===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
_ 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)
Delaware 940666175
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2100 "Q" Street, Sacramento, CA. 95816
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (916) 321-1846
---------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------------------- -----------------------
Class A Common Stock, par value New York Stock Exchange
$.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K X .
---
Aggregate market value of the Company's voting stock held by non-affiliates
on March 17, 1997, based on the closing price for the Company's Class A Common
Stock on the New York Stock Exchange on such date: approximately $399,611,075.
For purposes of the foregoing calculation only, required by Form 10-K, the
Registrant has included in the shares owned by affiliates the beneficial
ownership of Common Stock of officers and directors of the Registrant and
members of their families, and such inclusion shall not be construed as an
admission that any such person is an affiliate for any purpose.
Shares outstanding at March 17, 1997:
Class A Common Stock - 9,018,108 shares
Class B Common Stock - 28,842,287 shares
Documents incorporated by reference:
Definitive Proxy Statement for the Company's May 21, 1997 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934 (incorporated in Part III to the extent provided in Items
10, 11, 12 and 13 hereof).
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<PAGE>
INDEX TO McCLATCHY NEWSPAPERS, INC.
1996 FORM 10-K
Item No. Page
- -------- ----
PART I
1. Business............................................................. 1
Overview............................................................. 1
California Newspapers................................................ 2
Northwest Newspapers................................................. 4
Carolinas Newspapers................................................. 7
Other Operations..................................................... 9
Raw Materials........................................................ 10
Competition.......................................................... 11
Employees - Labor.................................................... 11
2. Properties........................................................... 12
3. Legal Proceedings.................................................... 13
4. Submission of Matters to a Vote of Security
Holders.......................................................... 13
PART II
5. Market for the Registrant's Common Stock
and Related Stockholder Matters.................................. 13
6. Selected Financial Data.............................................. 14
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 15
8. Financial Statements and Supplementary Data.......................... 21
9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure........................... 45
PART III
10. Directors and Executive Officers of the
Registrant....................................................... 45
11. Executive Compensation............................................... 45
12. Security Ownership of Certain Beneficial
Owners and Management............................................ 45
13. Certain Relationships and Related
Transactions..................................................... 45
PART IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K.......................................... 46
<PAGE>
PART I
ITEM 1. BUSINESS
Overview
McClatchy Newspapers, Inc. was originally incorporated in California in
1930 and reincorporated in Delaware on July 2, 1987. McClatchy Newspapers, Inc.
and its subsidiaries (collectively the "Company") own and publish 22 newspapers
in three regions of the Country -- California, Northwest (Alaska and Washington)
and the Carolinas. Its newspapers range from large dailies serving metropolitan
areas to non-daily newspapers serving small communities. For the year ended
December 31, 1996, the Company had an average paid daily circulation of 972,600,
Sunday circulation of 1,175,100 and non-daily circulation of 77,500.
On August 1, 1995 the Company purchased The News and Observer Publishing
Company (N&O) for $374 million (see note 2 to the consolidated financial
statements in Part II, Item 8 and Carolinas newspapers discussion below). N&O
publishes The News & Observer (Raleigh, N.C.) newspaper, seven other non-daily
publications in North Carolina and Nando, an online publishing company. The N&O
newspaper has a daily circulation of approximately 157,000 and 205,000 on
Sunday. The results of N&O have been included in the Company's consolidated
results beginning on August 1, 1995.
Each of the Company's newspapers is semiautonomous in its business and
editorial operations so as to meet most effectively the needs of the communities
it serves. Publishers, editors and general managers of the newspapers make the
day-to-day decisions and within limits are responsible for their own budgeting
and planning. Policies on such matters as the amount and type of capital
expenditures, key personnel changes, and strategic planning and operating
budgets including wage and pricing matters, are approved or established by the
Company's senior management or Board of Directors.
The Company's overall strategy is to concentrate on developing its
newspapers and smaller related businesses. Each of its ten largest daily
newspapers has the largest circulation of any newspaper servicing its particular
metropolitan area. The Company believes that this circulation advantage is of
primary importance in attracting advertising, the principal source of revenues
for the Company. Advertising revenues approximated 78% of consolidated revenues
in 1996 and 77% of consolidated revenues in 1995. Circulation revenues
approximated 17% of consolidated revenues in 1996 and 18% of consolidated
revenues in 1995.
The Company's newspaper business is somewhat seasonal, with peak revenues
and profits generally occurring in the second and fourth quarters of each year
as a result of increased advertising activity during the Easter holiday and
spring advertising season, and Thanksgiving and Christmas periods. The first
quarter is historically the weakest quarter for revenues and profits.
1
<PAGE>
Other businesses owned by the Company include Legi-Tech, an online computer
service which provides information to clients on legislative activity in the
California state legislature and in the United States Congress; Nando, the
Company's online publishing operations, and McClatchy Printing Company and
Benson Printing Company, commercial printing operations in California and North
Carolina. The Company also owns The Newspaper Network (TNN), a distributor of
preprinted advertising inserts and run-of-press advertising. In addition, the
Company is a partner (13.5% interest) in Ponderay Newsprint Company, a general
partnership that owns and operates a newsprint mill in Washington State.
When used in this Report, the words "expect" and "project" and similar
expressions are generally intended to identify forward looking statements. Such
statements are subject to certain risks and uncertainties, including those
discussed below, that could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these forward
looking statements, which speak only as of the date hereof.
CALIFORNIA NEWSPAPERS:
<TABLE>
The three "Bee" newspapers have formed the core of the Company's operations
for many years and continue to have a significant influence on the civic,
political, economic and cultural life of California's Central Valley. These
newspapers are summarized below:
<CAPTION>
1996 Circulation (1)
------------------------
Newspaper Daily/Weekly Sunday 1996 Revenues 1995 Revenues
--------- ------------ ------ ------------- -------------
<S> <C> <C> <C> <C>
The Sacramento Bee 281,900 350,100 $ 178,801,000 $ 181,247,000
The Fresno Bee 154,800 188,800 79,554,000 80,209,000
The Modesto Bee 82,400 90,200 43,332,000 44,182,000
Other newspapers 26,900 - 9,032,000 8,655,000
(1) Based on calendar year average paid daily circulation.
</TABLE>
The Bee newspapers and other California papers produced approximately 49.8%
of the total Company revenues in 1996, versus 58.1% in 1995. In February 1997,
the Company sold four of its California newspapers that had a combined daily
circulation of approximately 10,150 and weekly circulation of 12,800. These
newspapers generated $7.6 million in revenues in 1996.
The Sacramento Bee
The Sacramento Bee, the Company's largest newspaper, is a morning newspaper
serving the California state capital and its metropolitan area. In 1996 The
Sacramento Bee's average paid circulation increased 0.7% daily and decreased
0.1% Sunday from 1995. As of December 31, 1996, approximately 88.0% of the
daily, and 80.0% of the Sunday circulation was home delivered.
The Sacramento Bee's advertising linage for the years ended December 31,
1996 and 1995 is set forth in the following table.
2
<PAGE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run 2,237 2,390
Part Run 289 334
Total Market Coverage 151 167
Net revenues of The Sacramento Bee decreased 1.3% from 1995.
</TABLE>
The Fresno Bee
The Fresno Bee is a morning newspaper serving the Fresno, California
metropolitan area. The Fresno Bee's average paid circulation increased 0.5%
daily and was flat Sunday versus 1995. As of December 31, 1996, approximately
86.9% of The Fresno Bee's daily and 89.1% of the Sunday circulation was home
delivered.
The Fresno Bee's advertising linage for the years ended December 31, 1996
and 1995 is set forth in the following table:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run 1,300 1,366
Part Run 138 113
Total Market Coverage 143 182
Net revenues of The Fresno Bee declined 0.8% from 1995.
</TABLE>
The Modesto Bee
The Modesto Bee is a morning newspaper that serves the Modesto, California
metropolitan area, located between Sacramento and Fresno. The Modesto Bee's
average paid circulation declined 1.5% daily and 1.4% Sunday versus 1995. As of
December 31, 1996, approximately 88.9% of the daily and 87.2% of the Sunday
circulation was home delivered.
The Modesto Bee's advertising linage for the years ended December 31, 1996,
and 1995 is set forth in the following table:
3
<PAGE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run 1,078 1,134
Part Run 54 71
Total Market Coverage 501 529
Net revenues of The Modesto Bee decreased 1.9% from 1995.
</TABLE>
Other California Newspapers
In February 1997, the Company sold the following four of its nondaily
California newspapers, with the Clovis Independent remaining its sole nondaily
paper in the region. The Gilroy Dispatch and Hollister Free Lance, along with
the weekly Morgan Hill Times, serve small rural communities south of San Jose.
The Amador Dispatch and Murietta Times are nondaily newspapers that serve small
communities in the Sierra foothills, east of Sacramento, while the Clovis
Independent is a weekly newspaper serving a community north of Fresno. The
combined net revenues of these newspapers declined 12.5% from 1995.
NORTHWEST NEWSPAPERS:
The Company began to diversify geographically outside of California in 1979
when it purchased the Anchorage Daily News. Later that year the Company
purchased the Tri-City Herald in Southeastern Washington. In 1986, the Company
purchased its fourth largest newspaper, The (Tacoma) News Tribune. In June 1995,
the Company acquired the Peninsula Gateway in Gig Harbor, Washington, and in
December 1996, the Company sold the Ellensburg Daily Record. The Company now
publishes four newspapers in Washington State and the largest daily newspaper in
Alaska. These newspapers are summarized below:
<TABLE>
<CAPTION>
1996 Circulation (1)
------------------------
Newspaper Daily/Weekly Sunday 1996 Revenues 1995 Revenues
--------- ------------ ------ ------------- -------------
<S> <C> <C> <C> <C>
The News Tribune (Tacoma) 128,600 147,800 $ 69,906,000 $ 70,467,000
Anchorage Daily News 73,500 91,500 49,352,000 47,549,000
Tri-City Herald 40,100 43,700 18,708,000 18,545,000
Other newspapers 22,900 - 5,603,000 4,278,000
(1) Based on calendar year average paid circulation (includes circulation
of approximately 4,800 at the Ellensburg Daily Record which was sold in
December 1996).
</TABLE>
The Company's northwest newspapers produced approximately 23.0% of the
Company's total revenues in 1996 versus 26.0% in 1995.
4
<PAGE>
The News Tribune
The News Tribune, a morning newspaper, primarily serves the Tacoma,
Washington metropolitan area in Pierce and South King Counties. It is the third
largest newspaper in the state. In 1996 the average paid circulation of The News
Tribune declined 0.4% daily and 0.1% Sunday versus 1995.
Tacoma is approximately 30 miles south of Seattle. The News Tribune
competes in the northern most fringes of its market with the major Seattle daily
newspapers. As of December 31, 1996 approximately 84.0% of the daily and 82.0%
of the Sunday circulation was home delivered.
The Tacoma News Tribune's advertising linage for the years ended December
31, 1996 and 1995 is set forth in the following table.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run 1,138 1,274
Part Run 36 30
Total Market Coverage 93 80
Net revenues of the News Tribune declined 0.8% from 1995.
</TABLE>
Anchorage Daily News
The Anchorage Daily News, a morning newspaper, is Alaska's largest
newspaper. The Anchorage Daily News circulates throughout the state of Alaska
but its primary circulation is concentrated in the south central region of the
state comprised of metropolitan Anchorage, the Kenai Peninsula and the
Matanuska-Susitna Valley.
The Daily News' average paid daily circulation was up 0.1% in 1996, while
Sunday circulation declined 2.1% from 1995. As of December 31, 1996
approximately 73.5% of the daily and 65.0% of the Sunday circulation was home
delivered.
Comparative amounts of linage for the years ended December 31, 1996 and
1995 are set forth in the following table:
5
<PAGE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run 1,108 1,063
Total Market Coverage 28 28
Net revenues of the Anchorage Daily News increased 3.8% over 1995.
</TABLE>
Tri-City Herald
The Tri-City Herald is a morning newspaper serving the Tri-Cities of
Richland, Kennewick and Pasco in southeastern Washington. The Tri-Cities economy
has benefited by the Department of Energy's (DOE) efforts to clean up nuclear
waste at nearby Hanford Nuclear reservation. However, recent layoffs by the DOE
at Hanford have begun to slow economic growth in the area.
The Tri-City Herald's average paid circulation has declined 1.0% daily and
0.6% Sunday from 1995. As of December 31, 1996, approximately 91.3% of the daily
and 89.6% of the Sunday circulation was home delivered.
The Tri-City Herald's advertising linage for the years ended December 31,
1996 and 1995 is set forth in the following table:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run 853 850
Total Market Coverage 67 50
Net revenues of the Tri-City Herald increased 0.9% over 1995.
</TABLE>
Other Northwestern Newspapers
The Ellensburg Daily Record was sold in December 1996. The Company's other
non-daily newspapers include the Peninsula Gateway in South Puget Sound, which
was purchased in July 1995, and the Pierce County Herald which circulates twice
a week in Puyallup, near Tacoma. The combined net revenues of the other
northwestern newspapers increased 31.0% over 1995. The Ellensburg Daily Record
had revenues of $1.6 million in 1996.
6
<PAGE>
CAROLINAS NEWSPAPERS:
In 1990, the Company purchased three daily and three nondaily newspapers in
South Carolina from The News and Observer Publishing Company (N&O). On August 1,
1995, the Company purchased the remainder of N&O which included The News &
Observer newspaper and six non-daily newspapers (and other businesses discussed
below).
<TABLE>
The Carolinas newspapers are summarized below:
<CAPTION>
1996 Circulation (1)
-----------------------
Newspaper Daily/Weekly Sunday 1996 Revenues 1995 Revenues (2)
--------- ------------ ------ ------------- -----------------
<S> <C> <C> <C> <C>
The News & Observer (Raleigh) 156,700 204,500 $ 112,023,000 $ 44,966,000
The Herald (Rock Hill) 30,300 31,500 11,355,000 10,804,000
The Island Packet (Hilton 13,800 16,600 9,068,000 7,879,000
Head)
Beaufort Gazette 10,600 10,500 4,389,000 3,610,000
Nondaily newspapers 43,100 - 16,839,000 5,685,000
(1) Based on calendar year average paid circulation.
(2) North Carolina newspaper revenues since August 1, 1995.
</TABLE>
The Carolinas newspapers produced 24.6% of total Company revenues in 1996
versus 13.6% in 1995.
The News & Observer
The News & Observer, the Company's second largest newspaper, is a morning
daily serving North Carolina's state capital, Raleigh, and the thriving Research
Triangle which includes Raleigh, Durham and Chapel Hill, North Carolina.
The News & Observer's average paid circulation in 1996 increased
approximately 2.0% daily and 2.3% Sunday over calendar year 1995. As of December
31, 1996 approximately 84.0% of the daily and 74.0% of the Sunday circulation
was home delivered.
The News & Observer's advertising linage for the year ended December 31,
1996 and the five months ended December 31, 1995 is set forth in the following
table.
7
<PAGE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run 1,868 762
Part Run 95 51
Total Market Coverage 8 4
</TABLE>
On a pro forma basis (including seven months in 1995 when McClatchy did not
own N&O), The News & Observer's revenues for 1996 increased 10.0% over 1995.
The Herald
The Herald is a morning newspaper serving Rock Hill and surrounding
communities in York County, South Carolina. Rock Hill is a community
approximately 25 miles southwest of Charlotte, North Carolina. In 1996 The
Herald's average paid circulation decreased 1.0% daily and Sunday from 1995.
The Herald's main competitor is a zoned edition of the Charlotte Observer,
whose circulation in The Herald's primary circulation area is estimated to be
approximately a third of The Herald's circulation. As of December 31, 1996,
approximately 81.0% of the daily and 78.0% of the Sunday circulation was home
delivered.
<TABLE>
Advertising linage for the years ended December 31, 1996 and 1995 were as
follows:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run 910 843
Total Market Coverage 58 58
Net revenues of The Herald increased 5.1% over 1995.
</TABLE>
The Island Packet and The Beaufort Gazette
The Island Packet and The Beaufort Gazette serve Beaufort County in
southeastern South Carolina. The Island Packet serves Hilton Head Island where
tourism, and retirement communities and services are the economic mainstays. The
Gazette serves the city of Beaufort and northern Beaufort County encompassing
surrounding islands of Lady's, St. Helena, Fripp and Paris.
Each of the newspapers added a Saturday edition in September 1995 making
them seven-day-a-week publications. The average paid circulation increased 0.8%
daily and 0.7% Sunday at The Island Packet and declined 0.1% daily and 2.4%
Sunday at The Gazette.
8
<PAGE>
As of December 31, 1996, approximately 62.0% of the daily and 51.0% of the
Sunday circulation of The Packet was home delivered. Comparable amounts for The
Gazette 72.0% daily and 74.0% Sunday.
<TABLE>
Advertising linage for the years ended December 31, 1996 and 1995 for the
newspapers were:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Packet Full Run 716 679
Packet Part Run 21 -
Packet Total Market Coverage 2 6
Gazette Full Run 409 407
Gazette Total Market Coverage 57 53
Net revenues of The Packet increased 15.1% over 1995, while The Gazette's
net revenues were up 21.6%.
</TABLE>
Carolinas Nondaily Newspapers
The South Carolina nondaily newspapers include the Clover Herald, the
Yorkville Enquirer and the Lake Wylie Magazine and serve small communities in
Chester and York counties. Net revenues for these newspapers were $662,000, up
6.6% from 1995.
The North Carolina nondailies are newspapers that serve small communities
generally surrounding Raleigh. They are (circulation in parenthesis): Chapel
Hill News (21,000 primarily free distribution), Cary News (11,900), Zebulon
Record (3,200), Gold Leaf Farmer (3,700), Mount Olive Tribune (3,800) and
Smithfield Herald (14,700). N&O also publishes Business North Carolina, a
monthly magazine distributed to approximately 24,000 homes throughout North
Carolina. Total net revenues for these operations for the year ended December
31, 1996 were $16,177,000 and were $5,064,000 for the five months ended December
31, 1995.
OTHER OPERATIONS
The Company continues to expand the distribution of preprinted advertising
inserts and run-of-press advertising nationally under The Newspaper Network,
Inc. The Newspaper Network has launched a national business of offering
advertisers one-order, one-bill sales of advertising in newspapers throughout
the country. The Company believes that this initiative is important for both
McClatchy and the newspaper industry in competing with direct mail on a national
basis.
Legi-Tech is an online computer service which provides information to
clients on legislative activity in the California legislature and in the United
States Congress. Legi-Tech also provides the Sacramento Bee online to its
customers and sells historical legislative information, as well as The
Sacramento and Fresno Bees on CD-ROM.
9
<PAGE>
As a result of the Company's continued research and development of new
technologies for its news and data, most of its larger papers are providing
subscriber and advertiser services through various forms of electronic
distribution. Six of the Company's largest newspapers are available online
through the World Wide Web. The Company's online services were expanded greatly
with the purchase of N&O's Nando, an online publishing operation. In addition to
business, sports, national and international news and other information, Nando
includes The News & Observer's and The Sacramento Bee's classified advertising
listings. As Nando continues to evolve, it has also become a technology and
content partner with other McClatchy newspapers' internet sites.
McClatchy Printing Company, located in Clovis, California and Benson
Printing, located in Benson, N.C. are commercial printers. They print various
commercial products and preprinted advertisements for third party customers and
also print television guides for some of the Company's newspapers.
Revenues for these operations were $16,271,000, up 27.1% over 1995, and
were up 9.5% excluding new operations added in the acquisition of N&O. Revenues
from these ventures represent 2.6% of total revenues in 1996 and 2.4% in 1995.
Raw Materials
In 1996 the Company consumed approximately 165,000 metric tons of newsprint
(33,000 from N&O) compared to 149,000 metric tons in 1995 (13,000 from N&O). The
Company currently obtains its supply of newsprint from a number of suppliers
under long-term contracts.
Newsprint and supplement expense accounted for approximately 20.9% of
operating expenses in 1996 compared to 21.9% in 1995. Management believes its
newsprint sources of supply under existing arrangements are adequate for its
anticipated needs. A world-wide imbalance between newsprint supply and demand
caused significant fluctuations in newsprint prices in 1994, 1995 and 1996.
Significant increases in the price of newsprint would adversely affect the
operating results of the Company to the extent that it was not offset by
advertising and circulation volume and/or rate increases. However, the Company
expects average newsprint prices in 1997 to remain below 1996 levels.
The Company, through a wholly-owned subsidiary, Newsprint Ventures, Inc.
and four other publishers and a Canadian newsprint manufacturer are partners in
Ponderay Newsprint Company, a general partnership which owns and operates a
newsprint mill located sixty miles northeast of Spokane, Washington. The mill
became operational in late 1989 and has a production capacity in excess of
225,000 metric tons annually. The publisher partners have committed to take
126,000 metric tons of this anticipated production on a "take-if-tendered" basis
with the balance to be sold on the open market. The Company's annual commitment
is 28,400 metric tons. The Company negotiated to purchase an additional 10,000
metric tons in 1996 and 8,000 in 1997 from the mill. See Part II, Items 7 and 8
for further discussion of the impact of this investment on the Company's
business.
10
<PAGE>
Competition
The Company faces competition for advertising revenues from television,
radio and direct mail programs, suburban neighborhood and national newspapers
and other publications. Competition for advertising is based upon circulation
levels, readership demographics, price and advertiser results, while competition
for circulation is generally based upon the content, journalistic quality and
price of the newspaper. The Company's major daily newspapers are well ahead of
their newspaper competitors in both advertising linage and general circulation
in all of their markets.
Employees - Labor
As of December 31, 1996, the Company had 7,590 full and part-time
employees, of whom approximately 9.0% were represented by unions.
In 1996, The Fresno Bee and The Modesto Bee signed two-year and
eighteen-month contracts, respectively, with certain unions, leaving no open
labor negotiations at these newspapers.
Following the expiration of contracts with certain unions at The Sacramento
Bee, negotiations between the newspaper and the affected unions (which represent
approximately 15.5% of The Sacramento Bee's employees) reached an impasse. In
early 1987, final offers were "posted" to the unions at The Sacramento Bee. It
is under these posted conditions that such union employees have been working.
Negotiations with the unions are ongoing.
While the Company's newspapers have not had a strike since 1978 and they do
not currently anticipate a strike occurring, the Company cannot preclude the
possibility that a strike may occur at one or more of its newspapers. The
Company believes that, in the event of a newspaper strike, it would be able to
continue to publish and deliver to subscribers, a capability which is critical
to retaining revenues from advertising and circulation.
11
<PAGE>
ITEM 2. PROPERTIES
The corporate headquarters of the Company are located at 2100 "Q" Street,
Sacramento, California. The general character, location and approximate size of
the principal physical properties used by the Company at December 31, 1996, are
set forth below. Facilities at the four California newspapers that were sold in
February 1997 are excluded from this table.
<TABLE>
<CAPTION>
Approximate Area
in Square Feet
--------------------------
Owned Leased
----- ------
<S> <C> <C>
Printing plants, business and editorial
offices and warehouse space located in:
Sacramento, California 685,914 22,327
Fresno, California 406,000 14,783
Tacoma, Washington 319,599 5,544
Raleigh, North Carolina 252,700 45,496
Modesto, California 163,166 19,574
Anchorage, Alaska 143,526
Garner, North Carolina 131,500
Kennewick, Washington 98,081
Rock Hill, South Carolina 49,000
Clovis, California 27,100 9,900
Beaufort, South Carolina 16,500 450
Mount Olive, North Carolina 13,200
Smithfield, North Carolina 11,149
Benson, North Carolina 10,700
Chapel Hill, North Carolina 10,504 3,139
Hilton Head, South Carolina 9,700
Puyallup, Washington 6,500 1,606
Durham, North Carolina 12,250
Cary, North Carolina 11,400
Gig Harbor, Washington 9,000
Federal Way, Washington 4,420
York, South Carolina 3,694
Other--principally northern California 2,800 161,463
</TABLE>
The Company believes that its current facilities are adequate to meet the
present and immediately foreseeable needs of its newspapers.
12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company becomes involved from time to time in claims and lawsuits
incidental to the ordinary course of its business, including such matters as
libel, invasion of privacy and wrongful termination actions, and complaints
alleging discrimination. In addition, the Company is involved from time to time
in governmental and administrative proceedings concerning labor, environmental
and other claims. Management believes that the outcome of pending claims or
proceedings will not have a material adverse effect upon the Company's
consolidated results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
McClatchy Newspapers, Inc. Class A Common Stock is listed on the New York
Stock Exchange (NYSE symbol-MNI). Class A Stock is also traded on the Midwest
Stock Exchange and the Pacific Stock Exchange. The Company's Class B Stock is
not publicly traded. The following table lists dividends paid on Common Stock
and the prices of the Company's Class A Common Stock as reported by these
exchanges for 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------------- --------------------------------
High Low Dividends High Low Dividends
------ ------ --------- ------ ------ ---------
<C> <C> <C> <C> <C> <C> <C>
1st Quarter $19.70 $17.40 $.076 $19.30 $16.90 $.076
2nd Quarter $22.10 $18.60 $.076 $18.90 $17.50 $.076
3rd Quarter $22.80 $19.50 $.076 $18.60 $17.20 $.076
4th Quarter $28.10 $21.90 $.095 $18.60 $15.30 $.076
</TABLE>
The high and low sales prices and dividends per share have been adjusted
for 1996 and 1995 to reflect the impact of a five-for-four split declared by the
Company's Board of Directors on December 4, 1996, paid on January 2, 1997.
The Company's Board of Directors does not anticipate reducing the present
level of quarterly dividend payments. However, the payment and amount of future
dividends remain within the discretion of the Board of Directors and will depend
upon the Company's future earnings, financial condition and requirements, and
other factors considered relevant by the Board.
The number of record holders of Class A and Class B Common Stock at March
17, 1997 was 1,430 and 27, respectively.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
FIVE-YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
CONSOLIDATED INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenues - net:
Advertising $ 484,460 $ 418,841 $ 368,068 $ 350,046 $ 345,574
Circulation 108,317 95,248 85,017 83,729 80,318
Other 31,456 26,790 18,333 15,340 14,355
----------- ----------- ----------- ----------- -----------
Total 624,233 540,879 471,418 449,115 440,247
Operating expenses:
Depreciation and amortization 52,954 44,000 38,140 35,583 33,560
Other costs and expenses 486,044 434,505 361,410 348,428 344,764
----------- ----------- ----------- ----------- -----------
Total 538,998 478,505 399,550 384,011 378,324
----------- ----------- ----------- ----------- -----------
Operating income 85,235 62,374 71,868 65,104 61,923
Partnership (income) losses (3,024) 630 5,469 6,171 6,674
Other nonoperating expenses (income) 10,344 2,729 (3,166) 17 991
----------- ----------- ----------- ----------- -----------
Income before income tax provision and
accounting changes 77,915 59,015 69,565 58,916 54,258
Income tax provision 33,422 25,397 22,920 27,118 24,087
----------- ----------- ----------- ----------- -----------
Income before effect of accounting changes 44,493 33,618 46,645 31,798 30,171
Effect of accounting changes (341)
----------- ----------- ----------- ----------- -----------
Net income $ 44,493 $ 33,618 $ 46,645 $ 31,798 $ 29,830
=========== =========== =========== =========== ===========
Earnings per common share:
Income before effect of accounting changes $ 1.18 $ 0.90 $ 1.26 $ 0.88 $ 0.84
Effect of accounting changes (0.01)
----------- ----------- ----------- ----------- -----------
Net income $ 1.18 $ 0.90 $ 1.26 $ 0.88 $ 0.83
=========== =========== =========== =========== ===========
Dividends per common share $ 0.323 $ 0.304 $ 0.264 $ 0.216 $ 0.172
=========== =========== =========== =========== ===========
CONSOLIDATED BALANCE SHEET DATA:
Total assets $ 875,666 $ 892,958 $ 586,637 $ 525,163 $ 491,151
Long-term bank debt 190,000 243,000 - - 10,164
Stockholders' equity 503,114 465,694 442,220 383,523 358,299
All per share amounts have been adjusted for a five-for-four stock split
paid on January 2, 1997. Results for 1996 include a pre-tax gain of $2.8 million
on the sale of a newspaper and other business operations. Results for 1995
include a $2.7 million pre-tax charge related to early retirement programs while
1994 includes a $6.0 million favorable adjustment (included in the income tax
provision) related to the resolution of income tax audits. Results for 1992
include a $2.6 million pre-tax charge related to an early retirement program.
This summary should be read in conjunction with the consolidated financial
statements and notes thereto.
</TABLE>
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Recent Events and Trends
On December 4, 1996 the Company declared a five-for-four stock split in the
form of a 25% stock dividend which was paid on January 2, 1997. All outstanding
shares and per share amounts have been restated in this discussion to reflect
the stock dividend.
In October 1996, the Company announced that it had entered into agreements
in principle to sell five community newspapers. In December, the Company
completed the sale of the Ellensburg Daily Record and recorded a pre-tax gain of
$3.2 million in other nonoperating (expenses) income. The sale of the remaining
four newspapers was completed in the first quarter of 1997 and the Company
expects to record a nonrecurring gain which will be material to its 1997 annual
results.
On August 1, 1995 the Company purchased The News and Observer Publishing
Company (N&O) (see note 2 to the consolidated financial statements). N&O
publishes The News and Observer (Raleigh, N.C.) newspaper, seven other non-daily
publications in North Carolina and Nando, an online publishing company. The N&O
newspaper has a daily circulation of approximately 157,000 and 205,000 on
Sunday. The results of N&O have been included in the Company's consolidated
results beginning on August 1, 1995. Cash and investments together with bank
borrowings were used to consummate the purchase of N&O. As a result, investment
income is not expected to be significant over the next few years.
Newsprint prices fluctuated substantially during 1995 and 1996, reaching
all-time highs in early 1996. Prices began declining during the second quarter
of 1996 and are now below 1995 levels. During the period of increasing prices,
the Company increased its inventory levels to minimize the effect of expected
further increases. As prices began to decline in 1996, the Company began
reducing its inventory levels in anticipation of further price decreases.
Accordingly, the Company's LIFO reserve in 1996 has declined $4.2 million.
Management expects average newsprint prices in 1997 to be below 1996 average
prices which should positively impact operating income for the year.
15
<PAGE>
Results of Operations
1996 COMPARED TO 1995
Net income was $44.5 million, or $1.18 per share, and included a
net-after-tax gain of $1.6 million on the sale of the Ellensburg Daily Record
and various other non-newspaper business operations. Net income in 1995 was
$33.6 million, or $0.90 per share, and included an after-tax charge of $1.5
million for the cost of early retirement programs at The Sacramento Bee and The
(Tacoma) News Tribune.
The earnings improvement in 1996 is largely due to strong revenue growth at
the Company's Carolinas newspapers, declining newsprint prices and cost controls
throughout the Company.
<TABLE>
Operating Revenues by Region (in thousands):
<CAPTION>
1996 1995 % Change
-------------- --------------- ---------
<S> <C> <C> <C>
California newspapers $ 310,719 $ 314,293 (1.1)%
Northwest newspapers 143,569 140,839 1.9 %
Carolinas newspapers 153,674 72,944 NM
Non-newspaper operations 16,271 12,803 27.1 %
-------------- ---------------
$ 624,233 $ 540,879 NM
============== ===============
NM - Not meaningful due to N&O acquisition on August 1, 1995.
</TABLE>
Revenues at the Company's California newspapers declined $3.6 million, with
advertising revenues down $4.3 million, offset partially by a $1.0 million gain
in circulation revenues. Advertising revenues declined primarily due to a
lackluster retail advertising climate at the Company's three Bee newspapers
located in Sacramento, Fresno and Modesto. These newspapers were also affected
by the consolidation of Macy's and Weinstocks department stores, previously
their two largest advertisers. Full run "run-of-press" (ROP) advertising linage,
which is found in the body of the newspaper and is the largest contributor to
advertising revenues, was down 5.6% at the three Bee newspapers. This decline
was partially offset by rate increases implemented in the first quarter of 1996.
The Company's Northwestern newspapers, located in the states of Alaska and
Washington, contributed 23.0% of its net revenues and posted a $2.7 million
increase over 1995. Advertising revenues increased $3.0 million, largely from
gains at the Anchorage Daily News where advertising revenues increased $2.8
million. Full run ROP advertising linage declined 2.8% at the three larger daily
newspapers in the region. Circulation revenues increased $306,000, while other
revenues declined $538,000. The decline in other revenues was primarily
attributable to a decline in commercial printing at the Anchorage Daily News.
16
<PAGE>
Revenues at the Company's Carolina newspapers increased $80.7 million.
Revenues from The News & Observer and its sister non-daily newspapers were up
$78.2 million from inclusion of a full twelve months in 1996 versus five months
(August through December) in 1995. On a pro forma basis, i.e. including the
seven months prior to the Company's acquisition of N&O, revenues were up
approximately 10.0%. Meanwhile, revenues at the Company's South Carolina
newspapers were up 11.2% with strong growth in both advertising and circulation
revenues. Full run ROP advertising linage was up 9.7% at the South Carolina
dailies.
Revenues from non-newspaper operations increased $3.5 million. These
operations include McClatchy Printing Company, Benson Printing Company,
Legi-Tech, The Newspaper Network and N&O's New Media Division (primarily Nando,
the Company's online publishing company).
Operating Expenses:
Operating expenses increased 12.6%, due primarily to including a full year
of N&O expenses in 1996 versus only five months in 1995. Compensation costs were
up 12.3%, but after excluding N&O expenses from both periods and the early
retirement charges from 1995, compensation expenses declined 0.7%. Excluding N&O
costs from both periods, newsprint and supplement costs declined 11.4%, owing to
falling newsprint prices in the second half of 1996. All other operating
expenses, including depreciation and amortization, and excluding N&O from both
periods, increased only 0.7%, reflecting ongoing cost controls in place
throughout the Company.
Non-Operating Income (Expenses) - Net:
The Company incurred $13.3 million in interest expense in 1996 on debt
incurred in 1995 to complete the N&O acquisition (see notes 2 and 3 to the
consolidated financial statements). In 1995 the Company earned $3.9 million in
investment income through July 31 and incurred $7.0 million in interest expense
from August through year-end.
The Company's share of income in 1996 from its investment in the Ponderay
Newsprint Mill (Ponderay) totaled $3.0 million versus a loss of $630,000 in
1995. Also included in nonoperating income (expense) is a net pre-tax gain of
$2.8 million related to the sale of the Ellensburg Daily Record and various
small business operations.
The Company's effective tax rate was 42.9% in 1996 versus 43.0% in 1995.
See note 4 to the consolidated financial statements for a discussion of taxes.
17
<PAGE>
1995 COMPARED TO 1994
Net income was $33.6 million, or $0.90 per share, and included a pre-tax
charge of $2.7 million (four cents per share after-tax) for the cost of early
retirement programs at The Sacramento Bee and The (Tacoma) News Tribune. Net
income in 1994 was $46.6 million, or $1.26 per share, and included a $6.0
million or 16 cents per share favorable adjustment related to the resolution of
tax matters. Earnings were lowered by the impact of continued newsprint price
increases (three in 1995), financing costs of the N&O acquisition and a sluggish
economy in Northern California, home to the Company's three Bee newspapers.
<TABLE>
Operating Revenues by Region (in thousands)*:
<CAPTION>
1995 1994 % Change
-------------- --------------- --------
<S> <C> <C> <C>
California newspapers $ 314,293 $ 309,659 1.5%
Northwest newspapers 140,839 133,084 5.8%
Carolinas newspapers 72,944 20,803 NM
Non-newspaper operations 12,803 7,872 62.6%
-------------- ---------------
$ 540,879 $ 471,418 NM
============== ===============
NM - Not meaningful due to N&O acquisition on August 1, 1995.
* Amounts have been reclassified to report revenue consistent with 1996
classifications.
</TABLE>
At the Company's California newspapers, total revenues increased $4.6
million with advertising revenues up $3.4 million or 1.4% and circulation
revenues up $797,000 or 1.5%. Advertising revenues largely reflect a $4.4
million increase at The Sacramento Bee, offset partially by revenue declines of
$933,000 at The Fresno Bee. Revenues at The Modesto Bee were up nominally.
Full run "run-of-press" (ROP) linage, which generates a majority of
advertising revenues, declined 4.7% at the three Bee newspapers. This decline
was offset by rate increases implemented in the first quarter by all three Bees
and again in September at The Modesto Bee.
Circulation revenues at the California newspapers reflect gains in average
paid daily circulation coupled with home delivery rate increases primarily at
The Fresno and Modesto Bees in January 1995. Other revenues were up $439,000 or
25.3% due mainly to sales of used newsprint at The Sacramento Bee.
In the Northwest region (Washington State and Anchorage, Alaska) newspaper
revenues increased $7.8 million, led by the Anchorage Daily News. Advertising
revenues grew $5.5 million or 5.6% while circulation revenues were up $1.3
million or 4.9%. The Peninsula Gateway, a weekly newspaper in Gig Harbor,
Washington was purchased at the end of June 1995 and contributed $1.3 million in
additional revenues in 1995.
18
<PAGE>
Full run ROP advertising linage declines at The News Tribune were offset by
gains at the Anchorage Daily News. Advertising revenue increases largely reflect
rate increases implemented in November 1994 at the Tri-City Herald and in
January 1995 at The News Tribune and Anchorage Daily News. The News Tribune
raised home delivery circulation rates in December 1994 and the Daily News
followed suit in April 1995, accounting for much of the increase in circulation
revenues in the region. Other revenues increased about $1.0 million due mostly
to commercial printing.
Revenues in the Carolinas newspapers increased $52.1 million reflecting
$50.0 million from the newly purchased News & Observer in Raleigh, North
Carolina and its six non-daily sister newspapers; and a $2.1 million or 10.2%
increase in revenues at the Company's South Carolina newspapers. The increase in
the South Carolina newspapers' revenues reflect strong growth in both
advertising and circulation volumes, along with advertising rate increases in
January 1995 at The (Rock Hill) Herald and Beaufort Gazette and in July 1995 at
The (Hilton Head) Island Packet.
The Company's non-newspaper operations, consisting of McClatchy Printing
Company, Benson Printing Company, Legi-Tech, The Newspaper Network and N&O's New
Media Division (primarily the Nando.net online service), contributed $4.9
million in additional revenues.
Operating Expenses:
Operating expenses increased 19.8%, primarily from the addition of N&O in
August 1995, the addition of The Peninsula Gateway in June 1995, escalation of
newsprint prices and the early retirement charges of $2.7 million. Compensation
costs increased 11.4%, primarily reflecting the addition of N&O. Excluding N&O
and the $2.7 million for early retirement programs, compensation increased only
0.5%.
Newsprint and supplement costs reflect the newsprint price increases
discussed above, offset by reduced newsprint usage. Excluding N&O, newsprint
usage was down approximately 3% from 1994 while newsprint and supplement costs
rose 39.3%. Other operating expenses were up 14.1% and in addition to N&O's
costs, includes a $1.5 million charge to write off obsolete equipment at The
Sacramento Bee. The increase in depreciation and amortization was due to the
addition of N&O.
Non-Operating Income (Expense) - Net:
Non-operating items reflect an increase in net interest costs of $6.3
million, as debt was incurred and excess cash was used to complete the N&O
acquisition. The Company's share of losses from its newsprint mill investment
declined $4.8 million as the mill benefited from higher newsprint prices.
The Company's effective tax rate in 1995 was 43.0% versus 32.9% in 1994.
Higher non-deductible expenses (principally amortization) due to the N&O
acquisition in 1995 and the favorable tax settlements in 1994 account for most
of the difference. See note 4 to the consolidated financial statements.
19
<PAGE>
Liquidity and Capital Resources
The Company's cash and cash equivalents were $5.9 million at December 31,
1996 versus $3.3 million at the end of 1995. See notes 2 and 3 to the financial
statements for a discussion of the impact of the acquisition of N&O on the
Company's liquidity and capital resources.
The Company generated $99.6 million of cash from operating activities in
1996 and has generated an aggregate of $262.9 million over the last three years.
The major uses of cash over the three year period have been to consummate the
N&O acquisition, to purchase property, plant and equipment, to invest in
interest bearing securities and to repay debt. Cash has also been used to fund
its Ponderay newsprint mill investment and to pay dividends. See the Company's
Statement of Cash Flows included in the index at Item 8.
A total of $31.7 million was expended in 1996 for capital projects and
equipment to improve productivity and keep pace with growth. Capital
expenditures over the last three years have totaled $101.2 million and planned
expenditures in 1997 are estimated to be approximately $26 million.
See notes 1 and 8 to the consolidated financial statements for a discussion
of the Company's commitments to Ponderay.
The Company had $120.0 million of available credit under its current bank
credit agreement at December 31, 1996. 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.
Forward Looking Information
The preceding management discussion contains estimates and other
forward-looking statements covering subjects related to financial operating
results. These forward-looking statements, and any other statements going beyond
historical facts that McClatchy management has discussed, are subject to risks
and uncertainties that could cause actual results to differ. These include
increases in newsprint prices and/or printing and distribution costs over
anticipated levels, competition from other forms of media in the Company's
principal markets, increased consolidation among major retailers in the
Company's newspaper markets or other events depressing the level of advertising,
an economic downturn in the local economies of California's Central Valley,
Washington state, Alaska or the Carolinas, or other occurrences leading to
decreased circulation and diminished revenues from both display and classified
advertising.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<CAPTION>
Page
----
<S> <C>
Report of Deloitte & Touche LLP 22
Consolidated Statement of Income 23
Consolidated Balance Sheet 24
Consolidated Statement of Cash Flows 26
Consolidated Statement of Stockholders' Equity 27
Notes to Consolidated Financial Statements 28
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts 50
All other schedules are omitted as not applicable under the rules of
Regulation S-X.
</TABLE>
21
<PAGE>
INDEPENDENT AUDITOR'S REPORT
McClatchy Newspapers, Inc.:
We have audited the accompanying consolidated balance sheets of McClatchy
Newspapers, Inc. and its subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, cash flows and stockholders' equity
for each of the three years in the period ended December 31, 1996. Our audits
also included the financial statement schedule listed in the Index to Financial
Statements and Financial Statement Schedules at Item 8. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of McClatchy Newspapers, Inc. and
its subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Sacramento, California
February 6, 1997
22
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except share amounts)
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994
---------------- --------------- ---------------
<S> <C> <C> <C>
REVENUES - NET
Newspapers:
Advertising $ 484,460 $ 418,841 $ 368,068
Circulation 108,317 95,248 85,017
Other 15,185 13,987 10,461
---------------- --------------- ---------------
607,962 528,076 463,546
Non-newspapers 16,271 12,803 7,872
---------------- --------------- ---------------
624,233 540,879 471,418
OPERATING EXPENSES
Compensation 253,327 225,505 202,368
Newsprint and supplements 112,716 104,587 67,505
Depreciation and amortization 52,954 44,000 38,140
Other operating expenses 120,001 104,413 91,537
---------------- --------------- ---------------
538,998 478,505 399,550
---------------- --------------- ---------------
OPERATING INCOME 85,235 62,374 71,868
NONOPERATING (EXPENSES) INCOME
Interest expense (13,321) (7,014) (33)
Investment income 102 3,925 3,247
Partnership income (losses) 3,024 (630) (5,469)
Gain on sale of newspaper
and other business operations 2,840 - -
Other - net 35 360 (48)
---------------- --------------- ---------------
(7,320) (3,359) (2,303)
---------------- --------------- ---------------
INCOME BEFORE INCOME
TAX PROVISION 77,915 59,015 69,565
INCOME TAX PROVISION 33,422 25,397 22,920
---------------- --------------- ---------------
NET INCOME $ 44,493 33,618 46,645
================ =============== ===============
NET INCOME PER COMMON SHARE $ 1.18 $ 0.90 $ 1.26
================ =============== ===============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 37,812 37,529 36,979
See notes to consolidated financial statements.
</TABLE>
23
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
<CAPTION>
December 31,
-----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 5,877 $ 3,252
Trade receivables (less allowances of
$2,440 in 1996 and $2,327 in 1995) 81,791 69,451
Other receivables 1,911 2,251
Newsprint, ink and other inventories 8,015 13,703
Deferred income taxes 10,223 9,840
Other current assets 3,193 4,737
--------------- ---------------
111,010 103,234
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 157,741 141,908
Equipment 369,346 347,651
--------------- ---------------
527,087 489,559
Less accumulated depreciation (226,420) (203,214)
--------------- ---------------
300,667 286,345
Land 32,591 30,920
Construction in progress 8,532 31,110
--------------- ---------------
341,790 348,375
INTANGIBLES - NET 411,393 429,390
NEWSPRINT MILL INVESTMENT 8,989 5,965
OTHER ASSETS 2,484 5,994
--------------- ---------------
TOTAL ASSETS $ 875,666 $ 892,958
=============== ===============
See notes to consolidated financial statements.
</TABLE>
24
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
December 31,
-----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term bank debt $ - $ 10,000
Accounts payable 22,806 20,152
Accrued compensation 33,567 33,222
Income taxes 4,737 -
Unearned revenue 18,103 17,566
Carrier deposits 4,149 4,298
Other accrued liabilities 8,998 9,248
--------------- ---------------
92,360 94,486
LONG-TERM BANK DEBT 190,000 243,000
OTHER LONG-TERM OBLIGATIONS 29,814 28,135
DEFERRED INCOME TAXES 60,378 61,643
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY Common stock, $.01 par value:
Class A - authorized 50,000,000 shares,
issued 8,946,651 in 1996 and
8,562,894 in 1995 89 85
Class B - authorized 30,000,000 shares,
issued 28,842,287 in 1996 and
28,914,168 in 1995 288 289
Additional paid-in capital 67,534 62,447
Retained earnings 435,574 403,244
Treasury stock, 25,000 Class A shares (371) (371)
--------------- ---------------
503,114 465,694
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 875,666 $ 892,958
=============== ===============
</TABLE>
25
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994
---------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOW FROM
OPERATING ACTIVITIES:
Net income $ 44,493 $ 33,618 $ 46,645
Reconciliation to net cash provided:
Depreciation and amortization 53,110 44,146 38,294
Deferred income taxes (1,648) 7,079 (15,435)
Partnership (income) losses (3,024) 630 5,469
Gain on sale of newspaper
and other business operations (2,840) - -
Changes in certain assets
and liabilities - net 8,880 (17,931) 19,118
Other 585 1,637 84
---------------- --------------- ---------------
Net cash provided by
operating activities 99,556 69,179 94,175
CASH FLOW FROM INVESTING
ACTIVITIES:
Maturities of investments held to maturity - 29,789 26,302
Proceeds from investments available for sale - 20,539 -
Purchases of investments held to maturity - (5,940) (50,151)
Purchases of investments available for sale - (3,637) (16,902)
Purchases of property, plant and equipment (31,737) (34,988) (34,437)
Investment in newsprint mill partnership - (2,484) (5,603)
Acquisition of newspaper and other operations (1,844) (241,442) -
Sale of newspaper and other business operations 6,808 - -
Other - net (85) - 812
---------------- --------------- ---------------
Net cash used by
investing activities (26,858) (238,163) (79,979)
CASH FLOW FROM
FINANCING ACTIVITIES:
Net proceeds from public offering - - 20,001
Proceeds from long-term debt - 243,000 -
Repayment of long-term debt (63,000) (129,194) -
Payment of cash dividends (12,163) (11,376) (9,776)
Other - principally stock issuances 5,090 1,232 1,827
---------------- --------------- ---------------
Net cash (used) provided by
financing activities (70,073) 103,662 12,052
----------------- --------------- ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,625 (65,322) 26,248
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,252 68,574 42,326
---------------- --------------- ---------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,877 $ 3,252 $ 68,574
================ =============== ===============
See notes to consolidated financial statements.
</TABLE>
26
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
<CAPTION>
Par Value Additional Treasury
------------------ Paid-In Retained Stock
Class A Class B Capital Earnings At Cost Total
------- ------- ------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1993 $ 63 $ 297 $ 39,401 $ 344,133 $ (371) $ 383,523
Net income 46,645 46,645
Dividends paid ($.264 per share) (9,776) (9,776)
Conversion of 596,250 Class B
shares to Class A 6 (6)
Issuance of 1,195,312 Class A
shares to public 12 19,989 20,001
Issuance of 130,403 Class A
shares under employee stock plans 1 1,826 1,827
----- ------ --------- --------- ------- ----------
BALANCES, DECEMBER 31, 1994 82 291 61,216 381,002 (371) 442,220
Net income 33,618 33,618
Dividends paid ($.304 per share) (11,376) (11,376)
Conversion of 181,819 Class B
shares to Class A 2 (2)
Issuance of 83,548 Class A
shares under employee stock plans 1 1,231 1,232
----- ------ --------- --------- ------- ----------
BALANCES, DECEMBER 31, 1995 85 289 62,447 403,244 (371) 465,694
Net income 44,493 44,493
Dividends paid ($.323 per share) (12,163) (12,163)
Conversion of 71,875 Class B
shares to Class A 1 (1)
Issuance of 307,376 Class A
shares under employee stock plans 3 4,453 4,456
Tax benefit from stock plans 634 634
----- ------ --------- --------- ------- ----------
BALANCES, DECEMBER 31, 1996 $ 89 $ 288 $ 67,534 $ 435,574 $ (371) $ 503,114
===== ====== ========= ========= ======= ==========
See notes to consolidated financial statements.
</TABLE>
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
McClatchy Newspapers, Inc. and its subsidiaries are engaged primarily in
the publication of newspapers located in California, the Northwest (Washington
and Alaska) and the Carolinas.
The consolidated financial statements include the Company and its
subsidiaries. Significant intercompany items and transactions are eliminated.
All share and per share amounts have been adjusted to reflect a five-for-four
stock split. See note 9. Certain amounts have been reclassified to conform to
the 1996 presentation. In preparing the financial statements, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue recognition - Advertising revenues are recorded when advertisements
are placed in the newspaper and circulation revenues are recorded as newspapers
are delivered over the subscription term. Unearned revenues represent prepaid
circulation subscriptions.
Cash equivalents are highly liquid debt investments with maturities of
three months or less when acquired.
Investments - All of the Company's investments were liquidated in 1995.
Costs for investment securities sold were determined by specific identification.
No gains or losses were realized in 1995 or 1994.
Concentrations of credit risks - Financial instruments which potentially
subject the Company to concentrations of credit risks are principally cash and
cash equivalents and trade accounts receivables. Cash and cash equivalents are
placed with major financial institutions. Accounts receivable are with customers
located primarily in the immediate area of each city of publication. The Company
routinely assesses the financial strength of significant customers and this
assessment, combined with the large number and geographic diversity of its
customers, limits the Company's concentration of risk with respect to trade
accounts receivable.
Inventories are stated at the lower of cost (based principally on the
last-in, first-out method) or current market value. If the first-in, first-out
method of inventory accounting had been used, inventories would have increased
by $3,246,000 at December 31, 1996 and $7,426,000 at December 31, 1995.
Related party transactions - The Company owns a 13.5% interest in Ponderay
Newsprint Company ("Ponderay") which owns and operates a newsprint mill in the
State of Washington. The investment is accounted for using the equity method,
under which the Company's share of earnings of Ponderay is reflected in income
as earned. The Company
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
guarantees certain bank debt used to construct the mill (see note 8) and is
required to purchase 28,400 metric tons of annual production on a
"take-if-tendered" basis until the debt is repaid. The Company satisfies this
obligation by direct purchase (1996: $20,714,000, 1995: $18,414,000, and 1994:
$13,083,000) or reallocation to other buyers. To secure additional newsprint,
the Company has arranged to purchase an additional 8,000 metric tons from
Ponderay in 1997.
Property, plant and equipment are stated at cost. Major renewals and
betterments, as well as interest incurred during construction, are capitalized.
Such interest aggregated $536,000 in 1996, $708,000 in 1995 and none in 1994.
Depreciation is computed generally on a straight-line basis over estimated
useful lives of:
- 10 to 60 years for buildings
- 9 to 25 years for presses
- 3 to 15 years for other equipment
Intangibles consist of the unamortized excess of the cost of acquiring
newspaper operations over the fair values of the newspapers' tangible assets at
the date of purchase. Identifiable intangible assets, consisting primarily of
lists of advertisers and subscribers, covenants not to compete and commercial
printing contracts, are amortized over three to forty years. The excess of
purchase prices over identifiable assets is amortized over forty years.
Management periodically evaluates the recoverability of intangible assets by
reviewing the current and projected cash flows of each of its newspaper
operations.
Stock-based compensation - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
Accounting for Stock Issued to Employees.
Deferred income taxes result from temporary differences between amounts of
assets and liabilities reported for financial and income tax reporting purposes.
See note 4.
Earnings per share are based upon the weighted average number of
outstanding shares of common stock and dilutive common stock equivalents (stock
options). All share and per share amounts have been adjusted to reflect a
five-for-four stock split. See note 9.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ACQUISITION
On August 1, 1995, the Company purchased The News and Observer Publishing
Company (N&O) for which it paid $247,000,000 in cash for all the outstanding
common stock of N&O and assumed $117,000,000 of pre-existing N&O funded debt. An
additional $10,000,000 was paid upon the resolution of certain contingencies
(N&O holdback). The cash portion of the purchase price was financed with
$138,000,000 in new long-term bank debt and $109,000,000 from existing Company
cash and investments. The Company refinanced the N&O funded debt and recorded a
prepayment penalty of $12,194,000 as part of N&O acquisition costs. See note 3
for discussion of the Company's long-term debt.
N&O publishes The News & Observer newspaper in Raleigh, N.C., seven other
non-daily publications in North Carolina and the Nando.net online service. The
News & Observer had a daily circulation of about 154,000 and 200,000 Sunday at
August 1, 1995.
The acquisition was accounted for as a purchase, and accordingly, assets
acquired and liabilities assumed were recorded at their estimated fair values at
the date of acquisition. Assets of N&O included approximately $1,500,000 of
working capital, $72,600,000 of property, plant and equipment and $323,100,000
of intangible assets. Intangible assets include approximately $299,100,000 of
goodwill which is being amortized over a 40-year period. In addition to the
$117,000,000 of N&O long-term debt, the Company assumed deferred income tax and
other liabilities totaling $11,500,000.
The N&O operations have been included in the Company's consolidated results
beginning on August 1, 1995. The following table summarizes, on an unaudited pro
forma basis, the combined results of operations of the Company and its
subsidiaries as though the acquisition had taken place on January 1, 1995 and
1994 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Revenues $ 608,272 $ 578,573
Net income 26,445 40,285
Earnings per common shares $0.70 $1.09
</TABLE>
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LONG-TERM BANK DEBT AND
OTHER LONG-TERM OBLIGATIONS
<TABLE>
At December 31, 1996 and 1995 long-term bank debt consists of (in
thousands):
<CAPTION>
1996 1995
---------------- ---------------
<S> <C> <C>
Bank credit agreement $ 190,000 $ 243,000
N&O holdback payable - 10,000
---------------- ---------------
190,000 253,000
Less current portion - 10,000
---------------- ---------------
Total long-term bank debt $ 190,000 $ 243,000
================ ===============
</TABLE>
In addition, the Company also has an outstanding letter of credit for
$4,309,000 securing estimated obligations from workers' compensation claims.
On July 28, 1995 the Company entered into a bank credit agreement (Credit
Agreement) providing for borrowings up to $310,000,000. In connection with the
August 1, 1995 acquisition of N&O, 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 to support the acquisition holdback (see note 2). The N&O holdback was
paid in August 1996.
Among the liabilities assumed in acquiring the stock of N&O were long-term
notes payable consisting of $98,000,000 face value of unsecured senior notes
bearing interest at 9.65% to 9.76% and a $19,000,000 unsecured variable rate
note. The Company has refinanced N&O's debt and incurred a refinancing penalty
of $12,194,000 in accordance with the terms of the note agreements which has
been included in the purchase price.
Under the Credit Agreement, interest only is payable through July 1, 2000.
A total of $20,000,000 of principal is due on July 1, 2002 and the remaining
principal matures 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 drawdown. On December 31, 1996, the interest rate applicable to the amounts
drawn ranged from 5.4% to 7.1%. 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, with which the Company was in compliance
at December 31, 1996.
At December 31, 1996 the Company had an outstanding interest rate swap that
effectively converted $50,000,000 of debt under its Credit Agreement to a fixed
rate debt at a rate of 6.0%. The swap expires in November 1998. The Company
makes payments under the Credit Agreement and receives or makes payments to a
counterparty depending on the change in variable interest rates which are
recorded as additions to or reductions of interest expense.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LONG-TERM BANK DEBT AND
OTHER LONG-TERM OBLIGATIONS (cont.)
<TABLE>
Other long-term obligations consist of (in thousands):
<CAPTION>
December 31,
------------------------------------------
1996 1995
---------------- ---------------
<S> <C> <C>
Pension obligations $ 17,272 $ 11,209
Postretirement benefit obligations 9,058 9,386
Deferred compensation and other 3,484 7,540
---------------- ---------------
Total long-term obligations $ 29,814 $ 28,135
================ ===============
</TABLE>
NOTE 4. INCOME TAX PROVISIONS
<TABLE>
Income tax provisions consist of (in thousands):
<CAPTION>
Year Ended December 31,
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Current:
Federal $ 31,449 $ 15,870 $ 32,328
State 3,621 2,448 6,027
Deferred:
Federal (4,379) 6,332 (15,279)
State 2,731 747 (156)
----------- ----------- ------------
Income tax provision $ 33,422 $ 25,397 $ 22,920
=========== =========== ============
</TABLE>
<TABLE>
The effective tax rate and the statutory federal income tax rate are
reconciled as follows:
<CAPTION>
Year Ended December 31,
1996 1995 1994
------ ------- ------
<S> <C> <C> <C>
Statutory rate 35% 35% 35%
State taxes, net of federal benefit 5 4 5
Amortization of intangibles 4 4 2
Resolution of tax audits - - (9)
Other (1) - -
------ ------- ------
Effective rate 43% 43% 33%
====== ======= ======
</TABLE>
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. INCOME TAX PROVISIONS (cont.)
In 1994 the Company settled disputes with the Internal Revenue Service and
the California Franchise Tax Board involving examinations of the Company's tax
returns. The principal issues related to losses from non-newspaper operations
from 1982 through 1987, and to the amortization of intangible assets acquired
from 1986 through 1991. The resolution of the audits resulted in a $6,003,000
increase in net earnings which was recorded as a reduction to the 1994 income
tax provision ($5,134,000 recognized in the third quarter).
<TABLE>
The components of deferred tax liabilities (benefits) recorded in the
Company's Consolidated Balance Sheet on December 31, 1996 and 1995 are (in
thousands):
<CAPTION>
1996 1995
------------- -----------
<S> <C> <C>
Depreciation and amortization $ 55,649 $ 56,468
Partnership losses 8,283 9,034
State taxes 1,310 230
Deferred compensation (16,540) (14,843)
Other 1,453 914
------------- -----------
Deferred tax liability (net of
$10,223 in 1996 and
$9,840 in 1995 reported as
current assets) $ 50,155 $ 51,803
============= ===========
</TABLE>
NOTE 5. INTANGIBLES
<TABLE>
Intangibles consist of (in thousands):
<CAPTION>
December 31,
-----------------------------
1996 1995
------------ -----------
<S> <C> <C>
Identifiable intangible assets,
primarily customer lists $ 148,692 $ 150,530
Excess purchase prices over
identifiable assets 365,604 364,933
------------ -----------
514,296 515,463
Less accumulated amortization 102,903 86,073
------------ -----------
Intangibles - net 411,393 429,390
============ ===========
</TABLE>
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. EMPLOYEE BENEFITS
Early Retirement Charge:
The Sacramento Bee and The (Tacoma) News Tribune made early retirement
programs available to certain employees. Pre-tax charges of $2,318,000 and
$390,000 were recorded in September 1995 and December 1995, respectively, for
these programs.
Retirement Plans:
The Company has two defined benefit pension plans (retirement plans) which
together cover a majority of its employees including employees of the recently
acquired N&O. Benefits are based on years of service and compensation.
Contributions to the plans are made by the Company in amounts deemed necessary
to provide benefits. Plan assets consist primarily of investments in marketable
securities including common stocks, bonds and U.S. government obligations, and
other interest bearing accounts.
The Company also has three supplemental retirement plans to provide key
employees (including N&O since 1995) with additional retirement benefits. The
terms of the plans are generally the same as those of the retirement plans,
except that the supplemental retirement plans are limited to key employees and
benefits under it are reduced by benefits received under the retirement plans.
These plans are funded on a pay-as-you-go basis and the accrued pension
obligation is included in other long-term obligations.
<TABLE>
The elements of pension costs are as follows (in thousands):
<CAPTION>
December 31,
----------------------------------------
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Cost of benefits earned
during the year $ 7,451 $ 6,031 $ 6,430
Interest on projected
benefit obligation 9,367 8,461 7,208
Return on plan assets - (gain) (17,843) (20,897) (77)
Deferred (loss) gain -
return on plan assets
(less) greater than assumed 8,128 12,948 (7,071)
Net amortization and other
deferrals (8) (13) 15
----------- ---------- ----------
Net pension cost $ 7,095 $ 6,530 $ 6,505
=========== =========== ==========
</TABLE>
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. EMPLOYEE BENEFITS (cont.)
<TABLE>
The plans' funded status and amounts recognized in the Company's
Consolidated Balance Sheet at December 31, 1996 and 1995 are as follows (in
thousands):
<CAPTION>
1996 1995
--------------------------- ---------------------------
Supplemental Supplemental
Retirement Retirement Retirement Retirement
Plans Plans Plans Plans
----------- ---------- ------------ -=---------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 102,825 $ 7,237 $ 103,450 $ 7,062
=========== =========== ============ ==========
Accumulated benefit obligation $ 108,216 $ 7,283 $ 106,742 $ 7,181
=========== =========== ============ ==========
Plan assets at fair value $ 131,371 - $ 118,091 -
Projected benefit obligation 127,669 $ 8,822 127,404 $ 9,036
----------- ---------- ------------ ---------
Plan assets over (under)
projected benefit 3,702 (8,822) (9,313) (9,036)
Unrecognized losses (gains) net (16,597) (1,145) 672 (164)
Unrecognized prior service cost 1,920 1,600 2,281 1,806
Unrecognized net pension transition
asset, amortized over 15 years (2,736) - (3,283) -
Minimum liability - - - (298)
----------- ----------- ------------ ----------
Accrued pension obligation $ (13,711) $ (8,367) $ (9,643) $ (7,692)
=========== =========== ============ ==========
</TABLE>
<TABLE>
Assumptions used for valuing defined benefit obligations were:
<CAPTION>
December 31,
1996 1995
--------- ---------
<S> <C> <C>
Discount rate in determining
benefit obligation 7.50% 7.25%
Expected long-term rate of
return on assets 9.00% 8.50%
Rates of compensation increase 3.5%-5.0% 3.5%-5.0%
</TABLE>
The Company has two deferred Compensation and Investment Plans (401(k)
plans) which enable qualified employees (including N&O since 1995) to
voluntarily defer compensation. The Company's mandatory matching contributions
to the 401(k) plans were $4,704,000 in 1996, $4,203,000 in 1995, and $3,838,000
in 1994.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. EMPLOYEE BENEFITS (cont.)
Postretirement Benefits:
<TABLE>
The Company also provides or subsidizes certain retiree health care and
life insurance benefits. The elements of postretirement expenses are as follows
(in thousands):
<CAPTION>
December 31,
------------------------------------------
1996 1995 1994
------------ ----------- ----------
<S> <C> <C> <C>
Service costs $ 22 $ 144 $ 173
Interest costs 401 552 542
Amortization (184) (105) (34)
------------ ----------- ----------
Total postretirement
benefits costs $ 239 $ 591 $ 681
============ =========== ==========
</TABLE>
The plan's funded status and amounts recognized in the Company's
Consolidated Balance Sheet at December 31, 1996 and 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Accumulated postretirement benefit
obligation (APBO):
Retirees $ 4,454 $ 6,091
Active eligible employees 158 307
Active ineligible employees 923 1,789
---------- ----------
Total APBO 5,535 8,187
Unrecognized gains 3,757 1,434
---------- ----------
Net postretirement
benefit liability $ 9,292 $ 9,621
========== ==========
Assumptions used for valuing postretirement obligations were:
Discount rate in determining
benefit obligation 7.50% 7.25%
Medical care cost trend rates 8.50% 11.75%-12.5%
</TABLE>
The medical care cost trend rates are estimated to decline to 5.8% by the
year 2002. A 1.0% increase in the assumed health care cost trend rate would have
increased the APBO and the annual service cost by 1.4%.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CASH FLOW INFORMATION
<TABLE>
No significant acquisitions were made in 1996. Net cash paid for the
acquisition of newspapers and other operations in 1995 consists of (in
thousands):
<CAPTION>
N&O Other
Acquisition Acquisitions Total
------------ ----------- ------------
<S> <C> <C> <C>
Assets acquired $ 418,011 $ 2,971 $ 420,982
Liabilities assumed (161,120) (822) (161,942)
Holdback payable (10,000) - (10,000)
------------ ----------- ------------
Cash paid 246,891 2,149 249,040
Fees and expenses 644 - 644
Less cash acquired (8,182) (60) (8,242)
------------ ----------- ------------
Net cash paid $ 239,353 $ 2,089 $ 241,442
============ =========== ============
</TABLE>
<TABLE>
Cash paid during the years ended December 31, 1996, 1995 and 1994 for
interest and income taxes were (in thousands):
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Interest paid (net of
amount capitalized) $ 13,699 $ 9,856 $ 19
Income taxes paid
(net of refunds) 27,543 26,167 29,524
</TABLE>
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CASH FLOW INFORMATION (cont.)
<TABLE>
Cash provided or used by operations was affected by changes in certain
assets and liabilities, net of the effects of acquired newspaper operations, as
follows (in thousands):
<CAPTION>
December 31,
-------------------------------------------
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
Increase (decrease) in assets:
Trade receivables $ 12,419 $ 1,303 $ 10,326
Inventories (5,658) 4,175 (1,455)
Other assets (5,895) 5,199 (11,274)
----------- ------------ -----------
Total 866 10,677 (2,403)
Increase (decrease) in liabilities:
Accounts payable 2,656 (2,013) 3,748
Accrued compensation 6,024 1,730 5,929
Income taxes 4,737 (5,698) 4,498
Other liabilities (3,671) (1,273) 2,540
------------ ------------ -----------
Total 9,746 (7,254) 16,715
----------- ------------ -----------
Net cash (decrease)
increase from changes
in certain assets and
liabilities $ 8,880 $ (17,931) $ 19,118
=========== ============ ===========
</TABLE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
The Company guarantees $20,922,000 of bank debt related primarily to its
joint venture in the Ponderay newsprint mill.
The Company and its subsidiaries rent certain facilities and equipment
under operating leases expiring at various dates through October 2001. Total
rental expense amounted to
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. COMMITMENTS AND CONTINGENCIES (cont.)
$2,584,000 in 1996, $2,027,000 in 1995 and $2,009,000 in 1994. Minimum
rental commitments under operating leases with noncancelable terms in excess of
one year are (in thousands):
<TABLE>
<S> <C>
1997 $ 2,147
1998 1,752
1999 734
2000 441
2001 172
----------
Total $ 5,246
==========
</TABLE>
There are libel and other legal actions that have arisen in the ordinary
course of business and are pending against the Company. From time to time, the
Company is involved as a party in various governmental proceedings, including
environmental matters. Management believes, after reviewing such actions with
counsel, that the outcome of pending actions will not have a material adverse
effect on the Company's consolidated results of operations or financial
position.
NOTE 9. COMMON STOCK AND STOCK PLANS
On December 4, 1996, the Board of Directors of the Company declared a
five-for-four split on its Class A and Class B common stock in the form of a
special a 25% stock dividend, which was paid on January 2, 1997 to the holders
of record of the common stock as of the close of business on December 16, 1996.
All share and per share amounts have been adjusted in the financial statements
to reflect the stock split.
In 1994, the Company raised $20,001,000 through the sale of 1,195,312 Class
A shares to the public.
The Company's Class A and Class B common stock participate equally in
dividends. Holders of Class B common stock are entitled to one vote per share
and to elect as a class 75% of the Board of Directors, rounded down to the
nearest whole number. Holders of Class A common stock are entitled to one-tenth
of a vote per share and to elect as a class 25% of the Board of Directors,
rounded up to the nearest whole number. Class B common stock is convertible at
the option of the holder into Class A common stock on a share-for-share basis.
At December 31, 1996 the Company has four stock-based compensation plans,
which are described below. The Company applies APB Opinion 25 and related
interpretations in accounting for its plans. No significant amounts of
compensation costs have been recognized for its fixed stock option plans and its
stock purchase plan.
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. COMMON STOCK AND STOCK PLANS (cont.)
The Company's Amended Employee Stock Purchase Plan (the Purchase Plan)
reserved 1,875,000 shares of Class A common stock for issuance to employees.
Eligible employees may purchase shares at 85% of "fair market value" (as
defined) through payroll deductions. The Purchase Plan can be automatically
terminated by the Company at any time. As of December 31, 1996, 722,595 shares
of Class A common stock have been issued under the Purchase Plan.
The Company's Amended and Restated 1987 Stock Option Plan (the 1987
Employee Plan) reserved 750,000 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 Plan permits the Company, at its sole discretion, to settle
unexercised options by granting stock appreciation rights (SARS), the Company
does not intend to avail itself of this alternative except in limited
circumstances.
The Company's Amended and Restated 1994 Employee Stock Option Plan (1994
Employee Plan) reserves 812,500 Class A shares for issuance to key employees.
The terms of this plan are substantially the same as the terms of the 1987
Employee Plan.
The Company's amended and restated stock option plan for outside directors
(the Directors' Plan) provides for the issuance of up to 187,500 shares of Class
A stock. Under the plan each outside director is granted an option at fair
market value at the conclusion of each regular annual meeting of stockholders
for 1,875 shares. Terms of the Directors' Plan are similar to the terms of the
Employee Plans. Outstanding options are summarized as follows:
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. COMMON STOCK AND STOCK PLANS (cont.)
<TABLE>
<CAPTION>
Employee Plans Directors' Plan
------------------------- ------------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1993 576,625 $ 14.03 52,500 $ 16.58
Granted 297,375 17.65 16,875 18.00
Exercised (56,437) 12.77 - -
Forfeited (2,438) 16.58 (1,875) 18.00
---------- ----------- ----------- ----------
Outstanding, December 31, 1994 815,125 15.43 67,500 16.89
Granted 184,875 17.80 15,000 18.40
Exercised (6,125) 13.78 (5,625) 16.14
Forfeited (4,875) 16.58 (1,875) 18.40
---------- ----------- ---------- ----------
Outstanding, December 31, 1995 989,000 15.88 75,000 17.22
Granted 203,000 25.10 15,000 18.90
Exercised (215,382) 13.77 (5,625) 16.83
Forfeited (2,031) 16.94 - -
---------- ----------- ---------- ----------
Outstanding, December 31, 1996 974,587 $ 18.29 84,375 $ 17.54
========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Employee Directors
Plans Plans
-------- ----------
<S> <C> <C>
Options exercisable:
December 31, 1994 327,156 32,813
December 31, 1995 439,156 43,594
December 31, 1996 367,737 50,166
</TABLE>
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. COMMON STOCK AND STOCK PLANS (cont.)
<TABLE>
The following tables summarize information about fixed stock options outstanding
in the Stock Plans at December 31, 1996:
<CAPTION>
EMPLOYEE PLANS
- ----------------------------------------------------------------------------------------------------
Average
Remaining Weighted Average Weighted Average
Range of Exercise Options Contractual Exercise Options Exercise
Prices Outstanding Life Price Exercisable Price
- ----------------- ----------- ----------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$11.50-$15.60 259,876 4.42 $13.76 227,038 $13.50
$17.30-$17.80 349,125 8.48 $17.56 41,226 $17.30
$18.10-$19.20 162,586 5.99 $18.40 99,473 $18.59
$25.10 203,000 9.95 $25.10 - -
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS' PLAN
- ----------------------------------------------------------------------------------------------------
Average
Remaining Weighted Average Weighted Average
Range of Exercise Options Contractual Exercise Options Exercise
Prices Outstanding Life Price Exercisable Price
- ----------------- ----------- ----------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$14.60-$17.20 31,875 4.50 $16.22 31,875 $16.22
$17.90-$18.40 37,500 7.43 $18.11 18,291 $18.02
18.90 15,000 9.37 $18.90 - -
</TABLE>
Had compensation costs for the Company's four stock-based compensation
plans been determined based upon the fair value at the grant dates for awards
under those plans consistent with the method of FASB Statement 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net income:
As reported $ 44,493 $ 33,618
Pro forma $ 44,242 $ 33,449
Earnings per common share:
As reported $ 1.18 $ 0.90
Pro forma $ 1.17 $ 0.89
</TABLE>
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. COMMON STOCK AND STOCK PLANS (cont.)
The impact of outstanding non-vested stock options granted prior to 1995
has been excluded from the pro forma calculation; accordingly, the 1995 and 1996
pro forma adjustments are not indicative of future period pro forma adjustments,
when the calculation will apply to all applicable stock options.
Compensation costs are calculated for the fair value of the participants'
purchase rights, which was estimated using the Black-Scholes model with the
following average assumptions for 1996 and 1995, respectively: dividend yield of
1.3% for both years; an expected life of one to seven years from vest date for
both years; expected volatility of .2791 and .2860; and risk-free interest rates
of 6.0% and 5.9%. The weighted-average fair value per share of those purchase
rights granted in 1996 and 1995 was $8.31 and $5.78, respectively for Employee
Plans and $5.61 and $5.52, respectively for the Directors' Plan.
NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments", requires
the determination of fair value for certain of the Company's assets, liabilities
and contingent liabilities. The following methods and assumptions were used to
estimate the fair value of those financial instruments included in the following
categories:
Cash and cash equivalents - The carrying amount approximates fair value
based on quoted market prices.
Long-Term Bank Debt - The carrying value approximates fair value based on
interest rates available to the Company on debt instruments with similar
terms.
Interest Rate Swap Agreement - When considering interest rates at December
31, 1996, it is estimated that the Company could terminate the interest
rate swap agreement with only a nominal gain or loss.
NOTE 11. SALE OF NEWSPAPER AND
OTHER BUSINESS OPERATIONS
In October 1996, the Company announced that it had entered into agreements
in principle to sell five of its community newspapers. The Ellensburg Daily
Record in Washington state was purchased by Pioneer Newspapers, Inc. in December
1996 and a pre-tax gain of $3,218,000 was recorded in nonoperating income.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. SALE OF NEWSPAPER AND
OTHER BUSINESS OPERATIONS (cont.)
The Company also sold Nando's internet access operations and Legi-Tech's
Florida operations and recorded a pre-tax loss of $378,000 on the sales.
NOTE 12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's business is somewhat seasonal, with peak revenues and profits
generally occurring in the second and fourth quarters of each year as a result
of increased advertising activity during the spring holiday and Christmas
periods. The first quarter is historically the weakest quarter for revenues and
profits. The Company's quarterly results are summarized as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
1996:
Revenues-net $ 146,303 $ 156,919 $ 155,543 $ 165,468
Operating income 10,097 22,195 22,639 30,304
Net income 4,386 11,205 11,442 17,460
Net income per common share .12 .30 .30 .46
1995:
Revenues-net $ 113,798 $ 124,648 $ 141,961 $ 160,472
Operating income 10,358 19,734 11,030 21,252
Net income 6,642 12,531 4,449 9,996
Net income per common share .18 .33 .12 .27
1994:
Revenues-net $ 108,924 $ 118,643 $ 117,098 $ 126,753
Operating income 11,605 20,542 17,300 22,421
Net income 5,897 11,017 15,716 14,015
Net income per common share .16 .30 .42 .37
All per share amounts have been adjusted to reflect a five-for-four stock
split paid on January 2, 1997.
In December 1996, the Company recorded a gain of $1,623,000 on the sale of
various small business operations. In the third quarter of 1995, the Company
acquired The News and Observer Publishing Company and separately, recorded an
early retirement expense of $2,318,000.
Please see note 4 for discussions of tax related credits recorded in the
third quarter of 1994.
</TABLE>
44
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Biographical information for Class A Directors, Class B Directors and
executive officers contained under the captions "Nominees for Class A
Directors", "Nominees for Class B Directors" and "Other Executive Officers"
under the heading "Election of Directors" in the definitive Proxy Statement for
the Company's 1997 Annual Meeting of Stockholders is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the headings "Compensation", "Executive
Compensation", "Stock Option Awards", "Option Exercises and Holdings", "Pension
Plans" and "Employment Agreement" in the definitive Proxy Statement for the
Company's 1997 Annual Meeting of Stockholders is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the heading "Stock Ownership" in the
definitive Proxy Statement for the Company's 1997 Annual Meeting of Stockholders
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
45
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
a) (1)&(2) Financial Statements and Financial Statement
Schedules filed as a part of this Report as listed in the
Index to Financial Statements and Financial Statement
Schedules on page 21 hereof.
(3) Exhibits filed as part of this Report as listed in the
Exhibit Index beginning on page 51 hereof.
b) Reports on Form 8-K: None.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 28, 1997.
McCLATCHY NEWSPAPERS, INC.
By /s/ GARY B. PRUITT
-------------------------------------
Gary B. Pruitt
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
Principal Executive Officers:
<S> <C> <C>
/s/ GARY B. PRUITT President, Chief Executive March 28, 1997
- -------------------------------------- Officer and Director
(Gary B. Pruitt)
Principal Financial Officer:
/s/ JAMES P. SMITH Vice President, March 28, 1997
- -------------------------------------- Finance, Treasurer
(James P. Smith) and Director
Principal Accounting Officer:
/s/ ROBERT W. BERGER Controller March 28, 1997
- --------------------------------------
(Robert W. Berger)
47
<PAGE>
SIGNATURES-(Continued)
Signature Title Date
--------- ----- ----
Directors:
/s/ WILLIAM K. COBLENTZ Director March 28, 1997
- --------------------------------------
(William K. Coblentz)
/s/ MOLLY MALONEY EVANGELISTI Director March 28, 1997
- --------------------------------------
(Molly Maloney Evangelisti)
/s/ WILLIAM L. HONEYSETT Senior March 28, 1997
- -------------------------------------- Vice President
(William L. Honeysett) and Director
/s/ JOAN F. LANE Director March 28, 1997
- --------------------------------------
(Joan F. Lane)
/s/ R. LARRY JINKS Director March 28, 1997
- --------------------------------------
(R. Larry Jinks)
/s/ BETTY LOU MALONEY Director March 28, 1997
- --------------------------------------
(Betty Lou Maloney)
/s/ JAMES B. McCLATCHY Publisher and March 28, 1997
- -------------------------------------- Director
(James B. McClatchy)
/s/ WILLIAM ELLERY McCLATCHY Director March 28, 1997
- --------------------------------------
(William Ellery McClatchy)
48
SIGNATURES-(Continued)
Signature Title Date
--------- ----- ----
Directors:
/s/ ERWIN POTTS Chairman of the Board and March 28, 1997
- -------------------------------------- Director
(Erwin Potts)
/s/ S. DONLEY RITCHEY, JR. Director March 28, 1997
- --------------------------------------
(S. Donley Ritchey, Jr.)
/s/ WILLIAM M. ROTH Director March 28, 1997
- --------------------------------------
(William M. Roth)
/s/ FREDERICK R. RUIZ Director March 28, 1997
- --------------------------------------
(Frederick R. Ruiz)
</TABLE>
49
<PAGE>
SCHEDULE II
<TABLE>
McCLATCHY NEWSPAPERS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 31, 1996
(in thousands)
<CAPTION>
Column A Column B Column C Column D Column E
-------- ------------- ------------------------------ --------------- -------------
Deductions(1)
Additions for
------------------------------ Purposes
Balance Charged to Charged to for Which Balance at
Beginning Costs and Other Accounts Were End of
of Period Expenses Accounts Set Up Period
------------- -------------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Deducted from assets to which
they apply:
Uncollectible accounts $ (1,757) $ (3,551) $ - $ 3,308 $(2,000)
Year Ended December 31, 1995:
Deduct from assets to which
they apply:
Uncollectible accounts $ (2,000) $ (3,688) $ - $ 3,361 $(2,327)
Year Ended December 31, 1996:
Deduct from assets to which
they apply:
Uncollectible accounts $ (2,327) $ (5,567) $ - $ 5,454 $(2,440)
- -------------
(1) Amounts written off net of bad debt recoveries.
</TABLE>
50
<PAGE>
INDEX OF EXHIBITS
Exhibit
- -------
3.1* The Company's Restated Certificate of Incorporation included in
Exhibit 3.1 to the Company's 1988 Report on Form 10-K filed with
the Securities and Exchange Commission (the "Commission") on
March 29, 1989.
3.2 The Company's By-laws as amended on July 25, 1995.
10.1* Merger Agreement by and among McClatchy Newspapers, Inc.; MNI
Merger Sub, Inc.; and The News and Observer Publishing Company
dated May 16, 1995, as amended included as Exhibit 10.1 to the
Company's June 30, 1995 Form 10-Q filed with the Commission on
August 14, 1995.
10.2* Credit Agreement between McClatchy Newspapers, Inc. and Bank of
America National Trust and Savings Association dated July 28,
1995 included as Exhibit 10.2 to the Company's June 30, 1995 Form
10-Q.
10.3* The Amended and Restated Agreement for Standby Letter of Credit
dated December 23, 1993 included as Exhibit 10.1 to the Company's
1994 Report on Form 10-K filed with the Commission on March 29,
1995.
10.4* Ponderay Newsprint Company Partnership Agreement dated as of
September 12, 1985 between Lake Superior Forest Products, Inc.,
Central Newsprint Company, Inc., Bradley Paper Company, Copley
Northwest, Inc., Puller Paper Company, Newsprint Ventures, Inc.,
Wingate Paper Company, Tribune Newsprint Company and Nimitz Paper
Company included in Exhibit 10.10 to the Company's Registration
Statement No. 33-17370 on Form S-1.
**10.5* The Company's Management by Objective Plan Description included
in Exhibit 10.1 to the Company's Registration Statement No.
33-17270 on Form S-1.
**10.6* The Company's Supplemental Executive Retirement Plan included in
Exhibit 10.7 to the Company's 1988 Report on Form 10-K.
**10.7 The Company's Amended and Restated 1987 Stock Option Plan dated
August 15, 1996.
**10.8 The Company's Amended and Restated 1994 Stock Option Plan dated
August 15, 1996.
**10.9* The Company's Group Executive Life Insurance Plan included in
Exhibit 10.9 to the Company's Registration Statement No. 33-17270
on Form S-1.
**10.10* The Company's Group Executive Long Term Disability Insurance Plan
included in Exhibit 10.8 to the Company's Registration Statement
No. 33-17270 on Form S-1.
**10.11* The Company's Executive Performance Plan adopted by the Board of
Directors on January 1, 1990, included in Exhibit 10.13 to the
Company's 1989 Report on Form 10-K.
**10.12 The Company's Amended and Restated 1990 Directors' Stock Option
Plan dated January 22, 1997.
**10.13 Employment Agreement between the Company and Gary B. Pruitt dated
June 1, 1996.
21* Subsidiaries of the Company included as Exhibit 21 to the
Company's 1995 Report on Form 10-K.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule for the Year Ended December 31, 1996.
- -------------
* Incorporated by reference
** Compensation plans or arrangements for the Company's executive
officers and directors.
51
BYLAWS
------
OF
--
McCLATCHY NEWSPAPERS, INC.
--------------------------
(As Amended July 25, 1995)
ARTICLE I
The Board of Directors
----------------------
Section 1.1 Authority of the Board. The business and affairs of McClatchy
----------------------
Newspapers, Inc. (herein called the "Company") shall be managed by or under the
direction of the Board of Directors (the "Board") or, if authorized by the
Board, by or under the direction of one or more committees thereof. Except as
otherwise provided by law, the Company's Certificate of Incorporation or these
Bylaws, the Board or such committee, the Board or any committee thereof may act
by unanimous written consent or, at an authorized meeting at which a quorum is
present, by the vote of the majority of the Directors present at the meeting.
Section 1.2 Number of Directors; Vacancies. The authorized number of
------------------------------
Directors who shall constitute the Board shall be fixed from time to time by
resolution of the Board approved by at least a majority of the Directors then in
office, provided that no such resolution other than a resolution to take effect
as of the next election of Directors by the stockholders shall have the effect
of reducing the authorized number of Directors to less than the number of
Directors in office as of the effective time of the resolution.
Whenever there are fewer Directors in office than the authorized number of
Directors, the Board may, by resolution approved by a majority of the Directors
then in office, choose one or more additional Directors, each of whom shall hold
office until the next annual meeting of stockholders and his successor is duly
elected.
Section 1.3 Authorized Meetings of the Board. The Board shall have
--------------------------------
authority to hold annual, regular and special meetings. The annual meeting of
the Board shall be held immediately following the annual meeting of the
stockholders at such place as may be determined by resolution of the Board.
Regular meetings of the Board may be held at such times and places as may be
determined from time to time by resolution of the Board. Special meetings of the
Board may be held at such times and places as may be called by the Chairman of
the Board, the Publisher, the President, or by at least three members of the
Board. A special meeting of the Board shall be an authorized meeting only if the
Directors receive reasonable notice of the
-1-
<PAGE>
time and place of the meeting; provided, however, that one day's notice
shall be conclusively reasonable.
The Chairman of the Board shall preside over all Board meetings. If the
Chairman of the Board is absent, the Publisher, President or a chairman chosen
at the meeting shall preside over the meeting.
At all meetings of the Board, a majority of the Directors then in office
shall constitute a quorum. If any meeting of the Board shall lack a quorum, a
majority of the Directors present may adjourn the meeting from time to time,
without notice, until a quorum is obtained.
Section 1.4 Committees. The Board may by resolution establish committees of
----------
the Board with various powers, duties and rules of procedure. Unless the Board
otherwise provides, each committee shall conduct its business in the same manner
as the Board conducts its business pursuant to these Bylaws. Any such committee
shall have a secretary and report its actions to the Board.
Section 1.5 Compensation. Directors who are not also employees of the
------------
Company shall be entitled to such compensation for their service on the Board or
any committee thereof as the Board may from time to time determine.
ARTICLE II
Officers
--------
Section 2.1 Designated Officers. The officers of the Company shall be
-------------------
elected by, and serve at the pleasure of, the Board and shall consist of a
Chairman of the Board, a President and a Secretary, and such other officers,
including, without limitation, a Publisher, a Treasurer, a Controller, one or
more Vice Presidents, one or more Assistant Treasurers, one or more Assistant
Secretaries, and such other officers as the Board may determine as appropriate.
Section 2.2 Chairman of the Board. The Chairman of the Board shall be the
---------------------
chief executive officer of the Company, shall preside at all meetings of the
Board and shall have such other powers and perform such other duties as may from
time to time be granted or assigned to him by the Board.
Section 2.3 President. The President shall be the chief operating officer
---------
of the Company. In managing its operations, he shall report to the Company's
chief executive officer. He shall have such other powers and perform such other
duties as may from time to time be granted or assigned to him by the Board
-2-
<PAGE>
Section 2.4 Publisher. The Publisher shall have responsibility for advising
---------
the Company regarding outside corporate relations and acquisitions, and shall
have such other powers and perform such other duties as may from time to time be
granted or assigned to him by the Board.
Section 2.5 Vice Presidents. In the absence of the Chairman of the Board,
---------------
the Publisher or the President, or in their inability or refusal to act, the
Vice Presidents in the order designated by the Board shall act in their place.
The Vice Presidents shall also have such other powers and perform such other
duties as may from time to time be granted or assigned to them by the Board.
Section 2.6 Treasurer. The Treasurer shall be the chief financial officer
---------
of the Company. He shall have custody of the Company's funds and deposit and pay
out such funds in accordance with the direction of the Board. The Treasurer
shall also have such other powers and perform such other duties as may from time
to time be granted or assigned to him by the Board.
Section 2.7 Assistant Treasurers. The Assistant Treasurers shall assist the
--------------------
Treasurer in the performance of his duties and shall have such other powers and
perform such other duties as may from time to time be granted or assigned to
them by the Board.
Section 2.8 Controller. The Controller shall be the chief accounting
----------
officer of the Company and shall have charge of the Company's books of accounts
and records. He shall also have such other powers and perform such other duties
as may from time to time be granted or assigned to him by the Board.
Section 2.9 Secretary. The Secretary shall keep full and complete records
---------
of the proceedings of the Board, its committees, and the meetings of the
stockholders; keep the seal of the Company and affix it to all instruments which
may require it; have custody of and maintain the Company's stockholder records.
The Secretary shall also have such other powers and perform such other duties as
may from time to time be granted or assigned to him by the Board.
Section 2.10 Assistant Secretaries. The Assistant Secretaries shall assist
---------------------
the Secretary in the performance of his duties, and shall have such other powers
and perform such other duties as may from time to time be granted or assigned to
them by the Board.
Section 2.11 Other Officers. Any other elected officer shall have such
--------------
powers and perform such duties as may from time to time be granted or assigned
to him by the Board.
Section 2.12 Powers of Attorney. Whenever an applicable statute, decree,
------------------
rule or regulation requires a document to be subscribed by a particular officer
of the Company, such document
-3-
<PAGE>
may be signed on behalf of such officer by a duly appointed
attorney-in-fact, except as otherwise directed by the Board.
ARTICLE III
Offices
-------
The Company shall have an office at 2100 "Q" Street, Sacramento,
California, and shall also have offices at such other places as the Board may
from time to time determine.
ARTICLE IV
Stock and Stock Certificates
----------------------------
Section 4.1 Common Stock. The Board may from time to time issue new shares
------------
of the Company's "Class A Common Stock" up to the limit of authorized shares of
such class. The Board may also authorize the purchase on behalf of the Company
for its treasury of issued and outstanding shares of Class A or Class B Common
Stock, and the resale, assignment or other transfer by the Company of any such
treasury shares of Class A Common Stock.
Shares of Class A and Class B Common Stock shall be represented by
certificates, which shall be registered upon the books of the Company.
Section 4.2 Form of Certificate. Every holder of Common Stock in the
-------------------
Company shall be entitled to have a certificate signed by or in the name of the
Company by the Chairman of the Board or the President and by the Secretary. All
such certificates shall bear the seal of the Company or a facsimile thereof, and
shall be countersigned by a Transfer Agent and Registrar for the Common Stock.
Certificates of Common Stock signed by the Chairman of the Board or the
President and the Secretary, if properly countersigned as set forth above by a
Transfer Agent and the Registrar, and if regular in other respects, shall be
valid, whether such officers hold their respective positions at the date of
issue or not.
Any signature or countersignature on certificates of Common Stock may be an
actual signature or a printed or engraved facsimile.
Section 4.3 Lost, Stolen, or Destroyed Certificates. The Company may issue
---------------------------------------
a new certificate of Common Stock in the place of any certificate issued by it,
alleged to have been lost, stolen or destroyed; and the Company may require the
owner of the lost, stolen or destroyed certificate to give the Company or its
designated representative both an affidavit or affirmation of
-4-
<PAGE>
such loss, theft or destruction and a bond of indemnity or indemnity
agreement covering the issuance of any replacement certificate.
Section 4.4 Stock Transfers. Transfer of shares of Common Stock shall be
---------------
made on the books of the Company only upon the surrender of a valid certificate
of Common Stock endorsed by the person named in the certificate or by an
attorney lawfully constituted in writing. The Company may impose such additional
conditions to the transfer of its stock as may be necessary or appropriate for
compliance with applicable law or to protect the Company, a Transfer Agent or
the Registrar from liability with respect to such transfer.
Section 4.5 Stockholders of Record. The Board may fix a time as a record
----------------------
date for the determination of stockholders entitled to receive any dividend or
distribution declared to be payable on any shares of the Company; or to vote
upon any matter to be submitted to the vote of any stockholders of the Company;
or to be present or to be represented by proxy at any meeting of the
stockholders of the Company, which record date in the case of a meeting of the
stockholders shall be not more than sixty nor less than ten days before the date
set for such meeting; and other stockholders of record as of the record date
shall be entitled to receive such dividend or distribution, or to vote on such
matter, or to be present or represented by proxy at such meeting.
Section 4.6 Registered Stockholders. The Company shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as owner. The Company shall not be
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person, except as otherwise provided by federal or
Delaware law.
ARTICLE V
Meetings of Stockholders
------------------------
Section 5.1 Annual Meetings of Stockholders. An annual meeting of
-------------------------------
stockholders to elect directors and transact such other business as may properly
be presented to the meeting shall be held at the date, hour and place as the
Board may from time to time fix. At the Annual Meeting, the holders of Class A
Common Stock, voting as a separate class, shall elect that number of Directors
which constitutes twenty-five percent (25%) of the authorized number of
Directors, or if such twenty-five percent shall not be a whole number, then the
nearest higher whole number of Directors. The remaining number of authorized
Directors shall be elected by the holders of Class B Common Stock, voting as a
separate class.
-5-
<PAGE>
Section 5.2 Special Meetings of Stockholders. Special meetings of the
--------------------------------
stockholders for any purpose or purposes, unless prohibited by law, may be
called by the Board. Notice of a special meeting of stockholders shall state the
purpose or purposes of the meeting, and no other business other than that stated
in the notice shall be considered or transacted without the unanimous consent of
all stockholders entitled to vote.
Section 5.3 Notices of Meetings. Written notice of all meetings of the
-------------------
stockholders stating the place, date and hour of the meeting, shall be mailed,
postage prepaid, not less than ten nor more than sixty days before such meeting
to each stockholder entitled to notice of, or to vote at, any meeting of
stockholders at the address of such stockholder as it appears on the records of
the Company.
Section 5.4 Conduct of Meetings. The Chairman of the Board, or such other
-------------------
officer as may preside at any meeting of the stockholders, shall have authority
to establish, from time to time, such rules for the conduct of such meeting, and
to take such action, as may in his judgment be necessary or proper for the
conduct of the meeting and in the best interests of the Company and the
stockholders in attendance in person or by proxy.
Section 5.5 Quorum for Action by Stockholders, Voting. At all elections or
-----------------------------------------
votes for any purpose, there must be represented a number of shares sufficient
to constitute a majority of the outstanding voting power of the Common Stock.
For the election of directors a plurality of the votes cast by the
respective classes shall be sufficient to elect the Directors to be elected by
each such class. With respect to other matters, unless otherwise provided by
law, the Company's Certificate of Incorporation or these Bylaws, the affirmative
vote of the holders of the majority of the voting power of the Common Stock
present in person or represented by proxy at the meeting and entitled to vote on
the subject matter shall be the act of the stockholders. Where a separate vote
by class is required, the affirmative vote of the holders of a majority of the
shares of each class of stock shall be the act of such class, except as
otherwise provided by law, the Company's Certificate of Incorporation or these
Bylaws.
Section 5.6 Adjournments. Any meeting of stockholders may adjourn from time
------------
to time to reconvene at the same or some other place, and notice need not be
given of any such adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the reconvened meeting the
Company may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the reconvened meeting, a notice
of the reconvened meeting shall be given to each stockholder of record entitled
to vote at the meeting.
-6-
<PAGE>
Section 5.7 Proxies. Any stockholder entitled to vote at a meeting of
-------
stockholders may be represented and have his shares voted by a proxy or proxies
appointed by an instrument in writing executed by the stockholder of record;
provided, however, that no such instrument may appoint more than three persons
to act as proxies. If an instrument shall purport to appoint more than three
persons to act as proxies, the Company shall recognize as proxies only the first
three persons listed as appointed. No such instrument shall be valid except for
the purposes expressly stated therein, and shall not be valid after the
expiration of three years from the date of its execution, unless the person
executing it specifies therein that the proxy shall continue for a longer
period. Subject to the above, any written instrument appointing a proxy or
proxies and duly executed by a stockholder of record shall, unless otherwise
limited by its terms, continue in full force and effect until a written
instrument bearing a later date is filed with the Secretary, which instrument by
its terms either revokes the earlier appointment or creates a new appointment.
ARTICLE VI
Corporate Seal
--------------
The seal of the Company shall have inscribed thereon the name of the
Company and the words "Incorporated July 2, 1987 Delaware."
ARTICLE VII
Amendments
----------
These Bylaws may be amended or repealed, and new by-laws adopted, by the
Board; but the stockholders may adopt additional by-laws and may amend or repeal
any by-law whether or not adopted by them.
-7-
<PAGE>
CERTIFICATE OF ADOPTION
The foregoing were adopted as the Bylaws of the Corporation by resolution
of the Board of Directors dated July 25, 1995.
----------------------------------
Karole Morgan-Prager, Secretary
-8-
McCLATCHY NEWSPAPERS, INC.
--------------------------
AMENDED AND RESTATED 1987 STOCK OPTION PLAN
-------------------------------------------
(effective August 15, 1996)
SECTION 1. ESTABLISHMENT AND PURPOSE.
- ---------- -------------------------
The Plan was established in 1987 to offer selected employees of the Company
or of a Subsidiary an opportunity to acquire a proprietary interest in the
success of the Company, or to increase such interest, by purchasing Shares of
the Company's Class A Common Stock. The Plan provides for the grant of Options
to purchase Shares, which may include Nonstatutory Options as wells as ISOs
intended to qualify under section 422A of the Code. Effective as of August 15,
1996, the Plan is amended and restated as set forth herein.
SECTION 2. DEFINITIONS.
- ---------- -----------
(a) "Board" shall mean the Board of Directors of the Company, as
constituted from time to time.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean a committee appointed by the Board, as described
in Section 3(a).
(d) "Company" shall mean McClatchy Newspapers, Inc., a Delaware
corporation.
(e) "Employee" shall mean any individual who is an employee (within the
meaning of section 3401(c) of the Code and the regulations thereunder) of the
Company or a Subsidiary, including officers and directors of the Company who are
also employees.
-1-
<PAGE>
(f) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(g) "Fair Market Value" shall mean the market price of a Share, determined
by the Committee as follows:
(i) If the Share was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite-transactions report for such date;
(ii) If the Share was traded over-the-counter on the date in question
and was classified as a national market issue, then the Fair Market Value
shall be equal to the last-transaction price quoted for such date by the
NASDAQ system for such date;
(iii) If the Share was traded over-the-counter on the date in question
but was not classified as a national market issue, then the Fair Market
Value shall be equal to the mean between the last reported representative
bid and asked prices quoted by the NASDAQ system for such date; and
(iv) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.
(h) "ISO" shall mean an employee incentive stock option described in
section 422A(b) of the Code.
-2-
<PAGE>
(i) "Nonstatutory Option" shall mean an employee stock option not described
in sections 422(b), 422A(b), 423(b) or 424(b) of the Code.
(j) "Option" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(k) "Optionee" shall mean an individual who holds an Option.
(l) "Plan" shall mean this McClatchy Newspapers, Inc. Amended and Restated
1987 Stock Option Plan, as it may be amended.
(m) "Service" shall mean service as an Employee.
(n) "Share" shall mean one share of Stock, as adjusted in accordance with
Section 8 (if applicable).
(o) "Stock" shall mean the Class A Common Stock of the Company.
(p) "Stock Option Agreement" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.
(q) "Subsidiary" shall mean any corporation, if the Company and/or one or
more other Subsidiaries own not less than 50 percent of the total combined
voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
-3-
<PAGE>
(r) "Total and Permanent Disability" shall mean that the Optionee is unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which has lasted, or can be expected
to last, for a continuous period of not less than six months or which can be
expected to result in death.
SECTION 3. ADMINISTRATION.
- ---------- --------------
(a) Committee Membership. The Plan shall be administered by the Committee
which shall consist of not less than two directors appointed by the Board each
of whom shall satisfy the requirements of Rule 16b-3, as amended of the
Securities Exchange Act of 1934, as amended and (b) such requirements as the
Internal Revenue service may establish for outside directors acting under plans
intended to qualify for exemption under section 162(m)(4)(C) of the Code.
(b) Committee Procedures. The Board shall designate one of the members of
the Committee as chairman. The Committee may hold meetings at such times and
places as it shall determine. The acts of a majority of the Committee members
present at meetings at which a quorum exists, or acts reduced to or approved in
writing by all Committee members, shall be valid acts of the Committee.
(c) Committee Responsibilities. Subject to the provisions of the Plan, the
Committee shall have full authority and discretion to take the following
actions:
(i) To interpret the Plan and to apply its provisions;
-4-
<PAGE>
(ii) To adopt, amend or rescind rules, procedures and forms relating
to the Plan;
(iii) To authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan;
(iv) To determine when Options are to be granted under the Plan;
(v) To select the Optionees;
(vi) To determine the number of Shares to be made subject to each
Option;
(vii) To prescribe the terms and conditions of each Option, including
(without limitation) the Exercise Price, to determine whether such Option
is to be classified as an ISO or as a Nonstatutory Option, to specify the
provisions of the Stock Option Agreement relating to such Option, and to
determine whether an Option should be settled under Section 7(c) and the
form of settlement;
(viii) To amend any outstanding Stock Option Agreement, subject to
applicable legal restrictions and to the consent of the Optionee who
entered into such agreement; and
(ix) To take any other actions deemed necessary or advisable for the
administration of the Plan.
All decisions, interpretations and other actions of the Committee shall be final
and binding on all Optionees and all persons deriving their rights from an
Optionee. No member of the Committee shall be liable for any action that he or
she has taken
-5-
<PAGE>
or has failed to take in good faith with respect to the Plan or any Option.
SECTION 4. ELIGIBILITY.
- ---------- -----------
(a) General Rule. Only Employees shall be eligible for designation as
Optionees by the Committee.
(b) Ten-Percent Shareholders. An Employee who owns more than 10 percent of
the total combined voting power of all classes of outstanding stock of the
Company or any of its Subsidiaries shall not be eligible for the grant of an ISO
unless (i) the Exercise Price under such ISO is at least 110 percent of the Fair
Market Value of a Share on the date of grant and (ii) such ISO by its terms is
not exercisable after the expiration of five years from the date of grant.
(c) Attribution Rules. For purposes of Subsection (b) above, in determining
stock ownership, an Employee shall be deemed to own the stock owned, directly or
indirectly, by or for his brothers, sisters, spouse, ancestors and lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be deemed to be owned proportionately by or
for its shareholders, partners or beneficiaries. Stock with respect to which
such Employee holds an option shall not be counted.
(d) Outstanding Stock. For purposes of Subsection (b) above, "outstanding
stock" shall include all stock actually issued and outstanding at the time of
the grant of the ISO to the Optionee. "Outstanding stock" shall not include
treasury shares
-6-
<PAGE>
or shares authorized for issuance under outstanding options held by the Optionee
or by any other person.
SECTION 5. STOCK SUBJECT TO PLAN.
(a) Basic Limitation. Shares offered under the Plan shall be authorized but
----------------
unissued Shares or treasury Shares. The aggregate number of Shares which may be
issued under the Plan shall not exceed 750,000 Shares, subject to adjustment
pursuant to Section 8. The number of Shares which are subject to Options at any
time under the Plan shall not exceed the number of Shares which then remain
available for issuance under the Plan. The Company, during the term of the Plan,
shall at all times reserve and keep available sufficient Shares to satisfy the
requirements of the Plan.
(b) Additional Shares. In the event that any outstanding Option for any
-----------------
reason expires or is canceled or otherwise terminated (except as provided in
Section 7 (c)), the Shares allocable to the unexercised portion of such Option
shall again be available for the purposes of the Plan.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
- ---------- -------------------------------
(a) Stock Option Agreement. Each grant of an Option under the Plan shall be
----------------------
evidenced by a Stock Option Agreement between the Optionee and the Company. Such
Option shall be subject to all applicable terms and conditions of the Plan and
may be subject to any other terms and conditions which are not inconsistent with
the Plan and which the Committee deems
-7-
<PAGE>
appropriate for inclusion in a Stock Option Agreement. The provisions of
the various Stock Option Agreements entered into under the Plan need not be
identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the number
----------------
of Shares that are subject to the Option and shall provide for the adjustment of
such number in accordance with Section 8. The Stock Option Agreement shall also
specify whether the Option is an ISO or a Nonstatutory Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the Exercise
--------------
Price. The Exercise Price of an Option shall not be less than 100 percent of the
Fair Market Value of a Share on the date of grant, except as otherwise provided
in Section 4(b). Subject to the preceding sentence, the Exercise Price under any
Option shall be determined by the Committee at its sole discretion. The Exercise
Price shall be payable in accordance with Section 7.
(d) Exercisability and Term. Each Stock Option Agreement shall specify the
-----------------------
date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option. The term shall
not exceed 10 years from the date of grant, except as otherwise provided in
Section 4(b). Subject to the preceding sentence, the Committee at its sole
discretion shall determine when all or any part of an Option is to become
exercisable and when such Option is to expire.
(e) Nontransferability. During an Optionee's lifetime, and unless his or
------------------
her Stock Option Agreement otherwise provides, his
-8-
<PAGE>
or her Option(s) shall be exercisable only by him or her and shall not be
transferable. In the event of an Optionee's death, his or her nontransferable
Option(s) shall not be transferable other than by beneficiary designation, will
or by the laws of descent and distribution.
(f) Termination of Service (Except by Death). If an Optionee's Service
----------------------------------------
terminates for any reason other than death, then his or her Option(s) shall
expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (d) above;
(ii) The date 90 days after the termination of the Optionee's Service,
if the termination occurs on or after the earliest date when he or she is
eligible for early or normal retirement under the Restated Retirement Plan
for Employees of McClatchy Newspapers;
(iii) The date one year after the termination of the Optionee's
Service, if the termination occurs because of his or her Total and
Permanent Disability; or
(iv) The date 30 days after the termination of the Optionee's Service,
if the termination is not described in Paragraphs (ii) or (iii) above.
Notwithstanding the above, the Committee may agree to alternative expiration
periods in any applicable Stock Option Agreement, so long as such alternative
periods do not exceed 10 years from the date of grant as set forth in Subsection
(d) above. The Optionee may exercise all or part of his or her Option(s) at any
-9-
<PAGE>
time before the expiration of such Option(s) under the preceding sentence, but
only to the extent that such Option(s) had become exercisable before his or her
service terminated or became exercisable as a result of the termination. The
balance of such Option(s) shall lapse when the Optionee's Service terminates. In
the event that the Optionee dies after the termination of his or her Service but
before the expiration of his or her Option(s), all or part of such Option(s) may
be exercised (prior to expiration) by the executors or administrators of the
Optionee's estate or by any person who has acquired such Option(s) directly from
him or her by bequest or inheritance, but only to the extent that such Option(s)
had become exercisable before his or her Service terminated or became
exercisable as a result of the termination.
(g) Leaves of Absence. For purposes of Subsection (f) above, Service shall
-----------------
be deemed to continue while the Optionee is on military leave, sick leave or
other bona fide leave of absence (as determined by the Committee). The foregoing
notwithstanding, in the case of an ISO granted under the Plan, Service shall not
be deemed to continue beyond the first 90 days of such leave, unless the
Optionee's reemployment rights are guaranteed by statute or by contract.
(h) Death of Optionee. If an Optionee dies while he or she is in service,
-----------------
then his or her Option(s) shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (d) above;
or
-10-
<PAGE>
(ii) The date 12 months after his or her death. All or part of the
Optionee's Option(s) may be exercised at any time before the expiration of
such Option(s) under the preceding sentence by the executors or
administrators of his or her estate or by any person who has acquired such
Option(s) directly from him or her by bequest or inheritance.
(i) No Rights as a Stockholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustment shall be made except as provided
in Section 8.
(j) Modification, Extension and Renewal of Options. Within
----------------------------------------------
the limitations of the Plan, the Committee may modify, extend or renew
outstanding Options or may accept the cancellation of outstanding Options (to
the extent not previously exercised) for the granting of new Options in
substitution therefor. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair his or her rights or
increase his or her obligations under such Option.
(k) Restrictions on Transfer of Shares. Any Shares issued upon exercise of
----------------------------------
an Option shall be subject to such special rights of repurchase, rights of first
refusal and other transfer restrictions as the Committee may determine. Such
restrictions shall be set forth in the applicable Stock Option Agreement and
shall apply in addition to any general restrictions that may apply to all
holders of Shares.
-11-
<PAGE>
SECTION 7. PAYMENT FOR SHARES.
- ---------- ------------------
(a) General Rule. The entire Exercise Price of Shares issued under the Plan
------------
shall be payable in cash at the time when such Shares are purchased, except as
follows:
(b) Surrender of Stock. To the extent that the Stock Option Agreement so
------------------
provides, payment may be made with Shares which have already been owned by the
Optionee for more than 12 months and which are surrendered to the Company in
good form for transfer. Such Shares shall be valued at their Fair Market Value
on the date when the new Shares are purchased under the Plan.
(c) Settlement in Cash and/or Shares. To the extent that the Stock Option
--------------------------------
Agreement so provides, the Committee shall have the authority, in its sole
discretion, to settle all or any part of an exercisable Option or installment of
any Option by offering payment in Shares or in cash, or in any combination of
Shares and cash, in exchange for the surrender of that Option, installment or
partial installment of the Option by the Optionee. The amount offered by the
Committee shall not exceed the difference between the Exercise Price of the
Option and the Fair Market Value of the Shares on the date of the offer. In no
event shall Options be settled under this Subsection (c) if the Fair Market
Value of the Shares subject to the cancelled Options does not exceed the
Exercise Price of such Options. Except in the case of the death or Total and
Permanent Disability of the Optionee, Options shall not be settled for cash
under this Subsection (c) unless they have been outstanding for not less than
six months. Shares as to
-12-
<PAGE>
which Options have been settled shall not be available for further Option
grants under the Plan.
(d) Cashless Exercises. Payment may be made all or in part by delivery (on
------------------
a form prescribed by the Committee) of an irrevocable direction to a securities
broker to sell Shares and to deliver all or part of the sale proceeds to the
Company in payment of the aggregate Exercise Price.
SECTION 8. ADJUSTMENT OF SHARES.
- ---------- --------------------
(a) General. In the event of a subdivision of the outstanding Stock, a
-------
declaration of a dividend payable in Shares, a declaration of a dividend payable
in cash in an amount that has a material effect on the price of Shares, a
combination or consolidation of the outstanding Stock (by reclassification or
otherwise) into a lesser number of Shares, a spinoff or a similar occurrence,
the Committee shall make appropriate adjustments in one or more of (i) the
number of Options available for future grants under Section 5, (ii) the number
of Shares covered by each outstanding Option or (iii) the Exercise Price under
each outstanding Option.
(b) Reorganizations. In the event that the Company is a party to a merger
---------------
or other reorganization, outstanding Options shall be subject to the agreement
of merger or reorganization. Such agreement may provide, without limitation, for
the assumption of outstanding Options by the surviving corporation or its
parent, for their continuation by the Company (if the Company is a surviving
corporation) or for settlement in cash.
-13-
<PAGE>
(c) Reservation of Rights. Except as provided in this Section 8, an
---------------------
Optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class. Any issue by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect,and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of Shares
subject to an Option. The grant of an Option pursuant to the Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
SECTION 9. LEGAL REQUIREMENTS.
- ---------- ------------------
Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations, and the regulations of any stock exchange on which the Company's
securities may then be listed.
-14-
<PAGE>
SECTION 10. NO EMPLOYMENT RIGHTS.
- ----------- --------------------
No provision of the Plan, nor any Option granted under the Plan, shall be
construed as giving any person the right to become or to be treated as an
Employee or to remain an Employee. The Company and its Subsidiaries reserve the
right to terminate any person's Service at any time and for any reason.
SECTION 11. DURATION AND AMENDMENTS.
- ----------- -----------------------
(a) Term of the Plan. The Plan, as set forth herein, shall become effective
----------------
on September 14, 1987. The Plan shall terminate automatically on September 13,
1997, and may be terminated on any earlier date pursuant to Subsection (b)
below.
(b) Right to Amend or Terminate the Plan. The Board may amend, suspend or
------------------------------------
terminate the Plan at any time and for any reason; provided, however, that any
amendment of the Plan which increases the number of Shares available for
issuance under the Plan (except as provided in Section 8) or which materially
changes the class of persons who are eligible for the grant of ISOs shall be
subject to the approval of the Company's shareholders. Shareholder approval
shall not be required for any other amendment of the Plan, except as may be
required by Rule 16b-3 of the Securities and Exchange Commission (or any
successor rule) or any other law or regulation.
(c) Effect of Amendment or Termination. No Shares shall be issued or sold
----------------------------------
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any amendment
-15-
<PAGE>
thereof, shall not affect any Option previously granted under the Plan.
SECTION 12. WITHHOLDING TAXES.
- ----------- -----------------
To the extent required by applicable federal, state, local or foreign law,
the recipient of any payment or distribution under the Plan shall make
arrangements satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise by reason of such payment or distribution. The
Company shall not be required to make such payment or distribution until such
obligations are satisfied.
SECTION 13. EXECUTION.
- ----------- ---------
To record the adoption of the Plan by the Board on September 14, 1987, as
amended and restated effective July 25, 1990 and as subsequently amended and
restated effective August 15, 1996, the Company has caused its authorized
officer to execute the same.
McCLATCHY NEWSPAPERS, INC.
By
--------------------------------------
Gary Pruitt
President and
Chief Executive Officer
-16-
McCLATCHY NEWSPAPERS, INC.
--------------------------
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
-------------------------------------------
(effective August 15, 1996)
SECTION 1. ESTABLISHMENT AND PURPOSE.
- ---------- -------------------------
The Plan was established in 1994 to offer selected employees of the Company
or of a Subsidiary an opportunity to acquire a proprietary interest in the
success of the Company, or to increase such interest, by purchasing Shares of
the Company's Class A Common Stock. The Plan provides for the grant of Options
to purchase Shares, which may include Nonstatutory Options as wells as ISOs
intended to qualify under section 422 of the Code. Effective as of August 15,
1996, the Plan is amended and restated as set forth herein.
SECTION 2. DEFINITIONS.
- ---------- -----------
(a) "Board" shall mean the Board of Directors of the Company, as
-----
constituted from time to time.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Committee" shall mean a committee appointed by the Board, as described
---------
in Section 3(a).
(d) "Company" shall mean McClatchy Newspapers, Inc., a Delaware
-------
corporation.
(e) "Employee" shall mean any individual who is an employee (within the
--------
meaning of section 3401(c) of the Code and the regulations thereunder) of the
Company or a Subsidiary, including officers and directors of the Company who are
also employees.
-1-
<PAGE>
(f) "Exercise Price" shall mean the amount for which one Share may be
--------------
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(g) "Fair Market Value" shall mean the market price of a Share, determined
-----------------
by the Committee as follows:
(i) If the Share was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite-transactions report for such date;
(ii) If the Share was traded over-the-counter on the date in question
and was traded on the Nasdaq system or the Nasdaq National Market, then the
Fair Market Value shall be equal to the last-transaction price quoted for
such date by the Nasdaq system or the Nasdaq National Market;
(iii) If the Share was traded over-the-counter on the date in question
but was not traded on the Nasdaq system or the Nasdaq National Market, then
the Fair Market Value shall be equal to the mean between the last reported
representative bid and asked prices quoted for such date by the principal
automated inter-dealer quotation system on which Stock is quoted or, if the
Stock is not quoted on any such system, by the "Pink Sheets" published by
the National Quotation Bureau, Inc.; and
(iv) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.
-2-
<PAGE>
(h) "ISO" shall mean an employee incentive stock option described in
---
section 422(b) of the Code.
(i) "Nonstatutory Option" shall mean an employee stock option not described
-------------------
in sections 422 or 423 of the Code.
(j) "Option" shall mean an ISO or Nonstatutory Option granted under the
------
Plan and entitling the holder to purchase Shares.
(k) "Optionee" shall mean an individual who holds an Option.
--------
(l) "Plan" shall mean this McClatchy Newspapers, Inc. Amended and Restated
----
1994 Stock Option Plan, as it may be amended.
(m) "Service" shall mean service as an Employee.
-------
(n) "Share" shall mean one share of Stock, as adjusted in accordance with
-----
Section 8 (if applicable).
(o) "Stock" shall mean the Class A Common Stock of the Company.
-----
(p) "Stock Option Agreement" shall mean the agreement between the Company
----------------------
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.
(q) "Subsidiary" shall mean any corporation, if the Company and/or one or
----------
more other Subsidiaries own not less than 50 percent of the total combined
voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
-3-
<PAGE>
(r) "Total and Permanent Disability" shall mean that the Optionee is unable
------------------------------
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which has lasted, or can be expected
to last, for a continuous period of not less than twelve months or which can be
expected to result in death.
SECTION 3. ADMINISTRATION.
- ---------- --------------
(a) Committee Membership. The Plan shall be administered by the Committee
--------------------
which shall consist of not less than two directors appointed by the Board each
of whom shall satisfy the requirements of Rule 16b-3, as amended of the
Securities Exchange Act of 1934, as amended and (b) such requirements as the
Internal Revenue service may establish for outside directors acting under plans
intended to qualify for exemption under section 162(m)(4)(C) of the Code.
(b) Committee Procedures. The Board shall designate one of the members of
--------------------
the Committee as chairman. The Committee may hold meetings at such times and
places as it shall determine. The acts of a majority of the Committee members
present at meetings at which a quorum exists, or acts reduced to or approved in
writing by all Committee members, shall be valid acts of the Committee.
(c) Committee Responsibilities. Subject to the provisions of the Plan, the
--------------------------
Committee shall have full authority and discretion to take the following
actions:
(i) To interpret the Plan and to apply its provisions;
-4-
<PAGE>
(ii) To adopt, amend or rescind rules, procedures and forms relating
to the Plan;
(iii) To authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan;
(iv) To determine when Options are to be granted under the Plan;
(v) To select the Optionees;
(vi) To determine the number of Shares to be made subject to each
Option;
(vii) To prescribe the terms and conditions of each Option, including
(without limitation) the Exercise Price, to determine whether such Option
is to be classified as an ISO or as a Nonstatutory Option, to specify the
provisions of the Stock Option Agreement relating to such Option, and to
determine whether an Option should be settled under Section 7(c) and the
form of settlement;
(viii) To amend any outstanding Stock Option Agreement, subject to
applicable legal restrictions and to the consent of the Optionee who
entered into such agreement; and
(ix) To take any other actions deemed necessary or advisable for the
administration of the Plan.
All decisions, interpretations and other actions of the Committee shall be final
and binding on all Optionees and all persons deriving their rights from an
Optionee. No member of the Committee shall be liable for any action that he or
she has taken
-5-
<PAGE>
or has failed to take in good faith with respect to the Plan or any Option.
SECTION 4. ELIGIBILITY.
- ---------- -----------
(a) General Rule. Only Employees shall be eligible for designation as
------------
Optionees by the Committee.
(b) Ten-Percent Shareholders. An Employee who owns more than 10 percent of
------------------------
the total combined voting power of all classes of outstanding stock of the
Company or any of its Subsidiaries shall not be eligible for the grant of an ISO
unless (i) the Exercise Price under such ISO is at least 110 percent of the Fair
Market Value of a Share on the date of grant and (ii) such ISO by its terms is
not exercisable after the expiration of five years from the date of grant.
(c) Attribution Rules. For purposes of Subsection (b) above, in determining
-----------------
stock ownership, an Employee shall be deemed to own the stock owned, directly or
indirectly, by or for his brothers, sisters, spouse, ancestors and lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be deemed to be owned proportionately by or
for its shareholders, partners or beneficiaries. Stock with respect to which
such Employee holds an option shall not be counted.
(d) Outstanding Stock. For purposes of Subsection (b) above, "outstanding
-----------------
stock" shall include all stock actually issued and outstanding at the time of
the grant of the ISO to the Optionee. "Outstanding stock" shall not include
treasury shares
-6-
<PAGE>
or shares authorized for issuance under outstanding options held by the Optionee
or by any other person.
SECTION 5. STOCK SUBJECT TO PLAN.
- ---------- ---------------------
(a) Basic Limitation. Shares offered under the Plan shall be authorized but
----------------
unissued Shares or treasury Shares. The aggregate number of Shares which may be
issued under the Plan shall not exceed 812,500 Shares, subject to adjustment
pursuant to Section 8. The number of Shares which are subject to Options at any
time under the Plan shall not exceed the number of Shares which then remain
available for issuance under the Plan. The Company, during the term of the Plan,
shall at all times reserve and keep available sufficient Shares to satisfy the
requirements of the Plan.
(b) Additional Shares. In the event that any outstanding Option for any
-----------------
reason expires or is canceled or otherwise terminated (except as provided in
Section 7 (c)), the Shares allocable to the unexercised portion of such Option
shall again be available for the purposes of the Plan.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
- ---------- -------------------------------
(a) Stock Option Agreement. Each grant of an Option under the Plan shall be
----------------------
evidenced by a Stock Option Agreement between the Optionee and the Company. Such
Option shall be subject to all applicable terms and conditions of the Plan and
may be subject to any other terms and conditions which are not inconsistent with
the Plan and which the Committee deems
-7-
<PAGE>
appropriate for inclusion in a Stock Option Agreement. The provisions of
the various Stock Option Agreements entered into under the Plan need not be
identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the number
----------------
of Shares that are subject to the Option and shall provide for the adjustment of
such number in accordance with Section 8. Options granted to any Optionee in a
single calendar year shall in no event cover more than 187,500 Shares, subject
to adjustment in accordance with Section 8. The Stock Option Agreement shall
also specify whether the Option is an ISO or a Nonstatutory Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the Exercise
--------------
Price. The Exercise Price of an Option shall not be less than 100 percent of the
Fair Market Value of a Share on the date of grant, except as otherwise provided
in Section 4(b). Subject to the preceding sentence, the Exercise Price under any
Option shall be determined by the Committee at its sole discretion. The Exercise
Price shall be payable in accordance with Section 7.
(d) Exercisability and Term. Each Stock Option Agreement shall specify the
-----------------------
date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option. The term shall
not exceed 10 years from the date of grant, except as otherwise provided in
Section 4(b). Subject to the preceding sentence, the Committee at its sole
discretion shall determine when all or any part of an
-8-
<PAGE>
Option is to become exercisable and when such Option is to expire.
(e) Nontransferability. During an Optionee's lifetime, and unless his or
------------------
her Stock Option Agreement otherwise provides, his or her Option(s) shall be
exercisable only by him or her and shall not be transferable. In the event of an
Optionee's death, his or her nontransferable Option(s) shall not be transferable
other than by beneficiary designation, will or by the laws of descent and
distribution.
(f) Termination of Service (Except by Death). If an Optionee's Service
----------------------------------------
terminates for any reason other than death, then his or her Option(s) shall
expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (d) above;
(ii) The date 90 days after the termination of the Optionee's Service,
if the termination occurs on or after the earliest date when he or she is
eligible for early or normal retirement under the Restated Retirement Plan
for Employees of McClatchy Newspapers;
(iii) The date one year after the termination of the Optionee's
Service, if the termination occurs because of his or her Total and
Permanent Disability; or
(iv) The date 30 days after the termination of the Optionee's Service,
if the termination is not described in Paragraphs (ii) or (iii) above.
-9-
<PAGE>
Notwithstanding the above, the Committee may agree to alternative expiration
periods in any applicable Stock Option Agreement, so long as such alternative
periods do not exceed 10 years from the date of grant as set forth in Subsection
(d) above. The Optionee may exercise all or part of his or her Option(s) at any
time before the expiration of such Option(s) under the preceding sentence, but
only to the extent that such Option(s) had become exercisable before his or her
service terminated or became exercisable as a result of the termination. The
balance of such Option(s) shall lapse when the Optionee's Service terminates. In
the event that the Optionee dies after the termination of his or her Service but
before the expiration of his or her Option(s), all or part of such Option(s) may
be exercised (prior to expiration) by the executors or administrators of the
Optionee's estate or by any person who has acquired such Option(s) directly from
him or her by bequest or inheritance, but only to the extent that such Option(s)
had become exercisable before his or her Service terminated or became
exercisable as a result of the termination.
(g) Leaves of Absence. For purposes of Subsection (f) above, Service shall
-----------------
be deemed to continue while the Optionee is on military leave, sick leave or
other bona fide leave of absence (as determined by the Committee). The foregoing
notwithstanding, in the case of an ISO granted under the Plan, Service shall not
be deemed to continue beyond the first 90 days of such leave, unless the
Optionee's reemployment rights are guaranteed by statute or by contract.
-10-
<PAGE>
(h) Death of Optionee. If an Optionee dies while he or she is in service,
-----------------
then his or her Option(s) shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (d) above;
or
(ii) The date 12 months after his or her death. All or part of the
Optionee's Option(s) may be exercised at any time before the expiration of
such Option(s) under the preceding sentence by the executors or
administrators of his or her estate or by any person who has acquired such
Option(s) directly from him or her by bequest or inheritance.
(i) No Rights as a Stockholder. An Optionee, or a transferee of an
--------------------------
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustment shall be made except as provided in
Section 8.
(j) Modification, Extension and Renewal of Options. Within
----------------------------------------------
the limitations of the Plan, the Committee may modify, extend or renew
outstanding Options or may accept the cancellation of outstanding Options (to
the extent not previously exercised) for the granting of new Options in
substitution therefor. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair his or her rights or
increase his or her obligations under such Option.
(k) Restrictions on Transfer of Shares. Any Shares issued upon exercise of
----------------------------------
an Option shall be subject to such special rights of repurchase, rights of first
refusal and other transfer
-11-
<PAGE>
restrictions as the Committee may determine. Such restrictions shall be set
forth in the applicable Stock Option Agreement and shall apply in addition to
any general restrictions that may apply to all holders of Shares.
SECTION 7. PAYMENT FOR SHARES.
- ---------- ------------------
(a) General Rule. The entire Exercise Price of Shares issued under the Plan
------------
shall be payable in cash at the time when such Shares are purchased, except as
follows:
(b) Surrender of Stock. To the extent that the Stock Option Agreement so
------------------
provides, payment may be made with Shares which have already been owned by the
Optionee for more than 12 months and which are surrendered to the Company in
good form for transfer. Such Shares shall be valued at their Fair Market Value
on the date when the new Shares are purchased under the Plan.
(c) Settlement in Cash and/or Shares. To the extent that the Stock Option
--------------------------------
Agreement so provides, the Committee shall have the authority, in its sole
discretion, to settle all or any part of an exercisable Option or installment of
any Option by offering payment in Shares or in cash, or in any combination of
Shares and cash, in exchange for the surrender of that Option, installment or
partial installment of the Option by the Optionee. The amount offered by the
Committee shall not exceed the difference between the Exercise Price of the
Option and the Fair Market Value of the Shares on the date of the offer. In no
event shall Options be settled under this Subsection (c) if the Fair Market
Value of the Shares subject to the cancelled Options does not exceed the
-12-
<PAGE>
Exercise Price of such Options. Options shall not be settled for cash under
this Subsection (c) unless they have been outstanding for not less than six
months. Shares as to which Options have been settled shall not be available for
further Option grants under the Plan.
(d) Cashless Exercises. Payment may be made all or in part by delivery (on
------------------
a form prescribed by the Committee) of an irrevocable direction to a securities
broker to sell Shares and to deliver all or part of the sale proceeds to the
Company in payment of the aggregate Exercise Price.
SECTION 8. ADJUSTMENT OF SHARES.
- ---------- --------------------
(a) General. In the event of a subdivision of the outstanding Stock, a
-------
declaration of a dividend payable in Shares, a declaration of a dividend payable
in cash in an amount that has a material effect on the price of Shares, a
combination or consolidation of the outstanding Stock (by reclassification or
otherwise) into a lesser number of Shares, a spinoff or a similar occurrence,
the Committee shall make appropriate adjustments in one or more of (i) the
number of Options available for future grants under Section 5, (ii) the number
of Shares covered by each outstanding Option or (iii) the Exercise Price under
each outstanding Option.
(b) Reorganizations. In the event that the Company is a party to a merger
---------------
or other reorganization, outstanding Options shall be subject to the agreement
of merger or reorganization. Such agreement may provide, without limitation, for
the
-13-
<PAGE>
assumption of outstanding Options by the surviving corporation or its
parent, for their continuation by the Company (if the Company is a surviving
corporation) or for settlement in cash.
(c) Reservation of Rights. Except as provided in this Section 8, an
---------------------
Optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class. Any issue by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of Shares
subject to an Option. The grant of an Option pursuant to the Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
SECTION 9. LEGAL REQUIREMENTS.
- ---------- ------------------
Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations, and the regulations of any stock exchange on which the Company's
securities may then be listed.
-14-
<PAGE>
SECTION 10. NO EMPLOYMENT RIGHTS.
- ----------- --------------------
No provision of the Plan, nor any Option granted under the Plan, shall be
construed as giving any person the right to become or to be treated as an
Employee or to remain an Employee. The Company and its Subsidiaries reserve the
right to terminate any person's Service at any time and for any reason.
SECTION 11. DURATION AND AMENDMENTS.
- ----------- -----------------------
(a) Term of the Plan. The Plan, as set forth herein, shall become effective
----------------
on January 26, 1994, subject to approval of the Company's shareholders. In the
event that the Company's shareholders fail to approve the Plan before January
26, 1995, any Option grants made prior to such date shall be null and void, and
no additional Option grants shall be made after such date. The Plan shall
terminate automatically on January 25, 2004, and may be terminated on any
earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board may amend, suspend or
------------------------------------
terminate the Plan at any time and for any reason; provided, however, that any
amendment of the Plan which increases the number of Shares available for
issuance under the Plan (except as provided in Section 8) or which materially
changes the class of persons who are eligible for the grant of ISOs shall be
subject to the approval of the Company's shareholders. Shareholder approval
shall not be required for any other amendment of the Plan, except as may be
required by Rule
-15-
<PAGE>
16b-3 of the Securities and Exchange Commission (or any successor rule) or
any other law or regulation.
(c) Effect of Amendment or Termination. No Shares shall be issued or sold
----------------------------------
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any amendment
thereof, shall not affect any Option previously granted under the Plan.
SECTION 12. WITHHOLDING TAXES.
- ----------- -----------------
To the extent required by applicable federal, state, local or foreign law,
the recipient of any payment or distribution under the Plan shall make
arrangements satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise by reason of such payment or distribution. The
Company shall not be required to make such payment or distribution until such
obligations are satisfied.
SECTION 13. EXECUTION.
- ----------- ---------
To record the adoption of the Plan by the Board on January 26, 1994, as
amended and restated effective August 15,
-16-
<PAGE>
1996, the Company has caused its authorized officer to execute the same.
McCLATCHY NEWSPAPERS, INC.
By
----------------------------------
Gary Pruitt
President and Chief
Executive Officer
-17-
McCLATCHY NEWSPAPERS, INC.
--------------------------
1990 DIRECTORS' STOCK OPTION PLAN
---------------------------------
(As Amended and Restated January 22, 1997)
SECTION 1. ESTABLISHMENT AND PURPOSE.
- --------- -------------------------
The Plan was established in 1990 to offer the Nonemployee Directors of the
Company an opportunity to acquire a proprietary interest in the success of the
Company, or to increase such interest, by purchasing Shares of the Company's
Class A Common Stock. To achieve this purpose, the Plan provides for the grant
of Nonstatutory Options to purchase such Shares. This amendment and restatement
clarifies that the "cashless exercise" method of exercising Nonstatutory Options
is available under the Plan and eliminates the stock appreciation right and the
ability to receive stock pursuant thereto as an available means of exercise
under the Plan.
SECTION 2. DEFINITIONS.
- --------- -----------
(a) "Board" shall mean the Board of Directors of the Company, as
-----
constituted from time to time.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Committee" shall mean the Compensation Committee of the Board.
---------
(d) "Company" shall mean McClatchy Newspapers, Inc., a Delaware
-------
corporation.
(e) "Exercise Price" shall mean the amount for which one Share may be
--------------
purchased upon exercise of an Option, as specified in the applicable Stock
Option Agreement.
(f) "Fair Market Value" shall mean the market price of a Share, determined
-----------------
by the Board as follows:
(i) If the Share was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite-transactions report for such date;
(ii) If the Share was traded over-the-counter on the date in question
and was classified as a national market issue, then the Fair Market Value
shall be equal to the last-transaction price quoted by the NASDAQ system
for such date;
-1-
<PAGE>
(iii) If the Share was traded over-the-counter on the date in question
but was not classified as a national market issue, then the Fair Market
Value shall be equal to the mean between the last reported representative
bid and asked prices quoted by the NASDAQ system for such date; and
(iv) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Board in good faith on such basis
as it deems appropriate.
(g) "Nonemployee Director" shall mean a member of the Board who is not an
--------------------
employee (within the meaning of section 3401(c) of the Code and the regulations
thereunder) of the Company or of a subsidiary of the Company.
(h) "Nonstatutory Option" shall mean a stock option not described in
-------------------
sections 422(b), 423(b) or 424(b) of the Code.
(i) "Option" shall mean a Nonstatutory Option granted under the Plan and
------
entitling the holder to purchase Shares.
(j) "Optionee" shall mean an individual who holds an Option.
--------
(k) "Plan" shall mean this McClatchy Newspapers, Inc. 1990 Directors' Stock
----
Option Plan, as it may be amended from time to time.
(l) "Service" shall mean service as a member of the Board, whether or not
-------
as a Nonemployee Director.
(m) "Share" shall mean one share of Stock, as adjusted in accordance with
-----
Section 7 (if applicable).
(n) "Stock" shall mean the Class A Common Stock of the Company.
-----
(o) "Stock Option Agreement" shall mean the agreement between the Company
----------------------
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.
(p) "Total and Permanent Disability" shall mean that the Optionee is unable
------------------------------
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which has lasted, or can be expected
to last, for a continuous period of not less than six months or which can be
expected to result in death.
-2-
<PAGE>
SECTION 3. ADMINISTRATION.
- --------- --------------
(a) Plan Administrator. The Plan shall be administered by the Board. The
------------------
Board may act on the recommendation of the Committee, which consists of one or
more members of the Board.
(b) Board Responsibilities. Subject to the provisions of the Plan, the
----------------------
Board shall have full authority and discretion to take the following actions:
(i) To interpret the Plan and to apply its pro- visions;
(ii) To adopt, amend or rescind rules, procedures and forms relating
to the Plan;
(iii) To authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan; and
(iv) To take any other actions deemed necessary or advisable for the
administration of the Plan.
All decisions, interpretations and other actions of the Board shall be final and
binding on all Optionees and all other persons deriving their rights from an
Optionee. No member of the Board shall be liable for any action that he or she
has taken or has failed to take in good faith with respect to the Plan or any
Option.
SECTION 4. STOCK SUBJECT TO PLAN.
- --------- ---------------------
(a) Basic Limitation. Shares offered under the Plan shall be treasury
----------------
Shares or authorized but unissued Shares. The aggregate number of Shares that
may be issued under the Plan shall not exceed 187,500 Shares, subject to
adjustment pursuant to Section 7. The number of Shares that are subject to
Options at any time shall not exceed the number of Shares that then remain
available for issuance under the Plan. The Company, during the term of the Plan,
shall at all times reserve and keep available sufficient Shares to satisfy the
purposes of the Plan.
(b) Additional Shares. In the event that any outstanding Option for any
reason expires or is cancelled or otherwise terminated, the Shares allocable to
the unexercised portion of such Option shall again be available for the purposes
of the Plan.
SECTION 5. TERMS AND CONDITIONS OF OPTIONS.
- --------- -------------------------------
(a) Stock Option Agreement. Each grant of an Option shall be evidenced by a
----------------------
Stock Option Agreement between the Optionee and
-3-
<PAGE>
the Company. Such Option shall be subject to all applicable terms and
conditions of the Plan and may be subject to any other terms and conditions that
are not inconsistent with the Plan and that the Board deems appropriate for
inclusion in a Stock Option Agreement.
(b) Eligibility and Time of Grant. Only Nonemployee Directors shall be
-----------------------------
eligible for the grant of Options. As of the conclusion of each regular annual
meeting of the Company's stockholders, each individual who then is a Nonemployee
Director shall receive an Option. (An individual whose service as a Nonemployee
Director ends at a regular annual meeting of the Company's stockholders shall
not receive an Option at such annual meeting.)
(c) Number of Shares and Tax Status. Each Option shall cover 1,875 Shares.
-------------------------------
Such number shall be subject to adjustment in accordance with Section 7. All
Options shall be Nonstatutory Options.
(d) Exercise Price. The Exercise Price under each Option shall be equal to
--------------
100% of the Fair Market Value of the Shares subject to such Option on the date
when such Option is granted. The entire Exercise Price of Shares issued under
the Plan shall be payable in cash when such Shares are purchased, except as
follows:
(i) Payment may be made with Shares that have already been owned by
the Optionee for more than 12 months and that are surrendered to the
Company in good form for transfer. Such Shares shall be valued at their
Fair Market Value when the new Shares are purchased under the Plan.
(ii) Payment may be made by delivery (on a form prescribed by the
Company) of an irrevocable direction to a securities broker approved by the
Company to sell Shares subject to the Option and to deliver all or part of
the sale proceeds to the Company in payment of all or part of the Exercise
Price and any withholding taxes.
(e) Vesting. Each Option shall become exercisable in four annual
-------
installments in accordance with the following schedule:
<TABLE>
<CAPTION>
Number of Shares
----------------
for Which Option
----------------
Date Is Exercisable
---- --------------
<S> <C>
March 1 of first year after date of grant 468
March 1 of second year after date of grant 937
March 1 of third year after date of grant 1,406
March 1 of fourth year after date of grant 1,875
</TABLE>
-4-
<PAGE>
In addition, each Option shall become exercisable in full in the event that the
Optionee's Service terminates not less than six months after such Option was
granted because of death, Total and Permanent Disability or retirement after
attaining age 65.
(f) Term of Options. Subject to Subsections (g) and (h) below, each Option
---------------
shall expire on the 10th anniversary of the date when such Option was granted.
(g) Termination of Service (Except by Death). If an Optionee's Service
----------------------------------------
terminates for any reason other than death, then his or her Option(s) shall
expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (f) above;
(ii) The date 90 days after the termination of the Optionee's Service,
if the termination occurs by reason of retirement after the Optionee
attained age 65;
(iii) The date one year after the termination of the Optionee's
Service, if the termination occurs because of his or her Total and
Permanent Disability; or
(iv) The date 30 days after the termination of the Optionee's Service,
if the termination is not described in Paragraphs (ii) or (iii) above.
The Optionee may exercise all or part of his or her Option(s) at any time before
the expiration of such Option(s) under the preceding sentence, but only to the
extent that such Option(s) had become exercisable before his or her Service
terminated or became exercisable as a result of the termination. The balance of
such Option(s) shall lapse when the Optionee's Service terminates. In the event
that the Optionee dies after the termination of his or her Service but before
the expiration of his or her Option(s), all or part of such Option(s) may be
exercised (prior to expiration) by the executors or administrators of the
Optionee's estate or by any person who has acquired such Option(s) directly from
him or her by bequest, inheritance or beneficiary designation under the Plan,
but only to the extent that such Option(s) had become exercisable before his or
her Service terminated or became exercisable as a result of the termination.
(h) Death of Optionee. If an Optionee dies while he or she is in Service,
-----------------
then his or her Option(s) shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (f) above;
or
-5-
<PAGE>
(ii) The date 12 months after his or her death.
All or part of the Optionee's Option(s) may be exercised at any time before the
expiration of such Option(s) under the preceding sentence by the executors or
administrators of his or her estate or by any person who has acquired such
Option(s) directly from him or her by bequest, inheritance or beneficiary
designation under the Plan.
(i) Nontransferability. During an Optionee's lifetime, his or her Option(s)
------------------
shall be exercisable only by him or her and shall be nontransferable. In the
event of an Optionee's death, his or her Option(s) shall not be transferable
other than by bequest, inheritance or beneficiary designation under the Plan.
SECTION 6. MISCELLANEOUS PROVISIONS.
(a) Modification, Extension and Renewal of Options. Within
----------------------------------------------
the limitations of the Plan, the Board may modify, extend or renew
outstanding Options or may accept the cancellation of outstanding Options (to
the extent not previously exercised) for the granting of new Options in
substitution therefor. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair his or her rights or
increase his or her obligations under such Option.
(b) No Rights as a Stockholder. An Optionee, or a transferee of an
--------------------------
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustment shall be made except as provided in
Section 7.
(c) Restrictions on Issuance of Shares. Shares shall not be issued under
----------------------------------
the Plan unless the issuance and delivery of such Shares complies with (or is
exempt from) all applicable requirements of law, including (without limitation)
the Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, state securities laws and regulations, and the regulations of any
stock exchange on which the Company's securities may then be listed.
(d) No Retention Rights. No provision of the Plan, nor any Option granted
-------------------
under the Plan, shall be construed as giving any person the right to become or
to be treated as a Nonemployee Director or to remain a Nonemployee Director.
SECTION 7. ADJUSTMENT OF SHARES.
- --------- --------------------
(a) General. In the event of a subdivision of the outstanding Stock, a
-------
declaration of a dividend payable in Shares, a declaration of a dividend payable
in cash in an amount that has a material effect on the price of Shares, a
combination or
-6-
<PAGE>
consolidation of the outstanding Stock (by reclassification or otherwise)
into a lesser number of Shares, or a similar occurrence, the Board shall make
appropriate adjustments in one or more of (i) the number of Options available
for future grants under Section 4, (ii) the number of Shares to be covered by
each new Option under Section 5(c), (iii) the number of Shares covered by each
outstanding Option or (iv) the Exercise Price under each outstanding Option.
(b) Reorganizations. In the event that the Company is a party to a merger
---------------
or other reorganization, outstanding Options shall be subject to the agreement
of merger or reorganization. Such agreement may provide, without limitation, for
the assumption of outstanding Options by the surviving corporation or its
parent, for their continuation by the Company (if the Company is a surviving
corporation) or for settlement in cash.
(c) Reservation of Rights. Except as provided in this Section 7, an
---------------------
Optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class. Any issue by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of Shares
subject to an Option. The grant of an Option pursuant to the Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
SECTION 8. DURATION AND AMENDMENTS.
- --------- -----------------------
(a) Term of the Plan. The Plan, as set forth herein, became effective on
----------------
July 25, 1990. The Plan shall terminate automatically on July 24, 2000, and may
be terminated on any earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board may amend, suspend or
------------------------------------
terminate the Plan at any time and for any reason.
(c) Effect of Amendment or Termination. No Shares shall be issued or sold
----------------------------------
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any amendment
thereof, shall not affect any Option previously granted under the Plan.
-7-
<PAGE>
SECTION 9. EXECUTION.
- --------- ---------
To record the adoption of the Plan by the Board on January 22, 1997, the
Company has caused its authorized officer to execute the same.
McCLATCHY NEWSPAPERS, INC.
By
-------------------------------------
As its
---------------------------------
-8-
EMPLOYMENT AGREEMENT
THIS AGREEMENT, entered into as of the 1st day of June 1996, by and between
GARY PRUITT (the "Employee") and McCLATCHY NEWSPAPERS, INC., a Delaware
corporation (the "Company"),
W I T N E S S E T H:
Whereas, the Company wishes to employ the Employee in the capacity of its
President and Chief Executive Officer; and
Whereas, the Employee is willing to accept such employment upon the terms
and conditions set forth below and is committed to remaining in the Company's
employ upon the terms and conditions set forth below:
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties agree as follows:
1. Term of Employment.
------------------
(a) Basic Rule. The Company agrees to continue the Employee's employment,
----------
and the Employee agrees to remain in employment with the Company, from the date
hereof until the earliest of:
(i) June 1, 1999, or such later date to which the term of this
Agreement may be extended pursuant to the provisions of Subsection (b) of
this Section 1;
(ii) The date of the Employee's death; or
(iii) The date when the Employee's employment terminates pursuant to
Subsection (d), (e), (f), (g) or (h) below.
(b) Automatic Extension of Term. Subject to the provisions of Subsections
---------------------------
(c) through (f) of this Section 1, the term of this Agreement shall be extended
automatically for one year effective on June 1, 1997 (so that effective on that
date the term of employment shall be extended from June 1, 1999 to June 1,
2000), and on each succeeding June 1 (so that effective on each such day, the
remaining term of employment shall be for a full three-year period).
(c) Election Not to Extend Term. Employee or the Board of Directors of the
---------------------------
Company, by written notice delivered to the other, may at any time elect to
terminate the automatic extension provisions of Subsection (b) of this Section
1. Such election shall apply only to extensions that would otherwise become
effective more than 60 days after delivery of such notice and shall not apply to
extensions that theretofore become effective.
-1-
<PAGE>
(d) Early Termination or Resignation. The Company may terminate the
--------------------------------
Employee's employment for any reason by giving the Employee not less than 60
days' advance notice in writing (in which event the Employee may become entitled
to the payments and benefits described in Section 5). The Employee may terminate
his employment earlier by giving the Company not less than six months' advance
notice in writing.
(e) Termination for Cause. The Company may terminate the Employee's
---------------------
employment at any time for Cause by giving the Employee written notice. For all
purposes under this Agreement, "Cause" shall mean (i) a willful failure by the
Employee to substantially perform his duties hereunder, other than a failure
resulting from the Employee's complete or partial incapacity due to physical or
mental illness or impairment, or (ii) a willful act by the Employee which
constitutes gross misconduct and which is materially injurious to the Company.
No act, or failure to act, by the Employee shall be considered "willful" unless
committed without good faith and without a reasonable belief that the act or
omission was in the Company's best interest. The Company's notice of termination
shall specify the nature of the Cause.
(f) Termination for Disability. The Company may terminate the Employee's
--------------------------
employment for Disability by giving the Employee not less than 60 days' advance
notice in writing (in which event the Employee shall become entitled to the
payments and benefits described in Section 6 to the extent provided therein).
For all purposes under this Agreement, "Disability" shall mean that the
Employee, at the time notice is given, has been unable to perform his duties
under this Agreement for a period of not less than six consecutive months as the
result of a sickness or an injury, as determined for purposes of the Company's
long-term disability income insurance. The Company's notice of termination shall
specify the nature of the Disability. In the event that the Employee resumes the
performance of his duties hereunder on a full-time basis before the termination
of his employment under this Subsection (d) becomes effective, the notice of
termination shall automatically be deemed to have been revoked.
(g) Termination for Mental Incompetence. The Company may terminate the
-----------------------------------
Employee's employment at any time for Mental Incompetence by giving the Employee
written notice. Subsection (d) above and Section 6 shall become applicable
thereafter, to the extent provided in such provisions. For all purposes under
this Agreement, "Mental Incompetence" shall mean that the Employee has been
judicially determined to be of unsound mind.
(h) Resignation for Good Reason. Notwithstanding the provisions of
---------------------------
Subsection (d) above, the Employee may terminate his employment for Good Reason
by giving the Company not less than 60 days' advance notice in writing (in which
event the Employee shall become entitled to the payments and benefits
-2-
<PAGE>
described in Section 5 to the extent provided therein). For all purposes
under this Agreement, "Good Reason" shall mean (i) a demotion, (ii) a material
reduction in responsibility or authority (including, without limitation, loss of
the title or functions of the Chief Executive Officer of the Company or its
successor) or (iii) any situation that would impair the ability of the Employee
to exercise the authority and perform the functions customarily exercised and
performed by the Company's Chief Executive Officer.
(i) Notice. For all purposes under this Section 1, the employment
------
relationship shall terminate on the date properly specified in the notice of
termination. Any waiver of notice shall be valid only if it is made in writing
and expressly refers to the applicable notice requirement of this Section 1.
(j) Expiration of Agreement. This Agreement shall expire when all
-----------------------
obligations of the parties hereunder have been satisfied.
2. Duties and Scope of Employment.
------------------------------
(a) Position. The Company agrees to employ the Employee in Sacramento,
--------
California, as its President and Chief Executive Officer. The Employee shall
report to the Company's Board of Directors and shall have the authority and
responsibilities customarily granted to the Chief Executive Officer.
(b) Obligations. During the term of his employment under this Agreement,
-----------
the Employee shall devote his full business efforts and time to the Company and
its affiliates and shall not render services to any other person or entity
without the consent of the Company's Board of Directors. The foregoing, however,
shall not preclude the Employee from (i) serving on the boards of directors of
not-for-profit entities and trade groups, (ii) serving on the boards of
directors of such other corporations as the Company's Board of Directors may
approve from time to time, (iii) engaging in other civic, charitable, non-profit
or religious activities, (iv) devoting a reasonable amount of time to private
investments which do not interfere or conflict with his responsibilities to the
Company and (v) enjoying the usual holiday and vacation periods.
3. Base Compensation.
-----------------
During the term of his employment under this Agreement, the Company agrees
to pay the Employee (as compensation for his services) a base salary at an
annual rate of $450,000, or at such higher rate as the parties hereto may
determine by mutual agreement. (The base salary specified in this Section 3,
together with any increases in such salary which the Company may grant from time
to time, is referred to in this Agreement as "Base Compensation.") The
Employee's Base Compensation shall be subject to required withholding taxes.
-3-
<PAGE>
4. Employee Benefits and Expenses.
------------------------------
(a) Benefits. During the term of his employment under this Agreement, the
--------
Employee shall be eligible to participate in all employee benefit plans, bonus
programs and fringe benefit arrangements maintained by the Company, subject in
each case to (i) the generally applicable terms and conditions of the plan,
program or arrangement in question and (ii) the full discretion and
determinations of the applicable committee or other plan administrator.
(b) Business Expenses. During the term of his employment under this
-----------------
Agreement, the Employee shall be authorized to incur necessary and reasonable
travel, entertainment and other business expenses in connection with his duties
hereunder. The Company shall reimburse the Employee for such expenses upon
presentation of an itemized account and appropriate supporting documentation,
all in accordance with the Company's generally applicable policies.
5. Termination Without Cause or Resignation for Good Reason.
--------------------------------------------------------
(a) Severance Payment. In the event that, during the term of this
-----------------
Agreement, the Company terminates the Employee's employment for any reason other
than Cause, Disability or Mental Incompetence or in the event that, during such
term, the Employee terminates his employment for Good Reason, the Employee shall
be entitled to receive a severance payment from the Company (the "Severance
Payment"). The Severance Payment shall be made in a lump sum as soon as
reasonably practicable, but in no event less than 15 or more than 60 days,
following the effective date of the employment termination. However, the
Employee may request, subject to the express approval of the Company's Board of
Directors, that the Severance Payment be made in five equal installments
(without interest) at 12-month intervals, with the first installment to be paid
as soon as reasonably practicable, but in no event less than 15 or more than 60
days, following the effective date of the employment termination. Such a request
shall be made in writing not later than 14 days following the effective date of
the employment termination and, if approved, shall be irrevocable. Any payments
under this Section 5 shall be subject to required withholding taxes. The amount
of the Severance Payment shall be equal to the following:
(i) 100% of the Employee's annual rate of Base Compensation, as in
effect on the date of the employment termination, if such employment
termination occurs prior to June 1, 1997; or
(ii) 200% of the Employee's annual rate of Base Compensation, as in
effect on the date of employment termination, if such employment
termination occurs on or after June 1, 1997 but prior to June 1, 1998; or
-4-
<PAGE>
(iii) 300% of the Employee's annual rate of Base Compensation, as in
effect on the date of employment termination, if such employment
termination occurs on or after June 1, 1998.
The Severance Payment shall be in lieu of any further payments to the Employee
under this Agreement (except as provided in Subsection (b) below).
(b) Group Insurance Coverage. In the event that the Employee becomes
------------------------
entitled to a Severance Payment under Subsection (a) above, he shall also be
entitled to the group insurance coverage described in this Subsection (b). Such
coverage shall continue for the period commencing on the effective date of the
employment termination and ending on the earliest of:
(i) The third anniversary of the effective date of employment
termination;
(ii) With respect to a particular type of group insurance coverage,
the date when the Employee, as a result of his full- or part-time
employment or selfemployment, becomes eligible to enroll in a group
insurance program providing benefits to the Employee and his dependents
which, in the aggregate, are not less valuable than the corresponding
program maintained by the Company; or
(iii) The date of the Employee's death.
Such period is referred to in this Section 5 as the "Continuation Period."
During the Continuation Period, the Employee (and, where applicable, his
dependents) shall be eligible to continue participation in any group insurance
plans maintained by the Company, including (without limitation) health care
coverage, life insurance and long-term disability income insurance. Where
applicable, the Employee's salary for purposes of such plans shall be deemed to
be equal to the Base Compensation he received immediately prior to the
employment termination. To the extent that the Company finds it impractical to
cover the Employee under its group insurance policies during the Continuation
Period, the Company shall provide the Employee with the same level of coverage
under individual policies. The allocation of the cost of insurance coverage
under this Subsection (b) between the Employee and the Company shall be the same
as for active employees who occupy a position similar to the position occupied
by the Employee at the time of the employment termination.
6. Termination for Disability.
--------------------------
(a) Disability Benefit. In the event that, during the term of this
------------------
Agreement, the Company terminates the Employee's employment for Disability, the
Employee shall be entitled to the
-5-
<PAGE>
supplemental disability benefit described in this Section 6, in addition to
all other benefits to which Employee is entitled under the Company's long-term
disability income insurance program. Such supplemental disability benefit shall
be payable in monthly installments during the period commencing on the effective
date of the employment termination and ending on the earliest of:
(i) The third anniversary of the effective date of employment
termination;
(ii) The date as of which the Employee's entitlement to benefit
payments under the Company's group long-term disability income insurance
program ceases; or
(iii) The date of the Employee's death.
The amount of the annual supplemental disability benefit shall be equal to 60%
of the Employee's annual rate of Base Compensation, as in effect on the date of
the employment termination, reduced by all benefits to which the Employee is
entitled under the Company's group long-term disability income insurance program
or under any federal or state disability insurance program, including (without
limitation) Social Security and California unemployment insurance. Such benefit
shall be subject to required withholding taxes.
(b) Group Insurance Coverage. In the event that the Employee becomes
------------------------
entitled to a disability benefit under Subsection (a) above, he shall also be
entitled to the group insurance coverage described in this Subsection (b). Such
coverage shall continue for the period commencing on the effective date of the
employment termination and ending when such disability benefit ceases to be
payable. Such period is referred to in this Section 6 as the "Continuation
Period." During the Continuation Period, the Employee (and, where applicable,
his dependents) shall be eligible to continue participation in any group
insurance plans maintained by the Company, including (without limitation) health
care coverage, life insurance and long-term disability income insurance. Where
applicable, the Employee's salary for purposes of such plans shall be deemed to
be equal to the Base Compensation he received immediately prior to the
employment termination. To the extent that the Company finds it impractical to
cover the Employee under its group insurance policies during the Continuation
Period, the Company shall provide the Employee with the same level of coverage
under individual policies. The allocation of the cost of insurance coverage
under this Subsection (b) between the Employee and the Company shall be the same
as for active employees who occupy a position similar to the position occupied
by the Employee at the time of the employment termination.
-6-
<PAGE>
7. Miscellaneous Provisions.
------------------------
(a) Delivery of Notice. Notices and all other communications contemplated
------------------
by this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by certified mail, return receipt
requested and postage prepaid. In the case of the Employee, mailed notices shall
be addressed to him at the home address which he most recently communicated to
the Company in writing. In the case of the Company, mailed notices shall be
addressed to its corporate headquarters, and all notices shall be directed to
the attention of its Secretary.
(b) Waiver. No provision of this Agreement shall be modified, waived or
------
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by the Company. No waiver by either party of any
breach of, or of compliance with, any condition or provision of this Agreement
by the other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
(c) Assignment and Successors. Neither party shall assign any right or
-------------------------
delegate any obligation hereunder without the other party's written consent, and
any purported assignment or delegation by a party hereto without the other
party's written consent shall be void. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns.
(d) Whole Agreement. No agreements, representations or understandings
---------------
(whether oral or written and whether express or implied) which are not expressly
set forth in this Agreement have been made or entered into by either party with
respect to the subject matter hereof. Effective as of the date hereof, this
Agreement supersedes any prior employment agreement between the Employee and the
Company.
(e) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California.
(f) Severability. The invalidity or unenforceability of any provision or
------------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
(g) Arbitration. Any dispute or claim in law or equity, whether based on
-----------
contract or tort or otherwise, relating to or arising out of the employment of
the Employee by the Company, other than a claim based on a statute providing an
exclusive means of enforcement, shall be settled exclusively by final
arbitration in accordance with the labor arbitration rules of the American
Arbitration Association in effect at the time the
-7-
<PAGE>
arbitration is initiated. Any claim or dispute subject to arbitration shall
be deemed waived, and forever barred, if not presented for arbitration within
six months of the date when the claim or dispute arose.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
---------------------------------------
Employee
McCLATCHY NEWSPAPERS, INC.
By
-------------------------------------
-8-
EXHIBIT 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-21704, No. 33-24096, No. 33-37300, No. 33-65104, and No. 33-56717 of
McClatchy Newspapers, Inc. on Form S-8 of our report dated February 6, 1997,
appearing in this Annual Report on Form 10-K of McClatchy Newspapers, Inc. for
the year ended December 31, 1996.
/s/ Deloitte & Touche LLP
Sacramento, California
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from SEC filing Form 10-K
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> $ 5,877
<SECURITIES> 0
<RECEIVABLES> 86,102
<ALLOWANCES> 2,440
<INVENTORY> 8,015
<CURRENT-ASSETS> 111,010
<PP&E> 568,210
<DEPRECIATION> 226,420
<TOTAL-ASSETS> 875,660
<CURRENT-LIABILITIES> 92,360
<BONDS> 0
0
0
<COMMON> 377
<OTHER-SE> 502,737
<TOTAL-LIABILITY-AND-EQUITY> 875,666
<SALES> 624,233
<TOTAL-REVENUES> 624,233
<CGS> 0
<TOTAL-COSTS> 538,998
<OTHER-EXPENSES> (6,001)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,321
<INCOME-PRETAX> 77,915
<INCOME-TAX> 33,422
<INCOME-CONTINUING> 44,493
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,493
<EPS-PRIMARY> $1.18
<EPS-DILUTED> $1.18
</TABLE>
