-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H3zBTOY0D4PmfGsnkDP9rKyntPw1/y5k6tJAPfiNjfClWgGmp1wMeRDw1snuEzir HgGbmB2AAWNXHMKxAWa3LA== 0001019056-00-000272.txt : 20000508 0001019056-00-000272.hdr.sgml : 20000508 ACCESSION NUMBER: 0001019056-00-000272 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KNIGHT RIDDER INC CENTRAL INDEX KEY: 0000205520 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 380723657 STATE OF INCORPORATION: FL FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07553 FILM NUMBER: 620942 BUSINESS ADDRESS: STREET 1: 50 W SAN FRANCISCO ST CITY: SAN JOSE STATE: CA ZIP: 95113 BUSINESS PHONE: 4089387700 MAIL ADDRESS: STREET 1: 50 W SAN FRANCISCO ST CITY: SAN JOSE STATE: CA ZIP: 95113 FORMER COMPANY: FORMER CONFORMED NAME: KNIGHT RIDDER NEWSPAPERS INC /FL/ DATE OF NAME CHANGE: 19860707 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 26, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ___________________ Commission file number 1-7553 KNIGHT-RIDDER, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Florida 38-0723657 --------------------------------- ------------------------------------ (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 50 W. SAN FERNANDO ST., SAN JOSE, CA 95113 --------------------------------------------------- (Address of principal executive offices) (Zip Code) (408) 938-7700 ---------------------------------------------------- (Registrant's telephone number, including area code) ------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 [ ] As of May 3, 2000, 77,669,855 shares of Common Stock, $.02 1/12 par value, were outstanding. Table of Contents for Form 10-Q Page PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheet 3 Consolidated Statement of Income 5 Consolidated Statement of Cash Flows 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings 18 Item 2. Changes in Securities and Use of Proceeds 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURE 19 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET (UNAUDITED IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
March 26, December 26, 2000 1999 ------------- ------------- ASSETS CURRENT ASSETS Cash, including short-term cash investments of $0 in 2000, and $5,598 in 1999 $ 34,989 $ 34,084 Accounts receivable, net of allowances of $17,174 in 2000, and $15,917 in 1999 386,276 423,016 Inventories 41,060 39,238 Prepaid expense 36,818 32,246 Other current assets 41,784 41,720 ------------- ------------- Total Current Assets 540,927 570,304 ------------- ------------- INVESTMENTS AND OTHER ASSETS Equity in unconsolidated companies and joint ventures 194,058 206,880 Other 400,345 181,583 ------------- ------------- Total Investments and Other Assets 594,403 388,463 ------------- ------------- PROPERTY, PLANT AND EQUIPMENT Land and improvements 94,453 93,995 Buildings and improvements 484,390 484,163 Equipment 1,260,008 1,244,110 Construction and equipment installations in progress 66,248 67,922 ------------- ------------- 1,905,099 1,890,190 Less accumulated depreciation (857,045) (831,041) ------------- ------------- Net Property, Plant and Equipment 1,048,054 1,059,149 GOODWILL Less accumulated amortization of $348,531 in 2000, and $331,504 in 1999 2,159,136 2,174,418 ------------- ------------- Total $ 4,342,520 $ 4,192,334 ============= =============
See "Notes to Consolidated Financial Statements." 3
March 26, December 26, 2000 1999 ------------- ------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 123,498 $ 142,460 Accrued expenses and other liabilities 126,066 100,668 Accrued compensation and amounts withheld from employees 98,015 126,529 Federal and state income taxes 71,786 16,039 Deferred revenue 75,045 71,505 Short-term borrowings and current portion of long-term debt 39,940 39,940 ------------- ------------- Total Current Liabilities 534,350 497,141 ------------- ------------- NONCURRENT LIABILITIES Long-term debt 1,439,164 1,260,814 Deferred federal and state income taxes 313,889 306,636 Postretirement benefits other than pensions 146,090 145,143 Employment benefits and other noncurrent liabilities 197,687 197,045 ------------- ------------- Total Noncurrent Liabilities 2,096,830 1,909,638 ------------- ------------- MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 4,922 4,871 COMMITMENTS AND CONTINGENCIES (NOTE 6) SHAREHOLDERS' EQUITY Preferred stock, $1.00 par value; shares authorized- 2,000,000; shares issued - 1,374,100 in 2000 and 1999 1,374 1,374 Common stock, $.02 1/12 par value; shares authorized - 250,000,000; shares issued - 76,173,422 in 2000, 1,587 1,659 and 79,654,493 in 1999 Additional capital 926,097 938,969 Retained earnings 772,166 798,971 Accumulated other comprehensive income 7,518 42,084 Treasury stock, at cost, 41,627 shares in 2000 and 42,510 shares in 1999 (2,324) (2,373) ------------- ------------- Total Shareholders' Equity 1,706,418 1,780,684 ------------- ------------- Total $ 4,342,520 $ 4,192,334 ============= =============
See "Notes to Consolidated Financial Statements." 4
CONSOLIDATED STATEMENT OF INCOME (Unaudited, in thousands, except per share data) Quarter Ended ---------------------------- March 26, March 28, 2000 1999 ------------ ------------ OPERATING REVENUE Advertising Retail $ 245,184 $ 248,586 General 88,570 74,857 Classified 279,238 261,904 ------------ ------------ Total 612,992 585,347 Circulation 144,280 146,757 Other 50,430 38,695 ------------ ------------ Total operating revenue 807,702 770,799 OPERATING COSTS Labor and employee benefits 315,468 305,099 Newsprint, ink and supplements 114,029 126,870 Other operating costs 184,271 166,015 Depreciation and amortization 48,514 47,153 ------------ ------------ Total operating costs 662,282 645,137 ------------ ------------ OPERATING INCOME 145,420 125,662 ------------ ------------ OTHER INCOME (EXPENSE) Interest expense (26,049) (24,764) Interest expense capitalized 561 2,317 Interest income 331 430 Equity in earnings (losses) of unconsolidated companies and joint ventures (1,127) 4,868 Minority interests (2,605) (2,599) Other, net 152,372 (900) ------------ ------------ Total 123,483 (20,648) ------------ ------------ Income before income taxes 268,903 105,014 Income taxes 108,048 42,147 ------------ ------------ Net Income $ 160,855 $ 62,867 ============ ============ NET INCOME PER SHARE Basic $ 2.03 $ 0.76 ============ ============ Diluted $ 1.74 $ 0.65 ============ ============ DIVIDENDS DECLARED PER COMMON SHARE $ 0.23 $ 0.20 ============ ============ AVERAGE SHARES OUTSTANDING Basic 77,779 78,425 ============ ============ Diluted 92,668 97,320 ============ ============
See "Notes to Consolidated Financial Statements." 5
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, in thousands of dollars) Quarter Ended ---------------------------- March 26, March 28, 2000 1999 ------------ ------------ CASH PROVIDED BY (REQUIRED FOR) OPERATING ACTIVITIES Net income $ 160,855 $ 62,867 Noncash items deducted from (included in) income: Gains on sale of investments (153,982) Depreciation and amortization 48,514 47,153 Provision (benefit) for deferred taxes 30,538 (1,669) Provision for bad debt 6,429 5,441 Distributions in excess of (less than) earnings 4,839 (4,117) Minority interests in earnings of consolidated subsidiaries 2,605 2,599 Other items, net 728 5,749 Change in certain assets and liabilities: Accounts receivable 30,311 30,320 Inventories (1,822) 2,225 Other assets (82,444) 2,762 Accounts payable (18,962) (35,694) Federal and state income taxes 55,747 39,017 Other liabilities (21,167) 7,849 ------------ ------------ Net Cash Provided by Operating Activities 62,189 164,502 ------------ ------------ CASH PROVIDED BY (REQUIRED FOR) INVESTING ACTIVITIES Proceeds from sale of investments 1,965 8,818 Acquisition of subsidiary, investees, and other investments, net (21,922) (43,039) Additions to property, plant and equipment (16,501) (25,158) Other items, net 173 (876) ------------ ------------ Net Cash Required for Investing Activities (36,285) (60,255) ------------ ------------ CASH PROVIDED BY (REQUIRED FOR) FINANCING ACTIVITIES Proceeds from sale of commercial paper, notes payable and senior notes payable 864,795 950,855 Reduction of total debt, net of unamortized discount (686,685) (754,375) ------------ ------------ Net Change in Total Debt 178,110 196,480 Payment of cash dividends (21,110) (19,186) Sale of common stock to employees 6,806 9,189 Purchase of treasury stock (186,251) Other items, net (2,554) 9,249 ------------ ------------ Net Cash Provided by (Required for) Financing Activities (24,999) 195,732 ------------ ------------ Net Increase in Cash 905 299,979 Cash and short-term cash investments at beginning of the period 34,084 26,836 ------------ ------------ Cash and short-term cash investments at end of the period $ 34,989 $ 326,815 ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION: Non cash investing activities Stock proceeds from sale of unconsolidated investment $ 195,624 $ 37,678
See "Notes to Consolidated Financial Statements". 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K/A for the year ended December 26, 1999. Certain amounts in 1999 have been reclassified to conform to the 2000 presentation. NOTE 2 - COMPREHENSIVE INCOME The following table sets forth the computation of comprehensive income (in thousands):
Quarter Ended ---------------------------- March 26, March 28, 2000 1999 ------------ ------------ Net income $ 160,855 $ 62,867 Total gains (losses) on securities available for sale (29,019) 15,016 Less: reclassification adjustment for realized losses, net of taxes (5,547) -- ------------ ------------ Change in accumulated comprehensive income (34,566) 15,016 ------------ ------------ Total comprehensive income $ 126,289 $ 77,883 ============ ============
7
NOTE 3 - DEBT (In Thousands of Dollars) Effective Interest Balance At Rate at ----------------------------- March 26, March 26, December 26, 2000 2000 1999 ---------- ------------- ------------ Commercial paper, net of discount(a) 6.1% $ 611,906 $ 433,796 Debentures, net of discount(b) 9.9% 198,506 198,464 Debentures, net of discount(c) 7.6% 94,583 94,534 Debentures, net of discount(d) 7.0% 296,471 296,443 Notes payable, net of discount(e) 8.5% 79,942 79,903 Notes payable, net of discount(f) 6.7% 98,266 98,209 Senior notes, net of discount(g) 6.3% 99,430 99,405 ------------- ------------ Total Debt(h) 7.1% 1,479,104 1,300,754 Less amounts classified as current 39,940 39,940 ------------- ------------ Total long-term debt 7.0% $ 1,439,164 $ 1,260,814 ============= ============
(a) Commercial paper is supported by $900 million of revolving credit and term loan agreements, $500 million of which matures on June 22, 2003 and $400 million of which matures June 20, 2000. The company has the option and intention to renew the $400 million facility before June 19, 2000, for an additional 364-day term through June 2001. (b) Represents $200 million of a 20-year 9 7/8% debenture due in 2009. (c) Represents $100 million of a 7.15% debenture due in 2027. (d) Represents $300 million of a 6.875% debenture due in 2029. (e) Represents $80 million of 8 1/2% notes payable ratably at September 1, 2000 and September 1, 2001. Annual maturities are represented under current liabilities. (f) Represents $100 million of a 6.625% note due in 2007. (g) Represents $100 million of 10 year 6.3% senior notes due in 2005. (h) Interest payments for the three months ended March 2000 and March 1999 were $24.3 million and $11.6 million, respectively. NOTE 4 - INCOME TAX PAYMENTS Income tax payments for the quarters ended March 26, 2000 and March 28, 1999, were $20.6 million and $4.2 million, respectively. 8 NOTE 5 - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
Quarter Ended --------------------------- March 26, March 28, 2000 1999 ------------ ------------ Net income $ 160,855 $ 62,867 Less dividends on preferred stock 3,160 3,510 ------------ ------------ Net income attributable to common stock $ 157,695 $ 59,357 ============ ============ Average shares outstanding (basic) 77,779 78,425 Effect of dilutive securities: Weighted average preferred stock, as converted 13,741 17,549 Stock options 1,148 1,346 ------------ ------------ Average shares outstanding (diluted) 92,668 97,320 ------------ ------------ Net income per share (basic) $ 2.03 $ 0.76 ============ ============ Net income per share (diluted) $ 1.74 $ 0.65 ============ ============
9 NOTE 6 - COMMITMENTS AND CONTINGENCIES On July 13, 1995, six unions struck the Detroit Free Press, The Detroit News and the Detroit Newspaper Agency (Agency), which operates both newspapers. Subsequently, the unions filed numerous unfair labor practice charges against the newspapers and the Agency. In June 1997, after a lengthy trial, a National Labor Relations Board (NLRB) administrative judge ruled that the strike was caused by the unfair labor practices of the Agency and The Detroit News and ordered that the Agency and the newspapers reinstate all strikers, displacing permanent replacements if necessary. The Agency and the newspapers appealed the decision to the NLRB. On August 27, 1998, the NLRB affirmed certain unfair labor practice findings against The Detroit News and the Agency, and reversed certain findings of unfair labor practices against the Agency. The Agency and the newspapers filed a motion to reconsider with the NLRB, which was denied on March 4, 1999. The unions and the Agency filed appeals to the U.S. Court of Appeals for the District of Columbia Circuit. The case is pending in the U.S. Court of Appeals, where oral argument was heard on May 4, 2000. Various libel actions and environmental and other legal proceedings that have arisen in the ordinary course of business are pending against the Company and its subsidiaries. In the opinion of management, the ultimate liability to the Company and its subsidiaries as a result of all legal proceedings, including Detroit, will not be material to its financial position or results of operations, on a consolidated basis. NOTE 7 - BUSINESS SEGMENT INFORMATION Beginning in the quarter ended March 26, 2000, although the Company is not required to do so, the Company elected to begin reporting its Online operations as a separate reportable business segment from its newspaper operations pursuant to FASB 131, Disclosures about Segments of an Enterprise and Related Information. FASB 131 requires disclosure of certain information about reportable operating segments management believes are important and allows users to assess the performance of individual operating segments in the same way that management reviews performance and makes decisions. Financial data for the Company's segments is as follows (in thousands): Quarter Ended ------------------------------------- March 26, 2000 March 28, 1999 -------------- -------------- Operating revenue Newspapers $ 797,359 $ 764,605 Online 10,343 6,194 -------------- -------------- $ 807,702 $ 770,799 ============== ============== Operating income (loss) Newspapers $ 163,027 $ 142,273 Online (8,204) (4,985) Corporate (9,403) (11,626) -------------- -------------- $ 145,420 $ 125,662 ============== ============== Depreciation and amortization Newspapers $ 46,365 $ 45,207 Online 588 452 Corporate 1,561 1,494 -------------- -------------- $ 48,514 $ 47,153 ============== ============== 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS FORWARD LOOKING STATEMENTS Certain statements contained herein are forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results and events to differ materially from those anticipated. Potential risks and uncertainties that could adversely affect the Company's ability to obtain these results include, without limitations, the following factors: (a) increased consolidation among major retailers or other events that may adversely affect business operations of major customers and depress the level of local and national advertising; (b) an economic downturn in some or all of the Company's principal newspaper markets that may lead to decreased circulation or decreased local or national advertising; (c) a decline in general newspaper readership patterns as a result of competitive alternative media or other factors; (d) an increase in newsprint costs over the levels anticipated; (e) labor disputes which may cause revenue declines or increased labor costs; (f) acquisitions of new businesses or dispositions of existing businesses; (g) increases in interest or financing costs; and (h) rapid technological changes and frequent new product introductions prevalent in electronic publishing, including the evolution of the Internet. RESULTS OF OPERATIONS: FIRST QUARTER 2000 COMPARED WITH FIRST QUARTER 1999 The following table sets forth the results of operations for the quarters ended March 26, 2000 and March 28, 1999 (in thousands of dollars, except per share amount):
Quarter Ended -------------------------- March 26, March 28, 2000 1999 Change ----------- ----------- ------------- Operating revenues $ 807,702 $ 770,799 4.8% Operating income $ 145,420 $ 125,662 15.7% Net income Before gains on investment sales 68,743 62,867 9.3% Gains on investment sales 92,112 - ----------- ----------- Net income $ 160,855 $ 62,867 155.9% =========== =========== Diluted earnings per share Before gains on investment sales $ 0.74 $ 0.65 13.8% Gains on investment sales 1.00 - ----------- ----------- Net income $ 1.74 $ 0.65 167.7% =========== ===========
During the quarter, the Company recorded a gain of $1.00 per diluted share related to InfoSpace.com's acquisition of Prio and GoTo.com's acquisition of Cadabra. 11 NEWSPAPERS OPERATING REVENUE The table below presents operating revenue and related statistics for newspaper operations for the quarter ended March 26, 2000 compared to the quarter ended March 28, 1999 (in thousands): Quarter Ended ------------------------ March 26, March 28, 2000 1999 Variance Change ---------- ---------- ---------- ------- Operating revenue Advertising Retail $ 245,184 $ 248,586 $ (3,402) -1.4% General 88,570 74,857 13,713 18.3% Classified 279,238 261,904 17,334 6.6% ---------- ---------- ---------- Total 612,992 585,347 27,645 4.7% ---------- ---------- ---------- Circulation 144,280 146,757 (2,477) -1.7% Other 40,087 32,501 7,586 23.3% ---------- ---------- ---------- Total operating revenue $ 797,359 $ 764,605 $ 32,754 4.3% ========== ========== ========== Average daily circulation Daily 3,984 3,979 5 0.1% Sunday 5,423 5,433 (10) -0.2% Advertising linage Full run (6 column inches) Retail 4,176 4,252 (76) -1.8% General 823 647 176 27.2% Classified 5,096 4,867 229 4.7% ---------- ---------- ---------- Total full run 10,095 9,766 329 3.4% ========== ========== ========== Retail advertising revenue decreased by $3.4 million, or 1.4%, on a full-run run of press (ROP) linage decrease of 1.8%. The decrease was primarily due to out of business accounts and weakness in department stores and national chain stores. General advertising revenue was up $13.7 million, or 18.3%, on a full-run ROP linage increase of 27.2%. The increase was primarily from continued strong demand in high-tech, dot-com, telecommunications, automotive, and travel. Classified advertising revenue improved $17.3 million, or 6.6%, on a full-run ROP linage increase of 4.7%. Help wanted and recruitment contributed significantly to the classified growth. The increase of 23.3% in other revenue resulted from specialized publication revenue generated by companies acquired during 1999. OPERATING COSTS The following table summarizes operating costs for newspaper operations for the quarters ended March 26, 2000 and March 28, 1999 (in thousands of dollars): 12
Quarter Ended ------------------------------- March 26, March 28, 2000 1999 Variance Change ---------- ---------- ---------- ------------ Operating costs Labor and employee benefits $ 301,958 $ 292,068 $ 9,890 3.4% Newsprint, ink and supplements 117,081 129,932 (12,851) -9.9% Other operating costs 168,928 155,125 13,803 8.9% Depreciation and amortization 46,365 45,207 1,158 2.6% ---------- ---------- ---------- Total operating costs $ 634,332 $ 622,332 $ 12,000 1.9% ---------- ---------- ----------
Labor and employee benefit costs increased $9.9 million, or 3.4%. The increase resulted primarily from an increase in the average wage rate per employee of 3.2%, while the workforce remained relatively flat. Newsprint, ink and supplement costs decreased $12.9 million, or 9.9%, from the first quarter of 1999 on a 13.1% decrease in the average newsprint price, offset in part by a 1.5% increase in newsprint consumption. Other operating costs increased $13.8 million, or 8.9%, from the first quarter of 1999. The increase was primarily due to the inclusion of the operations of three recently acquired businesses - Promedia Publishing Company in February, 1999, MACDirect in March, 1999 and Consumer and Community Publishing in September, 1999. Increases in relocation, repairs and maintenance, and volume-related expenses also affected operating costs. ONLINE OPERATING REVENUE The table below presents operating revenue and related statistics for online operations for the quarter ended March 26, 2000 compared to March 28, 1999 (in thousands):
Quarter Ended --------------------- March 26, March 28, 2000 1999 Variance Change --------- --------- -------- ------ Operating revenue $ 10,343 $ 6,194 $ 4,149 67.0% Monthly Averages Unique visitors 3,562 3,247 315 9.7% Page views 134,893 95,820 39,073 40.8%
Operating revenue for the first quarter of 2000 increased $4.1 million, or 67.0% from the same period in 1999. This increase consisted primarily of banner and sponsorship revenue and classified listings revenue. 13 OPERATING COSTS The following table summarizes operating costs for online operations for the quarters ended March 26, 2000 and March 28, 1999 (in thousands of dollars):
Quarter Ended -------------------- March 26, March 28, 2000 1999 Variance Change --------- --------- -------- -------- Operating costs Labor and employee benefits $ 7,536 $ 5,906 $ 1,630 27.6% Other operating costs 10,423 4,821 5,602 116.2% Depreciation and amortization 588 452 136 30.1% --------- -------- -------- Total operating costs $ 18,547 $ 11,179 $ 7,368 65.9% ========= ======== ========
The increase of $1.6 million, or 27.6%, in labor and employee benefits was primarily due to increases in sales and volume-related full-time employees. Other operating costs increased $5.6 million, or 116.2% from 1999 to 2000, primarily as a result of increased promotion-related expenses and volume related fees paid to advertising and content providers. Depreciation and amortization expense increased $136,000, or 30.1%, due to the acquisition of additional equipment. CORPORATE AND OTHER RELATED NON-OPERATING ITEMS Interest expense, net of interest income and capitalized interest, increased in the first quarter of 2000 by $3.1 million, or 14.3%, from the first quarter of 1999. The quarter's increase was due to additional debt levels as a result of additional share repurchases and a higher weighted average interest rate compared to the first quarter of 1999. Earnings from equity investments for the first quarter of 2000 were $6.0 million below the comparable period in 1999. The year-over-year decline resulted from losses at the Company's newsprint mill investments due to lower newsprint prices. "Other, net" income was $153.3 million above the first quarter of 1999 due to the gain related to InfoSpace.com's acquisition of Prio and GoTo.com's acquisition of Cadabra. In connection with these gains from investments, the Company received stock in GoTo.com and InfoSpace.com. The effective tax rate was 40.2% in the quarter ended March 26, 2000 compared to 40.1% for the comparable quarter in 1999. Excluding the gain attributable to the exchange of Cadabra and Prio stock for InfoSpace.com and GoTo.com stock in 2000, the effective tax rate was 40.0%. 14 LIQUIDITY AND CAPITAL RESOURCES Cash flow from operations is the Company's primary source of liquidity. The Company uses financial leverage to minimize the overall cost of capital and maintain adequate operating and financial flexibility. The Company invests excess cash in short- and long-term investments, depending on projected cash needs from operations, capital expenditures and other business purposes. For the quarter ended March 26, 2000, the Company's total debt to total equity ratio was 46.4%, compared to 50.1% for the same period in 1999. Interest coverage ratio (defined as operating income plus depreciation and amortization divided by interest expense) was 7.4 at March 26, 2000, compared to 7.0 at March 28, 1999. Cash and short-term investments were $35.0 million at March 26, 2000, compared to $326.8 million at March 28, 1999. The balance at March 28, 1999, included the proceeds received from the issuance of $300 million of 30-year debentures on March 26, 1999. These proceeds were used in April, 1999 to reduce short-term commercial paper borrowings. During the first quarter of 2000, proceeds from borrowings and by cash provided by operations were used to fund treasury stock purchases of $186.3 million. During the first quarter of 2000, total debt increased by $178.1 million from fiscal year-end 1999. Approximately $288.1 million in aggregate unused credit lines remained at the end of the quarter. In February 2000, Moody's upgraded the Company's short- and long-term debt to P1 and A2, respectively. Additions to property, plant and equipment decreased by $8.7 million from the first quarter of 1999 to $16.5 million, due primarily to the completion of major projects and Year 2000 (Y2K) computer-related expenditures in 1999. During the quarter the Company invested $21.6 million for the acquisitions of two businesses and for increases in ownership interest of certain minority-owned companies. Other assets increased by $82.4 million primarily as a result of a contribution to a trust that pays employee benefits. In the first quarter of 2000, the Company purchased 3.6 million shares of its common stock at a total cost of $186.3 million at an average cost of $51.05 per share. At quarter-end, the Company had remaining authorization to purchase approximately 1.9 million shares. In April 2000, the Board of Directors authorized the Company to repurchase an additional 6 million shares of its common stock. The Company's operations have historically generated strong positive cash flow, which, along with the Company's commercial paper program, revolving credit lines and ability to issue public debt, has provided adequate liquidity to meet the Company's short- and long-term cash requirements, including requirements for working capital and capital expenditures. 15 YEAR 2000 READINESS DISCLOSURE All Year 2000 statements in this Form 10-Q are Year 2000 Readiness Disclosures under the Year 2000 Information and Readiness Disclosure Act. The Year 2000 (Y2K) issue results from computer programs using two digits rather than four to define the applicable year. Company computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. Failure to recognize the correct date may result in a system failure, disruption of operations, and/or a temporary inability to conduct normal business activities. The Company has not experienced any Year 2000-related problems. The Company believes all existing computer hardware, software and software conversions are Year 2000 capable; however, there can be no assurance the company will not experience Year 2000 problems in the future. The Company continues to monitor its hardware and software systems for any Year 2000-related problems and the Company continues to have contingency plans in place with alternative solutions in the event that they are required to deal with any Year 2000 computer problems that may arise. 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There are no material changes to the disclosure made on this matter in the Company's annual report on Form 10-K/A for the year ended December 26, 1999. 17 PART II-OTHER INFORMATION Item 1. Legal Proceedings Refer to Part 1, Item 1, Note 6, incorporated herein by reference, for a discussion of legal proceedings relating to the Detroit Free Press. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10(g) - KnightRidder.com, Inc. 2000 Stock Option Plan, effective as of March 1, 2000 (h) - Knight-Ridder, Inc. Form of Executive Income Security Agreement, effective as of April 25, 2000 27 - Financial Data Schedule (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended March 26, 2000. 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KNIGHT-RIDDER, INC. (Registrant) Date: May 5, 2000 /s/ GARY R. EFFREN ----------------------------------- Gary R. Effren Vice President/Controller (Chief Accounting Officer and Duly Authorized Officer of Registrant) 19 EXHIBIT INDEX 10 (g) - KnightRidder.com, Inc. 2000 Stock Option Plan, effective as of March 1, 2000 (h) - Knight-Ridder, Inc., Form of Executive Income Security Agreement, effective as of April 25, 2000 27 - Financial Data Schedule 20 EX-10.G 2 EXHIBIT 10(G) EXHIBIT 10 (g) KNIGHTRIDDER.COM, INC. 2000 STOCK OPTION PLAN EFFECTIVE AS OF MARCH 1, 2000 TABLE OF CONTENTS Page SECTION 1. INTRODUCTION.........................................1 SECTION 2. DEFINITIONS..........................................1 (a) "Affiliate".......................................1 (b) "Board"...........................................1 (c) "Change In Control"...............................1 (d) "Code"............................................2 (e) "Committee".......................................2 (f) "Common Stock"....................................2 (g) "Company".........................................2 (h) "Consultant"......................................2 (i) "Director"........................................2 (j) "Disability"......................................2 (k) "Employee"........................................3 (l) "Exchange Act"....................................3 (m) "Exercise Price"..................................3 (n) "Fair Market Value"...............................3 (o) "Grant"...........................................3 (p) "Incentive Stock Option" or "ISO".................3 (q) "Key Employee"....................................3 (r) "Non-Employee Director"...........................3 (s) "Nonstatutory Stock Option" or "NSO"..............3 (t) "Option"..........................................3 (u) "Optionee"........................................4 (v) "Parent"..........................................4 (w) "Plan"............................................4 (x) "Retirement"......................................4 (y) "Securities Act"..................................4 (z) "Service".........................................4 (aa) "Share"...........................................4 (bb) "Stock Option Agreement"..........................4 (cc) "Subsidiary"......................................4 (dd) "10-Percent Shareholder"..........................4 -i- Page SECTION 3. ADMINISTRATION.......................................4 (a) Committee Composition.............................4 (b) Authority of the Committee........................5 (c) Indemnification...................................5 (d) Financial Reports.................................5 SECTION 4. ELIGIBILITY..........................................6 (a) General Rules.....................................6 (b) Incentive Stock Options...........................6 SECTION 5. SHARES SUBJECT TO PLAN...............................6 (a) Basic Limitation..................................6 (b) Additional Shares.................................6 (c) Dividend Equivalents..............................6 (d) Per Person Limit..................................6 SECTION 6. TERMS AND CONDITIONS OF OPTIONS......................6 (a) Stock Option Agreement............................6 (b) Number of Shares..................................6 (c) Exercise Price....................................7 (d) Exercisability and Term...........................7 (e) Modifications or Assumption of Options............7 (f) Transferability of Options........................7 (g) No Rights as a Stockholder........................7 (h) Restrictions on Transfer..........................8 SECTION 7. PAYMENT FOR OPTION SHARES............................8 (a) General Rule......................................8 (b) Surrender of Stock................................8 (c) Promissory Note...................................8 (d) Other Forms of Payment............................8 SECTION 8. PROTECTION AGAINST DILUTION..........................8 (a) Adjustments.......................................8 (b) Optionee Rights...................................9 SECTION 9. EFFECT OF A CHANGE IN CONTROL........................9 SECTION 10. LIMITATIONS ON RIGHTS................................9 -ii- Page (a) Retention Rights..................................9 (b) Stockholders' Rights..............................9 (c) Regulatory Requirements...........................9 SECTION 11. WITHHOLDING TAXES...................................10 (a) General..........................................10 (b) Share Withholding................................10 SECTION 12. DURATION AND AMENDMENTS.............................10 (a) Term of the Plan.................................10 (b) Right to Amend or Terminate the Plan.............10 SECTION 13. EXECUTION...........................................10 -iii- KNIGHTRIDDER.COM, INC. 2000 STOCK OPTION PLAN EFFECTIVE AS OF MARCH 1, 2000 SECTION 1. INTRODUCTION. The Company's Board of Directors adopted the KnightRidder.com, Inc. 2000 Stock Option Plan on March 1, 2000. The Company's stockholder adopted the Plan on March 1, 2000. The Plan is effective on March 1, 2000. The purpose of the Plan is to promote the long-term success of the Company and the creation of shareholder value by offering Key Employees an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, and to encourage such selected persons to continue to provide services to the Company and to attract new individuals with outstanding qualifications. The Plan seeks to achieve this purpose by providing for Options (which may constitute Incentive Stock Options or Nonstatutory Stock Options). The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware (except its choice-of-law provisions). Capitalized terms shall have the meaning provided in Section 2 unless otherwise provided in this Plan or Stock Option Agreement. SECTION 2. DEFINITIONS. (a) "AFFILIATE" means any entity other than the Company or a Subsidiary, if a Parent, the Company and/or one or more Subsidiaries own not less than 50% of such entity. (b) "BOARD" means the Board of Directors of the Company, as constituted from time to time. (c) "CHANGE IN CONTROL" except as may otherwise be provided in the Stock Option Agreement, means the occurrence of any of the following: (i) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization; (ii) The sale, transfer or other disposition of all or substantially all of the Company's assets; (iii) A change in the composition of the Board, as a result of which fewer that one-half of the incumbent directors are directors who either (i) had been directors of the Company on the date 24 months prior to the date of the event that may constitute a Change in Control (the "original directors") or (ii) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the aggregate of the original directors who were still in office at the time of the election or nomination and the directors whose election or nomination was previously so approved; or (iv) Any transaction as a result of which any person is the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing at least 20% of the total voting power represented by the Company's then outstanding voting securities. For purposes of this Paragraph (iv), the term "person" shall have the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but shall exclude: (A) A trustee or other fiduciary holding securities under an employee benefit plan of the Company or a subsidiary of the Company; and (B) A corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company. A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company's incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company's securities immediately before such transactions. (d) "CODE" means the Internal Revenue Code of 1986, as amended. (e) "COMMITTEE" means a committee consisting of one or more members of the Board that is appointed by the Board (as described in Section 3) to administer the Plan. (f) "COMMON STOCK" means the Company's common stock. (g) "COMPANY" means KnightRidder.com, Inc., a Delaware corporation. (h) "CONSULTANT" means an individual who performs bona fide services to the Company, a Parent, a Subsidiary or an Affiliate other than as an Employee or Director or Non-Employee Director. (i) "DIRECTOR" means a member of the Board who is also an Employee. (j) "DISABILITY" means that the Key Employee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. 2 (k) "EMPLOYEE" means any individual who is a common-law employee of the Company, a Parent, a Subsidiary or an Affiliate. (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (m) "EXERCISE PRICE" means the amount for which a Share may be purchased upon exercise of such Option, as specified in the applicable Stock Option Agreement. (n) "FAIR MARKET VALUE" means the market price of Shares, determined by the Committee as follows: (i) If the Shares were traded over-the-counter on the date in question but were 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; (ii) If the Shares were traded over-the-counter on the date in question and were 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; (iii) If the Shares were 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; 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. Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported in the WALL STREET JOURNAL. Such determination shall be conclusive and binding on all persons. (o) "GRANT" means any grant of an Option under the Plan. (p) "INCENTIVE STOCK OPTION" or "ISO" means an incentive stock option described in Code section 422(b). (q) "KEY EMPLOYEE" means an Employee, Director, Non-Employee Director or Consultant who has been selected by the Committee to receive an Option under the Plan. (r) "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an Employee. (s) "NONSTATUTORY STOCK OPTION" or "NSO" means a stock option that is not an ISO. (t) "OPTION" means an ISO or NSO granted under the Plan entitling the Optionee to purchase Shares. (u) "OPTIONEE" means an individual, estate or other entity that holds an Option. 3 (v) "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date. (w) "PLAN" means this KnightRidder.com, Inc. 2000 Stock Option Plan as it may be amended from time to time. (x) "RETIREMENT" means retirement pursuant to the terms of a retirement plan sponsored by the Company, a Parent, a Subsidiary or an Affiliate. (y) "SECURITIES ACT" means the Securities Act of 1933, as amended. (z) "SERVICE" means service as an Employee, Director, Non-Employee Director or Consultant. (aa) "SHARE" means one share of Common Stock. (bb) "STOCK OPTION AGREEMENT" means the agreement described in Section 6 evidencing each Grant of an Option. (cc) "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company or a Parent, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 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. (dd) "10-PERCENT SHAREHOLDER" means an individual who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding stock of the Company, its Parent or any of its subsidiaries. In determining stock ownership, the attribution rules of section 424(d) of the Code shall be applied. SECTION 3. ADMINISTRATION. (a) COMMITTEE COMPOSITION. A Committee appointed by the Board shall administer the Plan. The Board shall designate one of the members of the Committee as chairperson. If no Committee has been approved, the entire Board shall constitute the Committee. Members of the Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. The Board may also at any time terminate the functions of the Committee and reassume all powers and authority previously delegated to the Committee. Effective with the Company's initial public offering, the Committee shall consist either (i) of those individuals who shall satisfy the requirements of Rule 16b-3 (or its successor) under the Exchange Act with respect to Options to persons who are officers or directors of the Company under Section 16 of the Exchange Act or (ii) of the Board itself. 4 The Committee may consist of the Compensation and Corporate Governance Committee of Knight-Ridder, Inc. with respect to such Grants of Options as the Board may determine. The Board may also appoint one or more separate committees of the Board, each composed of one or more directors of the Company who need not qualify under Rule 16b-3, who may administer the Plan with respect to Key Employees who are not considered officers or directors of the Company under Section 16 of the Exchange Act, may grant Options under the Plan to such Key Employees and may determine all terms of such Options. (b) AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan, the Committee shall have full authority and discretion to take any actions it deems necessary or advisable for the administration of the Plan. Such actions shall include: (i) selecting Key Employees who are to receive Options under the Plan; (ii) determining the type, number, vesting requirements and other features and conditions of such Options; (iii) interpreting the Plan; and (iv) making all other decisions relating to the operation of the Plan. The Committee may adopt such rules or guidelines, as it deems appropriate to implement the Plan. The Committee's determinations under the Plan shall be final and binding on all persons. (c) INDEMNIFICATION. Each member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from (i) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan or any Stock Option Agreement, and (ii) from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under any power that the Company may have to indemnify them or hold them harmless. (d) FINANCIAL REPORTS. To the extent required by applicable law, the Company shall furnish to Optionees the Company's summary financial information including a balance sheet regarding the Company's financial condition and results of operations, unless such Optionees have duties with the Company that assure them access to equivalent information. Such financial statements need not be audited. SECTION 4. ELIGIBILITY. (a) GENERAL RULES. Only Employees, Directors, Non-Employee Directors and Consultants shall be eligible for designation as Key Employees by the Committee. 5 (b) INCENTIVE STOCK OPTIONS. Only Key Employees who are common-law employees of the Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs. In addition, a Key Employee who is a 10-Percent Shareholder shall not be eligible for the grant of an ISO unless the requirements set forth in section 422(c)(5) of the Code are satisfied. SECTION 5. SHARES SUBJECT TO PLAN. (a) BASIC LIMITATION. The stock issuable under the Plan shall be authorized but unissued Shares or treasury Shares. The aggregate number of Shares reserved for Grants under the Plan shall not exceed 20,000,000 Shares on a fully diluted basis, subject to adjustment pursuant to Section 8. (b) ADDITIONAL SHARES. If Options are forfeited or terminate for any other reason before being exercised, then such Options shall again become available for Grants under the Plan. (c) DIVIDEND EQUIVALENTS. Any dividend equivalents distributed under the Plan shall not be applied against the number of Options available for Grants. (d) PER PERSON LIMIT. No Key Employee shall receive Options to purchase Shares during any fiscal year covering in excess of 3,000,000. SECTION 6. TERMS AND CONDITIONS OF OPTIONS. (a) STOCK OPTION AGREEMENT. Each Grant 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 that are not inconsistent with the Plan and that the Committee deems 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. A Stock Option Agreement may provide that new Options will be granted automatically to the Optionee when he or she exercises the prior Options. The Stock Option Agreement shall also specify whether the Option is an ISO or an NSO. (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. (c) EXERCISE PRICE. An Option's Exercise Price shall be established by the Committee and set forth in a Stock Option Agreement. To the extent required by applicable law the Exercise Price of an ISO shall not be less than 100% of the Fair Market Value (110% for 10-Percent Shareholders) of a Share on the date of Grant. In the case of an NSO, a Stock Option Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the NSO is outstanding. To the extent required by applicable law, the Exercise Price for an NSO shall not be less than 85% of the Fair Market Value (110% for 10-Percent Shareholders) of a Share on the date of Grant. 6 (d) EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable. To the extent required by applicable law, Options shall vest at least as rapidly as 20% annually over a five-year period. The Stock Option Agreement shall also specify the term of the Option; provided that the term of an ISO, and to the extent required by applicable law a NSO, shall in no event exceed ten (10) years from the date of Grant. An ISO that is granted to a 10-Percent Shareholder shall have a maximum term of five (5) years. To the extent required by applicable law, vested Options shall be exercisable for a minimum period of six (6) months following termination of employment due to death or Disability and thirty (30) days following termination of employment (other than terminations for cause, as defined in the Company's personnel policies). Notwithstanding the previous sentence, no Option can be exercised after the expiration date provided in the applicable Stock Option Agreement. A Stock Option Agreement may provide for accelerated exercisability in the event of the Optionee's death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee's service. A Stock Option Agreement may permit an Optionee to exercise an Option before it is vested, subject to the Company's right of repurchase over any Shares acquired under the unvested portion of the Option (an "early exercise"), which right of repurchase shall lapse at the same rate the Option would have vested had there been no early exercise. In no event shall the Company be required to issue fractional Shares upon the exercise of an Option. (e) MODIFICATIONS OR ASSUMPTION OF OPTIONS. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding options or may accept the cancellation of outstanding options (whether granted by the Company or by another issuer) in return for the grant of new Options for the same or a different number of Shares and at the same or a different Exercise Price. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such Option. (f) TRANSFERABILITY OF OPTIONS. Except as otherwise provided in the applicable Stock Option Agreement and then only to the extent permitted by applicable law, no Option shall be transferable by the Optionee other than by will or by the laws of descent and distribution. Except as otherwise provided in the applicable Stock Option Agreement, an Option may be exercised during the lifetime of the Optionee only or by the guardian or legal representative of the Optionee. No Option or interest therein may be assigned, pledged or hypothecated by the Optionee during his lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process. (g) NO RIGHTS AS A STOCKHOLDER. An Optionee, or a transferee of an Optionee, shall have no rights as a stockholder with respect to any Common Stock covered by an Option until such person becomes entitled to receive such Common Stock by filing a notice of exercise and paying the Exercise Price pursuant to the terms of such Option. (h) RESTRICTIONS ON TRANSFER. Any Shares issued upon exercise of an Option shall be subject to such rights of repurchase, rights of first refusal and other transfer restrictions as the Committee may determine. Such restrictions shall apply in addition to any restrictions that may apply to holders of Shares generally and shall also comply to the extent necessary with applicable law. 7 SECTION 7. PAYMENT FOR OPTION SHARES. (a) GENERAL RULE. The entire Exercise Price of Shares issued upon exercise of Options shall be payable in cash at the time when such Shares are purchased, except as follows: (i) In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. The Stock Option Agreement may specify that payment may be made in any form(s) described in this Section 7. (ii) In the case of an NSO granted under the Plan, the Committee may in its discretion, at any time accept payment in any form(s) described in this Section 7. (b) SURRENDER OF STOCK. To the extent that this Section 7(b) is applicable, payment for all or any part of the Exercise Price may be made with Shares which have already been owned by the Optionee for such duration as shall be specified by the Committee. Such Shares shall be valued at their Fair Market Value on the date when the new Shares are purchased under the Plan. (c) PROMISSORY NOTE. To the extent that this Section 7(c) is applicable, payment for all or any part of the Exercise Price may be made with a full-recourse promissory note. (d) OTHER FORMS OF PAYMENT. To the extent that this Section 7(d) is applicable, payment may be made in any other form that is consistent with applicable laws, regulations and rules. SECTION 8. PROTECTION AGAINST DILUTION. (a) ADJUSTMENTS. In the event of a subdivision of the outstanding Shares, a declaration of a dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an amount that has a material effect on the price of Shares, a combination or consolidation of the outstanding Shares (by reclassification or otherwise) into a lesser number of Shares, a recapitalization, a spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its sole discretion, deems appropriate 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) OPTIONEE RIGHTS. Except as provided in this Section 8, an Optionee shall have no rights by reason of any issue by the Company of stock of any class or securities convertible into stock of any class, 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. 8 SECTION 9. EFFECT OF A CHANGE IN CONTROL. (a) MERGER OR REORGANIZATION. 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), for accelerated vesting or for their cancellation with or without consideration, in all cases without the consent of the Optionee. (b) ACCELERATION. The Committee may determine, at the time of granting an Option or thereafter, that such Option shall become fully exercisable as to all Shares subject to such Option in the event that a Change in Control occurs with respect to the Company. SECTION 10. LIMITATIONS ON RIGHTS. (a) RETENTION RIGHTS. Neither the Plan nor any Option granted under the Plan shall be deemed to give any individual a right to remain an employee, consultant or director of the Company, a Parent, a Subsidiary or an Affiliate. The Company and its Parents and Subsidiaries and Affiliates reserve the right to terminate the Service of any person at any time, and for any reason, subject to applicable laws, the Company's Certificate of Incorporation and Bylaws and a written employment agreement (if any). (b) STOCKHOLDERS' RIGHTS. An Optionee shall have no dividend rights, voting rights or other rights as a stockholder with respect to any Shares covered by his or her Option prior to the issuance of a stock certificate for such Shares. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date when such certificate is issued, except as expressly provided in Section 8. (c) REGULATORY REQUIREMENTS. Any other provision of the Plan notwithstanding, the obligation of the Company to issue Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Shares pursuant to any Option prior to the satisfaction of all legal requirements relating to the issuance of such Shares, to their registration, qualification or listing or to an exemption from registration, qualification or listing. SECTION 11. WITHHOLDING TAXES. (a) GENERAL. An Optionee or his or her successor shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with his or her Option. The Company shall not be required to issue any Shares or make any cash payment under the Plan until such obligations are satisfied. (b) SHARE WITHHOLDING. If a public market for the Company's Shares exists, the Committee may permit an Optionee to satisfy all or part of his or her withholding or income tax obligations by having the Company withhold all or a portion of any Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Shares that he or she previously 9 acquired. Such Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. Any payment of taxes by assigning Shares to the Company may be subject to restrictions, including, but not limited to, any restrictions required by rules of the Securities and Exchange Commission. SECTION 12. DURATION AND AMENDMENTS. (a) TERM OF THE PLAN. The Plan, as set forth herein, shall become effective on the date of its adoption by the Board. No Options shall be exercisable until stockholder approval is obtained. In the event that the stockholder fails to approve the Plan within twelve (12) months after its adoption by the Board, any Options made shall be null and void and no additional Grants shall be made. To the extent required by applicable law, the Plan shall terminate on the date that is ten (10) years after its adoption by the Board and may be terminated on any earlier date pursuant to Section 12(b). (b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board may amend or terminate the Plan at any time and for any reason. The termination of the Plan, or any amendment thereof, shall not affect any Option previously granted under the Plan. No Options shall be granted under the Plan after the Plan's termination. An amendment of the Plan shall be subject to the approval of the Company's stockholders only to the extent required by applicable laws, regulations or rules. SECTION 13. EXECUTION. To record the adoption of the Plan by the Board, the Company has caused its duly authorized officer to execute this Plan on behalf of the Company. KNIGHTRIDDER.COM, INC. By /s/ DANIEL J. FINNIGAN ---------------------- Daniel J. Finnigan President 10 EX-10.H 3 EXHIBIT 10(H) EXHIBIT 10(h) EXECUTIVE INCOME SECURITY AGREEMENT AGREEMENT dated as of __________________, 200_, by and between Knight-Ridder, Inc., a Florida corporation having its principal offices at 50 W. San Fernando Street, San Jose, California, 95113 (the "Company"), and _____________ (the "Executive"). The Company considers the continued services of key executives of the Company to be in the best interests of the Company and its shareholders. The Company desires to assure, and has determined that it is appropriate and in the best interests of the Company and its shareholders to reinforce and encourage, the continued attention and dedication of key executives of the Company to their duties of employment without personal distraction or conflict of interest in circumstances arising from the possibility or occurrence of a change in control of the Company. The Compensation and Corporate Governance Committee of the Board of Directors of the Company (the "Committee") has authorized the Company to enter into agreements with those key executives of the Company who are designated by the Committee, such agreements to set forth the severance compensation which the Company agrees under certain circumstances to pay such executives. The Executive is a key executive of the Company and has been designated by the Committee as an executive to be offered such a severance compensation agreement with the Company. In consideration of the premises and the covenants and agreements contained herein, and other good and valuable consideration, the Company and the Executive agree as follows: 1. CHANGE IN CONTROL OF THE COMPANY. For purposes of this Agreement, a "Change in Control of the Company" shall be deemed to have occurred if: (a) individuals who, as of the date of this Agreement, constitute the entire Board of Directors of the Company ("Incumbent Directors") cease for any reason to constitute at least a majority of the Board of Directors of the Company (the "Board"); PROVIDED, HOWEVER, that any individual becoming a director subsequent to the date of this Agreement whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the then Incumbent Directors (other than any such individual whose initial assumption of office is the result of an actual or threatened election contest relating to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Company) shall also be an Incumbent Director; (b) any merger, consolidation or reorganization of the Company (or, if the capital stock of the Company is affected, any Subsidiary (as defined below)) or any sale, lease, or other disposition (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company (each of the foregoing being an "Acquisition Transaction") shall have been effected and (A) the shareholders of the Company immediately prior to such Acquisition Transaction do not immediately after such Acquisition Transaction beneficially own, directly or indirectly, shares representing in the aggregate more than 65% of (I) the then-outstanding common stock of the corporation surviving or resulting from such merger, consolidation or recapitalization or acquisition of such assets of the Company, as the case may be (the "Surviving Corporation") (or of its ultimate parent corporation, if any) and (II) the Combined Voting Power (as defined below) of the then outstanding Voting Securities (as defined below) of the Surviving Corporation (or of its ultimate parent corporation, if any); (B) the Incumbent Directors at the time of the initial approval of such Acquisition Transaction do not immediately after such Acquisition Transaction constitute a majority of the Board of Directors of the Surviving Corporation (or of its ultimate parent corporation, if any); or (C) any Person (including any corporation resulting from such Acquisition Transaction and any employee benefit plan (or related trust) of such corporation) beneficially owns, directly or indirectly, 20% or more of either (i) the then-outstanding shares of common stock of the corporation resulting from such Acquisition Transaction or (ii) the Combined Voting Power of all then-outstanding Voting Securities of the Surviving Corporation except to the extent that such ownership existed prior to the Acquisition Transaction; or (c) the shareholders of the Company shall approve any plan or proposal for the liquidation or dissolution of the Company; or (d) any Person (as defined below) shall become the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), directly or indirectly, of securities of the Company representing in the aggregate 20% or more of either (i) the then outstanding shares of Company Common Stock ("Common Stock"), or (ii) the Combined Voting Power of all then outstanding Voting Securities of the Company; PROVIDED, HOWEVER, that notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to have occurred for purposes of this clause (d) solely as the result of: (A) an acquisition of securities by the Company which, by reducing the number of shares of Common Stock or other Voting Securities outstanding, increases (I) the proportionate number of shares of Common Stock beneficially owned by any Person to 20% or more of the shares of Common Stock then outstanding or (II) the proportionate voting power represented by the Voting Securities beneficially owned by any Person to 20% or more of the Combined Voting Power of all then outstanding Voting Securities; or (B) an acquisition of securities directly from the Company, except that this subsection (B) shall not apply to: (I) any conversion or exercise of a security that was not acquired directly from the Company; or (II) any acquisition of securities if the Incumbent Directors at the time of the initial approval of such acquisition would not immediately after (or otherwise as a result of) such acquisition constitute a majority of the Board; PROVIDED, HOWEVER, that if any Person referred to in subsections (A) or (B) of this clause (d) shall thereafter become the beneficial owner of any additional shares of Company Common Stock or other Voting Securities of the Company (other than pursuant to a stock split, stock dividend or similar transaction or an acquisition exempt under such subsection (B)), then a Change in Control of the Company shall be deemed to have occurred for purposes of this clause (d). (e) Notwithstanding anything contained in this Agreement to the contrary, if the Executive's employment is terminated prior to a Change in Control of the Company and the Executive reasonably demonstrates that such termination (i) was at the request of a Third Party (as defined below) or (ii) otherwise occurred in connection with or in anticipation of a Change in Control of the Company, then for all purposes of the Agreement, the date of such Change in Control of the Company shall mean the date immediately prior to the date of such termination of the Executive's employment. (f) For purposes of this Agreement: (i) "Person" shall mean any individual, entity (including, without limitation, any corporation, partnership, trust, joint venture, association or governmental body and any successor to any such entity) or group (as defined in Sections 13(d)(3) or 14(d)(2) of the Exchange Act and the rules and regulations thereunder); PROVIDED, HOWEVER, that Person shall not include the Executive, the Company, any of its Subsidiaries, any employee benefit plan (or related trust) of the Company or its 2 Subsidiaries or any entity organized, appointed or established by the Executive, the Company or any of its Subsidiaries for or pursuant to the terms of any such plan, or any of their affiliates; (ii) "Voting Securities" shall mean all securities of a corporation having the right under ordinary circumstances to vote in an election of the board of directors of such corporation; and (iii)"Combined Voting Power" shall mean the aggregate votes entitled to be cast generally in the election of directors of a corporation by holders of then outstanding Voting Securities of such corporation. (iv) "Third Party" shall mean a third party who has indicated an intention, or taken steps reasonably calculated, to effect a Change in Control of the Company. 2. TERMINATION FOLLOWING CHANGE IN CONTROL OF THE COMPANY. (a) GENERAL. If a Change in Control of the Company shall have occurred while the Executive is an employee of the Company, the Executive shall be entitled to the compensation provided in Section 3 hereof upon the subsequent termination of the Executive's employment with the Company at any time during the Term (as defined below) of this Agreement, whether such termination is effected by the Executive or by the Company, unless such termination occurs as a result of (i) the Executive's death, (ii) the Executive's Disability (as defined below), (iii) the Executive's Retirement (as defined below), (iv) the termination by the Company of the employment of the Executive for Cause (as defined below), or (v) the termination by the Executive of his employment other than for Good Reason (as defined below). (b) DISABILITY. For purposes of this Agreement, "Disability" shall mean a physical or mental infirmity which has rendered the Executive unable to substantially perform his or her duties (such term to include performance of the Executive's part-time duties if the Executive is employed on a part-time basis) with the Company for a period of 180 consecutive days, unless within 30 days after the date a Notice of Termination (as defined below) is given by the Company after an absence for such period the Executive shall have returned to the full-time performance of such duties. (c) RETIREMENT. For purposes of this Agreement, "Retirement" shall mean termination, whether by the Company or by the Executive, of the Executive's employment with the Company on or after the Executive's early retirement date or normal retirement date, as the case may be, under the Company's retirement policy then generally applicable to its salaried employees or in accordance with any retirement plan or arrangement with respect to the Executive established by the Company with the Executive's consent. (d) CAUSE. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment only if the Executive (i) has willfully engaged in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, (ii) has engaged in fraud, misappropriation, embezzlement or any other act or acts of dishonesty resulting or intended to result directly or indirectly in a substantial gain or personal enrichment to the Executive at the expense of the Company, or (iii) has willfully and continually failed substantially to perform his or her duties with the Company (other than a failure resulting from the Executive's incapacity due to physical or mental illness), which failure has continued for a period of at least 30 days after a written notice of demand for substantial performance has been delivered to the Executive specifying in reasonable detail the manner in which the Executive has failed to substantially perform. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Executive a copy of a resolution (x) duly adopted by three-quarters (3/4) of the entire membership of the Committee, or of the Board, at a meeting called and held for such purpose after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Committee or the Board, as the case may be, and (y) finding that in the good faith opinion of the Committee or the Board, as the case may be, the Executive was guilty of conduct described in the first sentence of this Section 2(d) and specifying the particulars of such conduct in detail. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or 3 without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board, or, for any Executive other than the Chief Executive Officer of the Company, upon the instructions of the Chief Executive Officer of the Company, or based upon the advice of counsel for the Company, shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. (e) GOOD REASON. For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change in Control of the Company of any of the following without the Executive's express written consent. (i) The assignment to the Executive by the Company of duties or responsibilities inconsistent in some material respect with the Executive's title, position, duties, responsibilities and status with the Company immediately prior to a Change in Control of the Company, or a change in the Executive's titles or offices with the Company from those held by the Executive immediately prior to a Change in Control of the Company, excluding for these purposes an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive, or any removal of the Executive from or any failure to reelect or reappoint the Executive to any of such positions except in connection with the termination of the Executive's employment as a result of the Executive's death, Disability or Retirement, by the Company for Cause or by the Executive other than for Good Reason; (ii) Any reduction by the Company in the Executive's base salary as in effect on the date hereof or as such base salary may be increased from time to time during the Term of this Agreement or any failure to pay the Executive any compensation or benefits to which he is entitled within five days of the date due; (iii) Any failure by the Company either to continue in effect any benefit plan or arrangement (including, without limitation, the Company's Employees Stock Purchase Plan, Section 401(k) plan, Retirement Plan for Employees, Retirement Benefit Restoration Plan, or substitute plans adopted by the Company prior to a Change in Control of the Company, group life insurance plan and medical, dental, accident and disability plans) in which the Executive shall be participating at the time of a Change in Control of the Company or to provide other plans or arrangements providing the Executive with substantially similar benefits, or the taking by the Company of any action which would directly or indirectly materially adversely affect the Executive's participation in or materially reduce the Executive's benefits under any such benefit plan or arrangement or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of a Change in Control of the Company. (iv) Any failure by the Company either to continue in effect any incentive or compensation plan or arrangement (including, without limitation, the Company's Incentive Compensation Plan and Employee Stock Option Plan, or substitute plans adopted by the Company prior to a Change in Control of the Company) in which the Executive shall be participating at the time of a Change in Control of the Company, or to provide other plans or arrangements providing the Executive with substantially similar benefit levels and/or reward opportunities, or the taking by the Company of any action which would directly or indirectly materially adversely affect the Executive's participation (including the level of the Executive's participation relative to other participants and the terms of benefit levels and/or reward opportunities) or materially reduce the Executive's benefits under any such plan or arrangement; (v) Any relocation of the Executive's base of employment to a location more than 20 miles away from the location at which the Executive performed the Executive's duties of employment prior to a Change in Control of the Company, except for required travel by the Executive on business of the Company to an extent substantially consistent with the Executive's business travel obligations at the time of a Change in Control of the Company; 4 (vi) Any failure by the Company to provide the Executive with the number of paid vacation days per year to which the Executive is entitled at the time of a Change in Control of the Company; (vii) Any material breach by the Company of any provision of this Agreement; (viii) Any failure by the Company to obtain from any successor to the Company a satisfactory agreement to assume and perform this Agreement, as contemplated by Section 8(a) hereof; (ix) The insolvency or the filing (by any party, including the Company) of a petition for bankruptcy of the Company, which petition is not dismissed within sixty days; and (x) Any purported termination of the Executive's employment by the Company, other than as a result of the Executive's death, which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 2(f) hereof (and, if applicable, Section 2(d) hereof). Any event or condition described in subsections (i) through (x) above which occurs prior to a Change in Control of the Company but which the Executive reasonably demonstrates (A) was at the request of a Third Party, or (B) otherwise arose in connection with, or in anticipation of, a Change in Control of the Company, shall constitute Good Reason for purposes of this Agreement, notwithstanding that it occurred prior to the Change in Control of the Company. (f) NOTICE OF TERMINATION. Any purported termination of the Executive's employment with the Company other than as a result of the Executive's death shall be communicated by a Notice of Termination to the Executive, if such termination is by the Company, or to the Company, if such termination is by the Executive. For purposes of this Agreement, "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. For purposes of this Agreement, no purported termination of the Executive's employment with the Company other than as a result of the Executive's death shall be effective without such a Notice of Termination having been given. (g) DATE OF TERMINATION. For purposes of this Agreement, "Date of Termination" shall mean: (i) if the Executive's employment by the Company is terminated by the Company for Disability, the thirtieth day after the date on which the Notice of Termination is given, provided that the Executive shall not have returned to the full-time performance of the Executive's duties of employment during such 30-day period; (ii) if the Executive's employment by the Company is terminated by the Executive for Good Reason, such date as shall be specified in the Notice of Termination (which date shall not be fewer than 20 nor more than 60 days after the date on which the Notice of Termination is given); or (iii) if the Executive's employment by the Company is terminated for any other reason, the twentieth day after the date on which the Notice of Termination is given. 3. COMPENSATION UPON TERMINATION AFTER A CHANGE IN CONTROL OF THE COMPANY. (a) If after a Change in Control of the Company the Executive's employment by the Company shall terminate at any time during the Term of this Agreement for any reason other than (a) the Executive's death, (b) the Executive's Disability, (c) the Executive's Retirement, (d) the termination by the Company of the Executive's employment for Cause, or (e) the termination by the Executive of his employment other than for Good Reason, then not later than the fifth business day following the Date of Termination, the Company shall (subject only to any applicable payroll and other taxes required to be withheld) pay or cause to be paid to the Executive a lump sum cash payment (the "Severance Payment") equal to three times the greater of (i) the sum of the salary and cash bonus payable to the Executive for the last full calendar year preceding the Severance Payment or (ii) the sum of the Executive's annualized salary and the maximum cash bonus the Executive could have earned for the then current calendar year. 5 (b) THREE YEARS OF LIFE INSURANCE AND HEALTH PLAN COVERAGE. The coverage described in this subsection (b) shall be provided for a "Continuation Period" beginning on the Date of Termination and ending on the earlier of (1) the third anniversary of the Date of Termination or (2) the date of the Executive's death. During the Continuation Period, the Executive (and, where applicable, the Executive's dependents) shall be entitled to continue participation in the group term life insurance plan and in the health care plan for Executives maintained by the Company as if the Executive were still an Executive of the Company. The coverage provided under this subsection (b) shall run concurrently with and shall be offset against any continuation coverage under Part 6 of Title I of the Employee Retirement Income Security Act of 1974, as amended. Where applicable, the Executive's compensation for purposes of such plans shall be deemed to be equal to the Executive's compensation (as defined in such plans) in effect on the Date of Termination. To the extent that the Company finds it undesirable to cover the Executive under the group life insurance and health plans of the Company, the Company shall provide the Executive (at its own expense) with the same level of coverage under individual policies. (c) ACCELERATED VESTING. All stock and stock options held by the Executive shall become fully vested on the effective date of the Change in Control. 4. ADDITIONAL PAYMENTS. (a) In the event that any payment or benefit (within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), to the Executive or for his or her benefit paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his or her employment (a "Payment" or "Payments"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive will be entitled to receive from the Company an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties, other than interest and penalties imposed by reason of the Executive's failure to file timely a tax return or pay taxes shown due on his or her return), imposed with respect to such Gross-Up Payment, including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made at the Company's expense by an accounting firm selected by the Company and reasonably acceptable to the Executive which is designated as one of the five largest accounting firms in the United States (the "Accounting Firm"). The Accounting Firm shall provide its determination (the "Determination"), together with detailed supporting calculations and documentation, to the Company and the Executive within five days of the Date of Termination if applicable, or such other time as requested by the Company or by the Executive (provided the Executive reasonably believes that any of the Payments may be subject to the Excise Tax) and if the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to a Payment or Payments, it shall furnish the Executive with an opinion reasonably acceptable to the Executive that no Excise Tax will be imposed with respect to any such Payment or Payments. Within ten days of the delivery of the Determination to the Executive, the Executive shall have the right to dispute the Determination (the "Dispute"). The Gross-Up Payment, if any, as determined pursuant to this Section 4(b) shall be paid by the Company to the Executive within five days of the receipt of the Determination. The existence of the Dispute shall not in any way affect the Executive's right to receive the Gross-Up Payment in accordance with the Determination. If there is no Dispute, the Determination shall be binding, final and conclusive upon the Company and the Executive subject to the application of Section 4(c) below. (c) As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not have been paid (an "Excess Payment") or a Gross-Up Payment (or a portion thereof) which should have been paid will not have been paid (an "Underpayment"). An Underpayment shall be deemed to have occurred (i) upon notice (formal or informal) to the Executive from any governmental taxing authority that the Executive's tax liability (whether in respect of the Executive's current taxable year or in respect of any prior taxable year) may be increased by reason of the imposition of the Excise Tax on 6 a Payment or Payments with respect to which the Company has failed to make a sufficient Gross-Up Payment, (ii) upon a determination by a court, (iii) by reason of determination by the Company (which shall include the position taken by the Company, together with its consolidated group, on its federal income tax return) or (iv) upon the resolution of the Dispute to the Executive's satisfaction. If an Underpayment occurs, the Executive shall promptly notify the Company and the Company shall promptly, but in any event, at least five days prior to the date on which the applicable government taxing authority has requested payment, pay to the Executive an additional Gross-Up Payment equal to the amount of the Underpayment plus any interest and penalties (other than interest and penalties imposed by reason of the Executive's failure to file timely a tax return or pay taxes shown due on the Executive's return) imposed on the Underpayment. An Excess Payment shall be deemed to have occurred upon a Final Determination (as hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or Payments (or portion thereof) with respect to which the Executive had previously received a Gross-Up Payment. A Final Determination shall be deemed to have occurred when the Executive has received from the applicable government taxing authority a refund of taxes or other reduction in the Executive's tax liability by reason of the Excise Payment and upon either (x) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxing authority which finally and conclusively binds the Executive and such taxing authority, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (y) the statute of limitations with respect to the Executive's applicable tax return has expired. If an Excess Payment is determined to have been made, the amount of the Excess Payment shall be treated as a loan by the Company to the Executive and the Executive shall pay to the Company on demand (but not less than 10 days after the determination of such Excess Payment and written notice has been delivered to the Executive) the amount of the Excess Payment plus interest at an annual rate equal to the Applicable Federal Rate provided for in Section 1274(d) of the Code from the date the Gross-Up Payment (to which the Excess Payment relates) was paid to the Executive until the date of repayment to the Company. (d) Notwithstanding anything contained in this Agreement to the contrary, in the event that, according to the Determination, an Excise Tax will be imposed on any Payment or Payments, the Company shall pay to the applicable government taxing authorities as Excise Tax withholding, the amount of the Excise Tax that the Company has actually withheld from the Payment or Payments. 5. NO MITIGATION; OBLIGATIONS ABSOLUTE; NO EFFECT ON OTHER RIGHTS (a) The Executive shall not be required to mitigate the amount of any payment provided for in Section 3 hereof by seeking other employment or otherwise; nor shall the amount of any payment or benefits provided for in Section 3 hereof be reduced by any compensation or benefits earned by the Executive as the result of employment by another employer, or by retirement benefits, after the effective date of termination of the Executive's employment with the Company or otherwise. (b) The obligations of the Company to make the payments to the Executive, and to make the arrangements provided for herein shall be absolute and unconditional and shall not be reduced by any circumstances, including without limitation any setoff, counterclaim, recoupment, defense or other right which the Company may have against the Executive or any third party at any time. (c) The provisions of this Agreement, and any payment provided for herein, shall not supersede or in any way limit the rights, benefits, duties or obligations which the Executive may now or in the future have under any benefit, incentive or other plan or arrangement of the Company or any other agreement with the Company. (d) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 7 6. NOT AN EMPLOYMENT AGREEMENT. This Agreement is not, and nothing herein shall be deemed to create, a contract of employment between the Executive and the Company. The Company may terminate the employment of the Executive by the Company at any time, subject to the terms of any employment agreement between the Company and the Executive that may then be in effect. 7. TERM OF AGREEMENT. The term of this Agreement (the "Term") shall commence on the date hereof and shall continue through the third following December 31st; PROVIDED, HOWEVER, that commencing on the first December 31st after the date hereof, and on each anniversary of such first December 31st (such date and each anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Agreement shall be automatically extended so as to terminate three years from such Renewal Date, unless at 60 days prior to the Renewal Date the Company shall give Notice to the Executive that the Term will not be extended. Notwithstanding any such notice not to extend the Term, if a Change in Control of the Company shall have occurred during the original or extended Term of this Agreement, this Agreement shall continue in effect for a period of not less than 36 months beyond the date of such Change in Control of the Company. 8. SUCCESSORS; BINDING AGREEMENT; ASSIGNMENT (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns. Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Company other than to a successor. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance reasonably satisfactory to the Executive, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean (i) the Company as hereinbefore defined, and (ii) any successor to all or substantially all of the Company's business or assets which executes and delivers an agreement provided for in this Section 8(a) or which otherwise become bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would be payable to the Executive hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee or, if there be no such designee, to the Executive's estate. Neither this Agreement nor any right or interest arising hereunder may be assigned or transferred by the Executive or his or her heirs, beneficiaries or legal representatives. In the event of the Executive's death or a judicial determination of his or her incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to the Executive's executor, heirs or other legal representative. 9. NOTICES. For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to (i) the respective addresses set forth in this Agreement, provided that all notices to the Company shall be directed to the attention of the Committee with a copy directed to the Secretary of the Company, or (ii) such other address for a party as such party may have furnished to the other in writing in accordance with this Section 9; except that notices of change of address shall be effective only upon receipt. 10. CONFIDENTIALITY. The Executive shall retain in confidence any and all confidential information concerning the Company or any of its Subsidiaries and their respective businesses which is now or hereafter becomes known to the Executive, except information (i) ascertainable or obtained from public information, (ii) received by the Executive at any time after the Executive's employment by the Company shall have terminated from a third party not employed by or otherwise affiliated with the Company or under an obligation to the Company to maintain the confidentiality of that information, or (iii) which is or becomes known to the public by any means other than a breach of this Section 10. 8 11. SUBSIDIARY. For purposes of this Agreement, "Subsidiary" shall mean any corporation, partnership or other entity, at least 50% of the outstanding voting power for the election of directors or other management is then owned, directly or indirectly, by the Company or another Subsidiary of the Company. 12. MODIFICATION; WAIVER OR DISCHARGE. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in a writing signed by the Executive and the Company. No waiver by either party at any time of any breach by the other party of, or of compliance by the other party with, any condition or provision of this Agreement to be performed or complied with by such other party shall be deemed a waiver of any similar or dissimilar provision or condition of this Agreement or any other breach of or failure to comply with the same condition or provision at the same time or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. 13. GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Florida without giving effect to its conflict of laws rules. 14. HEADINGS OF NO EFFECT. The Section headings contained in this Agreement are included solely for convenience of reference and shall not in any way affect the meaning or interpretation of any of the provisions of this Agreement. 15. FEES AND EXPENSES. The Company shall pay all legal fees and related expenses (including the costs of experts, evidence and counsel) incurred by the Executive as they become due as a result of (i) termination of the Executive's employment after a Change in Control of the Company (including all such fees and expenses, if any, incurred in contesting or disputing any such termination of employment), (ii) the Executive seeking to obtain or enforce any right or benefit provided by (x) this Agreement (including, but not limited to, any such fees and expenses incurred in connection with the dispute) or (y) any other plan or arrangement maintained by the Company under which the Executive is or may be entitled to receive benefits, and (iii) the Executive's hearing before the Board as contemplated by the definition of Cause. 16. DISPUTE CONCERNING TERMINATION. (a) If within 20 days after any Notice of Termination is given or, if later, prior to the Date of Termination (as determined without regard to this Section 16(a)), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time of appeal therefrom has expired and no appeal has been perfected); PROVIDED that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. (b) In the event of any dispute between the Company and the Executive with respect to the subject matter of this Agreement and the enforcement of rights hereunder, the Executive may, in his or her sole discretion by notice to the Company, require such dispute or difference to be submitted to arbitration. The arbitrator or arbitrators shall be selected by agreement of the parties or, if they cannot agree on an arbitrator or arbitrators within 30 days after the Executive has notified the Company of the submission of the question for settlement by arbitration, then the arbitrator or arbitrators shall be selected by the American Arbitration Association (the "AAA") in San Jose, California, upon the application of the Executive. The determination reached in such arbitration shall be final and binding on both parties without any right of appeal or further dispute. Execution of the determination by such arbitrator may be sought in any court of competent jurisdiction. The arbitrators shall not be bound by judicial formalities and may abstain from following the strict rules of evidence and shall interpret this Agreement as an honorable engagement and not merely as a legal obligation. Unless otherwise agreed by the parties, any such arbitration shall take place in San Jose, California, and shall be conducted in accordance with the Rules of AAA. The Company shall pay all costs of the arbitration. 9 (c) If a purported termination occurs following a Change in Control of the Company and during the Term of this Agreement, and such termination is disputed in accordance with Section 16(a) , the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with Section 16(a). Amounts paid under this Section 16(c) are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 17. SEVERABILITY. If any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby. To the extent permitted by applicable law, each party hereto waives any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. KNIGHT-RIDDER, INC. By: /s/ P. ANTHONY RIDDER ------------------------------------ P. Anthony Ridder Chairman and Chief Executive Officer ------------------------------------ [Name of Executive] [Address] EX-27 4 FDS
5 0000205520 Knight-Ridder, Inc. 1,000 USD 3-MOS DEC-31-2000 DEC-27-1999 MAR-26-2000 1 34,989 0 403,450 17,174 41,060 540,927 1,905,099 857,045 4,342,520 534,350 867,198 0 1,374 1,587 1,703,457 4,342,520 807,702 807,702 114,029 662,282 (123,483) 0 26,049 268,903 108,048 160,855 0 0 0 160,855 2.03 1.74 Bonds consist of total debt less commercial paper. Cost of goods sold consists of newsprint, ink and supplements. Other expenses consist of all other non-operating income and costs, net, excluding income taxes. Amounts include interest expense, net of interest income and other non-operating costs, net of non-operating income.
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