall be equal to the amount outstanding under
this Agreement as of the most recent quarter end divided by 25% of the number of
quarters remaining in a period starting on the date of the N&O Acquisition and
ending on the tenth anniversary thereof.
7.6 Subsidiaries' Indebtedness. Borrower shall not permit any
Subsidiary to create or incur any indebtedness for borrowed money or for the
deferred purchase price of property under capital leases, or become liable as a
surety, guarantor, accommodation endorser, or otherwise for or upon the
obligation of any other person, firm or corporation; provided, however, that
this Paragraph shall not be deemed to prohibit:
(a) direct or contingent obligations owed to Bank.
(b) the acquisition of goods, supplies or merchandise on
normal trade credit.
(c) the execution of bonds or undertakings in the ordinary
course of its business as presently conducted.
(d) the endorsement of negotiable instruments received in
the ordinary course of its business as presently conducted.
(e) indebtedness and lease obligations existing as of the
date of this Agreement and which have been disclosed to Bank in writing.
(f) additional indebtedness of any Subsidiary in an
aggregate amount not exceeding, for any one Subsidiary, Five Million
Dollars ($5,000,000).
7.7 Liens. Borrower and each Subsidiary shall not create, assume
or suffer to exist any security interest, lien (including the lien of an
attachment, judgment or execution) or encumbrance, securing a charge or
obligation, on or of any of its property, real or personal, whether now owned or
hereafter acquired, except:
(a) liens for current taxes, assessments or other
governmental charges which are not delinquent or remain payable without
any penalty, or the validity of which is contested in good faith by
appropriate proceedings upon stay of execution of the enforcement
thereof; and
-22-
<PAGE> 27
(b) security interest(s) and deed(s) of trust in favor of
Bank.
(c) liens, security interests and encumbrances in
existence as of the date of this Agreement which have been disclosed to
Bank in writing.
(d) purchase money security interests in property
hereafter acquired when the security interest does not extend beyond the
property purchased.
7.8 Sale of Newspapers. Borrower and the Subsidiaries shall not
sell their newspapers in Sacramento, Modesto, Fresno, Tacoma or Raleigh without
the prior written consent of Bank, which consent will not be unreasonably
withheld; provided, however, that the net proceeds of any such sale approved by
Bank must be used to permanently reduce the principal amount outstanding
hereunder and the Commitment.
7.9 Preservation of Rights. Borrower and its Subsidiaries located
in Tacoma, Raleigh and Anchorage shall each maintain and preserve their
existence and any rights, privileges and franchises now enjoyed and reasonably
required in the normal publishing activities of their newspaper operations, and
keep their properties in good working order and condition.
7.10 Other Obligations. Borrower and each Subsidiary shall pay
all obligations, including tax claims, when due, except such as may be contested
in good faith or as to which a bona fide dispute may exist.
7.11 Liquidation; Mergers. Borrower and its Subsidiaries located
in Tacoma, Raleigh and Anchorage shall not liquidate or dissolve, or enter into
any merger or other consolidation; provided, however, that any Subsidiary may
merge into, consolidate with or transfer its business or assets to Borrower or
any other Subsidiary.
7.12 Insurance. Borrower and each Subsidiary shall maintain and
keep in force in adequate amounts such insurance as is usual in its business.
7.13 Compliance with Laws. Borrower and each Subsidiary shall at
all times comply with, or cause to be complied with, all laws, statutes
(including but not limited to any fictitious name statute), rules, regulations,
orders and directions of any governmental authority having jurisdiction over
Borrower (or any Subsidiary) or Borrower's or such Subsidiary's business.
7.14 Accuracy of Financial Information. Cause all financial
information, upon submission by Borrower to Bank, to be true and correct in all
material respects and complete to the
-23-
<PAGE> 28
extent necessary to give Bank a true and accurate knowledge of the subject
matter thereof.
7.15 Change in Name, Structure or Location. Notify Bank in
writing prior to any change in (a) Borrower's name, (b) Borrower's business or
legal structure, or (c) Borrower's place of business or chief executive office
if Borrower has more than one place of business.
8. Events of Default
The occurrence of any of the following Events of Default shall
terminate any obligation on the part of Bank to extend credit under this
Agreement and, at the option of Bank under all Paragraphs except Paragraphs 8.4
and 8.5, and automatically in the case of Paragraphs 8.4 and 8.5, shall make all
obligations of Borrower to Bank under or in respect of this Agreement and any
instrument or agreement required under this Agreement immediately due and
payable, without notice of default, presentment or demand for payment, protest
or notice of nonpayment or dishonor, or other notices or demands of any kind or
character:
8.1 Failure to Pay. Borrower fails to pay, within thirty (30)
days after the date when due, any instalment of interest or principal or any
other sum due under this Agreement in accordance with the terms hereof.
8.2 Breach of Representation or Warranty. Any representation or
warranty herein or in any agreement, instrument or certificate executed pursuant
hereto or in connection with any transaction contemplated hereby proves to have
been false or misleading in any material respect when made.
8.3 Falsity of Information. Any financial or other information
delivered by Borrower to Bank proves to be false or misleading in any material
respect.
8.4 Failure to Pay Debts; Voluntary Bankruptcy. Borrower fails to
pay Borrower's debts generally as they come due, or files any petition,
proceeding, case, or action for relief under any bankruptcy, reorganization,
insolvency, or moratorium law, or any other law or laws for the relief of, or
relating to, debtors.
8.5 Involuntary Bankruptcy. An involuntary petition is filed
under any bankruptcy or similar statute against Borrower, or a receiver,
trustee, liquidator, assignee, custodian, sequestrator, or other similar
official is appointed to take possession of the properties of Borrower. Such
Event of Default shall be deemed cured if such petition or appointment is set
aside or withdrawn or ceases to be in effect within sixty (60) days from the
date of said filing or appointment; provided,
-24-
<PAGE> 29
however, that Bank shall not be obligated to extend any additional credit to
Borrower during such period.
8.6 Suspension of Business. Borrower voluntarily suspends its
business for more than thirty (30) days in any three hundred sixty-five (365)
day period.
8.7 Governmental Action. Any governmental regulatory authority
takes or institutes action which, in the opinion of Bank, will adversely affect
Borrower's condition, operations or ability to pay Borrower's obligations under
this Agreement or any instrument or agreement required under this Agreement.
8.8 Default of Other Financial Obligations. Any default occurs
under any other agreement involving the borrowing of money or the extension of
credit in the amount of Thirty Million Dollars ($30,000,000) or more in the
aggregate, to which Borrower may be a party as borrower, guarantor or instalment
purchaser (including the Commercial Paper) if such default consists of the
failure to pay any obligation when due or if such default gives to the holder of
the obligation concerned the right to accelerate the obligation.
8.9 Default of Other Bank Obligations. Any material default
occurs under any other obligation of Borrower to Bank or to any subsidiary or
affiliate of Bank, if such breach or default continues for ten (10) or more days
after it occurs.
8.10 Material Adverse Change. Any material adverse change occurs
in the financial condition of Borrower, or in Borrower's ability to perform its
obligations under this Agreement or under any instrument or agreement required
by this Agreement.
8.11 ERISA Plan Termination. Any ERISA Plan termination or any
full or partial withdrawal from an ERISA Plan occurs which could result in
liability of Borrower to the Pension Benefit Guaranty Corporation or to the
ERISA Plan in an aggregate amount which, in the reasonable opinion of Bank, will
have a material adverse effect on the financial condition of Borrower.
8.12 Other Breach Under Agreement. Borrower breaches, or defaults
under, any term, condition, provision, representation or warranty contained in
this Agreement not specifically referred to in this Article; provided, however,
that if in Bank's opinion such default is capable of being remedied, such
default shall not be considered an Event of Default hereunder for a period of
thirty (30) days after the date on which Bank gives written notice of such
default to Borrower; it is further provided that, notwithstanding any other
provision of this Agreement, Bank shall be under no obligation to extend
additional credit under this Agreement following the occurrence of any default
hereunder unless and until such default has been cured.
-25-
<PAGE> 30
9. Miscellaneous
9.1 Successors and Assigns. This Agreement shall bind and inure
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that Borrower shall not assign this Agreement or any
of the rights, duties or obligations of Borrower hereunder without the prior
written consent of Bank.
9.2 Consents and Waivers. No consent or waiver under this
Agreement shall be effective unless in writing. No waiver of any breach or
default shall be deemed a waiver of any breach or default thereafter occurring.
9.3 Governing Law. This Agreement shall be governed by
and construed under the laws of the State of California.
9.4 Attorneys' Fees. Borrower agrees to pay to Bank, on demand,
all reasonable costs, expenses and attorneys' fees (including allocated costs
for in-house legal services) incurred by Bank in connection with the enforcement
and preservation of any rights or remedies under this Agreement and any
instrument or agreement required under this Agreement, and including any
amendment, waiver, "workout" or restructuring under this Agreement. In the event
a legal action or arbitration proceeding is commenced in connection with the
enforcement of this Agreement or any instrument or agreement required under this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees
(including allocated costs for in-house legal services), costs and necessary
disbursements incurred in connection with such action or proceeding, as
determined by the court or arbitrator.
9.5 Integration. This Agreement and any instrument, agreement or
document attached hereto or referred to herein (a) integrate all the terms and
conditions mentioned herein or incidental hereto, (b) supersede all oral
negotiations and prior writings in respect to the subject matter hereof, and (c)
are intended by the parties as the final expression of the agreement with
respect to the terms and conditions set forth in this Agreement and any such
instrument, agreement or document and as the complete and exclusive statement of
the terms agreed to by the parties. In the event of any conflict between the
terms, conditions and provisions of this Agreement and any such instrument,
agreement, or document, the terms, conditions and provisions of this Agreement
shall prevail.
9.6 Participations. Bank may at any time sell, assign, grant
participations in, or otherwise transfer to any other person, firm, or
corporation (a "Participant") all or part of the obligations of Borrower under
this Agreement. Borrower shall have the right to approve the Participant, which
approval shall not unreasonably be withheld. Borrower authorizes Bank to
disclose to any prospective Participant and any Participant any
-26-
<PAGE> 31
and all information in Bank's possession concerning Borrower and this Agreement;
provided, however, that any such prospective Participant or Participant shall
agree to use and keep any such information confidential in conformity with the
obligations imposed on Bank under Paragraph 9.7 below.
9.7 Confidentiality. Bank agrees that it will not use any
proprietary and confidential information provided to it by Borrower in a manner
not permitted by law. Bank further agrees that it will not disclose any such
information to any third party without the prior written consent of Borrower,
except that (a) Bank may disclose such information to the extent such
information is or becomes publicly available through no fault of Bank; (b) Bank
may disclose such information to Bank's counsel, accountants and other
professional advisors; (c) Bank may disclose such information at the request of
any bank regulatory authority or in connection with an examination of Bank by
such authority; (d) Bank may disclose such information as required by law or
applicable regulation; (e) Bank may disclose such information to the extent
required in connection with the exercise of any remedy hereunder; and (f) Bank
may disclose such information to a Participant to the extent permitted under
Paragraph 9.6 above.
9.8 Arbitration; Reference Proceeding.
(a) Any controversy or claim between or among the parties
to this Agreement, arising out of or relating to this Agreement or any
agreements or instruments relating hereto or delivered in connection
herewith (including any claim based on or arising from an alleged tort),
shall at the request of any party be determined by arbitration. The
arbitration shall be conducted in accordance with the United States
Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the
American Arbitration Association ("AAA"). The arbitrator(s) shall give
effect to statutes of limitation in determining any claim. Any
controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator(s). Judgment upon the arbitration award may
be entered in any court having jurisdiction. The institution and
maintenance of an action for judicial relief or pursuit of a provisional
or ancillary remedy shall not constitute a waiver of the right of any
party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief.
(b) A controversy or claim which is not submitted to
arbitration as provided in subparagraph (a) shall, at the request of any
party, be determined by a reference in accordance with California Code
of Civil Procedure Sections 638 et seq. If such an election is made, the
parties shall designate to the court a referee or referees selected
under the auspices of the AAA in the same manner as arbitrators are
-27-
<PAGE> 32
selected in AAA-sponsored proceedings. The presiding referee of the
panel, or the referee if there is a single referee, shall be an active
attorney or retired judge. Judgment upon the award rendered by such
referee or referees shall be entered in the court in which such
proceeding was commenced in accordance with California Code of Civil
Procedure Sections 644 and 645.
(c) No provision of this Paragraph shall limit the right
of any party to this Agreement to obtain provisional or ancillary
remedies from a court of competent jurisdiction before, after, or during
the pendency of any arbitration or other proceeding. The exercise of a
remedy does not waive the right of either party to resort to arbitration
or reference.
9.9 Notices. All notices required hereunder shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses set
forth on the signature page of this Agreement, or to such other addresses as the
parties hereto may specify from time to time in writing.
9.10 Headings. Article and paragraph headings are for reference
only and shall not affect the interpretation or meaning of any provisions of
this Agreement.
9.11 Severability. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
9.12 Waiver of Set-Off. Bank agrees that, in the absence of a
default under Paragraph 8.4 or 8.5 above (voluntary and involuntary bankruptcy),
Bank shall not set off against the amounts due to Bank under this Agreement any
funds deposited with Bank by Borrower or any investments made by Borrower
through Bank or held by Borrower in an account at Bank.
9.13 Counterparts. This Agreement may be executed in as many
counterparts as may be deemed necessary or convenient, and by the different
parties hereto on separate counterparts each of
-28-
<PAGE> 33
which, when so executed, shall be deemed an original but all such counterparts
shall constitute but one and the same agreement.
In Witness Whereof, the parties hereto have executed this
Agreement as of the day and year first above written.
BANK OF AMERICA NATIONAL McCLATCHY NEWSPAPERS, INC.
TRUST AND SAVINGS ASSOCIATION
By /s/John Grauten By /s/James P. Smith
----------------- ------------------------------
John Grauten Typed Name James P. Smith
Vice President Title VP, Finance
By_______________________________
Typed Name_______________________
Title____________________________
Address where notices to Address where notices to
Bank are to be sent: Borrower are to be sent:
900 8th Street, 2nd floor 2100 Q Street
Sacramento, CA 95814 Sacramento, CA 95816
-29-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM SEC FILING FORM
10-Q AND IS QUALIFIED INITS ENTIRETY, BY REFERENCE TO SUCH FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS).
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 103,753
<SECURITIES> 14,157
<RECEIVABLES> 54,120
<ALLOWANCES> 2,083
<INVENTORY> 11,336
<CURRENT-ASSETS> 195,504
<PP&E> 466,880
<DEPRECIATION> (194,113)
<TOTAL-ASSETS> 588,289
<CURRENT-LIABILITIES> 59,236
<BONDS> 0
<COMMON> 300
0
0
<OTHER-SE> 456,005
<TOTAL-LIABILITY-AND-EQUITY> 588,289
<SALES> 238,446
<TOTAL-REVENUES> 238,446
<CGS> 0
<TOTAL-COSTS> 208,354
<OTHER-EXPENSES> (2,390)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> 32,458
<INCOME-TAX> 13,285
<INCOME-CONTINUING> 19,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,173
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
</TABLE>
