S-4/A 1 ds4a.htm AMENDMENT NO. 1 TO REGISTRATION STATEMENT ON FORM S-4 Amendment No. 1 to Registration Statement on Form S-4
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As filed with the Securities and Exchange Commission on May 9, 2006

Registration No. 333-133321

 


UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


AMENDMENT NO. 1 TO

FORM S-4

REGISTRATION STATEMENT

Under The Securities Act of 1933

 


THE MCCLATCHY COMPANY

(Exact name of Registrant as specified in its charter)

 


 

Delaware   2711   52-2080478

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

2100 Q Street

Sacramento, CA 95816

(916) 321-1846

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 


Karole Morgan-Prager, Esq.

Corporate Secretary and General Counsel

2100 Q Street

Sacramento, CA 95816

(916) 321-1828

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 


Copies to:

 

Larry W. Sonsini, Esq.

Katharine A. Martin, Esq.

Wilson Sonsini Goodrich & Rosati

Professional Corporation

650 Page Mill Road

Palo Alto, CA 94304

(650) 493-9300

  

Gordon Yamate, Esq.

General Counsel

Knight-Ridder, Inc.

50 West San Fernando Street

San Jose, California 95113

(408) 938-7700

  

Daniel A. Neff, Esq.

David A. Katz, Esq.

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

(212) 403-1000

 


Approximate date of commencement of proposed sale to the public:    Upon consummation of the merger described herein.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement number for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 


The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a) may determine.

 



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LOGO

May 9, 2006

Dear McClatchy Company Stockholders:

On March 12, 2006, The McClatchy Company entered into an Agreement and Plan of Merger with Knight-Ridder, Inc. providing for the merger of Knight Ridder with and into McClatchy. McClatchy’s board of directors carefully reviewed and considered the terms and conditions of the merger agreement prior to its unanimous determination that the merger is advisable, fair to and in the best interests of McClatchy and its stockholders.

Holders of McClatchy Class B common stock, acting by written consent, adopted the merger agreement, approved the issuance of shares of Class A common stock in the merger and approved an amendment to McClatchy’s restated certificate of incorporation to increase the authorized Class A common stock from 100 million shares to 200 million shares in connection with the merger. No further vote of McClatchy’s stockholders is required. However, pursuant to U.S. Securities and Exchange Commission rules, McClatchy is required to send its stockholders entitled to vote a written information statement, which is satisfied by the delivery of this prospectus/proxy statement/information statement, at least 20 calendar days prior to the date upon which the merger, the issuance of McClatchy shares in connection with the merger and the amendment of McClatchy’s restated certificate of incorporation can occur.

If the merger is completed, shareholders of Knight Ridder will have the right to receive (1) 0.5118 of a share of McClatchy Class A common stock and (2) $40.00 in cash for each share of Knight Ridder common stock owned. The implied value of the stock consideration will fluctuate as the market price of McClatchy common stock fluctuates. Based on the closing price of McClatchy’s common stock on the New York Stock Exchange on March 10, 2006 (the last full trading day preceding public announcement of the merger agreement), the value of the aggregate consideration to be received by Knight Ridder shareholders would be approximately $67.25 per share. You should obtain current stock price quotations for Knight Ridder common stock and McClatchy Class A common stock. Knight Ridder common stock is quoted on the NYSE under the symbol “KRI.” McClatchy Class A common stock is quoted on the NYSE under the symbol “MNI.”

Attached to this letter is an important document containing detailed information about McClatchy, Knight Ridder and the proposed merger. We urge you to read this document carefully. In particular, see “ Risk Factors” beginning on page 21 for a discussion of the risks related to the merger.

We are not asking you for a proxy and you are requested not to send us a proxy.

 

Sincerely,

LOGO

Gary Pruitt
Chairman, President and Chief Executive Officer

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION OR THE SECURITIES OF THE MCCLATCHY COMPANY TO BE ISSUED PURSUANT TO THE MERGER, OR DETERMINED IF THIS PROSPECTUS/PROXY STATEMENT/INFORMATION STATEMENT IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This prospectus/proxy statement/information statement is dated May 9, 2006, and is first being mailed to The McClatchy Company stockholders on or about May 15, 2006.


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LOGO

May 9, 2006

To Knight Ridder Shareholders:

You are cordially invited to attend the 2006 Annual Meeting of Shareholders of Knight-Ridder, Inc., which will be held at The Fairmont Hotel, 170 South Market Street, San Jose, California, at 9:30 a.m., Pacific time, on June 26, 2006. Only shareholders who hold shares of Knight Ridder common stock at the close of business on May 8, 2006, the record date for the annual meeting, are entitled to vote at the annual meeting.

Knight Ridder is asking you to approve an Agreement and Plan of Merger, dated as of March 12, 2006, between Knight Ridder and The McClatchy Company, providing for the merger of Knight Ridder with and into McClatchy. In order to complete the merger, the holders of 80% of the outstanding shares of Knight Ridder common stock must approve the merger agreement.

If the merger is completed, shareholders of Knight Ridder will have the right to receive (1) 0.5118 of a share of McClatchy Class A common stock and (2) $40.00 in cash for each share of Knight Ridder common stock owned. The implied value of the stock consideration will fluctuate as the market price of McClatchy common stock fluctuates. Based on the closing price of McClatchy’s common stock on the New York Stock Exchange on March 10, 2006 (the last full trading day preceding public announcement of the merger agreement), the value of the aggregate consideration to be received by Knight Ridder shareholders would be approximately $67.25 per share. You should obtain current stock price quotations for Knight Ridder common stock and McClatchy Class A common stock. Knight Ridder common stock is quoted on the NYSE under the symbol “KRI.” McClatchy Class A common stock is quoted on the NYSE under the symbol “MNI.”

Knight Ridder’s board of directors has unanimously adopted the merger agreement and the merger and unanimously recommends that shareholders vote FOR the approval of the merger agreement and the merger.

In addition, you are being asked at the annual meeting to elect directors, ratify the appointment of Ernst & Young LLP as Knight Ridder’s independent registered public accounting firm and transact any other business properly brought before the meeting.

Attached to this letter is an important document containing detailed information about McClatchy, Knight Ridder and the proposed merger. In addition, it provides you with information about the other proposals that require your vote. We urge you to read this document carefully and in its entirety. In particular, see “ Risk Factors” beginning on page 21 for a discussion of the risks related to the merger and owning McClatchy Class A common stock.

Whether or not you plan to attend the annual meeting, please vote as soon as possible so that your shares are represented at the meeting. If you do not vote, it will have the same effect as voting against the merger.

Sincerely,

LOGO

Tony Ridder

Chairman of the Board and

Chief Executive Officer

May 9, 2006

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE MERGER OR DETERMINED IF THIS DOCUMENT IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This document is dated May 9, 2006, and is first being mailed to shareholders of Knight Ridder on or about May 15, 2006.

The Section entitled “Risk Factors” beginning on page 21 of this prospectus/proxy statement/information statement contains a description of risks that you should consider in deciding whether to vote to approve the merger agreement and the merger.


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NOTICE OF 2006 ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON JUNE 26, 2006

To Knight Ridder Shareholders:

We will hold the 2006 Annual Meeting of Shareholders of Knight-Ridder, Inc. on June 26, 2006, at 9:30 a.m., Pacific time at The Fairmont Hotel, 170 South Market Street, San Jose, California. At this meeting, we will ask you to:

1. Vote upon a proposal to approve the Agreement and Plan of Merger, dated as of March 12, 2006, between Knight Ridder and McClatchy and the merger contemplated thereby;

2. Vote upon a proposal to adjourn or postpone the annual meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the annual meeting to approve the first proposal described above;

3. Elect three directors, each for a three-year term;

4. Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2006;

5. Consider and act upon a shareholder proposal, if properly presented; and

6. Transact any other business as may properly be brought before the meeting or any adjournment or postponement of the meeting.

All of these items, including the proposal to approve the merger agreement and the merger, are described in more detail in the accompanying prospectus/proxy statement/information statement and its appendices. You should read these documents in their entirety before voting. We have fixed May 8, 2006 as the record date for determining those Knight Ridder shareholders entitled to vote at the annual meeting. Accordingly, only shareholders of record at the close of business on that date are entitled to notice of and to vote at the annual meeting or any adjournment or postponement of the meeting. A list of such shareholders will be available for inspection at the annual meeting and for ten days prior to the meeting at Knight Ridder’s headquarters located at 50 W. San Fernando Street, San Jose, California, during normal business hours.

Your board of directors has unanimously determined that the proposed merger is advisable and in the best interests of Knight Ridder and its shareholders and unanimously recommends that Knight Ridder shareholders vote FOR the proposal to approve the merger agreement and the merger. Your board of directors also recommends that you vote FOR proposals 2, 3 and 4 listed above and AGAINST proposal 5 listed above.

Your vote is important. Whether or not you plan to attend the annual meeting, please complete, sign, date and return your proxy card or voting instruction card in the enclosed envelope promptly. For many shareholders, you may also vote your shares by calling the toll-free telephone number or by using the Internet as described in the instructions included with your proxy card or voting instruction card. If you later decide to attend the meeting, you can, if you wish, revoke the proxy and vote in person.

We urge you to vote as soon as possible so that your shares will be represented. A failure to vote will have the same effect as voting against the approval of the merger agreement.

By Order of the Board of Directors

Polk Laffoon

Vice President/Corporate Relations

and Corporate Secretary

May 9, 2006


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TABLE OF CONTENTS

 

     Page

QUESTIONS AND ANSWERS ABOUT THE MERGER OF MCCLATCHY AND KNIGHT RIDDER

   1

General Questions and Answers

   1

Questions and Answers for McClatchy Stockholders

   2

Questions and Answers for Knight Ridder Shareholders

   3

SUMMARY OF THE MERGER

   6

The Companies

   6

Structure of the Merger

   6

Consideration in the Merger

   7

Treatment of Knight Ridder Options and Restricted Stock

   7

Fractional Shares

   7

Voting Requirements

   7

Proposed Divestitures

   7

Recommendation of the Knight Ridder Board of Directors Regarding the Merger

   8

Opinions of Financial Advisors

   8

Regulatory Requirements

   9

Appraisal Rights

   9

Material U.S. Federal Income Tax Consequences of the Merger

   9

Interests of Knight Ridder Directors and Executive Officers in the Merger

   9

Conditions to Completion of the Merger

   10

Termination of the Merger Agreement

   10

Payment of Termination Fee

   11

Prohibition From Soliciting Other Offers

   11

SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF MCCLATCHY

   12

SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF KNIGHT RIDDER

   14

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

   17

COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA

   19

COMPARATIVE PER SHARE MARKET PRICE DATA

   20

RISK FACTORS

   21

Risks Related to the Merger and the Combined Company

   21

Risk Factors Relating to McClatchy That Could Affect the Combined Company

   25

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

   26

INFORMATION FOR MCCLATCHY STOCKHOLDERS

   27

General

   27

The Merger

   27

Vote Required for Approval

   27

Amendment of McClatchy’s Restated Certificate of Incorporation

   28

INFORMATION ABOUT THE 2006 ANNUAL MEETING OF KNIGHT RIDDER SHAREHOLDERS

   29

Date, Time and Place

   29

Matters to be Considered

   29

Shareholders Entitled to Vote

   29

Quorum and Required Vote

   29

How Shares Will Be Voted at the Annual Meeting

   30

How to Vote Your Shares

   30

 

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     Page

How to Change Your Vote

   31

Confidential Voting

   31

Solicitation of Proxies

   31

Annual Meeting Admission

   32

Voting and Elections by Participants in the Knight Ridder Plans

   32

Shareholders Sharing an Address

   32

PROPOSALS TO BE VOTED ON BY KNIGHT RIDDER SHAREHOLDERS

   33

PROPOSAL 1: APPROVAL OF THE MERGER AGREEMENT AND THE MERGER

   33

THE MERGER

   33

Background of the Merger

   33

Consideration of the Merger by the McClatchy Board of Directors

   38

Opinion of McClatchy Financial Advisor

   40

Consideration of the Merger by Knight Ridder

   44

Opinions of Knight Ridder Financial Advisors

   47

Opinion of Goldman Sachs

   47

Opinion of Morgan Stanley

   52

Interests of Certain Persons in the Merger

   62

Board of Directors and Management of McClatchy Following the Merger

   63

Regulatory Approvals

   64

Listing on the New York Stock Exchange of McClatchy Shares Issued Pursuant to the Merger

   64

Delisting and Deregistration of Knight Ridder Common Stock after the Merger

   64

Appraisal Rights

   64

Accounting Treatment of the Merger

   67

Material U.S. Federal Income Tax Consequences of the Merger

   67

Material Differences in the Rights of Shareholders

   69

Authorized Capital Stock

   70

Conversion of Shares

   70

Restrictions on Transfers of Shares

   70

Board of Directors

   70

Election of Directors

   71

Removal of Directors

   71

Filling Vacancies on the Board of Directors

   71

Shareholder Voting

   71

Dividends

   72

Reorganization and Liquidation Rights

   72

Notice of Shareholder Meetings

   72

Ability to Call Special Meetings of Shareholders

   72

Mergers and Consolidations

   73

Amendment of Certificate of Incorporation & Bylaws

   73

Indemnification of Officers and Directors

   73

Limitation on Director Liability

   74

Dissenters’ Rights

   75

Interested Shareholder Transactions

   76

Control Shares

   76

Constituencies Provision

   76

THE MERGER AGREEMENT

   78

Structure of the Merger

   78

Completion and Effectiveness of the Merger

   78

Merger Consideration

   78

Fractional Shares

   79

 

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   Page

Exchange of Knight Ridder Stock Certificates for McClatchy Stock Certificates

   79

Distributions with Respect to Unexchanged Shares

   79

Transfers of Ownership and Lost Stock Certificates

   80

Treatment of Knight Ridder Stock Options

   80

Treatment of Knight Ridder Restricted Stock

   80

Treatment of Rights Under the Knight Ridder Employee Stock Purchase Plan

   81

Representations and Warranties

   81

Covenants of Knight Ridder

   83

Covenants of McClatchy

   84

Other Covenants

   85

Indemnification and Insurance

   86

Employee Benefits

   86

Proposed Divestitures

   87

Board of Directors of McClatchy Following the Merger

   88

Regulatory Approvals; Antitrust Matters; Best Efforts to Obtain Regulatory Approvals

   88

Conditions to Completion of the Merger

   88

Material Adverse Effect

   89

No Solicitation of Alternative Transaction by Knight Ridder

   90

Termination of the Merger Agreement

   91

Effect of Termination

   92

Payment of Termination Fee

   92

Fees and Expenses

   93

Amendment and Waiver of the Merger Agreement

   93

Dissenting Shares

   93

RECOMMENDATION

   93

PROPOSAL 2: ADJOURNMENT OF THE ANNUAL MEETING

   94

PROPOSAL 3: ELECTION OF DIRECTORS

   94

PROPOSAL 4: APPOINTMENT OF INDEPENDENT REGISTERED ACCOUNTING FIRM

   103

REPORT OF THE AUDIT COMMITTEE OF KNIGHT RIDDER

   104

PROPOSAL 5: SHAREHOLDER PROPOSAL

   105

REPORT ON EXECUTIVE COMPENSATION BY THE KNIGHT RIDDER COMPENSATION COMMITTEE

   107

PERFORMANCE OF KNIGHT RIDDER STOCK

   118

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF KNIGHT RIDDER

   119

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE OF KNIGHT RIDDER

   121

SUBMISSION OF KNIGHT RIDDER’S SHAREHOLDER PROPOSALS AND NOMINATION OF DIRECTORS

   121

LEGAL OPINIONS

   122

EXPERTS

   122

DOCUMENTS INCORPORATED BY REFERENCE

   123

WHERE YOU CAN FIND MORE INFORMATION

   124

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

   126

ANNEX A:

  

Merger Agreement

   A-1

ANNEX B:

  

Opinion of Credit Suisse, McClatchy Financial Advisor

   B-1

ANNEX C:

  

Opinion of Goldman Sachs, Knight Ridder Financial Advisor

   C-1

ANNEX D:

  

Opinion of Morgan Stanley, Knight Ridder Financial Advisor

   D-1

ANNEX E:

  

Section 262 of the Delaware General Corporate Law

   E-1

ANNEX F:

   Certificate of Amendment of Amended and Restated Certificate of Incorporation of McClatchy    F-1

PART II—INFORMATION NOT REQUIRED IN PROSPECTUS

   II-1

 

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ADDITIONAL INFORMATION

This document, which is sometimes referred to as this “prospectus/proxy statement/information statement,” constitutes a proxy statement of Knight-Ridder, Inc. to Knight Ridder shareholders with respect to the solicitation of proxies for the annual meeting described within, a prospectus of The McClatchy Company for the shares of McClatchy Class A common stock that McClatchy will issue to Knight Ridder shareholders in the merger and an information statement to stockholders of McClatchy related to the previous approval of the merger agreement by certain of its stockholders by written consent. As permitted under the rules of the U.S. Securities and Exchange Commission, or the SEC, this prospectus/proxy statement/information statement incorporates by reference important business and financial information about Knight Ridder, McClatchy and their affiliates that is contained in documents filed with the SEC and that is not included in or delivered with this prospectus/proxy statement/information statement. You may obtain copies of these documents, without charge, from the website maintained by the SEC at www.sec.gov, as well as other sources. See “Where You Can Find More Information” beginning on page 124. You may also obtain copies of these documents, without charge, from McClatchy and from Knight Ridder by writing or calling:

KNIGHT-RIDDER, INC.

Knight Ridder Corporate Secretary

50 West San Fernando Street, Suite 1500

San Jose, CA 95113

(408) 938-7838

THE MCCLATCHY COMPANY

2100 Q Street

Sacramento, California 95816

Telephone Number: (916) 321-1846

You also may obtain documents incorporated by reference into this document by requesting them in writing or by telephone from our proxy solicitors for the merger, at the following addresses and telephone numbers:

 

D.F. King & Co., Inc.

48 Wall Street

New York, New York 10005

Shareholders call toll free (800) 848-3416

Bank and Brokers call collect (212) 269-5550

 

Innisfree M&A Incorporated

501 Madison Avenue, 20th floor

New York, NY 10022

Shareholders call toll free (888) 750-5835

Bank and Brokers call collect (212) 750-5833

PLEASE REQUEST DOCUMENTS FROM EITHER COMPANY NOT LATER THAN JUNE 19, 2006. UPON REQUEST, WE WILL MAIL ANY DOCUMENTS TO YOU BY FIRST CLASS MAIL BY THE NEXT BUSINESS DAY.

You should rely only on the information contained in, or incorporated by reference into, this prospectus/proxy statement/information statement in deciding how to vote on the Knight Ridder proposals. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this prospectus/proxy statement/information statement. This prospectus/proxy statement/information statement is dated May 9, 2006. You should not assume that the information contained in, or incorporated by reference into, this prospectus/proxy statement/information statement is accurate as of any date other than that date.

This prospectus/proxy statement/information statement does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this prospectus/proxy statement/information statement regarding McClatchy has been provided by McClatchy and information contained in this prospectus/proxy statement/information statement regarding Knight Ridder has been provided by Knight Ridder.

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER OF MCCLATCHY AND KNIGHT RIDDER

GENERAL QUESTIONS AND ANSWERS

 

Q: WHAT WILL HAPPEN PURSUANT TO THE MERGER?

 

A: We are proposing a one step merger pursuant to which Knight Ridder will merge with and into McClatchy, and thereafter will cease to exist as a separate corporate entity. McClatchy will continue as the surviving entity in the merger. Assuming the merger had been completed on March 12, 2006, Knight Ridder shareholders would have owned approximately 62.5% of the outstanding shares of McClatchy Class A common stock immediately after the merger and McClatchy stockholders would have owned the remaining 37.5% of Class A common stock and all shares of outstanding McClatchy Class B common stock. On a fully-diluted basis and based on the proposed treatment of the Knight Ridder options in the merger, Knight Ridder equity holders would have owned approximately 44.3% of the fully-diluted shares of McClatchy common stock immediately after the merger, representing the right to cast 12.2% of the votes eligible to be cast by holders of McClatchy common stock on matters other than the election of directors (See “The Merger—Material Differences in the Rights of Shareholders” at page 69). The calculation on a fully-diluted basis assumes the conversion or exercise, as the case may be, of outstanding shares of McClatchy Class A and Class B common stock, and outstanding options to purchase shares of McClatchy Class A common stock.

 

Q: WHAT STOCKHOLDER APPROVALS ARE REQUIRED TO COMPLETE THE MERGER?

 

A: We cannot complete the merger unless, among other things, holders of 80% of the outstanding shares of Knight Ridder common stock entitled to vote at the Knight Ridder annual meeting vote to approve the merger agreement and the merger.

 

   Holders of McClatchy Class B common stock, acting by written consent, have adopted the merger agreement, approved the issuance of shares of Class A common stock in the merger and approved an amendment to McClatchy’s restated certificate of incorporation to increase the authorized Class A common stock from 100 million shares to 200 million shares in connection with the merger. No further vote of McClatchy’s stockholders is required. However, pursuant to SEC rules, McClatchy is required to send its stockholders entitled to vote a written information statement, which is satisfied by the delivery of this prospectus/proxy statement/information statement, at least 20 calendar days prior to the date upon which the merger, the issuance of McClatchy shares in connection with the merger and the amendment of McClatchy’s restated certificate of incorporation can occur. We are not asking McClatchy stockholders for a proxy and McClatchy stockholders are requested not to send us a proxy.

 

Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?

 

A: We expect to complete the merger as quickly as possible once all the conditions to the merger, including obtaining the approval of Knight Ridder shareholders, are fulfilled. While we cannot predict the exact timing, we currently expect to complete the merger during the summer of 2006.

 

Q: WHERE CAN I FIND MORE INFORMATION ABOUT MCCLATCHY AND KNIGHT RIDDER?

 

A: You can find more information about McClatchy and Knight Ridder from reading this prospectus/proxy statement/information statement and the various sources described in this prospectus/proxy statement/information statement under the section entitled “Where You Can Find More Information.”

 

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QUESTIONS AND ANSWERS FOR MCCLATCHY STOCKHOLDERS

 

Q: ARE THERE RISKS ASSOCIATED WITH THE MERGER THAT I SHOULD BE AWARE OF?

 

A: Yes. You should consider the risk factors set out in the section entitled “Risk Factors” beginning on page 21 of this prospectus/proxy statement/information statement.

 

Q: AM I ENTITLED TO APPRAISAL RIGHTS IN CONNECTION WITH THE MERGER?

 

A: No, if you hold only Class A common stock of McClatchy. However, Class B common stockholders of McClatchy may be entitled, under certain circumstances, to appraisal rights under Delaware law. For a detailed discussion of dissenters’ rights of McClatchy Class B common stockholders under Delaware law, please see “The Merger—Appraisal Rights” beginning on page 64.

 

Q: WHO CAN HELP ANSWER MY QUESTIONS?

 

A: If you have any questions about the merger or if you need additional copies of this prospectus/proxy statement/information statement, you should contact:

The McClatchy Company

2100 Q Street

Sacramento, CA 95816

(916) 321-1846

 

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QUESTIONS AND ANSWERS FOR KNIGHT RIDDER SHAREHOLDERS

 

Q: WHAT AM I BEING ASKED TO VOTE ON?

 

A: You are being asked to approve the merger agreement and the merger with McClatchy. We are also asking you to vote on a number of additional matters unrelated to the proposed merger.

 

Q: WHAT WILL KNIGHT RIDDER SHAREHOLDERS AND OPTIONHOLDERS BE ENTITLED TO RECEIVE PURSUANT TO THE MERGER?

 

A: If the merger is completed, Knight Ridder shareholders will be entitled to receive (1) 0.5118 of a share of McClatchy Class A common stock and (2) $40.00 in cash for each share of Knight Ridder common stock outstanding.

 

   Seven days prior to the completion of the merger, all unvested options will become vested. After that time optionholders may exercise the options before the completion of the merger. Any options that are not exercised before the completion of the merger will be cashed out. This means the holder of each cashed out option will receive for each share issuable upon exercise of each such option (1) cash equal to 51.18% of the closing price of a share of McClatchy Class A common stock on the day prior to the closing date and (2) $40.00 in cash, less (3) the exercise price for such option.

 

Q: WHEN AND WHERE IS THE KNIGHT RIDDER ANNUAL MEETING?

 

A: The Knight Ridder annual meeting will be held at The Fairmont Hotel, 170 South Market Street, San Jose, California on June 26, 2006 at 9:30 a.m., Pacific time.

 

Q: HOW DOES THE BOARD OF DIRECTORS OF KNIGHT RIDDER RECOMMEND THAT KNIGHT RIDDER SHAREHOLDERS VOTE?

 

A: The Knight Ridder board of directors unanimously recommends that Knight Ridder shareholders vote FOR the proposal to approve the merger agreement and the merger. The Knight Ridder board of directors also recommends that Knight Ridder shareholders vote FOR the proposal to adjourn or postpone the annual meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the meeting to approve the merger agreement and the merger, FOR the election of the director nominees named in this prospectus/proxy statement/information statement and FOR the ratification of the appointment of Ernst & Young LLP as Knight Ridder’s independent registered public accounting firm for 2006. The Knight Ridder board of directors recommends that Knight Ridder shareholders vote AGAINST the shareholder proposal.

 

Q: WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING?

 

A: Only holders of record of Knight Ridder common stock at the close of business on May 8, 2006 may vote on the merger agreement and the merger and the other proposals before the annual meeting.

 

Q: WHAT DO I NEED TO DO TO VOTE?

 

A: After carefully reading and considering the information contained in this prospectus/proxy statement/information statement and the other information to which you have been referred, please either mail your completed and signed proxy card in the enclosed postage-paid return envelope or vote over the telephone or over the Internet by following the instructions listed on your proxy card as soon as possible so that your shares may be represented at the Knight Ridder annual meeting. In order to assure that we obtain your vote, please vote as instructed on your proxy card even if you currently plan to attend the Knight Ridder annual meeting and vote in person. If you sign and mail your proxy or submit a vote over the telephone or over the Internet and do not indicate how you want to vote, your proxy will be voted for the approval of the merger agreement and the merger.

 

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Q: MAY I CHANGE MY VOTE EVEN AFTER RETURNING A PROXY CARD?

 

A: Yes. If you want to change your vote, you may do so at any time before your proxy is voted at the Knight Ridder annual meeting. You can do this in one of three ways. First, you can complete and send a proxy with a later date if you mailed your original proxy, or, if you voted over the Internet or telephone, you can vote again in the same manner. Only your most recent vote will be counted. Second, you can send a written notice to the corporate secretary of Knight Ridder stating that you would like to revoke your proxy. Third, you can attend the Knight Ridder annual meeting and vote in person. Your attendance at the Knight Ridder annual meeting alone will not revoke your proxy.

 

Q: IF MY BROKER HOLDS MY SHARES IN “STREET NAME,” WILL MY BROKER VOTE MY SHARES FOR ME?

 

A: No. You should contact your broker. You should follow the directions provided by your broker to vote your shares. Your broker will not vote your shares on the merger proposal unless your broker receives appropriate instructions from you. If you do not provide your broker with voting instructions, your shares will be considered present at the Knight Ridder annual meeting for purposes of determining a quorum but will not be considered to have been voted in favor of approval of the merger agreement and the merger. As a result, your shares will have the same effect as a vote against approval of the merger agreement and the merger if you do not give voting instructions to your broker. If you do not vote on the other proposals, it will have no effect in the voting on those proposals at the annual meeting.

 

     If you have instructed your broker to vote your shares, you must follow directions received from your broker to change those instructions. You cannot vote shares held in “street name” by returning a proxy card directly to Knight Ridder or by voting in person at the Knight Ridder annual meeting.

 

Q: WILL KNIGHT RIDDER SHAREHOLDERS BE ABLE TO TRADE THE MCCLATCHY CLASS A COMMON STOCK THAT THEY RECEIVE PURSUANT TO THE MERGER?

 

A: Yes. The shares of McClatchy Class A common stock that Knight Ridder shareholders receive pursuant to the merger will be listed on the New York Stock Exchange under the symbol “MNI.” Certain persons who are deemed affiliates of Knight Ridder will be required to comply with Rule 145 promulgated under the Securities Act of 1933, as amended, which we refer to as the Securities Act, if they sell their shares of McClatchy Class A common stock received pursuant to the merger.

 

Q: SHOULD I SEND IN MY KNIGHT RIDDER STOCK CERTIFICATES NOW?

 

A: No. If Knight Ridder shareholders approve the merger agreement and the merger, after the merger is completed, McClatchy will send Knight Ridder shareholders written instructions, including a letter of transmittal, that will explain how to exchange Knight Ridder stock certificates for McClatchy Class A common stock certificates. Please do not send in any Knight Ridder stock certificates until you receive these written instructions and the letter of transmittal.

 

Q: AM I ENTITLED TO APPRAISAL RIGHTS IN CONNECTION WITH THE MERGER?

 

A: No. The shareholders of Knight Ridder are not entitled to appraisal rights.

 

Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT AND THE MERGER?

 

A: Yes. You should consider the risk factors set out in the section entitled “Risk Factors” beginning on page 21 of this prospectus/proxy statement/information statement.

 

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Q: WHO CAN HELP ANSWER MY QUESTIONS?

 

A: If you have any questions about the merger or if you need additional copies of this prospectus/proxy statement/information statement or the enclosed proxy card, you should contact:

KNIGHT-RIDDER, INC.

50 West San Fernando Street

San Jose, California 95113

(408) 938-7838

http://www.knightridder.com

or

D.F. King & Co., Inc.

48 Wall Street

New York, New York 10005

(800) 848-3416 (toll free)

or

Innisfree M&A Incorporated

501 Madison Avenue, 20th floor

New York, NY 10022

(888) 750-5834

 

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SUMMARY OF THE MERGER

The following is a summary of the information contained in this document relating to the merger of The McClatchy Company and Knight-Ridder, Inc. This summary may not contain all of the information that is important to you. You should carefully read this entire prospectus/proxy statement/information statement and the other documents to which we refer. In particular, you should read the annexes attached to this prospectus/proxy statement/information statement, including the merger agreement which is attached as Annex A. In addition, McClatchy and Knight Ridder incorporate by reference into this prospectus/proxy statement/ information statement important business and financial information about McClatchy and Knight Ridder. You may obtain the information incorporated by reference into this prospectus/proxy statement/information statement without charge by following the instructions in the section entitled “Where You Can Find More Information” beginning on page 124 from each of McClatchy and Knight Ridder.

The Companies

The McClatchy Company

2100 Q Street

Sacramento, CA 95816

(916) 321-1846

http://www.mcclatchy.com

McClatchy, headquartered in Sacramento, CA, is a leading newspaper and internet publisher. It publishes 12 daily and 17 non-daily newspapers located in western coastal states, North and South Carolina, and the Twin Cities of Minneapolis/St. Paul. McClatchy has daily circulation of 1.4 million and Sunday circulation of 1.8 million. McClatchy’s newspapers include, among others, the Star Tribune in Minneapolis, The Sacramento Bee, The Fresno Bee and The Modesto Bee in California, The News & Observer (Raleigh, NC), The News Tribune (Tacoma, WA), the Anchorage Daily News and Vida en el Valle, a bilingual Spanish weekly newspaper distributed throughout California’s Central Valley. McClatchy also operates leading local websites in each of its daily newspaper service areas, offering readers information, comprehensive news, advertising, e-commerce and other services, and owns and operates McClatchy Interactive, an interactive operation that provides websites with content, publishing tools and software development. McClatchy is listed on the New York Stock Exchange under the symbol (MNI).

Knight-Ridder, Inc.

50 West San Fernando Street

San Jose, California 95113

(408) 938-7700

http://www.knightridder.com

Knight Ridder is one of the nation’s leading providers of news, information and advertising, in print and online. Knight Ridder publishes 32 daily newspapers in 29 U.S. metro areas, with a readership of 8.5 million daily and 11.0 million Sunday. It has websites in all of its service areas and a variety of investments in internet and technology companies. It publishes a growing portfolio of targeted publications and maintains investments in two newsprint companies. Knight Ridder’s internet operation, Knight Ridder Digital, develops and manages its online properties. It is the founder and operator of Real Cities (www.RealCities.com), the largest national network of city and regional websites in more than 110 U.S. markets. Knight Ridder and Knight Ridder Digital are headquartered in San Jose, CA.

Structure of the Merger (See page 78)

Pursuant to the merger agreement, at the effective time of the merger, Knight Ridder will merge with and into McClatchy and the separate corporate existence of Knight Ridder will cease. McClatchy will continue as the

 

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surviving company in the merger. The terms and conditions of the merger are contained in the merger agreement, which is attached as Annex A to this prospectus/proxy statement/information statement. Please carefully read the merger agreement as it is the legal document that governs the proposed merger.

Consideration in the Merger (See page 78)

Each holder of a share of Knight Ridder common stock will be entitled to receive, upon the effectiveness of the merger (1) 0.5118 of a share of McClatchy Class A common stock and (2) $40.00 in cash.

Treatment of Knight Ridder Options and Restricted Stock (See page 80)

Options to purchase shares of Knight Ridder common stock shall be treated in the manner provided in the merger agreement and summarized in the section entitled “The Merger Agreement—Treatment of Knight Ridder Stock Options” beginning on page 80 of this prospectus/proxy statement /information statement. Restricted shares of Knight Ridder common stock shall be treated in the manner provided in the merger agreement and summarized in the section entitled “The Merger Agreement—Treatment of Knight Ridder Restricted Stock” beginning on page 80 of this prospectus/proxy statement /information statement.

Fractional Shares (See page 79)

McClatchy will not issue any fractional shares of common stock in connection with the merger. Instead, each holder of Knight Ridder common stock who would otherwise be entitled to receive a fraction of a share of McClatchy Class A common stock will be entitled to receive a cash payment as described in the section entitled “The Merger Agreement—Fractional Shares” beginning on page 79 of this prospectus/proxy statement/ information statement.

Voting Requirements (See page 29)

McClatchy and Knight Ridder cannot complete the merger unless the holders of at least 80% of Knight Ridder common stock outstanding and entitled to vote approve the merger agreement and the merger. McClatchy stockholders have already approved the merger, the issuance of McClatchy Class A common stock in connection with the merger and the amendment of McClatchy’s certificate of incorporation in connection with the merger. No further vote of McClatchy stockholders is required.

Proposed Divestitures (See page 87)

As part of the merger, McClatchy intends to divest 12 Knight Ridder newspapers, mainly located in cities that do not fit McClatchy’s longstanding acquisition criteria, chiefly involving growing markets. The largest of the papers to be divested are The Philadelphia Inquirer and San Jose Mercury News. Others include Knight Ridder’s other Philadelphia paper, The Philadelphia Daily News; Akron Beacon Journal (OH); The Wilkes-Barre Times Leader (PA); Aberdeen American News (SD); Grand Forks Herald (ND); The Ft. Wayne News-Sentinel (IN); Contra Costa Times (CA); The Monterey County Herald (CA); Duluth News Tribune (MN) and the St. Paul Pioneer Press (MN). The completion of the merger is not conditioned upon the proposed divestures. On April 26, 2006, McClatchy entered into definitive agreements with MediaNews Group, Inc. and Hearst Corporation, pursuant to which MediaNews will purchase the San Jose Mercury News and Contra Costa Times and Hearst will acquire the Monterey (CA) Herald and the St. Paul Pioneer Press for an aggregate purchase price of $1 billion.

The completion of these sales is subject to various conditions, including, among other things, the consummation of the merger of Knight Ridder with and into McClatchy, the expiration or termination of the applicable Hart-Scott-Rodino waiting period with respect to the sales and completion of both of the sales on the same day.

 

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Recommendation of the Knight Ridder Board of Directors Regarding the Merger (See page 93)

The Knight Ridder board of directors has unanimously determined it advisable and in the best interests of Knight Ridder and its shareholders that Knight Ridder proceed with the merger and that the terms of the merger agreement are fair to Knight Ridder and its shareholders, and unanimously recommends that Knight Ridder shareholders vote FOR the proposal to approve the merger agreement and the merger.

Opinions of Financial Advisors (See pages 40, 47 and 52)

On March 12, 2006, Credit Suisse Securities (USA) LLC delivered an opinion to the McClatchy board of directors to the effect that, as of that date and based upon and subject to the matters described in its opinion, the merger consideration to be paid to Knight Ridder shareholders under the merger agreement was fair, from a financial point of view, to McClatchy.

The full text of the written opinion of Credit Suisse, which sets forth the procedures followed, assumptions made, matters considered and limitations on the review undertaken in connection with the opinion, is attached to this prospectus/proxy statement/information statement as Annex B. McClatchy stockholders are urged to read the opinion carefully in its entirety. Credit Suisse’s opinion was provided to McClatchy’s board of directors in connection with its consideration of the merger. Credit Suisse’s opinion addresses only the fairness, from a financial point of view, to McClatchy of the merger consideration to be paid by McClatchy pursuant to the terms of the merger agreement. Credit Suisse’s opinion does not address any other aspect or implication of the merger or any other agreement, arrangement or understanding entered into in connection with the merger or otherwise and does not constitute a recommendation to any stockholder as to how such stockholder should vote or act on any matter relating to the merger.

Goldman, Sachs & Co. delivered its opinion to Knight Ridder’s board of directors that, as of March 12, 2006 and based upon and subject to the factors and assumptions set forth therein, the consideration to be received by holders of shares of Knight Ridder common stock, taken in the aggregate, pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Goldman Sachs, dated March 12, 2006, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C. Goldman Sachs provided its opinion for the information and assistance of Knight Ridder’s board of directors in connection with its consideration of the merger. The Goldman Sachs opinion is not a recommendation as to how any holder of Knight Ridder’s common stock should vote with respect to the merger. Pursuant to an engagement letter between Knight Ridder and Goldman Sachs, Knight Ridder has agreed to pay Goldman Sachs a transaction fee, the principal portion of which is payable upon consummation of the merger.

On March 12, 2006, Morgan Stanley & Co. Incorporated rendered its oral opinion, subsequently confirmed in writing as of the same date, that based upon and subject to the assumptions, qualifications and limitations set forth therein, the consideration to be received by the holders of shares of Knight Ridder common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of Morgan Stanley’s written opinion, dated March 12, 2006, which sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations of the reviews undertaken in rendering its opinion, is attached as Annex D to this to this prospectus/proxy statement/information statement. Shareholders should read this opinion carefully and in its entirety. Morgan Stanley’s opinion is directed to the board of directors of Knight Ridder, addresses only the fairness from a financial point of view of the consideration to be received by holders of Knight Ridder common stock pursuant to the merger agreement and does not address any other aspect of the merger. Morgan Stanley’s opinion does not constitute a recommendation to any shareholder of Knight Ridder as to how such shareholder should vote with respect to the

 

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merger. In addition, this opinion does not in any matter address the prices at which McClatchy common stock will trade following the consummation of the merger. Knight Ridder shareholders should carefully consider the discussion of the Morgan Stanley opinion in the section entitled “The Merger—Opinions of Knight Ridder Financial Advisors—Opinion of Morgan Stanley” beginning on page 52 of this prospectus/proxy statement/information statement.

Regulatory Approvals (See page 64)

The merger is subject to antitrust laws. McClatchy and Knight Ridder have made all required filings under applicable U.S. antitrust laws with the Antitrust Division of the United States Department of Justice, referred to as the Antitrust Division, and the United States Federal Trade Commission, referred to as the FTC. The applicable waiting periods associated with those filings have not yet expired.

Appraisal Rights (See page 64)

No dissenters’ or appraisal rights are available with respect to shares of capital stock of Knight Ridder or shares of McClatchy Class A common stock in connection with the merger. Shares of McClatchy Class B Stock are entitled to appraisal rights pursuant to Section 262(b) of the Delaware General Corporation Law. Failure to take any of the steps required under Section 262(b) of the Delaware General Corporation Law on a timely basis may result in a loss of those appraisal rights. The provisions of Delaware law that grant appraisal rights and govern such procedures are attached as Annex E.

Material U.S. Federal Income Tax Consequences of the Merger (See page 67)

The merger has been structured to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, and completion of the merger is conditioned upon receipt by McClatchy and Knight Ridder of closing tax opinions to the effect that the merger will so qualify. If the merger qualifies as a reorganization, Knight Ridder shareholders will recognize gain, if any, only to the extent of the amount of the cash received (other than cash received instead of a fractional share of McClatchy Class A common stock, which is described below). If the Knight Ridder common stock was held as a capital asset, then such gain generally will be capital gain, and will be long term capital gain if the Knight Ridder common stock was held for more than one year as of the effective time of the merger. Knight Ridder shareholders will not be permitted to recognize losses in connection with the merger (other than with respect to cash received instead of a fractional share of McClatchy Class A common stock, as described below).

A Knight Ridder shareholder who holds Knight Ridder common stock as a capital asset and receives cash instead of a fractional share will generally recognize capital gain or loss equal to the difference between the amount of cash received and the portion of the shareholder’s tax basis allocable to the fractional share. Any such capital gain or loss will be long-term capital gain or loss if the Knight Ridder common stock was held for more than one year as of the effective time of the merger.

You should read the summary under the caption “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” for a more complete discussion of the material U.S. federal income tax consequences of the merger. You also should consult your own tax advisor with respect to the tax consequences of the merger, including the effects of U.S. federal, state and local tax laws and non-U.S. tax laws, as well as any special circumstances that may affect the tax treatment to you of receipt of cash and shares of McClatchy Class A common stock pursuant to the merger.

Interests of Knight Ridder Directors and Executive Officers in the Merger (See page 62)

Some directors and executive officers of Knight Ridder have interests in the merger that may be different from, or in addition to, the interests of Knight Ridder shareholders. These interests include the appointment of

 

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two Knight Ridder directors to the McClatchy board of directors following completion of the merger, income security agreements with Knight Ridder to which certain executives are a party, the vesting of equity compensation awards in the merger and the right to continued indemnification and insurance coverage by McClatchy for acts or omissions occurring prior to the merger.

Conditions to Completion of the Merger (See page 88)

The respective obligations of McClatchy and Knight Ridder to complete the merger are subject to the satisfaction or waiver of a number of customary conditions, including:

 

    the merger agreement and the merger shall have been approved by the shareholders of Knight Ridder;

 

    no law, regulation, injunction or order shall have been enacted or issued by a governmental entity of competent jurisdiction which is in effect and has the effect of making the merger illegal or otherwise prohibiting consummation of the merger;

 

    the SEC has declared McClatchy’s registration statement, of which this prospectus/proxy statement /information statement is a part, effective;

 

    all waiting periods (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act with respect to the merger and the other transactions contemplated by the merger agreement have expired or terminated early;

 

    McClatchy and Knight Ridder have each received from their respective tax counsel an opinion to the effect that the merger will constitute a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code;

 

    the shares of McClatchy Class A common stock to be issued pursuant to the merger have been authorized for listing on the New York Stock Exchange, subject to official notice of issuance;

 

    each company’s representations and warranties in the merger agreement being true and correct, to the extent set forth in the merger agreement, except when the failure of such representations or warranties to be true and correct has not resulted, and would not reasonably be expected to result in, individually or in the aggregate with other such failures, a material adverse change to the other party, subject to certain exceptions contained in the merger agreement;

 

    each company has performed all obligations and complied with all covenants required by the merger agreement to be performed or complied with by it prior to the before completion of the merger.

Termination of the Merger Agreement (See page 91)

The merger agreement may be terminated in accordance with its terms at any time prior to completion of the merger, except as set forth below, whether before or after adoption of the merger agreement and approval of the merger by Knight Ridder shareholders:

 

    by mutual written consent of McClatchy and Knight Ridder;

 

    by either party if the merger is not completed by an “end date” of September 30, 2006 (which may be extended until a date not later than December 31, 2006 at the option of either McClatchy or Knight Ridder so long as certain other conditions contained in the merger agreement have been satisfied or waived);

 

    by either party, if there is an injunction permanently restraining, enjoining or otherwise prohibiting completion of the merger;

 

    by either party if Knight Ridder shareholders do not approve the merger agreement and the merger;

 

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    by either party if the other party shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the merger agreement, which breach or failure to perform would constitute the failure of a condition to closing and cannot be cured by the “end date” discussed above, subject to certain notification requirements;

 

    by McClatchy, if, prior to approval by the Knight Ridder shareholders of the merger and the merger agreement, Knight Ridder has (1) failed to recommend that its shareholders approve the merger and the merger agreement in this prospectus/proxy statement /information statement, (2) changed its recommendation to the Knight Ridder shareholders in a manner adverse to McClatchy or (3) approved or recommended any alternative proposal; and

 

    by Knight Ridder, if prior to approval by the Knight Ridder shareholders of the merger and the merger agreement, Knight Ridder has changed its recommendation to the Knight Ridder shareholders in a manner adverse to McClatchy in compliance with the terms of the merger agreement.

Payment of Termination Fee (See page 92)

Under the terms of the merger agreement, Knight Ridder must pay a termination fee of $171.9 million to McClatchy if:

 

    prior to the termination of the merger agreement, any alternative proposal meeting certain thresholds is publicly proposed or publicly disclosed prior to, and not withdrawn at the time of, the Knight Ridder annual meeting and McClatchy or Knight Ridder terminate the merger agreement because the Knight Ridder shareholders failed to approve the merger and the merger agreement at the Knight Ridder annual meeting and within nine months of the termination Knight Ridder enters into an agreement for an acquisition of more than 50% of Knight Ridder; or

 

    Knight Ridder terminates the merger agreement prior to approval by its shareholders of the merger and the merger agreement because Knight Ridder changed its recommendation to its shareholders regarding the merger and the merger agreement; or

 

    McClatchy terminates the merger agreement prior to approval by the Knight Ridder shareholders of the merger and the merger agreement because Knight Ridder failed to recommend to its shareholders the approval of the merger and the merger agreement in this prospectus/proxy statement/information statement or changed its recommendation to the Knight Ridder shareholders in a manner adverse to McClatchy or approved or recommended any alternative acquisition proposal.

Prohibition from Soliciting Other Offers (See page 90)

Knight Ridder has agreed that it will not solicit or encourage the initiation of any inquiries regarding any acquisition proposals by third parties. Knight Ridder may respond to and participate in discussion related to, and furnish information in connection with, certain acquisition proposals. Knight Ridder may withdraw, modify or qualify its recommendation to its shareholders regarding the merger and the merger agreement if:

 

    the Knight Ridder board of directors has concluded in good faith, after consultation with its outside legal and, in some cases, financial advisors, that the failure of the board of directors to effect a change of its recommendation would be reasonably likely to result in a breach of the directors’ fiduciary obligations to Knight Ridder shareholders under applicable law; and

 

    Knight Ridder shall send McClatchy written notice of its intention to effect a change of recommendation at least three (3) business days prior to effecting such a change of recommendation.

Knight Ridder must promptly notify McClatchy if Knight Ridder receives any other acquisition proposals.

 

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SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF McCLATCHY

The table below presents a summary of selected historical consolidated financial data with respect to McClatchy as of the dates and for the periods indicated. The selected historical consolidated financial data presented below for the first quarter of fiscal 2006, and fiscal years 2005, 2004 and 2003 have been derived from McClatchy’s historical consolidated financial statements, which are incorporated by reference into this prospectus/proxy statement/information statement. The selected historical consolidated financial data presented below for fiscal years 2002 and 2001 have been derived from McClatchy’s historical consolidated financial statements, which are not incorporated by reference herein.

It is important for you to read the following summary selected historical consolidated financial data together with the consolidated financial statements and accompanying notes contained in McClatchy’s Annual Report on Form 10-K, for its fiscal year ended December 25, 2005 as filed with the Securities and Exchange Commission (SEC) on February 23, 2006, as well as the sections of McClatchy’s Annual Report on Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes contained in McClatchy’s Form 10-Q for the first quarter of 2006, as filed with the SEC on May 5, 2006 all of which are incorporated by reference into this prospectus/proxy statement/ information statement.

 

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THE McCLATCHY COMPANY

SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA (1)(2)

(In thousands, except per share amounts)

 

          Year Ended  
   

Three Months
Ended

March 26,
2006(3)

    December 25,
2005
    December 26,
2004
    December 28,
2003
    December 29,
2002
    December 30,
2001
 

Revenues—Net:

           

Advertising

  $ 237,089     $ 1,000,266     $ 972,808     $ 910,628     $ 877,838     $ 871,375  

Circulation

    39,548       162,395       166,623       165,552       166,050       168,462  

Other

    5,367       23,454       23,945       23,211       26,072       28,302  
                                               
    282,004       1,186,115       1,163,376       1,099,391       1,069,960       1,068,139  

Operating Expenses:

           

Depreciation and amortization

    16,017       65,769       66,532       70,139       73,189       109,029  

Other operating expenses

    218,364       850,345       827,535       780,311       752,966       787,092  
                                               
    234,381       916,114       894,067       850,450       826,155       896,121  

Operating Income

    47,623       270,001       269,309       248,941       243,805       172,018  

Non-Operating (Expenses) Income:

           

Interest expense

    (2,100 )     (7,705 )     (9,095 )     (18,090 )     (26,448 )     (44,045 )

Refinancing related charge

    —         —         (3,737 )     —         —         —    

Partnership income (loss)

    415       712       929       368       (1,341 )     527  

Loss on Internet investment

    —         —         —         (1,008 )     (1,000 )     (10,556 )

Other—net

    —         219       155       448       652       937  
                                               
    (1,685 )     (6,774 )     (11,748 )     (18,282 )     (28,137 )     (53,137 )

Income From Continuing Operations Before Income Tax Provision

    45,938       263,227       257,561       230,659       215,668       118,881  

Income Tax Provision

    18,211       102,708       101,685       86,462       85,119       61,944  
                                               

Income From Continuing Operations

    27,727       160,519       155,876       144,197       130,549       56,937  

Income From Discontinued Operation, Net Of Income Taxes

    —         —         —         6,025       667       1,060  
                                               

Net Income

  $ 27,727     $ 160,519     $ 155,876     $ 150,222     $ 131,216     $ $57,997  
                                               

Net Income Per Common Share:

           

Basic:

           

Income from continuing operations

  $ 0.59     $ 3.44     $ 3.36     $ 3.13     $ 2.86     $ 1.26  

Income from discontinued operation

    —         —         —         0.13       0.01       0.02  
                                               

Net income per share

  $ 0.59     $ 3.44     $ 3.36     $ 3.26     $ 2.87     $ 1.28  
                                               

Diluted:

           

Income from continuing operations

  $ 0.59     $ 3.42     $ 3.33     $ 3.10     $ 2.83     $ 1.25  

Income from discontinued operation

    —         —         —         0.13       0.01       0.02  
                                               

Net income per share

  $ 0.59     $ 3.42     $ 3.33     $ 3.23     $ 2.84     $ 1.27  
                                               

Dividends Per Common Share

  $ 0.18     $ 0.67     $ 0.50     $ 0.44     $ 0.40     $ 0.40  
                                               

Consolidated Balance Sheet Data:

           

Total Assets

  $ 2,104,573     $ 2,086,487     $ 2,049,400     $ 1,875,298     $ 1,981,561     $ 2,104,160  

Long-term debt

    153,300       154,200       267,200       204,923       471,615       594,714  

Stockholders’ equity

    1,589,074       1,565,591       1,423,004       1,216,017       1,057,329       998,165  

(1) On June 10, 2003, McClatchy sold the assets of The Newspaper Network, a national sales and marketing company. Prior year data has been reclassified for this discontinued operation.
(2) In fiscal 2002 McClatchy adopted SFAS No. 142 and No. 144 and in accordance with these statements, eliminated the amortization of goodwill. This summary should be read in conjunction with the consolidated financial statements and notes thereto.
(3) McClatchy adopted SFAS No. 123R as of the first day of fiscal 2006. Total stock-based compensation expense was $2.3 million or $0.03 per diluted share for the three months ended March 26, 2006.

 

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SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF KNIGHT RIDDER

The table below presents a summary of selected historical consolidated financial data with respect to Knight Ridder as of the dates and for the periods indicated. The historical consolidated financial data presented below for the first quarter of fiscal 2006 and fiscal years 2005, 2004 and 2003 have been derived from Knight Ridder’s historical consolidated financial statements, which are incorporated by reference into this prospectus/proxy statement/information statement. The historical consolidated financial data presented below for fiscal years 2002 and 2001 have been derived from Knight Ridder’s historical consolidated financial statements, which are not incorporated by reference herein.

It is important for you to read the following summary selected historical consolidated financial data together with the consolidated financial statements and accompanying notes contained in Knight Ridder’s Annual Report on Form 10-K for its fiscal year ended December 25, 2005 as filed with the Securities and Exchange Commission on March 9, 2006, as well as the sections of Knight Ridder’s Annual Report on Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and accompanying notes contained in Knight Ridder’s Form 10-Q for the first quarter of 2006, as filed with the SEC on May 3, 2006, all of which are incorporated by reference to this prospectus/proxy statement/information statement. Knight Ridder reports on a fiscal year ending on the last Sunday in the calendar year. Results for each of the fiscal years presented are for 52 weeks.

 

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KNIGHT-RIDDER, INC.

SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

(In thousands, except per share amounts and ratios)

 

    Three Months
Ended
March 26,
2006(8)
    Year Ended  
      December 25,
2005(1)
    December 26,
2004
    December 28,
2003
    December 29,
2002(2)
    December 30,
2001(3)
 

Summary of Operations

           

Operating Revenue:

           

Advertising

  $ 582,661     $ 2,384,629     $ 2,319,084     $ 2,250,465     $ 2,227,470     $ 2,261,993  

Circulation

    135,912       528,755       536,069       551,437       565,556       587,159  

Other

    21,315       90,608       86,161       78,956       70,992       77,303  
                                               

Total Operating Revenue

    739,888       3,003,992       2,941,314       2,880,858       2,864,018       2,926,455  

Operating Costs:

           

Labor and employee benefits

    324,161       1,240,270       1,193,914       1,163,640       1,112,179       1,164,472  

Newsprint, ink and supplements

    106,994       413,059       391,898       379,074       349,248       446,170  

Other operating costs

    192,961       759,032       715,388       697,467       710,450       699,135  

Depreciation and amortization(4)

    27,348       98,110       99,779       111,263       123,378       183,496  
                                               

Total Operating Costs

    651,464       2,510,471       2,400,979       2,351,444       2,295,255       2,493,273  

Operating Income:

    88,424       493,521       540,335       529,414       568,763       433,182  

Interest expense, net(5)

    (31,276 )     (90,506 )     (49,621 )     (68,467 )     (73,872 )     (97,940 )

Other, net

    (11,832 )     (18,755 )     (34,327 )     (36,129 )     (82,800 )     (56,336 )
                                               

Income from continuing operations before income taxes

    45,316       384,260       456,387       424,818       412,091       278,906  

Income taxes

    16,939       129,266       157,716       150,600       152,159       110,768  
                                               

Income from continuing operations

    28,377       254,994       298,671       274,218       259,932       168,138  

Income from discontinued Detroit and Tallahassee operations, including gain on sale, net of taxes(6)

    —         216,445       27,572       21,853       21,795       16,686  
                                               

Income before cumulative effect of change in accounting principle of unconsolidated company

    28,377       471,439       326,243       296,071       281,727       184,824  

Cumulative effect of change in accounting principle of unconsolidated company, net of taxes(7)

    —         —         —         —         (24,279 )     —    
                                               

Net Income

  $ 28,377     $ 471,439     $ 326,243     $ 296,071     $ 257,448     $ 184,824  
                                               

Basic weighted-average number of shares

    67,081       71,839       77,910       80,401       83,066       76,074  

Diluted weighted-average number of shares

    67,757       72,295       78,950       81,477       84,726       85,694  

Earnings per share:

           

Basic: Income from continuing operations

  $ 0.42     $ 3.55     $ 3.84     $ 3.41     $ 3.13     $ 2.11  

Income from discontinued operations

    —         3.01       0.35       0.26       0.26       0.22  

Cumulative effect of change in accounting principle of unconsolidated company(8)

    —         —         —         —         (0.29 )     —    
                                               

Net Income

  $ 0.42     $ 6.56     $ 4.19     $ 3.68     $ 3.10     $ 2.33  
                                               

Diluted: Income from continuing operations

  $ 0.42     $ 3.53     $ 3.78     $ 3.37     $ 3.07     $ 1.96  

Income from discontinued operations

    —         2.99       0.35       0.26       0.26       0.20  

Cumulative effect of change in accounting principle of unconsolidated company(7)

    —         —         —         —         (0.29 )     —    
                                               

Net Income

  $ 0.42     $ 6.52     $ 4.13     $ 3.63     $ 3.04     $ 2.16  
                                               

Dividends declared per common share

  $ 0.37     $ 1.43     $ 1.33     $ 1.18     $ 1.02     $ 1.00  

At period end

           

Total assets

  $ 4,568,870     $ 4,603,955     $ 4,229,361     $ 4,190,026     $ 4,164,658     $ 4,213,376  

Total debt

    2,069,473       2,126,125       1,504,990       1,453,560       1,502,105       1,623,587  

Shareholders’ equity

  $ 1,238,761     $ 1,183,886     $ 1,447,156     $ 1,489,245     $ 1,461,479     $ 1,560,288  

 

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Notes to Selected Financial Data

 

(1) In 2005, Knight Ridder recorded pre-tax charges of $15.1 million for workforce reductions in Philadelphia and San Jose, $4.7 million for fees associated with the evaluation of corporate strategic alternatives and $1.8 million for the Austin Co. bankruptcy (the general contractor responsible for the now nearly-completed printing plant in Kansas City). Knight Ridder also recorded an $8.5 million pre-tax gain on the sale of land in Seattle.
(2) In 2002, Knight Ridder recorded pre-tax charges totaling $25.5 million related to its investment in CareerBuilder LLC. The charges were for the relocation of offices and abandonment of certain assets ($7.5 million) and $18.0 million for the conversion of CareerBuilder from a corporation into a limited liability company. Knight Ridder sold its stock in MatchNet plc, and recorded a pre-tax loss of $4.3 million. Additionally, Knight Ridder recorded other-than-temporary declines in a number of other cost basis Internet-related investments of $3.1 million pre-tax.
(3) In 2001, Knight Ridder had a $78.5 million pre-tax charge relating to a work force reduction program. Also in this year, Knight Ridder sold its holdings in InfoSpace, Inc., AT&T, Webvan Group, Inc. and other smaller Internet-related investments at a pre-tax loss of $11.9 million. Knight Ridder recorded other-than-temporary declines in a number of other cost basis Internet-related investments of $16.1 million pre-tax.
(4) Beginning in 2002, Knight Ridder discontinued the amortization of goodwill and indefinite-lived intangible assets under the provisions of Statement of Financial Accounting Standard (SFAS) 142.
(5) Interest expense, net includes capitalized interest and interest income.
(6) Discontinued Detroit and Tallahassee operations included a $207.9 million gain on sale, net of taxes in fiscal 2005. The results of operations for Detroit and Tallahassee have been reclassified as discontinued operations for all periods presented. In August 2005, Knight Ridder acquired The Idaho Statesman (Boise, ID) and two newspapers in the state of Washington, The Olympian (Olympia, WA) and The Bellingham Herald (Bellingham, WA). The results of operations for the acquired newspapers are included in Knight Ridder’s results from the date of acquisition (August 29, 2005).
(7) The cumulative effect of change in accounting principle in 2002 relates to the implementation of SFAS 142—Goodwill and Other Intangible Assets by its equity method investee, CareerBuilder.
(8) Knight Ridder adopted SFAS No. 123R as of the first day of fiscal 2006. Total stock-based compensation was $5.0 million or $0.05 per diluted share for the three months ended March 26, 2006.

 

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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

The unaudited pro forma condensed combined statement of income data combines the historical consolidated statement of income data of McClatchy for the fiscal year ended December 25, 2005 and the three months ended March 26, 2006, with Knight Ridder’s historical consolidated financial statement of income data for the fiscal year ended December 25, 2005 and the three months ended March 26, 2006, respectively, giving effect to the merger as if it had occurred on December 27, 2004 (the beginning of fiscal 2005). The unaudited pro forma condensed combined balance sheet data combines McClatchy’s historical balance sheet data as of March 26, 2006 with Knight Ridder’s historical consolidated balance sheet data as of March 26, 2006, giving effect to the merger as if it had occurred as of March 26, 2006.

The selected unaudited pro forma condensed combined financial data is based on estimates and assumptions which are preliminary. This data is presented for informational purposes only and is not intended to represent or be indicative of the consolidated results of operations or financial condition of McClatchy that would have been reported had the merger been completed as of the date presented, and should not be taken as representative of future consolidated results of operations or financial condition of McClatchy.

The unaudited pro forma condensed combined financial data was prepared using the purchase method of accounting with McClatchy treated as the acquiring entity. Accordingly, consideration paid by McClatchy to complete the merger with Knight Ridder will be allocated to Knight Ridder’s assets and liabilities based upon their estimated fair values as of the date of completion of the merger. The allocation is dependent upon certain valuations and other studies that have not progressed to a stage where there is sufficient information to make a definitive allocation. Additionally, a final determination of the fair value of Knight Ridder’s assets and liabilities, which cannot be made prior to the completion of the transaction, will be based on the actual net tangible and intangible assets of Knight Ridder that exist as of the date of completion of the merger. Accordingly, the pro forma purchase price adjustments are preliminary, subject to future adjustments and have been made solely for the purpose of providing the unaudited pro forma condensed combined financial statements presented below.

As part of the transaction, McClatchy intends to divest 12 Knight Ridder newspapers, mainly located in cities that do not fit McClatchy’s longstanding acquisition criteria, chiefly involving growing markets. McClatchy is in the process of marketing these newspapers to interested parties and has engaged financial advisors to assist it in this process. McClatchy intends to sign definitive agreements prior to the effectiveness of the merger and close as many of these divestitures as possible concurrently with the closing of the merger. The divestitures may result in additional and unforeseen expenses, and the completion of the divestitures cannot be assured. On April 26, 2006, McClatchy announced that it had entered into definitive agreements with Media News Group, Inc. and The Hearst Corporation under which the companies will pay McClatchy $1.0 billion in cash to acquire four newspapers. See the section entitled “The Merger Agreement—Proposed Divestitures.” Completion of the divestitures will be conditioned, among other things, upon receipt of customary required approvals from various federal and state regulatory agencies. The proceeds from the divestitures are required to be used to repay various debt obligations of McClatchy under the new Bank debt facility following the merger. The unaudited pro forma condensed combined statement of income reflects (i) estimated proceeds from the divestitures of $2,150 million less estimated income taxes of $635 million, or net proceeds of $1,515 million, and (ii) repayment of $1,515 million in debt obligations under the new bank debt facility, assuming such divestitures occurred at the beginning of fiscal 2005. However, the pro forma adjustments are preliminary, subject to future adjustment and have been made solely for the purpose of providing the unaudited pro forma condensed combined financial statements presented below.

This selected unaudited pro forma condensed combined financial data should be read in conjunction with the summary selected historical consolidated financial data and the unaudited pro forma condensed combined financial statements and accompanying notes contained elsewhere in this prospectus/proxy statement/information

 

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statement and the separate historical consolidated financial statements and accompanying notes of McClatchy and Knight Ridder incorporated by reference into this prospectus/proxy statement/information statement. See the section entitled “Where You Can Find More Information” beginning on page 124 of this prospectus/proxy statement/information statement.

McClatchy and Knight Ridder

Unaudited Pro Forma Condensed Combined Financial Data (1)

(In thousands, except per share amounts)

 

    

Three Months Ended

March 26,

2006

   Year Ended
December 25,
2005
 

Unaudited Pro Forma Condensed Combined Statement of Income Data:

     

Net revenue

   $ 682,194    $ 2,842,911  

Operating income

   $ 95,396    $ 550,620  

Income from continuing operations

   $ 19,165    $ 237,214  

Income per share from continuing operations:

     

Basic

   $ 0.24    $ 2.93  

Diluted

   $ 0.24    $ 2.92  

Weighted average number of common shares:

     

Basic

     81,067      80,938  

Diluted

     81,306      81,328  
          As of
March 26,
2006
 

Unaudited Pro Forma Condensed Combined Balance Sheet Data:

     

Cash and cash equivalents

      $ 39,918  

Working capital deficit

      $ (21,647 )

Total assets

      $ 11,529,670  

Long-term debt

      $ 5,063,165  

Total stockholders’ equity

      $ 3,416,974  

(1) See the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 126 of this prospectus/proxy statement/information statement.

 

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COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA

The following table presents comparative historical per share data regarding the net earnings, book value and dividends of each McClatchy and Knight Ridder and unaudited combined pro forma per share data after giving effect to the merger as a purchase of Knight Ridder by McClatchy assuming the merger had been completed on December 27, 2004 (the beginning of fiscal 2005). The following data assumes 0.5118 of a share of McClatchy Class A common stock and $40.00 in cash will be issued in exchange for each share of Knight Ridder common stock in connection with the merger and the assumption of options based upon the same exchange ratio. This data has been derived from and should be read in conjunction with the summary selected historical financial data and unaudited pro forma condensed combined financial data of McClatchy and Knight Ridder included beginning on page 12 of this prospectus/proxy statement/ information statement. The unaudited pro forma per share data is presented for information purposes only and is not intended to represent or be indicative of the consolidated results of operations or financial condition of McClatchy that would have been reported had the merger been completed as of the date presented, and should not be taken as representative of future consolidated results of operations or financial condition of McClatchy.

 

     Year Ended December 25, 2005
               Pro Forma
     McClatchy    Knight Ridder    McClatchy &
Knight Ridder
   Knight Ridder
Equivalent(1)
     (Unaudited)

Income from continuing operations per common share:

           

Basic

   $ 3.44    $ 3.55    $ 2.93    $ 1.50

Diluted

   $ 3.42    $ 3.53    $ 2.92    $ 1.49

Book value per common share at period end(2)

   $ 33.49    $ 17.68    $ 41.93    $ 21.46

Cash dividends declared per common share

   $ 0.67    $ 1.43    $ 1.66    $ 0.85

 

     Three Months Ended March 26, 2006
               Pro Forma
     McClatchy    Knight Ridder    McClatchy &
Knight Ridder
   Knight Ridder
Equivalent(1)
     (Unaudited)

Income from continuing operations per common share:

           

Basic

   $ 0.59    $ 0.42    $ 0.24    $ 0.12

Diluted

   $ 0.59    $ 0.42    $ 0.24    $ 0.12

Book value per common share at period end(2)

   $ 33.94    $ 18.32    $ 42.15    $ 21.57

Cash dividends declared per common share

   $ 0.18    $ 0.37    $ 0.41    $ 0.21

(1) The Knight Ridder equivalent pro forma combined per share amounts are calculated by multiplying McClatchy pro forma share amounts by the exchange ratio in the merger of 0.5118 a share of McClatchy Class A common stock for each share of Knight Ridder common stock.
(2) Historical book value per share is computed by dividing stockholders’ equity by the number of shares of McClatchy or Knight Ridder common stock outstanding. Pro forma book value share is computed by divided pro forma stockholders’ equity by the pro forma number of shares of McClatchy common stock outstanding.

 

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COMPARATIVE PER SHARE MARKET PRICE DATA

McClatchy Class A common stock trades on the New York Stock Exchange and the Pacific Exchange under the symbol MNI. Knight Ridder common stock trades on the New York Stock Exchange under the symbol KRI.

The following table shows the high and low sales prices per share of McClatchy Class A common stock and Knight Ridder common stock, each as reported on the New York Stock Exchange composite transactions tape on (1) March 10, 2006, the last full trading day preceding public announcement that McClatchy and Knight Ridder had entered into the merger agreement, and (2) May 8, 2006, the last full trading day for which high and low sales prices were available as of the date of this prospectus/proxy statement/ information statement.

The table also includes the equivalent high and low sales prices per share of Knight Ridder common stock on those dates. These equivalent high and low sales prices per share reflect the fluctuating value of the McClatchy Class A common stock that Knight Ridder shareholders would receive in exchange for each share of Knight Ridder common stock if the merger was completed on either side of these dates, applying the exchange ratio of 0.5118 of a share of McClatchy Class A common stock for each share of Knight Ridder common stock exchanged in the merger.

 

     McClatchy Class A
Common Stock
   Knight Ridder
Common Stock
  

Equivalent

Price Per Share(1)

     High    Low    High    Low    High    Low

March 10, 2006

   $ 53.24    $ 51.80    $ 65.05    $ 63.71    $ 27.25    $ 26.51

May 8, 2006

   $ 47.25    $ 45.65    $ 63.15    $ 62.39    $ 24.18    $ 23.36

Note:

(1) Price excludes the $40.00 cash portion of the merger consideration.

The foregoing table shows only historical comparisons. These comparisons may not provide meaningful information to you in determining whether to approve the merger agreement and the merger. Because the number of shares of McClatchy Class A common stock to be issued for each share of Knight Ridder common stock is fixed, changes in the market price of McClatchy Class A common stock will affect the dollar value of McClatchy Class A common stock to be received by Knight Ridder shareholders pursuant to the merger. Knight Ridder shareholders are urged to obtain current market quotations for McClatchy Class A common stock and to review carefully the other information contained in this prospectus/proxy statement/information statement or incorporated by reference into this prospectus/proxy statement/ information statement in considering whether to approve the merger agreement and the merger. See the section entitled “Where You Can Find More Information” on page 124.

 

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RISK FACTORS

In deciding whether to approve the merger agreement and the merger, Knight Ridder shareholders should consider all of the information included in this prospectus/proxy statement/information statement and its annexes and all of the information included in the documents McClatchy and Knight Ridder have incorporated by reference into this prospectus/proxy statement/information statement. See the sections entitled “Documents Incorporated by Reference” beginning on page 123 and “Where You Can Find More Information” beginning on page 124. Additional risks and uncertainties not presently known to us or that we do not currently believe are important to an investor may also harm our respective business operations. If any of the events, contingencies, circumstances or conditions described in the following risks actually occur, our respective businesses, financial condition or our results of operations could be seriously harmed. If that happens, the trading price of McClatchy Class A common stock or Knight Ridder common stock could decline and you may lose part or all of the value of any McClatchy or Knight Ridder shares held by you.

Risks Related to the Merger and the Combined Company

Knight Ridder shareholders will receive (1) 0.5118 of a share of McClatchy Class A common stock and (2) $40.00 in cash for each share of Knight Ridder common stock exchanged in the merger regardless of any changes in market value of Knight Ridder common stock or McClatchy Class A common stock before the completion of the merger.

Upon completion of the merger, each share of Knight Ridder common stock will be converted into the right to receive (1) 0.5118 of a share of McClatchy Class A common stock and (2) $40.00 in cash. The market values of McClatchy Class A common stock and Knight Ridder common stock have varied since McClatchy and Knight Ridder entered into the merger agreement and will continue to vary in the future due to changes in the business, operations or prospects of McClatchy and Knight Ridder, market assessments of the merger, regulatory considerations, market and economic considerations, and other factors. The dollar value of McClatchy Class A common stock that Knight Ridder shareholders will receive upon completion of the merger will depend on the market value of McClatchy Class A common stock at the time of completion of the merger, which may be different from, and lower than, the closing price of McClatchy Class A common stock on the last full trading day preceding the public announcement that McClatchy and Knight Ridder entered into the merger agreement. Moreover, completion of the merger may occur some time after the requisite shareholder approvals have been obtained. There will be no adjustment to the merger consideration per share (except for adjustments to reflect the effect of certain stock split or other recapitalization of McClatchy common stock or Knight Ridder common stock).

McClatchy may fail to integrate successfully McClatchy’s and Knight Ridder’s operations. As a result, McClatchy may not achieve the anticipated benefits of the merger, which could adversely affect the price of McClatchy Class A common stock.

McClatchy entered into the merger agreement with the expectation that the merger will result in benefits to McClatchy, including the realization of certain synergies. However, these expected benefits may not be fully realized. Failure of the combined company to meet the challenges involved with successfully integrating the personnel, products and sales operations of the two companies following the merger or to realize any of the other anticipated benefits of the merger, could have a material adverse effect on the business, financial condition and results of operations of the combined company following the merger and its subsidiaries. These integration efforts may be difficult and time consuming.

The combined company may not successfully integrate the operations of McClatchy and Knight Ridder in a timely manner, or at all, and the combined company may not realize the anticipated benefits of the merger to the extent, or in the timeframe, anticipated, which could significantly harm its business.

 

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McClatchy may fail to divest successfully the 12 newspapers it has planned to sell. As a result, McClatchy may not achieve the anticipated benefits of the merger, which could adversely affect the price of McClatchy Class A common stock.

As part of the merger, McClatchy intends to divest the following 12 Knight Ridder newspapers: The Philadelphia Inquirer; San Jose Mercury News; The Philadelphia Daily News; Akron Beacon Journal (OH); The Wilkes-Barre Times Leader (PA); Aberdeen American News (SD); Grand Forks Herald (ND); The Ft. Wayne News-Sentinel (IN); Contra Costa Times (CA); The Monterey County Herald (CA); Duluth News Tribune (MN) and the St. Paul Pioneer Press (MN). Although McClatchy has entered into agreements related to the sale of 4 of these newspapers, McClatchy may not be able to sell these newspapers at favorable prices, at all, or in a timely manner, in which case some of the expected benefits of the merger may not be fully realized. Failure of McClatchy to realize any of the anticipated benefits of the merger could have a material adverse effect on the business, financial condition and results of operations of the combined company following the merger and its subsidiaries.

McClatchy’s operating results could be adversely affected as a result of purchase accounting treatment, and the corresponding impact of amortization of other intangibles relating to its proposed merger with Knight Ridder.

Under accounting principles generally accepted in the United States of America, McClatchy will account for the merger using the purchase method of accounting. Under purchase accounting, McClatchy will record the market value of its Class A common stock issued in connection with the merger and the amount of direct transaction costs as the cost of acquiring the business of Knight Ridder. McClatchy will allocate that cost to the individual assets acquired and liabilities assumed, including various identifiable intangible assets such as advertiser and subscriber lists and acquired technology, based on their respective fair values. Intangible assets generally will be amortized over a ten year period. McClatchy expects that the amount of purchase price allocated to goodwill will be approximately $3.4 billion, the amount allocated to newspaper mastheads will be approximately $1.3 billion and the amount allocated to identifiable intangible assets will be approximately $730 million. Goodwill and newspaper mastheads are not subject to amortization but are subject to at least an annual impairment analysis, which may result in an impairment charge if the carrying value exceeds its implied fair value. If other identifiable intangible assets were amortized on a straight line basis over a ten period following completion of the merger, the accounting charge attributable to these items would be approximately $73 million per fiscal year. As a result, purchase accounting treatment of the merger could decrease net income for McClatchy in the foreseeable future, which could have a material adverse effect on the market value of McClatchy Class A common stock following completion of the merger.

McClatchy and Knight Ridder expect to incur significant costs associated with the merger.

McClatchy estimates that it will incur direct transaction costs of approximately $75 million associated with the merger, including certain Knight Ridder costs, which will be included as a part of the total purchase cost for accounting purposes. In addition to certain Knight Ridder costs paid by McClatchy, Knight Ridder estimates that it will incur additional direct transaction costs for accounting, investment banking and legal services. McClatchy and Knight Ridder believe the combined entity may incur charges to operations, which currently are not reasonably estimable, in the quarter in which the merger is completed or the following quarters, to reflect costs associated with integrating the two companies. There can be no assurance that the combined company will not incur additional material charges in subsequent quarters to reflect additional costs associated with the merger. Further, the combined company may incur expenses related to the divestitures of certain newspapers which are not reasonably estimable.

Knight Ridder and McClatchy will be subject to uncertainties and contractual restrictions while the merger is pending.

Whether or not the merger is completed, current and prospective McClatchy and Knight Ridder employees may experience uncertainty about their future roles with the combined company. This uncertainty may adversely

 

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affect McClatchy’s and Knight Ridder’s ability to attract and retain key management, sales, marketing and technical personnel. The extent of this adverse effect could depend on the length of time prior to completion of the merger or termination of the merger agreement. In addition, the merger agreement restricts Knight Ridder and McClatchy from taking specified actions until the merger occurs. These restrictions may prevent Knight Ridder or McClatchy from pursuing attractive business opportunities that may arise prior to the completion of the merger. For a description of these restrictions, see “The Merger Agreement—No Solicitation of Alternative Transaction by Knight Ridder” beginning on page 90.

Regulatory agencies, private parties, state attorneys general may raise challenges to the merger on antitrust grounds.

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the merger may not be consummated unless certain filings have been submitted to the Federal Trade Commission (“FTC”) and the Antitrust Division of the U.S. Department of Justice and certain waiting period requirements have been satisfied. McClatchy and Knight Ridder filed the appropriate notification and report forms with the FTC and with the Antitrust Division on March 27, 2006.

The FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions like the merger. At any time before or after the completion of the merger, the FTC or the Antitrust Division could take any action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger or seeking the divestiture of substantial assets of McClatchy or Knight Ridder in addition to those currently contemplated by McClatchy. In addition, certain private parties, as well as state attorneys general, may challenge the transaction under antitrust laws under certain circumstances.

McClatchy and Knight Ridder believe that the completion of the merger, including the planned divestitures of certain Knight Ridder assets, will not violate any antitrust laws. There can be no assurance, however, that a challenge to the merger on antitrust grounds will not be made, or, if such a challenge is made, what the result will be.

Certain directors and executive officers of Knight Ridder have interests in the merger that may be different from, or in addition to, the interests of Knight Ridder shareholders.

When considering the Knight Ridder board of directors’ recommendation that Knight Ridder shareholders vote in favor of the proposal to approve the principal terms of the merger agreement and to approve the merger, Knight Ridder shareholders should be aware that some directors and executive officers of Knight Ridder have interests in the merger that may be different from, or in addition to, the interests of Knight Ridder shareholders. These interests include the appointment of two Knight Ridder directors to the McClatchy board of directors following completion of the merger, income security agreements with Knight Ridder that certain executives are party to, the vesting of equity compensation awards in the merger and the right to continued indemnification and insurance coverage by McClatchy for acts or omissions occurring prior to the merger. As a result of these interests, these directors and officers could be more likely to vote to adopt the principal terms of the merger agreement and to adopt the merger contemplated by the merger agreement than if they did not hold these interests, and may have reasons for doing so that are not the same as the interests of other Knight Ridder shareholders. For a description of the interests of directors and executive officers of Knight Ridder in the merger, see “The Merger—Interests of Certain Persons in the Merger” beginning on page 62.

The shares of McClatchy Class A common stock to be received by Knight Ridder shareholders as a result of the merger will have different rights from the shares of Knight Ridder common stock. In addition, following the merger, the McClatchy family will continue to have control of McClatchy.

The holders of McClatchy Class A common stock vote together with the holders of Class B common stock as a single class, except with respect to the election of directors. Class A common stockholders have one-tenth of a vote per share and Class B stockholders have one vote per share. For a description of the different rights

 

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associated with McClatchy Class A common stock, see “The Merger—Material Differences in the Rights of Shareholders” beginning on page 69. Assuming the merger had been completed on March 12, 2006, on a fully-diluted basis and based on the proposed treatment of the Knight Ridder options in the merger, when the merger is completed, the McClatchy family, who own 100% of the Class B common stock outstanding, will control approximately 80.5% of the voting power of McClatchy. Therefore, the McClatchy family generally will have the ability to control the outcome of any matter submitted for the vote of McClatchy stockholders following the merger. As a result of their significant interest in McClatchy, the McClatchy family may have the power, subject to applicable law, to significantly influence actions that might be favorable to the holders of McClatchy Class B common stock, but not necessarily favorable to other McClatchy stockholders. In addition, the ownership position of the McClatchy family could discourage a third party from proposing a change of control or other strategic transaction concerning McClatchy. As a result, the Class A common stock of McClatchy could trade at prices that do not reflect a “takeover premium” to the same extent as do the stocks of similarly situated companies that do not have a stockholder group with an ownership interest as large as the McClatchy family’s combined ownership interest.

The merger agreement provides that McClatchy take all necessary actions such that, immediately following the completion of the merger, two directors of Knight Ridder acceptable to McClatchy shall become members of the McClatchy board of directors. McClatchy’s certificate of incorporation and bylaws provide that the holders of Class A common stock, voting as a separate class, can elect a number of directors equal to 25% of the total number of directors annually. The remaining 75% of McClatchy directors are elected by the Class B stockholders annually. Accordingly, as a result of the board representation of two Knight Ridder directors on the McClatchy board following the merger, the former stockholders of Knight Ridder may have some influence, but not control, on the outcome of matters that come before the McClatchy board.

Newsprint is the major component of Knight Ridder’s and McClatchy’s cost of raw materials.

Newsprint accounted for 13.2% of Knight Ridder’s 2005 total operating expenses. A sustained increase in newsprint prices could adversely affect its profitability. Newsprint prices for the past five years have ranged from approximately $425 to $625 per metric ton.

Newsprint accounted for 14.6% of McClatchy’s operating expenses for fiscal 2005. Accordingly, McClatchy’s earnings are sensitive to changes in newsprint prices. McClatchy has not attempted to hedge fluctuations in the normal purchases of newsprint or enter into contracts with embedded derivatives for the purchase of newsprint. If the price of newsprint increases materially, McClatchy’s operating results could be adversely affected. If McClatchy’s newsprint suppliers experience labor unrest, transportation difficulties or other supply disruptions, McClatchy’s ability to produce and deliver newspapers could be impaired and/or the cost of the newsprint could increase, both of which could negatively affect the combined company’s operating results.

Competition and customer consolidation may adversely affect the combined company’s business.

McClatchy and Knight Ridder are subject to aggressive competition in all areas of their respective businesses. Newspapers compete for advertising and readers with other newspapers, broadcast, satellite and cable television, the Internet and other computer services, radio, magazines, suburban newspapers, free shoppers, billboards and direct mail. The combined company could also be adversely affected by continued customer consolidation in the retail and national sectors.

The newspaper publishing industry continues to experience some circulation decline.

The factors contributing to a decline in circulation in the newspaper publishing industry include: (a) the ongoing impact of the federally imposed do-not-call lists (now two years old), which limit telemarketing of subscription sales; (b) the ripple effects of the circulation misstatements by three large publishers in 2004, which gave rise to increased scrutiny of, and limitations on, the bulk/third party sales that had been a source of

 

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circulation growth; and (c) the Internet, which creates competition for readers’ time. Each of McClatchy and Knight Ridder have taken steps to meet each of these challenges. Nevertheless, ongoing decline in circulation copies could have a material effect on the rate and volume of the combined company advertising revenue.

Failure to complete the merger could negatively impact the share price and the future business results of Knight Ridder.

There is no assurance that conditions to completion of the merger will be satisfied, including Knight Ridder shareholder approval and the necessary regulatory approvals. If the merger is not completed for any reason, the price of Knight Ridder common stock and the future results of Knight Ridder could be adversely affected.

The merger agreement limits Knight Ridder’s ability to pursue alternatives to the merger.

The merger agreement contains provisions that make it more difficult for Knight Ridder to enter into a merger or other similar transaction with a party other than McClatchy. These provisions include limitations on Knight Ridder generally from soliciting alternative acquisition proposals and the requirement that Knight Ridder pay a termination fee of $171.9 million to McClatchy if the merger agreement is terminated in specified circumstances. See “The Merger Agreement—No Solicitation of Alternative Transaction by Knight Ridder” on page 90 and “The Merger Agreement—Payment of Termination Fee” on page 92. McClatchy required Knight Ridder to agree to these provisions as a condition to McClatchy’s willingness to enter into the merger agreement. These provisions, however, might discourage a third party that might have an interest in acquiring all of or a significant part of Knight Ridder from considering or proposing that acquisition, even if that party were prepared to pay consideration with a higher per share market price than the current proposed merger consideration. Furthermore, the termination fee may result in a potential competing acquiror proposing to pay a lower per share price to acquire Knight Ridder than it might otherwise have proposed to pay.

Risk Factors Relating to McClatchy That Could Affect the Combined Company

If McClatchy experiences labor unrest, McClatchy’s ability to produce and deliver newspapers could be impaired.

The results of future labor negotiations could harm McClatchy’s operating results. McClatchy’s newspapers have not endured a labor strike since 1980. However, McClatchy cannot ensure that a strike will not occur at one or more of McClatchy’s current newspapers in the future. As of December 25, 2005, approximately a quarter of McClatchy’s full- and part-time employees were represented by unions including 59% at the Star Tribune and 23% at The Sacramento Bee, McClatchy’s two largest newspapers. Most of McClatchy’s union-represented employees are currently working under labor agreements, which expire at various times. McClatchy faces collective bargaining upon the expirations of these labor agreements. Even if McClatchy’s newspapers do not suffer a labor strike, the combined company’s operating results could be harmed if the results of labor negotiations restrict McClatchy’s ability to maximize the efficiency of McClatchy’s newspaper operations.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus/proxy statement/information statement and the documents incorporated by reference into this prospectus/proxy statement/information statement contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, as well as assumptions, that, if they never materialize or prove incorrect, could cause the results of The McClatchy Company, Knight-Ridder, Inc., or the combined company following the merger, to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements generally are identified by the words “expects,” “anticipates,” “believes,” “intends,” “estimates,” “should,” “would,” “strategy,” “plan” and similar expressions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. For example, forward-looking statements include projections of earnings, revenues, synergies, accretion or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the execution of integration and divestiture plans and the anticipated timing of filings, approvals and the closing relating to the merger; any statements concerning proposed new services, developments or industry rankings; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include the challenge of managing asset levels, including inventory; the difficulty of maintaining expense growth while increasing revenues; the assumption of maintaining revenues on a combined company basis following the merger; and other risks and uncertainties described in the section entitled “Risk Factors” and in the documents that are incorporated by reference into this prospectus/proxy statement/information statement.

If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, results of McClatchy, Knight Ridder, and/or the combined company following the merger could differ materially from the expectations in these statements. The forward-looking statements included in this prospectus/proxy statement/information statement are made only as of the date of this prospectus/proxy statement/information statement, and neither McClatchy nor Knight Ridder is under any obligation to update their respective forward-looking statements and neither party intends to do so.

 

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INFORMATION FOR MCCLATCHY STOCKHOLDERS

General

The McClatchy Company is furnishing this prospectus/proxy statement/information statement to McClatchy stockholders. Holders of McClatchy Class B common stock, acting by written consent, have:

(i) adopted the merger agreement;

(i) approved the issuance of shares of Class A common stock in connection with the merger; and

(ii) approved an amendment to McClatchy’s certificate of incorporation to increase the authorized number of shares of Class A common stock from 100 million shares to 200 million shares in connection with the merger.

No further vote of McClatchy’s stockholders is required. However, pursuant to SEC rules, McClatchy is required to send its stockholders entitled to vote a written information statement, which is satisfied by the delivery of this prospectus/proxy statement/information statement, at least 20 calendar days prior to the date upon which the merger, the issuance of McClatchy shares in connection with the merger and the amendment of McClatchy’s certificate of incorporation can occur.

Information with respect to McClatchy’s directors and executive officers, executive compensation, certain relationships and related transactions and security ownership of certain beneficial owners and management is incorporated by reference from McClatchy’s definitive proxy statement filed with the Securities and Exchange Commission on March 29, 2006.

The Merger

Pursuant to the merger, McClatchy will pay (1) 0.5118 of a share of McClatchy Class A common stock and (2) $40.00 in cash for each share of Knight Ridder common stock outstanding at the effective time of the merger. At the effective time of the merger, Knight Ridder will merge with and into McClatchy, and thereafter will cease to exist as a separate corporate entity. McClatchy will continue as the surviving entity in the merger. Assuming the merger had been completed on March 12, 2006, Knight Ridder shareholders would have owned approximately 62.5% of the outstanding shares of McClatchy Class A common stock immediately after the merger and McClatchy stockholders would have owned the remaining 37.5% of Class A common stock and all shares of outstanding McClatchy Class B common stock. On a fully-diluted basis and based on the proposed treatment of the Knight Ridder options in the merger, Knight Ridder equity holders would have owned approximately 44.3% of the fully-diluted shares of McClatchy common stock immediately after the merger, representing the right to cast 12.2% of the votes eligible to be cast by holders of McClatchy common stock on matters other than the election of directors (See “The Merger—Material Differences in the Rights of Shareholders” at page 69). The calculation on a fully-diluted basis assumes the conversion or exercise, as the case may be, of: (1) outstanding shares of McClatchy Class A and Class B common stock, and (2) outstanding options to purchase shares of McClatchy Class A common stock.

Vote Required for Approval

The affirmative vote of the holders of outstanding shares of McClatchy Class A common stock and Class B common stock representing at least a majority of all the votes entitled to be cast thereupon by holders of McClatchy Class A common stock and Class B common stock voting together as a class, was required to adopt the merger agreement and approve the certificate of amendment to McClatchy’s certificate of incorporation. The affirmative vote of the holders of a majority of the outstanding shares of McClatchy Class A common stock and Class B common stock, voting together as a class, present in person or by proxy at a meeting duly called and held for approval of the issuance of McClatchy Class A common stock was required to approve the issuance of McClatchy Class A common stock in connection with the merger.

 

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Amendment of McClatchy’s Restated Certificate of Incorporation

In connection with the merger, and pursuant to the merger agreement, McClatchy and Knight Ridder agreed that McClatchy would amend its certificate of incorporation to increase the authorized number of shares of Class A common stock. The following is a summary of the amended provisions of McClatchy’s certificate of incorporation. It may not contain all of the information that is important to you and is qualified in its entirety by reference to the certificate of amendment to McClatchy’s certificate of incorporation, which is attached as Annex F to this prospectus/proxy statement/information statement and is incorporated by reference in this prospectus/proxy statement/information statement. You are encouraged to read the entire form of the certificate of amendment to McClatchy’s restated certificate of incorporation carefully.

Prior to the amendment, McClatchy’s certificate of incorporation provides that the authorized capital of McClatchy consisted of 160,000,000 shares, including 100,000,000 shares of Class A common stock, par value $0.01, and 60,000,000 shares of Class B common stock, par value $0.01.

Prior to consummation of the merger, McClatchy’s certificate of incorporation will be amended to increase the authorized capital of McClatchy to 260,000,000 shares, including 200,000,000 shares of Class A common stock, par value $0.01, and 60,000,000 shares of Class B common stock, par value $0.01. This amendment was duly approved by the written consent of certain of McClatchy’s Class B common stockholders as of March 12, 2006.

 

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INFORMATION ABOUT THE 2006 ANNUAL MEETING OF KNIGHT RIDDER SHAREHOLDERS

This prospectus/proxy statement/information statement is being furnished to Knight Ridder shareholders by Knight Ridder’s board of directors in connection with the solicitation of proxies from the holders of Knight Ridder common stock for use at the annual meeting of Knight Ridder shareholders and any adjournments or postponements of the annual meeting. This prospectus/proxy statement/information statement also is being furnished to Knight Ridder shareholders as a prospectus of McClatchy in connection with the issuance by McClatchy of shares of McClatchy Class A common stock to Knight Ridder shareholders in connection with the merger.

Date, Time and Place

The annual meeting of shareholders of Knight Ridder will be held at The Fairmont Hotel, 170 South Market Street, San Jose, California, on June 26, 2006 at 9:30 a.m., Pacific time.

Matters to Be Considered

At the annual meeting, Knight Ridder shareholders will be asked to:

1. Vote upon a proposal to approve the merger agreement and the merger;

2. Vote upon a proposal to adjourn or postpone the annual meeting if necessary to permit further solicitation of proxies if there are not sufficient votes at the time of the annual meeting to approve the first proposal described above;

3. Elect three directors, each for a three-year term;

4. Ratify the appointment of Ernst & Young LLP as Knight Ridder’s independent registered public accounting firm for 2006;

5. Consider and act upon a shareholder proposal, if properly presented; and

6. Transact any other business as may properly be brought before the annual meeting or any adjournment or postponement of the annual meeting.

At this time, the Knight Ridder board of directors is unaware of any matters, other than those set forth in the preceding sentence, that may properly come before the annual meeting.

Shareholders Entitled to Vote

The close of business on May 8, 2006 has been fixed by Knight Ridder’s board as the record date for the determination of those holders of Knight Ridder common stock who are entitled to notice of and to vote at the annual meeting and any adjournment or postponement of the annual meeting.

At the close of business on the record date, there were 67,910,409 shares of Knight Ridder common stock outstanding and entitled to vote, held by approximately 6,832 holders of record. A list of the shareholders of record entitled to vote at the annual meeting will be available for examination by Knight Ridder shareholders. The list will be available at the meeting, and for ten days prior to the meeting for any proper purpose during ordinary business hours by contacting Knight Ridder’s Corporate Secretary at 50 West San Fernando Street, Suite 1500, San Jose, California 95113.

Quorum and Required Vote

Each holder of record of shares of Knight Ridder common stock as of the record date is entitled to cast one vote per share at the annual meeting on each proposal. The presence, in person or by proxy, of the holders of a majority of the issued and outstanding shares of Knight Ridder common stock entitled to vote at the annual meeting constitutes a quorum for the transaction of business at the annual meeting. In the case of Proposal 1, the affirmative vote of at least 80% of the shares of Knight Ridder common stock outstanding as of the record date is required to approve the merger agreement and the merger. Approval of Proposal 2 requires the affirmative vote of at least a majority of the shares present at the annual meeting, in person or by proxy, whether or not a quorum is present. In the case of Proposal 3, the director nominees receiving the most votes are elected as directors.

 

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Approval of Proposal 4 and any shareholder proposals presented requires that the votes FOR exceed the votes cast AGAINST. As of the record date for the annual meeting, directors and executive officers of Knight Ridder and their affiliates beneficially owned an aggregate of 487,340 shares of Knight Ridder common stock entitled to vote at the annual meeting. These shares represent approximately less than 1% of the Knight Ridder common stock outstanding and entitled to vote as of the record date. Although these individuals are not party to any voting agreements with Knight Ridder or McClatchy and do not have any obligations to vote in favor of approval of the merger agreement and the merger, they have indicated their intention to vote their outstanding shares of Knight Ridder common stock in favor of approval of the merger agreement and the merger.

How Shares Will Be Voted at the Annual Meeting

All shares of Knight Ridder common stock represented by properly executed proxies received before or at the annual meeting, and not properly revoked, will be voted as specified in the proxies. Properly executed proxies that do not contain voting instructions will be voted FOR the approval of the merger agreement and the merger, FOR the proposal to adjourn or postpone the annual meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the meeting to approve the merger agreement and the merger, FOR the election of the director nominees named in this prospectus/proxy statement/information statement, FOR the ratification of the appointment of Ernst & Young LLP as Knight Ridder’s independent registered public accounting firm for 2006 included in this prospectus/proxy statement/information statement and AGAINST the shareholder proposal.

A properly executed proxy marked ABSTAIN with respect to any proposal will be counted as present for purposes of determining whether there is a quorum at the annual meeting. An abstention will have the same effect as a vote AGAINST the merger. Abstentions will not affect the outcomes of the other proposals.

If you hold shares of Knight Ridder common stock in street name through a bank, broker or other nominee holder, the nominee holder may only vote your shares in accordance with your instructions. If you do not give specific instructions to your nominee holder as to how you want your shares voted, your nominee will indicate that it does not have authority to vote on the proposal, which will result in what is called a “broker non-vote.” Broker non-votes will be counted for purposes of determining whether there is a quorum present at the annual meeting, but broker non-votes will have the same effect as a vote AGAINST the merger. Broker non-votes will not affect the outcomes of the other proposals.

If any other matters are properly brought before the annual meeting, the proxies named in the proxy card will have discretion to vote the shares represented by duly executed proxies in their sole discretion.

If you are a Knight Ridder employee and hold shares of restricted Knight Ridder common stock awarded under a Knight Ridder incentive plan and do not submit voting instructions for those shares, they will be voted as recommended by Knight Ridder’s board of directors.

How to Vote Your Shares

Registered Shareholders

Registered shareholders may vote in person at the annual meeting or by one of the following methods:

By Mail. Complete, sign and date the enclosed proxy card and return it in the prepaid envelope provided;

By Telephone. Call the toll-free telephone number on the proxy card and follow the recorded instructions; or

By Internet. Access The Bank of New York’s secure website registration page through the Internet at www.proxyvotenow.com/kri, as identified on the proxy card, and follow the instructions.

Please note that the Internet and telephone voting facilities for shareholders of record will close at 5:00 p.m. Eastern time on June 25, 2006.

 

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Street Name Shareholders

If your shares are held by a broker, bank or other nominee, you must follow the instructions on the form you receive from your broker, bank or other nominee in order for your shares to be voted. Please follow their instructions carefully. Also, please note that if the holder of record of your shares is a broker, bank or other nominee and you wish to vote at the annual meeting, you must request a legal proxy from the bank, broker or other nominee that holds your shares and present that proxy and proof of identification at the annual meeting to vote your shares.

Based on the instructions provided by the broker, bank or other holder of record of their shares, street name shareholders may generally vote by one of the following methods:

By Mail. You may vote by signing, dating and returning your proxy card in the enclosed pre-addressed envelope;

By Methods Listed on Proxy Card. Please refer to your voting card or other information forwarded by your bank, broker or other holder of record to determine whether you may vote by telephone or electronically on the Internet, following the instructions on the card or other information provided by the record holder; or

In Person With a Proxy from the Record Holder. A street name shareholder who wishes to vote at the meeting will need to obtain a legal proxy from his or her bank or brokerage firm. Please consult the voting form sent to you by your bank or broker to determine how to obtain a legal proxy in order to vote in person at the annual meeting.

Please note that the Internet and telephone voting facilities for street name shareholders will close at 11:59 p.m. Eastern time on June 25, 2006.

How to Change Your Vote

If you are a registered shareholder, you may revoke your proxy at any time before the shares are voted at the annual meeting by following any of these procedures.

To revoke your proxy:

 

    Send in another signed proxy card with a later date; or

 

    Send a letter revoking your proxy to Knight Ridder’s Corporate Secretary at 50 West San Fernando Street, Suite 1500, San Jose, California 95113; or

 

    Attend the annual meeting and vote in person.

If you voted by telephone or Internet, you may revoke your proxy by re-voting in the same manner. Only the last vote that you enter by telephone or Internet will be counted. Alternatively, you may attend the annual meeting and vote in person. If you are a street name shareholder and you vote by proxy, you may later revoke your proxy instructions by informing the holder of record in accordance with that entity’s procedures.

Confidential Voting

The manner in which you vote on any particular issue shall, subject to federal or state law requirements, be strictly confidential. Only the employee of The Bank of New York who has been appointed as the inspector of election will have access to your proxy card.

Solicitation of Proxies

In addition to solicitation by mail, directors, officers and employees of Knight Ridder may solicit proxies for the annual meeting from Knight Ridder shareholders personally or by telephone and other electronic means without compensation other than reimbursement for their actual expenses.

 

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McClatchy will pay the expenses incurred in connection with the filing, printing and mailing of this document. Knight Ridder has also made arrangements with D.F. King & Co., Inc. and Innisfree M&A Incorporated to assist Knight Ridder in soliciting proxies for the annual meeting and has agreed to pay D.F. King & Co., Inc. and Innisfree M&A Incorporated fees not expected to exceed $ 50,000 each, plus reasonable out-of-pocket expenses for each, for these services. Arrangements also will be made with brokerage firms and other custodians, nominees and fiduciaries for the forwarding of solicitation material to the beneficial owners of shares of Knight Ridder stock held of record by those persons.

Annual Meeting Admission

If you are a shareholder of record and prefer to vote your shares at the annual meeting, you should bring the enclosed proxy card or proof of identification. If your shares are held in the name of a bank, broker or other nominee, and you plan to attend the annual meeting, you must present proof of your ownership of Knight Ridder stock, such as a bank or brokerage account statement, to be admitted to the annual meeting. The account statement must show that you were the beneficial owner of the shares on May 8, 2006, the record date for the annual meeting. You may vote shares held in street name at the annual meeting only if you obtain a signed proxy from the record holder giving you the right to vote the shares.

No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the meeting.

Voting and Elections by Participants in the Knight Ridder Plans

If you participate in the Knight Ridder 401(k) Plan or another 401(k) plan available to employees in your business unit, or the Knight Ridder Employees Stock Purchase Plan, you will receive voting instructions instead of a proxy card. Vanguard, as trustee of the 401(k) plans, and E*Trade Securities LLC, as nominee of the Employees Stock Purchase Plan, are the shareholders of record of your plan shares and will vote those shares according to the instructions that you provide by mail, telephone or the Internet.

If you provide instructions to the plan trustees and/or nominee, as applicable, by June 19, 2006, they will vote the shares as you have directed.

If you do not provide voting instructions to the plan trustees and/or nominee by June 19, 2006, they will vote the shares credited to your account in the same proportion as those that have been voted by other plan participants.

Shareholders Sharing an Address

Knight Ridder has adopted a procedure approved by the SEC called “householding.” Under this procedure, shareholders of record who have the same address and last name and do not participate in electronic delivery of proxy materials will receive only one copy of Knight Ridder’s Report on Form 10-K and/or this prospectus/proxy statement/information statement unless one or more of these shareholders notify us that they wish to continue receiving individual copies. This procedure will reduce the costs of producing and mailing these materials. Shareholders who participate in householding will continue to receive separate proxy cards. Also, householding will not in any way affect dividend check mailings. If you are eligible for householding, but you and other shareholders of record with whom you share an address currently receive multiple copies of the Report on Form 10-K and/or this prospectus/proxy statement/information statement, or if you hold stock in more than one account, and in either case you wish to receive only a single copy of each of these documents for your household, please contact Knight Ridder’s transfer agent, The Bank of New York, at (800) 524-4458. If you hold your shares in street-name, you may request information about householding from your bank, broker or other nominee.

If you participate in householding and wish to receive a separate copy of the 2005 Report on Form 10-K or this prospectus/proxy statement/information statement, or if you do not wish to participate in householding and prefer to receive separate copies of these documents in the future, please contact The Bank of New York Shareholder Relations Dept., at P.O. Box 11258, Church Street Station, New York, New York 10286, or (800) 524-4458.

 

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PROPOSALS TO BE VOTED ON BY KNIGHT RIDDER SHAREHOLDERS

PROPOSAL 1: APPROVAL OF THE MERGER AGREEMENT AND THE MERGER

THE MERGER

The following is a description of the material aspects of the proposed merger and related transactions. The following description may not contain all of the information that is important to you. You should read this entire prospectus/proxy statement/information statement, including the section entitled “Risk Factors” beginning on page 21, and the other documents we refer to carefully for a more complete understanding of the merger and the related transactions.

Background of the Merger

In a series of conversations commencing in April 2005, which were initiated by Bruce Sherman of Private Capital Management, L.P. (PCM), the largest shareholder of Knight Ridder (which then held approximately 19% of Knight Ridder’s outstanding shares), Mr. Sherman expressed dissatisfaction to P. Anthony Ridder, the chairman and chief executive officer of Knight Ridder, concerning the trading value of Knight Ridder’s shares, and recommended that Knight Ridder close the valuation gap between its trading value and the greater value which might be realized from a sale of the company. During this period, Knight Ridder’s second and third largest shareholders, Southeastern Management, Inc. (Southeastern Management) (which then held approximately 8.9% of Knight Ridder’s outstanding shares) and Harris Associates, L.P. (Harris Associates) (which then held approximately 8.15% of Knight Ridder’s outstanding shares), also expressed dissatisfaction concerning Knight Ridder’s trading value. In April 2005, Knight Ridder retained Goldman, Sachs & Co. (Goldman Sachs) as its financial advisor and Wachtell, Lipton, Rosen & Katz (Wachtell Lipton) as its legal counsel with respect to these matters. At a meeting held on April 26, 2005, the Knight Ridder board of directors discussed PCM’s recommendation and the expressions of dissatisfaction from Knight Ridder’s three largest shareholders, and reviewed the issues presented with management, Goldman Sachs and Wachtell Lipton. The board decided that it was not a good time to pursue a sale of Knight Ridder. On the following day, April 27, 2005, Mr. Ridder contacted Mr. Sherman and advised him that the Knight Ridder board of directors had considered his views and reached the foregoing conclusion.

On July 14, 2005, Knight Ridder announced that its earnings per share for the second quarter of 2005 were $1.00, compared to $1.08 for the second quarter of 2004.

On July 19, 2005, in response to a request made on June 30, 2005 by Mr. Sherman of PCM, Mr. Sherman, Mason Hawkins of Southeastern Management and William Nygren of Harris Associates separately addressed the Knight Ridder board of directors regarding their dissatisfaction with the performance of Knight Ridder’s stock. They stated that Knight Ridder had failed to address the disparity between the current share price and the value that might be realized from a sale of the company and requested that Knight Ridder consider alternatives that could realize value. At that meeting, the Knight Ridder board of directors, after discussion with its legal and financial advisors and management of possible avenues for maximizing shareholder value, continued to be of the view that it was not a good time to pursue a sale of the company, and increased Knight Ridder’s regular quarterly dividend to $0.37 per share and authorized the repurchase of up to 10,000,000 additional shares of Knight Ridder’s common stock. On August 11, 2005, Knight Ridder announced that it would buy back those shares over the following six to nine months and that as a first step towards this objective it had purchased 5,000,000 shares from Goldman Sachs.

From August 11, 2005 to October 13, 2005, Knight Ridder’s stock price declined from $65.75 to $55.15 per share. On October 14, 2005, Knight Ridder announced that its earnings per share for the third quarter of 2005 from continuing operations were $0.61, compared to $0.93 for the third quarter of 2004. Subsequently, Knight Ridder’s stock price continued to decline.

On November 1, 2005, PCM sent a letter to the Knight Ridder board of directors calling on the board to pursue a competitive auction of Knight Ridder. The letter further stated that, in the absence of such an action by

 

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the board of directors, PCM would, among other things, strongly consider supporting more aggressive efforts that might be initiated by other parties seeking to change the composition of the Knight Ridder board of directors. PCM filed a Schedule 13D with the SEC on November 1, 2005 attaching the letter as an exhibit to the filing.

On November 3, 2005, Harris Associates sent a letter to the Knight Ridder board of directors urging the board to solicit offers for Knight Ridder to maximize the value of Knight Ridder for its shareholders. Harris Associates filed a Schedule 13D with the SEC on November 3, 2005 attaching the letter as an exhibit to the filing. In addition, on November 3, 2005, Southeastern Management filed a Schedule 13D with the SEC stating that it had reviewed PCM’s November 1, 2005 letter and that it desired the flexibility to discuss PCM’s recommendation with management and other shareholders.

Mr. Ridder and other members of management discussed, among other things, the actions by PCM, Harris Associates and Southeastern Management and Knight Ridder’s business prospects and the industry generally with Knight Ridder’s directors and its legal and financial advisors. As a result of these discussions, management determined to recommend to the Knight Ridder board of directors that it authorize the exploration of strategic alternatives to enhance shareholder value, including the possible sale of the company. A meeting of the board of directors of Knight Ridder was scheduled for November 13, 2005.

On November 10, 2005, PCM filed an amendment to its Schedule 13D stating that it was reviewing governance options and other courses of action regarding Knight Ridder and that it anticipated that it might nominate a slate of directors for election by shareholders at Knight Ridder’s 2006 annual meeting, depending in part on PCM’s evaluation of actions taken or proposed by Knight Ridder.

At a meeting held on November 13, 2005, the Knight Ridder board of directors discussed with its legal and financial advisors and management the letters from and filings by PCM, Harris Associates and Southeastern Management. The board of directors considered the current and potential future effects on Knight Ridder of the current actions by these shareholders and any anticipated future actions by them, as well as the outlook for Knight Ridder and the newspaper industry in general and potential avenues for maximizing shareholder value. Based on these factors and the discussions at this meeting and previous meetings, the Knight Ridder board of directors decided that Knight Ridder should explore strategic alternatives to enhance shareholder value, including a possible sale of the company. The board of directors also amended the notice provisions of Knight Ridder’s bylaws with respect to the deadline for submission of shareholder proposals and nominations for directors for the 2006 annual meeting of shareholders. On the morning of November 14, 2005, Knight Ridder publicly announced the decision to explore strategic alternatives and the bylaw amendment.

Following Knight Ridder’s public announcement, on November 16, 2005, McClatchy engaged Credit Suisse Securities (USA) LLC (Credit Suisse) to act as its financial advisor.

The Knight Ridder board of directors determined, in consultation with its legal and financial advisors and management, that a targeted solicitation process should be undertaken in which indications of interest from strategic and financial buyers considered to be likely potential acquirors or strategic partners would be solicited. The targeted process would be a two-step process involving, first, requesting that potentially interested parties provide non-binding indications of interest and, thereafter, selected potential bidders would be invited to perform due diligence and submit binding final proposals. Representatives of Goldman Sachs contacted a total of 34 parties, 21 of which signed confidentiality agreements, including McClatchy which signed a confidentiality agreement with Knight Ridder on November 23, 2005. Each of the potential bidders that signed a confidentiality agreement, including McClatchy, was sent a confidential information memorandum that contained financial and other information about Knight Ridder’s business.

On November 30, 2005, McClatchy’s board met to discuss Knight Ridder’s announcement and management provided the board its preliminary recommendations regarding McClatchy’s possible participation in Knight Ridder’s process.

 

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The Knight Ridder board of directors continued to meet with its legal and financial advisors and management during this time to discuss the status of the bid process, including the parties that had been contacted and the status of discussions with those parties. On December 9, 2005, 11 parties, including McClatchy, and one consortium of investors (which had not yet signed a confidentiality agreement and which had not been provided the confidential information memorandum) submitted preliminary indications of interest. A number of these parties indicated the need or desire to partner with other investors due to the potential size of an acquisition of Knight Ridder.

Knight Ridder determined that, after further discussion with a number of the potential bidders, certain of the parties that had submitted preliminary indications of interest should be invited into the next phase of the process, in which they were given access to an electronic data room with extensive additional information regarding Knight Ridder and were invited to attend presentations by management discussing the business. During this period, McClatchy and its advisors conducted a review of the materials contained in the electronic dataroom. Those potential bidders requesting to partner with other potential bidders were directed to identified potential bidders with whom they were authorized to bid jointly. Potential bidders continued their due diligence investigation over the next few months. Throughout the process, Knight Ridder and its legal and financial advisors responded to numerous due diligence requests from each interested party.

The Knight Ridder board of directors continued to meet, together with its legal and financial advisors and management, to discuss the status of the bidding process, as well as potential alternatives to a sale of Knight Ridder in order to maximize shareholder value. The board of directors of Knight Ridder retained an additional financial advisor, Morgan Stanley & Co. Incorporated, and, subsequently, an additional legal advisor, Skadden, Arps, Slate, Meagher & Flom, LLP, to assist Knight Ridder in the process of exploring strategic alternatives. During this time, and subsequently, the Knight Ridder board of directors also discussed with its legal advisors the determinations to be made under Article TENTH of Knight Ridder’s amended and restated articles of incorporation regarding the level of shareholder approval required for a potential transaction.

On January 12 and 13, 2006, senior members of McClatchy’s management, together with financial and legal advisors, attended due diligence meetings with senior members of Knight Ridder’s management. On January 24, 2006, McClatchy’s board received a report from management on the due diligence conducted to date regarding Knight Ridder, the strategic aspects and risks of combining Knight Ridder and McClatchy and other strategic options and management’s preliminary recommendations regarding submitting a bid. The board also received an overview of its fiduciary duties from its legal advisors and a preliminary valuation analysis from its financial advisors.

At a meeting held on January 29, 2006, the Knight Ridder board of directors decided, in light of the bid process, to postpone the 2006 annual meeting of shareholders from the date previously scheduled, April 18, 2006. In addition, the board of directors amended Knight Ridder’s bylaws to remove the requirement that the annual meeting be held in April or May.

On January 31, 2006, Knight Ridder announced that earnings per share from continuing operations for the fourth quarter of 2005 were $1.24, compared to $1.25 for the fourth quarter of 2004.

On February 17, 2006, a form of merger agreement was distributed to the potential bidders, including McClatchy. On February 21, 2006, final bid instruction letters were sent to each of the potential bidders, including McClatchy, requesting that final bids be received by March 9, 2006. The bid instruction letter also requested that potential bidders send any comments to the form of merger agreement by February 27, 2006, after which a revised version of the merger agreement would be distributed to bidders (and to the extent potential bidders wished to comment on the revised agreement, these comments were requested by March 8, 2006). The instruction letter further requested that any financing commitment letters be received by March 7, 2006.

 

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During this period, the management of Knight Ridder together with the company’s financial and legal advisors conducted a due diligence investigation of McClatchy because McClatchy had indicated that its acquisition proposal for Knight Ridder would include McClatchy common stock. This due diligence investigation included, among other things, a meeting with the senior management of McClatchy on February 24, 2006 and a number of conference calls.

On February 27, 2006, comments to the form of merger agreement were received from McClatchy and one consortium of private equity investors. Representatives of Wachtell Lipton had discussions with the legal advisors for these bidders concerning the substantive issues raised by their merger agreement comments. On March 3, 2006, revised forms of the merger agreement were distributed to these bidders. Comments to the form of merger agreement were not received from any of the other potential bidders. During this period, representatives of Goldman Sachs contacted the other remaining potential bidders, one of which indicated that it would not be submitting a final bid proposal and the other of which indicated that it planned to submit comments to the form of merger agreement shortly (which ultimately were never received).

On March 2, 2006, McClatchy’s board of directors received an update from management on the due diligence conducted to date regarding Knight Ridder, further discussion of the strategic aspects and risks of combining Knight Ridder and McClatchy and management’s further recommendations regarding submitting a bid. McClatchy’s financial advisors provided a valuation analysis and its legal advisors discussed the terms of the draft merger agreement, as proposed to be submitted with the final bid, and the board’s fiduciary duties.

On March 5, 2006, the Knight Ridder board of directors met with its legal and financial advisors and management to continue discussions of potential alternatives to a sale of Knight Ridder in order to maximize shareholder value, including engaging in a leveraged recapitalization of Knight Ridder and continuing to operate the Knight Ridder business as a stand-alone company.

On March 7, 2006, Knight Ridder received financing commitment letters from McClatchy. On March 8, 2006, Knight Ridder received comments to the revised merger agreement from McClatchy. Following a presentation from its financial advisor, on the morning of March 9, 2006, McClatchy’s board met and approved the submission of a final bid. On March 9, 2006, Knight Ridder received the final bid proposal from McClatchy. This proposal provided, in exchange for each share of Knight Ridder common stock, for the payment of $39.75, in cash, and the issuance of 0.515 of a share of McClatchy Class A common stock (with a total value per Knight Ridder share of $66.50 based on the closing trading price for McClatchy Class A common stock on March 9, 2006). McClatchy’s proposal also indicated that it intended to divest 12 of Knight Ridder’s newspapers, but that these divestitures would not be a condition to closing the transaction with Knight Ridder.

On March 9, 2006, Knight Ridder also received a proposal from the consortium of private equity investors that had supplied comments to the form of merger agreement. This bid provided for a per share value substantially below the value of the McClatchy bid. The bid proposal was not a definitive proposal, and indicated that it was subject to further due diligence investigation before the bidder would commit to moving forward with a transaction and that this due diligence would take approximately two weeks to complete. A final bid proposal was not received from any of the other potential bidders.

Knight Ridder’s management and legal and financial advisors met on the evening of March 9, 2006 to discuss the bids. In the early afternoon of March 10, 2006, Knight Ridder’s financial advisors discussed the proposed divestitures in the McClatchy bid with Gary B. Pruitt, Chairman, President and Chief Executive Officer of McClatchy. Subsequent to this discussion, representatives of Goldman Sachs discussed McClatchy’s bid with representatives of Credit Suisse, McClatchy’s financial advisor, including requesting McClatchy to increase its proposed per share consideration. McClatchy’s financial advisor responded that it would discuss the request with McClatchy. In addition, representatives of Wachtell Lipton discussed the substantive issues raised in McClatchy’s comments to the revised merger agreement with representatives of Wilson Sonsini Goodrich & Rosati, legal advisor to McClatchy.

 

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On the afternoon of March 10, 2006, the Knight Ridder board of directors met, together with its financial and legal advisors and management, to discuss the bid proposals. Knight Ridder’s financial advisors summarized the bid proposals for the board of directors, and its legal advisors summarized the key contract terms. The board of directors discussed and analyzed the McClatchy proposal, including the proposed purchase price, the mixture of cash and stock consideration, the proposed divestitures and any impediments to consummation of the transaction. The board of directors also discussed and analyzed the McClatchy proposal as compared to possible other strategic alternatives, particularly a leveraged recapitalization. The Knight Ridder board of directors authorized its legal and financial advisors and management to pursue a transaction with McClatchy.

As a result of further negotiations, representatives of McClatchy and Knight Ridder reached tentative agreement (subject to the approval of their companies’ respective boards of directors) that the proposed merger consideration would be comprised of $40.00 in cash and 0.5118 of a share of McClatchy Class A common stock per share of Knight Ridder common stock (with a total per share value of $67.25 based on the closing trading price for McClatchy Class A common stock on March 10, 2006). From March 10, 2006 and continuing through March 12, 2006, the respective representatives and advisors of Knight Ridder and McClatchy engaged in negotiations regarding the merger agreement.

On March 12, 2006, the Knight Ridder board of directors met with its legal and financial advisors and management to discuss the negotiations with McClatchy, the terms of the proposed merger agreement and the transactions contemplated by the merger agreement, potential strategic alternatives to a sale transaction and the directors’ fiduciary duties and responsibilities under applicable law. Representatives of Goldman Sachs and Morgan Stanley then made a presentation to the Knight Ridder board of directors regarding the solicitation process and the bids received, as well as an analysis of the financial terms of the proposed transaction with McClatchy, which analysis is summarized below under the caption “The Merger—Opinions of Knight Ridder Financial Advisors” beginning on page 47. Goldman Sachs and Morgan Stanley then delivered to the Knight Ridder board of directors their respective oral opinions, which opinions were subsequently confirmed in written opinions dated March 12, 2006, to the effect that, as of that date and based upon and subject to the factors and assumptions set forth in the opinions, the consideration to be received by holders of shares of Knight Ridder common stock, taken in the aggregate, pursuant to the merger agreement with McClatchy was fair from a financial point of view to such holders.

Following the presentations by Goldman Sachs and Morgan Stanley and the delivery of their respective opinions, the Knight Ridder board of directors considered the proposed transaction with McClatchy, including the positive and negative factors described below in the section entitled “The Merger—Consideration of the Merger by Knight Ridder” beginning on page 44. The Knight Ridder board of directors then unanimously adopted the merger agreement and the merger and declared their advisability, directed that the merger agreement and the merger be submitted to shareholders of Knight Ridder for approval and recommended that Knight Ridder shareholders approve the merger agreement and the merger.

On March 12, 2006, following presentations by Credit Suisse and the delivery of its fairness opinion and a presentation by McClatchy’s legal advisors on the terms of the final merger agreement, McClatchy’s board considered the final merger agreement, the perceived benefits and risks and other matters described below in the section entitled “The Merger—Consideration of the Merger by the McClatchy Board of Directors” beginning on page 38. McClatchy’s board of directors then unanimously adopted the merger agreement and declared its advisability and recommended that certain McClatchy Class B stockholders approve the merger by written consent. Knight Ridder and McClatchy executed the merger agreement on the evening of March 12, 2006. Subsequent to the execution of the merger agreement, certain McClatchy Class B stockholders executed and delivered written consents approving the merger. McClatchy and Knight Ridder issued a joint press release on the morning of March 13, 2006.

On March 24, 2006, a meeting of the Knight Ridder board of directors was held to determine the level of shareholder approval to be required to approve the transactions with McClatchy. At this meeting, the board determined that, because of McClatchy’s intention to sell 12 of Knight Ridder’s newspapers accounting for approximately 45% of Knight Ridder’s aggregate daily circulation and the buyers of these newspapers were

 

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unknown, it would not be in a position to make the determination which would need to be made under Article TENTH of Knight Ridder’s amended and restated articles of incorporation in order to lower the voting requirement for the merger from 80% of the outstanding common stock of Knight Ridder. To make that determination, the Knight Ridder board of directors would need to conclude that newspapers which accounted for at least 90% of Knight Ridder’s aggregate daily circulation would continue to serve their respective communities and other constituencies after the merger with the same journalistic excellence, integrity and independence as existed prior to the merger. As a result, the affirmative vote of holders of not less than 80% of Knight Ridder’s outstanding common stock would be required to approve the merger agreement with McClatchy.

Consideration of the Merger by the McClatchy Board of Directors

At a meeting held on March 12, 2006, the McClatchy board of directors unanimously:

 

    Determined that the merger agreement is advisable and approved and adopted the merger agreement;

 

    Determined that the certificate amendment is advisable and approved and adopted the certificate amendment;

 

    Directed that adoption of the merger agreement, approval of the certificate amendment and approval of the issuance of shares of McClatchy Class A common stock in connection with the merger be submitted for approval by written consent of specified holders of McClatchy Class B common stock; and

 

    Resolved to recommend that McClatchy stockholders vote “for” the adoption of the merger agreement, approval of the certificate amendment and approval of the issuance of shares of McClatchy Class A common stock in connection with the merger.

The McClatchy board of directors believes that the following are reasons the merger is expected to be beneficial to McClatchy and its stockholders:

 

    Given the complementary nature of the businesses of McClatchy and Knight Ridder, the combined company should be able to serve a broader reach of readers and communities and is expected to continue to maintain high quality journalism;

 

    Scale and cost synergies may enhance the combined company’s ability to effectively enhance its business and shareholder value;

 

    The broadening of geographic scope and combination of the companies’ newspapers and other businesses may enable the combined company to meet the needs of a broader reach of advertisers and other constituents more effectively and efficiently;

 

    The combined experience, financial resources, size and breadth of communities served by the combined company may allow the combined company to respond more quickly and effectively to increased competition;

 

    The combined company is expected to provide an opportunity to utilize effectively the skills and resources of the combined company’s employees and editorial staffs and extend the long histories at McClatchy and Knight Ridder of journalistic excellence and integrity; and

 

    The merger is expected to provide the combined company with an improved platform for future growth.

In reaching its decision to approve the merger agreement, the McClatchy board of directors consulted with McClatchy’s management, McClatchy’s legal counsel and took into account a written opinion of McClatchy’s financial advisors with respect to the fairness, from a financial point of view, of the merger consideration to McClatchy. The factors that the McClatchy board of directors considered in reaching its determination include, but were not limited to, the following:

 

    The strategic benefits of the merger;

 

   

Historical information concerning McClatchy’s and Knight Ridder’s respective businesses, prospects, financial performance and condition, operations, management and competitive position, including

 

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information contained in public reports concerning results of operations during the most recent fiscal year and fiscal quarter for each of McClatchy and Knight Ridder filed with the SEC;

 

    McClatchy management’s view of the financial condition, results of operations and businesses of McClatchy and Knight Ridder before and after giving effect to the merger;

 

    Current financial market conditions and historical market prices, volatility and trading information with respect to McClatchy’s Class A common stock and the common stock of Knight Ridder;

 

    The relationship between the market value of the common stock of Knight Ridder and the consideration proposed to be paid to shareholders of Knight Ridder in the merger and a comparison of comparable merger transactions;

 

    The belief that the terms of the merger agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, are reasonable;

 

    Credit Suisse’s opinion to the effect that, as of March 12, 2006, and based on and subject to the matters described in the opinion, the merger consideration to be paid by McClatchy in the merger was fair, from a financial point of view, to McClatchy, and the financial analyses performed by Credit Suisse in connection with its opinion;

 

    Potential synergy opportunities identified by management of McClatchy in connection with the combination of McClatchy and Knight Ridder; and

 

    Reports from McClatchy’s management and McClatchy’s legal advisors as to the results of the due diligence investigation of Knight Ridder.

In addition, the McClatchy board of directors also identified and considered a variety of potentially negative factors in its deliberations concerning the merger, including, but not limited to:

 

    The risk that the potential benefits sought in the merger might not be fully realized;

 

    The possibility that the merger might not be consummated, or that consummation might be unduly delayed, and the effect of public announcement of the merger on McClatchy’s sales and operating results and the price of its Class A common stock;

 

    The substantial charges to be incurred in connection with the merger, including costs of integrating the businesses and transaction expenses arising from the merger;

 

    The risk that despite the efforts of the combined company, key employees might not remain employed by the combined company;

 

    The need for strategic divestitures to achieve the full benefits of the merger;

 

    The fact that, following delivery of the McClatchy written consent, McClatchy stockholders will not have the opportunity to vote on the merger; and

 

    Various other risks associated with the merger and the business of McClatchy, Knight Ridder and the combined company, including those described in the section entitled “Risk Factors” beginning on page 21.

The above discussion of the material factors considered by the McClatchy board of directors is not intended to be exhaustive, but does set forth the principal factors considered by the McClatchy board of directors. The McClatchy board of directors collectively reached the conclusion to approve the merger agreement and the certificate amendment in light of the various factors described above and other factors that each member of the McClatchy board of directors felt were appropriate. In view of the wide variety of factors considered by the McClatchy board of directors in connection with its evaluation of the merger and the complexity of these matters, the McClatchy board of directors did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Rather, the McClatchy board

 

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of directors made its recommendation based on the totality of information presented to, and the investigation conducted by, it. In considering the factors discussed above, individual directors may have given different weights to different factors.

Opinion of McClatchy Financial Advisor

Credit Suisse acted as McClatchy’s financial advisor in connection with the merger. In connection with Credit Suisse’s engagement, McClatchy requested that Credit Suisse evaluate the fairness, from a financial point of view, to McClatchy of the merger consideration to be paid by McClatchy pursuant to the terms of the merger agreement. On March 12, 2006, at a telephonic meeting of McClatchy’s board of directors held to evaluate the merger, Credit Suisse rendered to McClatchy’s board of directors an oral opinion, subsequently confirmed in writing and dated March 12, 2006, to the effect that, as of that date and based on and subject to the matters described in the opinion, the merger consideration to be paid by McClatchy in the merger was fair, from a financial point of view, to McClatchy.

The full text of Credit Suisse’s written opinion, dated March 12, 2006, to McClatchy’s board of directors, which sets forth the procedures followed, assumptions made, matters considered and limitations on the review undertaken, is attached as Annex B and is incorporated into this prospectus/proxy statement/information statement by reference. Shareholders of McClatchy are urged to read this opinion carefully in its entirety. Credit Suisse’s opinion was provided to McClatchy’s board of directors in connection with its consideration of the merger and addresses only the fairness, from a financial point of view, to McClatchy of the merger consideration to be paid by McClatchy pursuant to the terms of the merger agreement and does not address any other aspect or implication of the merger or any other agreement, arrangement or understanding entered into in connection with the merger or otherwise and does not constitute a recommendation to any shareholder as to how such shareholder should vote or act on any matter relating to the merger. Credit Suisse’s opinion did not take into account or address the implications of any divestiture of any assets of Knight Ridder, McClatchy or their respective subsidiaries or any other transaction that McClatchy may consider in connection with the merger or otherwise. The summary of Credit Suisse’s opinion in this prospectus/proxy statement/information statement is qualified in its entirety by reference to the full text of the opinion.

In arriving at its opinion, Credit Suisse reviewed the merger agreement and certain publicly available business and financial information relating to Knight Ridder and McClatchy. Credit Suisse also reviewed certain other information relating to Knight Ridder and McClatchy, including financial forecasts, provided to or discussed with Credit Suisse by the managements of Knight Ridder and McClatchy, and met with the managements of Knight Ridder and McClatchy to discuss the businesses and prospects of Knight Ridder and McClatchy, respectively. Credit Suisse also considered financial and stock market data of Knight Ridder and McClatchy and compared that data with similar data for other publicly held companies in businesses Credit Suisse deemed similar to those of Knight Ridder and McClatchy, respectively, and considered, to the extent publicly available, the financial terms of certain other business combinations and other transactions which have been effected. Credit Suisse also considered other information, financial studies, analyses and investigations and financial, economic and market criteria that it deemed relevant.

In connection with its review, Credit Suisse did not assume any responsibility for independent verification of any of the foregoing information and relied on that information being complete and accurate in all material respects. With respect to the financial forecasts (including adjustments thereto) for, and other estimated data (including valuations of certain investments) of, Knight Ridder and McClatchy which have been provided to Credit Suisse, Credit Suisse was advised by the managements of Knight Ridder and McClatchy and assumed that such forecasts and estimates were reasonably prepared on bases that reflected the best currently available estimates and judgments of the managements of Knight Ridder and McClatchy as to the future financial performance of Knight Ridder and McClatchy and such estimated data. With respect to the estimates provided to Credit Suisse by the management of McClatchy with respect to cost savings and other potential synergies anticipated to result from the merger, Credit Suisse was advised by the management of McClatchy, and Credit

 

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Suisse assumed, that those forecasts were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of McClatchy as to such cost savings and synergies, and would be realized in the amounts and at the times indicated thereby. Credit Suisse assumed, with McClatchy’s consent, that the merger would be treated as a tax-free reorganization for federal income tax purposes. Credit Suisse also assumed, with McClatchy’s consent, that in the course of obtaining necessary regulatory and third party consents, approvals or agreements in connection with the merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Knight Ridder, McClatchy or the contemplated benefits of the merger and that the merger would be consummated in accordance with the terms of the merger agreement without waiver, modification or amendment of any material term, condition or agreement therein. In addition, Credit Suisse was not requested to make, and it did not make, an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of Knight Ridder, and Credit Suisse was not furnished with any such evaluations or appraisals.

Credit Suisse’s opinion was necessarily based on information made available to it as of the date of the opinion and upon financial, economic, market and other conditions as they existed and could be evaluated on the date of Credit Suisse’s opinion. Credit Suisse did not express any opinion as to the actual value of McClatchy Class A shares when issued to Knight Ridder’s shareholders pursuant to the merger or the prices at which McClatchy Class A shares would trade at any time. Credit Suisse’s opinion did not address the relative merits of the merger as compared to alternative transactions or strategies that might be available to McClatchy, nor did it address the underlying business decision of McClatchy to proceed with the merger.

In preparing its opinion, Credit Suisse performed a variety of financial and comparative analyses, including those briefly described below. The summary of Credit Suisse’s analyses described below is not a complete description of the analyses underlying Credit Suisse’s opinion. The preparation of a financial opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, Credit Suisse made qualitative judgments as to the significance and relevance of each analysis and factor that it considered. Credit Suisse arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis. Accordingly, Credit Suisse believes that its analyses must be considered as a whole and that selecting portions of its analyses and factors, without considering all analyses and factors, could create a misleading or incomplete view of the processes underlying its analyses and opinion.

In its analyses, Credit Suisse considered industry performance, general business, economic, market and financial conditions, and other matters, many of which are beyond the control of Knight Ridder and McClatchy. No company, transaction or business used in Credit Suisse’s analyses as a comparison is identical to Knight Ridder, McClatchy or the merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions analyzed. The estimates contained in Credit Suisse’s analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, analyses relating to the value of businesses or securities do not necessarily purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Credit Suisse’s analyses are inherently subject to substantial uncertainty.

Credit Suisse’s opinion and financial analyses were only one of many factors considered by McClatchy’s board of directors in its evaluation of the merger and should not be viewed as determinative of the views of McClatchy’s board of directors with respect to the merger or the merger consideration.

The following is a brief summary of the material financial analyses performed by Credit Suisse and reviewed with McClatchy’s board of directors in connection with Credit Suisse’s opinion dated March 12, 2006

 

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relating to the merger. The financial analyses summarized below include information presented in tabular format. In order to fully understand Credit Suisse’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Credit Suisse’s financial analyses. For purposes of the analyses described below, certain of the estimated data for Knight Ridder were based on internal estimates of Knight Ridder’s management as adjusted by McClatchy’s management and estimated data for McClatchy were based on internal estimates of McClatchy’s management.

Knight Ridder Analysis

Comparable Company Trading Analysis. Using publicly available information, Credit Suisse reviewed the market values and trading multiples of the following selected publicly traded companies in the newspaper publishing industry in the U.S.:

Selected Companies

Belo Corp.

Gannett Co., Inc.

Journal Register Company

Lee Enterprises, Incorporated

The McClatchy Company

Media General, Inc.

The New York Times Company

Tribune Company

Multiples were based on closing market prices on March 10, 2006. Estimated data for the selected companies were based on publicly available research analysts’ estimates and public filings. Certain estimated data regarding investments for McClatchy were based on estimates provided by McClatchy. Credit Suisse calculated for each of the selected companies enterprise values (equity value plus net debt plus minority interest and preferred stock less the value of any off-balance sheet or unconsolidated investments) as multiples of estimated calendar years 2006 and 2007 EBITDA and equity values per share as multiples of estimated calendar years 2006 and 2007 earnings per share, commonly referred to as EPS. Credit Suisse then applied ranges of selected multiples described above for the selected companies to corresponding financial data for Knight Ridder, based on estimates prepared and provided by McClatchy management. This analysis indicated an implied per share equity reference range for Knight Ridder of $55.75 to $65.50.

Comparable Transaction Analysis. Using publicly available information, Credit Suisse reviewed the transaction multiples of the following sixteen merger and acquisition transactions announced since 1993 in the newspaper publishing industry:

 

Acquiror

  

Target/Seller

Lee Enterprises, Incorporated    Pulitzer Inc.
The Blackstone Group and Providence Equity Partners    Freedom Communications, Inc.
Lee Enterprises, Incorporated    Howard Publications, Inc.
Gannett Co., Inc.    Central Newspapers, Inc.
Tribune Company    The Times Mirror Company
Gannett Co., Inc.    Thomson Newspapers, Inc.
Community Newspaper Holdings, Inc.    Thomson Newspapers, Inc.
Freedom Communications, Inc.    Thomson Newspapers, Inc.
Media General, Inc.    Thomson Newspapers, Inc.
The Seattle Times Co.    Guy Gannett Communications, Inc.
Journal Register Company    Goodson Newspaper Group Inc.

 

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Acquiror

  

Target/Seller

McClatchy Newspapers Inc.    Cowles Media Co.
Knight-Ridder, Inc.    Capital Cities/ABC Inc.
The E.W. Scripps Company    Harte-Hanks Communications, Inc.
Media General, Inc.    Park Communications Inc.
The New York Times Company    The Boston Globe

Multiples for the selected transactions were based on publicly available financial information at the time of announcement of the relevant transaction. Credit Suisse compared transaction values in the selected transactions as multiples of the target companies’ expected EBITDA for the year during which each transaction was announced. Credit Suisse then applied a range of multiples described above for the selected companies to corresponding financial data for Knight Ridder, based on estimates prepared and provided by McClatchy management, in order to derive an implied enterprise reference range for Knight Ridder. This analysis indicated an implied per share equity reference range for Knight Ridder of $82.60 to $102.15.

Discounted Cash Flow Analysis. Using a discounted cash flow analysis, Credit Suisse calculated an estimated range of net present values per Knight Ridder share. Credit Suisse calculated the estimated net present value of the unlevered after-tax free cash flows that Knight Ridder could generate for the period from 2006 to 2010. Credit Suisse also calculated a range of estimated terminal values (estimated value of future cash flow from an asset at a particular point in time in the future) for Knight Ridder by multiplying estimated calendar year 2011 EBITDA by selected multiples ranging from 8.25x to 10.00x. Estimated financial data for Knight Ridder were based on estimates prepared and provided by McClatchy management. The estimated after-tax free cash flows and terminal values were then discounted to the present value using discount rates of 8.0% to 9.0%. This analysis indicated an implied per share equity reference range for Knight Ridder of $61.65 to $79.10. Credit Suisse also calculated a range of net present values per Knight Ridder share using the same estimated financial data prepared and provided by McClatchy management for the same time period adjusted for estimates of synergies and one-time costs prepared and provided by McClatchy management. This analysis, using the same discount rates and terminal multiples described above, indicated an implied per share price equity reference range for Knight Ridder of $67.25 to $86.05.

McClatchy Analysis

Comparable Company Trading Analysis. Using publicly available information, Credit Suisse reviewed the market values and trading multiples of the following selected publicly traded companies in the newspaper publishing industry in the U.S.:

Selected Companies

Belo Corp.

Gannett Co., Inc.

Journal Register Company

Lee Enterprises, Incorporated

Knight-Ridder, Inc.

Media General, Inc.

The New York Times Company

Tribune Company

Multiples were based on closing market prices on March 10, 2006. Estimated data for the selected companies were based on publicly available research analysts’ estimates and public filings. Certain estimated data regarding minority interests and investments for Knight Ridder were based on estimates provided by McClatchy. Credit Suisse compared for each of the selected companies enterprise values (equity value plus net debt plus minority interest and preferred stock less the value of any off-balance sheet or unconsolidated investments) as multiples of estimated calendar years 2006 and 2007 EBITDA and equity values per share as

 

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multiples of estimated calendar years 2006 and 2007 earnings per share, commonly referred to as EPS. Credit Suisse then applied ranges of selected multiples described above for the selected companies to corresponding financial data for McClatchy, based on internal estimates prepared and provided by McClatchy management. This analysis indicated an implied per share equity reference range for McClatchy of $56.50 to $63.70.

Discounted Cash Flow Analysis. Using a discounted cash flow analysis, Credit Suisse calculated an estimated range of net present values per McClatchy share. Credit Suisse calculated the estimated net present value of the unlevered after-tax free cash flows for the period from 2005 through 2010. Credit Suisse also calculated a range of estimated terminal values (estimated value of future cash flow from an asset at a particular point in time in the future) for McClatchy by multiplying estimated calendar year 2011 EBITDA by selected multiples ranging from 8.25x to 10.00x. Estimated financial data for McClatchy were based on internal estimates prepared and provided by McClatchy management. The estimated after-tax free cash flows and terminal values were then discounted to the present value using discount rates of 8.0% to 9.0%. This analysis indicated an implied per share equity reference range for McClatchy of $59.70 to $73.00.

Miscellaneous

McClatchy selected Credit Suisse based on Credit Suisse’s experience, reputation and familiarity with McClatchy and its business. Credit Suisse is an internationally recognized investment banking firm and is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes.

From time to time, Credit Suisse and its affiliates have in the past provided investment banking and other financial services to Knight Ridder and McClatchy, and are currently providing, and in the future may provide, such services to McClatchy, for which services Credit Suisse has received, and would expect to receive, compensation. Credit Suisse is a full service securities firm engaged in securities trading and brokerage activities as well as providing investment banking and other financial services. In the ordinary course of business, Credit Suisse and its affiliates may acquire, hold or sell, for it or its affiliates own accounts and the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of Knight Ridder, McClatchy and any other company that may be involved in the merger, as well as provide investment banking and other financial services to such companies.

McClatchy has agreed to pay Credit Suisse a fee that is customary in transactions of this nature, a substantial portion of which is contingent upon the consummation of the merger. Credit Suisse is also entitled to a fee which became payable upon delivery of its opinion. McClatchy has also agreed to reimburse Credit Suisse for reasonable expenses, including fees and expenses of legal counsel and any other advisor retained by Credit Suisse, resulting from or arising out of its engagement. McClatchy has further agreed to indemnify Credit Suisse and related parties against liabilities, including liabilities under the federal securities laws, arising out of its engagement.

Consideration of the Merger by Knight Ridder

At a meeting held on March 12, 2006, the Knight Ridder board of directors unanimously adopted the merger agreement and the merger, directed that the merger agreement and the merger be submitted to shareholders of Knight Ridder for approval and recommended that Knight Ridder shareholders approve the merger agreement and the merger. In reaching its decision, the Knight Ridder board of directors consulted with Knight Ridder’s management, as well as its financial and legal advisors, and considered a variety of factors, including the following:

 

   

the Knight Ridder board of directors’ familiarity with, and understanding of, Knight Ridder’s business, financial condition, results of operations, current business strategy, earnings and prospects and its

 

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understanding of McClatchy’s business, financial condition, results of operations, business strategy, earnings and prospects;

 

    the Knight Ridder board of directors’ understanding of the current and prospective markets in which Knight Ridder operates, including national and local economic conditions, the competitive environment and the potential effect of these factors on Knight Ridder in light of, and in the absence of, the merger;

 

    the request by three of Knight Ridder’s large shareholders that Knight Ridder seek a sale of the company, together with the threat of a proxy contest by, or which would be supportive of the position advocated by, one or more of these shareholders if Knight Ridder did not seek a sale; the expectation that such a proxy contest would be waged and would result in a prolonged period of turmoil which would be harmful to Knight Ridder; and the concern that, unless the Knight Ridder board of directors pursued an exploration process, Knight Ridder could be subject to an eventual change in the majority of its board without Knight Ridder shareholders receiving a change of control premium;

 

    the historical trading price of Knight Ridder common stock, including the fact that the per share merger consideration of 0.5118 of a share of McClatchy Class A common stock and $40.00 in cash (with a combined value equal to $67.25 per share based upon the closing sale price of McClatchy common stock on March 10, 2006, the last trading day prior to the announcement of the merger agreement) represents a premium of approximately 26.0% over $53.38, which was the per share closing price of Knight Ridder common stock on October 31, 2005 (the last trading day before PCM publicly requested that the Knight Ridder board of directors pursue a competitive sale of Knight Ridder);

 

    the opinions of each of Goldman Sachs and Morgan Stanley, Knight Ridder’s financial advisors, that, as of March 12, 2006, and based upon and subject to the factors and assumptions set forth in the opinions, the consideration to be received by holders of shares of Knight Ridder common stock, taken in the aggregate, pursuant to the merger agreement was fair from a financial point of view to such holders (see “The Merger—Opinions of Knight Ridder Financial Advisors” beginning on page 47);

 

    Knight Ridder shareholders will receive a substantial cash payment for their shares, while at the same time retaining an equity stake in the combined company, which will afford Knight Ridder shareholders the opportunity to participate in the future financial performance of a large national newspaper publishing company;

 

    Knight Ridder conducted an extended process (which was widely reported in the press) which explored the possible sale of the company and potential alternatives to a sale of the company, including a leveraged recapitalization, as well as continuing to operate Knight Ridder as a stand-alone company; the Knight Ridder board of directors determined, upon the conclusion of such exploration process, that the merger with McClatchy represents the greatest value achievable for Knight Ridder shareholders under the current circumstances;

 

    the Knight Ridder board of directors believes that McClatchy has demonstrated a commitment to quality journalism over many years and will continue to operate the Knight Ridder properties that McClatchy will retain consistent with that commitment; in this regard, the Knight Ridder board of directors considered favorably the expertise in the publishing industry that McClatchy will bring to the Knight Ridder properties that McClatchy will retain;

 

    the ability of the Knight Ridder board of directors, subject to the terms of the merger agreement (including the payment of a termination fee under certain circumstances), to evaluate an alternative acquisition proposal which may be made prior to shareholder approval of the transaction with McClatchy, to withdraw its recommendation to the Knight Ridder shareholders to approve the merger agreement and to terminate the merger agreement to accept a superior proposal, consistent with the Knight Ridder board of directors’ fiduciary obligations;

 

   

the Knight Ridder board of directors’ consideration, with the assistance of its advisors, of the proposed transaction structure, including the fact that the merger agreement provides for a fixed exchange ratio

 

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for the stock portion of the merger consideration, regardless of any change in the trading value of McClatchy stock between signing the merger agreement and closing of the merger, the likelihood of consummation of the merger, the likely time period necessary to close the merger and the general terms and conditions of the merger agreement, including the parties’ representations, warranties and covenants and the termination provisions of the agreement; and

 

    the expectation that the merger would qualify as a reorganization for federal income tax purposes.

In the course of its deliberations, the Knight Ridder board of directors also considered a variety of risks and other potentially negative factors, including the following:

 

    the risks of the type and nature described under “Risk Factors” beginning on page 21;

 

    because the merger agreement provides for a fixed exchange ratio, if the price of McClatchy Class A common stock at the time of closing is lower than the price at the time of signing, the value received by holders of Knight Ridder common stock in the merger would be less, and possibly materially less, than the value as of the date of the merger agreement;

 

    McClatchy’s intention to divest 12 of Knight Ridder’s newspapers; although the merger is not conditioned on the completion of, or execution of agreements providing for, such divestitures, the Knight Ridder board of directors considered as negative factors the disruption to be faced by its organization, particularly at the newspapers to be divested, as a result of the proposed divestitures and the board’s inability to determine the purchasers of such newspapers or to take into account in any such decisions the purchasers’ commitment to quality journalism;

 

    the difference in rights between McClatchy’s Class A common stock and Class B common stock, including the lower voting rights of McClatchy’s Class A common stock as compared to McClatchy’s Class B common stock, the effect of which is that the voting power of the holders of Class A common stock is not commensurate with such holders’ economic stake in McClatchy; further, the Class A/Class B structure results in control of McClatchy residing with the McClatchy family, which may enhance stability of McClatchy’s stock ownership and, as a result, be beneficial from a journalistic perspective but which has the corresponding effects of preventing a change of control of McClatchy and deterring potential acquirors from making an offer to McClatchy’s stockholders;

 

    the risk that the various restrictions contained in the merger agreement relating to alternative acquisition proposals, including the limitations on solicitation of alternative acquisition proposals, the right of McClatchy to obtain information with respect to any alternative acquisition proposals and to a negotiating period after receipt by Knight Ridder of a superior proposal, and the termination fee provisions in the merger agreement, could discourage a competing proposal to acquire Knight Ridder or reduce the price in an alternative transaction;

 

    certain of Knight Ridder’s directors and officers may have conflicts of interest in connection with the merger, as they may receive certain benefits that are different from, and in addition to, those of Knight Ridder’s other shareholders (see “The Merger—Interests of Certain Persons in the Merger” beginning on page 62);

 

    the absence of appraisal rights under Florida law for Knight Ridder shareholders who would seek to object to the merger; and

 

    Knight Ridder may incur significant risks and costs if the merger does not close, including the diversion of management and employee attention during the period after the signing of the merger agreement, potential employee attrition and the potential effect on Knight Ridder’s business and relations with customers and service providers, including the fact that, under the merger agreement, Knight Ridder must conduct its business in the ordinary course and is subject to a variety of other restrictions on the conduct of its business prior to completion of the merger or termination of the merger agreement, which may delay or prevent Knight Ridder from undertaking business opportunities that may arise or preclude actions that would be advisable if Knight Ridder were to remain an independent public company.

 

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The foregoing discussion of the information and factors discussed by the Knight Ridder board of directors is not exhaustive but does set forth the principal factors considered by the Knight Ridder board of directors. In view of the wide variety of factors considered by the Knight Ridder board of directors in connection with its evaluation of the merger agreement and the merger and the complexity of these matters, the Knight Ridder board of directors did not consider it practical, and did not attempt to quantify, rank or assign any relative or specific weight to the various factors that it considered. Rather, the Knight Ridder board of directors based its recommendation on the totality of the information presented to and considered by it. In addition, individual members of the board may have given different weight to different factors.

Opinions of Knight Ridder Financial Advisors

Opinion of Goldman Sachs

Goldman Sachs rendered its opinion to Knight Ridder’s board of directors that, as of March 12, 2006 and based upon and subject to the factors and assumptions set forth therein, the consideration to be received by holders of shares of Knight Ridder common stock, taken in the aggregate, pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Goldman Sachs, dated March 12, 2006, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C. Goldman Sachs provided its opinion for the information and assistance of Knight Ridder’s board of directors in connection with its consideration of the transaction. The Goldman Sachs opinion is not a recommendation as to how any holder of Knight Ridder’s common stock should vote with respect to the merger.

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

    the merger agreement;

 

    annual reports to stockholders and annual reports on Form 10-K of Knight Ridder and McClatchy for the five fiscal years ended December 25, 2005;

 

    interim reports to stockholders and quarterly reports on Form 10-Q of Knight Ridder and McClatchy;

 

    other communications from Knight Ridder and McClatchy to their respective stockholders;

 

    internal financial analyses and forecasts for Knight Ridder prepared by its management based on alternative scenarios;

 

    internal financial analyses and forecasts for McClatchy prepared by its management; and

 

    cost savings and operating synergies projected by the management of McClatchy to result from the merger.

Goldman Sachs also held discussions with members of the senior management of Knight Ridder and McClatchy regarding their assessment of the strategic rationale for, and the potential benefits of, the merger and the past and current business operations, financial condition, and future prospects of their respective companies, including the view of management and the board of directors of Knight Ridder regarding the risks and uncertainties relating to Knight Ridder’s ability to realize its internal financial forecasts in the amounts and time periods contemplated thereby. In addition, Goldman Sachs reviewed the reported price and trading activity for Knight Ridder common stock and McClatchy Class A common stock, compared certain financial and stock market information for Knight Ridder and McClatchy with similar information for certain other companies the securities of which are publicly traded, and reviewed the financial terms of certain recent business combinations in the newspaper publishing industry specifically and in other industries generally and performed such other studies and analyses, and considered such other factors, as it considered appropriate.

 

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Goldman Sachs relied upon the accuracy and completeness of all of the financial, legal, accounting, tax and other information discussed with or reviewed by it and assumed such accuracy and completeness for purposes of rendering the opinion described above. Goldman Sachs also assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the transaction will be obtained without any adverse effect on Knight Ridder or McClatchy or on the expected benefits of the transaction in any way meaningful to its analysis. In addition, Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or off-balance-sheet assets and liabilities) of Knight Ridder or McClatchy or any of their respective subsidiaries, nor was any evaluation or appraisal of the assets or liabilities of Knight Ridder or McClatchy or any of their respective subsidiaries furnished to Goldman Sachs. Goldman Sachs’ opinion does not address the relative merits of the merger as compared to any alternative business transaction that might be available to Knight Ridder, nor does it address the underlying business decision of Knight Ridder to engage in the merger. In addition, Goldman Sachs did not express any opinion as to the prices at which shares of Knight Ridder common stock or McClatchy Class A common stock will trade at any time. Goldman Sachs’ opinion was necessarily based on the economic, monetary, market and other conditions as in effect on, and the information made available to Goldman Sachs as of, March 12, 2006.

The following is a summary of the material financial analyses delivered by Goldman Sachs to the board of directors of Knight Ridder in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before March 10, 2006 and is not necessarily indicative of current market conditions.

Historical Stock Trading Analysis. Goldman Sachs reviewed the historical trading prices and volumes for the Knight Ridder common stock for the one-year period ended March 10, 2006. In addition, Goldman Sachs analyzed the consideration to be received by holders of Knight Ridder common stock pursuant to the merger agreement in relation to the latest twelve month high and low market prices of the Knight Ridder common stock and in relation to the price of Knight Ridder common stock on October 31, 2005, the last trading day before Private Capital Management filed a beneficial ownership statement on Schedule 13D that requested that management pursue a competitive sale of the Knight Ridder, and March 10, 2006.

This analysis indicated that the price per share to be paid to Knight Ridder shareholders pursuant to the merger agreement represented:

 

    a discount of 1.3% based on the latest twelve months high market price of $68.13 per share;

 

    a premium of 27.9% based on the latest twelve months low market price of $52.58 per share;

 

    a premium of 26.0% based on the October 31, 2005 market price of $53.38 per share; and

 

    a premium of 3.5% based on the March 10, 2006 market price of $65.00 per share.

Selected Companies Analysis. Goldman Sachs reviewed and compared certain financial information for Knight Ridder and McClatchy to corresponding financial information, ratios and public market multiples for the following publicly traded corporations in the newspaper publishing industry:

 

    Gannett Co., Inc.;

 

    Journal Register Company;

 

    Lee Enterprises, Incorporated;

 

    The New York Times Company;

 

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    Tribune Company; and

 

    The Washington Post Company.

Although none of the selected companies is directly comparable to Knight Ridder or McClatchy, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of Knight Ridder and McClatchy.

Goldman Sachs also calculated and compared various financial multiples and ratios based on information it obtained from SEC filings and Institutional Brokers Estimates System (IBES) estimates. The multiples and ratios of Knight Ridder were calculated using the Knight Ridder common stock closing price on both October 31, 2005 and March 10, 2006, and the multiples and ratios of McClatchy were calculated using the McClatchy Class A common stock closing price on March 10, 2006. The multiples and ratios of Knight Ridder and McClatchy were also based on IBES estimates. The multiples and ratios for each of the selected companies were based on the most recent publicly available information. With respect to the selected companies, Goldman Sachs calculated:

 

    enterprise value, which is the market value of common equity plus the book value of minority interest, preferred stock and debt less cash, as a multiple of latest twelve months revenues, as a multiple of estimated revenues for 2006 and as a multiple of estimated revenues for 2007; and

 

    enterprise value as a multiple of latest twelve months earnings before interest, taxes, depreciation and amortization, or EBITDA, as a multiple of estimated EBITDA for 2006 and as a multiple of estimated EBITDA for 2007.

The results of these analyses are summarized as follows:

 

Enterprise Value
as a multiple of:

  

Selected Companies

(including McClatchy)

  

Knight Ridder

(as of March 10,

2006)

  

Knight Ridder

(as of October 31,

2005)*

   McClatchy
   Range    Median               

LTM Sales

   1.6x-  2.8x    2.3x      2.2x    1.9x    2.2x

Estimated 2006 Sales

   1.6x-  2.7x    2.2x      2.1x    1.9x    2.2x

Estimated 2007 Sales

   1.5x-  2.6x    2.2x      2.1x    1.8x    2.1x

LTM EBITDA

   8.6x-11.0x    9.8x    10.7x    9.4x    7.9x

Estimated 2006 EBITDA

   8.3x-10.5x    9.4x    10.6x    9.3x    7.8x

Estimated 2007 EBITDA

   8.4x-10.1x    8.9x    10.4x    9.1x    7.6x

* Price of Knight Ridder common stock as of October 31, 2005, applied to March 10, 2006 capital structure and estimates of Knight Ridder management.

Goldman Sachs also calculated the selected companies’ estimated calendar years 2006 and 2007 price/earnings ratios to the results for Knight Ridder and McClatchy. The following table presents the results of this analysis:

 

Price/Earnings Ratio:

  

Selected Companies

(including McClatchy)

  

Knight Ridder

(closing price as of

March 10, 2006)

  

Knight Ridder

(closing price as

of October 31,

2005)*

   McClatchy
   Range    Median         

2006

   11.8x-20.7x    15.5x    18.8x    15.4x    15.2x

2007

   11.4x-19.7x    14.8x    17.5x    14.4x    14.5x

* Price of Knight Ridder common stock as of October 31, 2005, applied to March 10, 2006 capital structure and estimates of Knight Ridder management.

Discounted Cash Flow Analysis of Knight Ridder. Goldman Sachs performed a discounted cash flow analysis on Knight Ridder using (a) Wall Street research projections and (b) forecasts prepared by Knight

 

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Ridder’s management under two alternative scenarios, including the impact of potential stand-alone, cost-saving initiatives projected by Knight Ridder management. Goldman Sachs calculated indications of net present value of free cash flows for Knight Ridder for the years 2006 through 2010 using discount rates ranging from 7.5% to 8.5%. The analysis was based on perpetuity growth rates ranging from 1.5% to 2.5%. The following table presents the results of this analysis:

 

     Illustrative Per Share
Value Indications

Knight Ridder management projections with 100% of potential cost saving initiatives

   $ 68.44-$100.45

Knight Ridder management projections prepared under an alternative scenario and with 85% of potential cost saving initiatives

   $ 52.46-$  80.17

Wall Street projections

   $ 39.03-$  61.86

Pro Forma Discounted Cash Flow Analysis. Goldman Sachs performed a discounted cash flow analysis on the combined entity using (a) Wall Street research projections for both Knight Ridder and McClatchy and (b) projections for Knight Ridder and McClatchy prepared by their respective managements, as well as synergies projected by the management of McClatchy to result from the merger. The analysis also assumed that certain assets of Knight Ridder would be sold upon the closing of the merger at a purchase price representing the same multiple of EBITDA as the merger consideration represents relative to the 2006 EBITDA of Knight Ridder estimated by Wall Street Research. Goldman Sachs calculated indications of net present value of free cash flows for Knight Ridder for the years 2006 through 2010 using discount rates ranging from 7.5% to 8.5%. The analysis was based on perpetuity growth rates ranging from 1.5% to 2.5%. This analysis was then used to calculate illustrative per share value indications of Knight Ridder common stock implied by the merger consideration. The resulting implied, illustrative per share value indications ranged from $57.52 to $71.23 when Wall Street research projections were used and $61.77 to $76.12 when management projections were used.

Selected Transactions Analysis. Goldman Sachs analyzed certain information relating to the following selected transactions in the newspaper publishing industry since 1996:

 

    Fortress Capital / Liberty Group Operating, Inc.;

 

    Lee Enterprises, Incorporated / Pulitzer, Inc.;

 

    Journal Register Company / 21st Century Newspapers, Inc.;

 

    Providence Equity and Blackstone Group / Freedom Communications, Inc.;

 

    Lee Enterprises, Incorporated / Howard Publications, Inc.;

 

    Gannett Co., Inc. / The Thomson Corporation (certain publishing assets);

 

    Gannett Co., Inc. / Central Newspapers, Inc.;

 

    Community Newspaper Holdings, Inc. / The Thomson Corporation (certain publishing assets);

 

    Tribune Company / The Times Mirror Company;

 

    Evercore Capital / American Media, Inc.;

 

    The Hearst Corporation / Chronicle Publishing;

 

    Community Newspaper Holdings, Inc. / Hollinger, Inc. (certain publishing assets);

 

    McClatchy / Cowles Media Company;

 

    Knight Ridder / The Walt Disney Company (certain publishing assets); and

 

    Belo Corp. / The Providence Journal Company.

 

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For each of the selected transactions, Goldman Sachs calculated and compared enterprise value as a multiple of latest twelve months EBITDA.

The following table presents the results of this analysis:

 

Enterprise Value of Selected Transactions as a

multiple of LTM EBITDA

  Merger as multiple of Knight Ridder’s
LTM EBITDA
      Range         Median    
8.9x-14.9x   12.6x   10.3x

Pro Forma Stock Price Analysis. Goldman Sachs prepared illustrative pro forma analyses of the present value of the future stock price of McClatchy after the consummation of the transaction, based on Wall Street research, as well as synergies projected by the management of McClatchy to result from the merger. The analysis also assumed that certain assets of Knight Ridder would be sold upon the closing of the merger at a purchase price representing the same multiple of EBITDA as the merger consideration represents relative to the 2006 EBITDA of Knight Ridder estimated by Wall Street Research. Goldman Sachs calculated prices for McClatchy Class A common stock values in the year 2008 based on multiples ranging from 8.5x EBITDA to 10.0x EBITDA. Goldman Sachs also calculated prices for McClatchy Class A common stock values in the year 2008 based on P/E multiples ranging from 14.0x to 20.0x. These illustrative values were then discounted for a full two years to calculate implied indications of present values using discount rates ranging from 9.0% to 11.0%. This analysis showed illustrative pro forma per share value indications ranging from $44.42 to $65.81.

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to Knight Ridder or McClatchy or the contemplated transaction.

Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to Knight Ridder’s board of directors as to the fairness from a financial point of view of the consideration to be received by holders of shares of Knight Ridder common stock, taken in the aggregate, pursuant to the merger agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Knight Ridder, McClatchy, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

The merger consideration was determined through arms’-length negotiations between Knight Ridder and McClatchy and was approved by Knight Ridder’s board of directors. Goldman Sachs provided advice to Knight Ridder during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to Knight Ridder or its board of directors or that any specific amount of consideration constituted the only appropriate consideration for the transaction.

As described above, Goldman Sachs’ opinion to Knight Ridder’s board of directors was one of many factors taken into consideration by the Knight Ridder board of directors in making its determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex C.

 

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Goldman Sachs and its affiliates, as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions as well as for estate, corporate and other purposes. Goldman Sachs has acted as financial advisor to Knight Ridder in connection with, and has participated in certain of the negotiations leading to, the merger transaction contemplated by the merger agreement. In addition, Goldman Sachs provided certain investment banking services to Knight Ridder from time to time, including having acted as joint book-running manager for the Knight Ridder’s 5.75% senior notes due September 2017 (aggregate principal amount of $400,000,000) in August 2005, as financial advisor to Knight Ridder in connection with the exchange by Knight Ridder of The Tallahassee Democrat business and cash consideration for The Idaho Statesman, The Olympian and The Bellingham Herald businesses in August 2005, as financial advisor to the Company in connection with the sale by Knight Ridder of its interests in Detroit Free Press, Incorporated and the Detroit Newspaper Agency pursuant to certain transactions involving Gannett Co., Inc., MediaNews Group, Inc. and related parties in August 2005, and as agent for share repurchases and equity derivative transactions. Goldman Sachs also may provide investment banking services to Knight Ridder and McClatchy in the future. In connection with the above-described investment banking services Goldman Sachs has received, and may receive, compensation.

Goldman, Sachs & Co. is a full service securities firm engaged, either directly or through its affiliates, in securities trading, investment management, financial planning and benefits counseling, financing and brokerage activities for both companies and individuals. In the ordinary course of these activities, Goldman, Sachs & Co. and its affiliates may provide such services to Knight Ridder, McClatchy and their respective affiliates, may actively trade the debt and equity securities (or related derivative securities) of Knight Ridder and McClatchy for their own account and for the accounts of their customers and may at any time hold long and short positions of such securities.

The board of directors of Knight Ridder selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the transaction. Pursuant to a letter agreement dated November 1, 2005, Knight Ridder engaged Goldman Sachs to act as its financial advisor in connection with the contemplated transaction. Pursuant to the terms of this engagement letter, Knight Ridder has agreed to pay Goldman Sachs a minimum fee of $6,000,000 in cash, upon the earlier of the consummation of a transaction, such as the merger, and May 1, 2006. In addition to the minimum fee, upon the consummation of a transaction, such as the merger, Knight Ridder is to pay a transaction fee of 0.35% of the aggregate consideration paid in such transaction. The $6,000,000 minimum fee will, to the extent paid, be applied to the transaction fee payable pursuant to the engagement letter. In addition, Knight Ridder has agreed to reimburse Goldman Sachs for its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.

Opinion of Morgan Stanley

Knight Ridder retained Morgan Stanley to provide financial advisory services and a financial fairness opinion to the board of directors of Knight Ridder in connection with the merger. The board of directors selected Morgan Stanley to act as its financial advisor based on Morgan Stanley’s qualifications, expertise, reputation and knowledge of the business of Knight Ridder. At the special meeting of Knight Ridder’s board of directors on March 12, 2006, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing as of the same date, that based upon and subject to the assumptions, qualifications and limitations set forth therein, the consideration to be received by the holders of shares of Knight Ridder common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of Morgan Stanley’s written opinion, dated March 12, 2006, which sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and

 

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limitations of the reviews undertaken in rendering its opinion, is attached as Annex D to this prospectus/proxy statement/information statement. The summary of Morgan Stanley’s fairness opinion set forth in this prospectus/proxy statement/information statement is qualified in its entirety by reference to the full text of the opinion. Shareholders should read this opinion carefully and in its entirety. Morgan Stanley’s opinion is directed to the board of directors of Knight Ridder, addresses only the fairness from a financial point of view of the consideration to be received by holders of Knight Ridder common stock pursuant to the merger agreement and does not address any other aspect of the merger. Morgan Stanley’s opinion does not constitute a recommendation to any shareholder of Knight Ridder as to how such shareholder should vote with respect to the merger. In addition, this opinion does not in any matter address the prices at which McClatchy common stock will trade following the consummation of the merger.

In connection with rendering its opinion, Morgan Stanley, among other things:

a) reviewed certain publicly available financial statements and other business and financial information of Knight Ridder and McClatchy;

b) reviewed certain internal financial statements and other financial and operating data concerning Knight Ridder and McClatchy prepared by the managements of Knight Ridder and McClatchy, respectively;

c) reviewed certain financial projections for Knight Ridder and McClatchy prepared by the managements of Knight Ridder and McClatchy, respectively;

d) discussed the past and current operations and financial condition and the prospects of Knight Ridder and McClatchy with senior executives of Knight Ridder and McClatchy, respectively;

e) discussed certain information relating to strategic, operational and financial benefits anticipated from the merger and the strategic rationale for the merger, with senior executives of Knight Ridder and McClatchy;

f) reviewed the pro forma impact of the merger on certain financial ratios of the combined company;

g) reviewed the reported prices and trading activity for Knight Ridder Common Stock and McClatchy Common Stock;

h) compared the financial performance of Knight Ridder and the prices and trading activity of the Knight Ridder Common Stock with those of certain other comparable publicly-traded companies and their securities;

i) compared the financial performance of McClatchy and the prices and trading activity of McClatchy Common Stock with those of certain other comparable publicly-traded companies and their securities;

j) reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;

k) reviewed the commitment letters, each dated March 7, 2006, received by McClatchy from Bank of America and JPMorgan Chase Bank in connection with financing the merger (collectively, the “Debt Financing Commitment Letters”);

l) reviewed the proposed merger agreement and certain related documents; and

m) considered such other factors and performed such other analyses as it deemed appropriate.

In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information supplied or otherwise made available to it for the purposes of its opinion. With respect to the financial projections, including information relating to certain strategic, financial and operational benefits anticipated from the merger, Morgan Stanley assumed that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of the future financial performance of Knight Ridder and McClatchy. In addition, Morgan Stanley assumed that the merger will be consummated in

 

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accordance with the terms set forth in the merger agreement, including, among other things, that the merger will be treated as a reorganization, pursuant to the Internal Revenue Code of 1986, as amended, and that the financing of the merger will be consummated in accordance with the terms set forth in the Debt Financing Commitment Letters. Morgan Stanley is not a legal, regulatory or tax expert and relied on the assessments of the legal, regulatory and tax advisors to Knight Ridder with respect to such issues. Morgan Stanley assumed that in connection with the receipt of all necessary regulatory approvals for the proposed merger, no restrictions will be imposed that would have a material adverse effect on the consummation of the merger as contemplated in the merger agreement or would have a material adverse effect on the contemplated benefits expected to be derived in the proposed merger. Morgan Stanley also relied without independent verification on the assessment of the management of the Company regarding the strategic rationale for the merger. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of Knight Ridder or McClatchy, nor was it furnished with any such appraisals. Morgan Stanley did not address the solvency or fair value of Knight Ridder or McClatchy under any U.S. state, U.S. federal or any other applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of, March 12, 2006.

In arriving at its opinion, Morgan Stanley was not authorized to solicit, and did not solicit, interest from any party with respect to an acquisition, business combination or other extraordinary transaction involving Knight Ridder. In addition, although Morgan Stanley did discuss the strategic exploration process in which Knight Ridder was engaged with members of Knight Ridder’s management and another financial advisor, it was not involved in any negotiations with McClatchy or any other party with respect to any such transaction.

The following is a summary of the material financial analyses performed by Morgan Stanley in connection with its oral opinion of March 12, 2006 and the preparation of its written opinion of March 12, 2006. Some of these summaries include information in tabular format. In order to understand fully the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the analyses.

Knight Ridder Historical Share Price Analysis. To provide background information and perspective with respect to the relative historical share prices of Knight Ridder, Morgan Stanley reviewed the stock price performance and trading volumes of Knight Ridder during various periods ending on March 10, 2006.

Morgan Stanley noted that the range of low and high closing prices of Knight Ridder common stock during the 52-week period ending on March 10, 2006 was approximately $52.00 and $69.00. Morgan Stanley noted that Knight Ridder’s closing stock price on October 31, 2005, the day prior to Private Capital Management’s public request that Knight Ridder pursue a competitive sale of Knight Ridder, was $53.38. Morgan Stanley also noted that the merger consideration as of March 10, 2006 was $67.25. The $67.25 merger consideration was calculated by adding the $40.00 in cash consideration to $27.25 of McClatchy Class A common stock, based on a 0.5118 fixed exchange ratio and McClatchy’s March 10, 2006 closing stock price of $53.24.

Morgan Stanley next compared Knight Ridder’s stock price performance with that of certain other comparable publicly traded companies for the period between October 31, 2005 and March 10, 2006. The following table lists the implied stock price appreciation for the selected companies during this period.

 

Stock Price Performance from 10/31/05 to 3/10/06

      

Knight Ridder

   21.8 %

McClatchy

   -15.1 %

The New York Times Company

   0.5 %

Gannett Co., Inc.

   -1.5 %

Tribune Company

   -1.8 %

Lee Enterprises, Inc.

   -12.3 %

 

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McClatchy Historical Share Price Analysis. To provide background information and perspective with respect to the relative historical share prices of McClatchy, Morgan Stanley reviewed the stock price performance and trading volumes of McClatchy during various periods ending on March 10, 2006.

Morgan Stanley noted that the range of low and high closing prices of McClatchy common stock during the 52-week period ending on March 10, 2006 was approximately $52.00 and $76.00. Morgan Stanley noted that McClatchy’s closing stock price on October 31, 2005 was $62.68 and on March 10, 2006 was $53.24.

Knight Ridder Wall Street Equity Research Analyst Price Targets. Morgan Stanley reviewed publicly available published 12-month price target estimates for Knight Ridder’s common stock from Wall Street equity research analysts.

Morgan Stanley observed that the analyst 12-month price targets ranged from $62.00 to $64.00 per share of Knight Ridder common stock (range excluded high and low price targets and price targets that reflected the public announcement of Knight Ridder intention to explore strategic alternatives). Morgan Stanley also discounted to present value the Wall Street analyst 12-month price targets for one year at a cost of equity capital of approximately 8%, based on the capital asset pricing model, a theoretical financial model that estimates the cost of equity capital based on that company’s “Beta.” A company’s Beta is a measure of a company’s volatility relative to the overall market. The discounted Wall Street analyst price targets yielded an implied valuation range of $57.15 to $58.99 per share of Knight Ridder’s common stock. Morgan Stanley noted that the per share implied merger consideration was $67.25 per share as of March 10, 2006.

McClatchy Wall Street Equity Research Analyst Price Targets. Morgan Stanley reviewed publicly available published 12-month price target estimates for McClatchy’s common stock from Wall Street equity research analysts.

Morgan Stanley observed that the analyst 12-month price targets ranged from $61.00 to $67.00 per share of McClatchy common stock (range excluded high and low price targets). Morgan Stanley also discounted to present value the Wall Street analyst 12-month price targets for one year at a cost of equity capital of approximately 8%, based on the capital asset pricing model (as discussed above). The discounted Wall Street analyst price targets yielded an implied valuation range of $56.81 to $62.40 per share of McClatchy’s common stock. Morgan Stanley noted that McClatchy’s closing stock price on October 31, 2005 was $62.68 and on March 10, 2006 was $53.24.

Comparable Company Analysis. Morgan Stanley reviewed and analyzed certain financial data of, and calculated selected public market trading metrics for, Knight Ridder and McClatchy and for public companies with operations that Morgan Stanley deemed to be similar to those of Knight Ridder and McClatchy. For purposes of its analysis, Morgan Stanley deemed the following publicly traded newspaper companies as sharing certain characteristics with Knight Ridder and McClatchy:

 

    The New York Times Company

 

    Lee Enterprises, Inc.

 

    Journal Register Company

 

    Gannett Co., Inc.

 

    Tribune Company

Morgan Stanley calculated the aggregate market value (defined as public equity market value plus total book value of debt less cash) divided by estimated 2006 earnings before interest, taxes, depreciation and amortization (hereinafter referred to as EBITDA) for the comparable newspaper companies and for Knight Ridder and McClatchy. Morgan Stanley also calculated the equity market value divided by estimated 2006

 

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earnings and the equity market value divided by estimated 2006 free cash flow for both Knight Ridder and McClatchy and for the comparable newspaper companies.

In preparing certain of its analyses, Morgan Stanley incorporated three specific scenarios with respect to the projected future financial performance of Knight Ridder. The scenario referred to as “Equity Research Estimates with 50% accomplishment of Management Initiatives” refers to results of Knight Ridder derived from publicly available Wall Street equity research estimates combined with a 50% achievement of a series of operational initiatives developed by Knight Ridder’s management team. These “Management Initiatives” were designed primarily to reduce internal Knight Ridder costs. “Management Case A” reflects projections developed by Knight Ridder’s management team assuming a 2.5% annual advertising revenue growth and 85% accomplishment of the Management Initiatives. “Management Case B” is based on Knight Ridder’s management team’s projections of approximately 3.5% advertising revenue growth and 100% achievement of the Management Initiatives. Morgan Stanley noted that each of the projections described in this paragraph are based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of management, including, without limitation, factors related to general economic and competitive conditions and prevailing interest rates. Accordingly, actual results could vary significantly from those set forth in such projections.

The estimates of 2006 EBITDA, earnings and free cash flow for the comparable newspaper companies were based on publicly available Wall Street equity research estimates as of March 10, 2006. The 2006 EBITDA, earnings and free cash flow estimates for Knight Ridder were based on (1) Equity Research Estimates with 50% accomplishment of Management Initiatives, (2) Management Case A and (3) Management Case B, each as described above. The 2006 EBITDA, earnings and free cash flow estimates for McClatchy were based upon “Equity Research Estimates,” based on publicly available Wall Street equity research estimates, and a “Management Case,” based upon McClatchy’s management team projections.

A summary of the reference range of market trading multiples (which reflected Morgan Stanley’s qualitative assessments of, among other things, the market trading multiples for Knight Ridder, McClatchy and the comparable newspaper companies) that Morgan Stanley derived is set forth below:

 

Knight Ridder

   Reference Range    Knight Ridder Metrics at
10/31/05 (1)(2)

Aggregate Value / 2006 estimated EBITDA

   8.25 - 8.75x    9.0x

Equity Value / 2006 Estimated Earnings

   12.0 - 14.0x    14.6x

Equity Value / 2006 Estimated Free Cash Flow

   11.0 - 13.0x    12.2x

Notes

(1) Based on Public Filings and Wall Street Equity Research Estimates 
(2) 10/31/05  represents the last day that Knight Ridder’s stock price was undisturbed by the publicly announced prospect of a strategic transaction

 

McClatchy

   Reference Range    McClatchy Metrics at
03/10/06 (1)

Aggregate Value / 2006 Estimated EBITDA

   8.50 - 9.00x    7.9x

Equity Value / 2006 Estimated Earnings

   14.0 - 16.0x    15.2x

Equity Value / 2006 Estimated Free Cash Flow

   13.0 - 15.0x    15.1x

Notes

(1) Based on Public Filings and Wall Street Equity Research Estimates 

Using the derived reference ranges of multiples above, Morgan Stanley calculated an implied valuation range for each of Knight Ridder and McClatchy by applying the reference ranges to the applicable Knight Ridder and McClatchy metrics. Assumptions made with respect to the value of Knight Ridder’s debt, cash and cash equivalents as well as to the number of Knight Ridder’s primary shares outstanding and employee stock options were based on information provided by Knight Ridder’s management team. With respect to McClatchy, corresponding assumptions

 

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were made based on information provided in McClatchy’s 2005 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on February 23, 2006. Based upon and subject to the foregoing, Morgan Stanley calculated the following implied valuation ranges for Knight Ridder and McClatchy common stock:

 

Knight Ridder

  

Implied Valuation Range for

Knight Ridder Common Stock

Equity Research Estimates with 50% accomplishment of Management Initiatives

  

Aggregate Value / 2006 Estimated EBITDA

   $ 48.94 - $53.67

Equity Value / 2006 Estimated Earnings

   $ 41.49 - $48.41

Equity Value / 2006 Estimated Free Cash Flow

   $ 44.32 - $52.38

Management Case A

  

Aggregate Value / 2006 Estimated EBITDA

   $ 50.03 - $54.83

Equity Value / 2006 Estimated Earnings

   $ 41.83 - $48.80

Equity Value / 2006 Estimated Free Cash Flow

   $ 44.65 - $52.77

Management Case B

  

Aggregate Value / 2006 Estimated EBITDA

   $ 54.57 - $59.64

Equity Value / 2006 Estimated Earnings

   $ 45.62 - $53.22

Equity Value / 2006 Estimated Free Cash Flow

   $ 48.13 - $56.88

 

McClatchy

   Implied Valuation Range for
McClatchy Common Stock

Equity Research Estimates

  

Aggregate Value / 2006 Estimated EBITDA

   $ 57.73 - $61.28

Equity Value / 2006 Estimated Earnings

   $ 49.67 - $56.76

Equity Value / 2006 Estimated Free Cash Flow

   $ 43.95 - $50.71

Management Case

  

Aggregate Value / 2006 Estimated EBITDA

   $ 57.76 - $61.31

Equity Value / 2006 Estimated Earnings

   $ 49.69 - $56.79

Equity Value / 2006 Estimated Free Cash Flow

   $ 43.98 - $50.74

Morgan Stanley noted that the per share merger consideration was $67.25 as of March 10, 2006. Morgan Stanley also noted that McClatchy’s closing stock price on October 31, 2005 was $62.68 and on March 10, 2006 was $53.24.

Although the foregoing companies were compared to Knight Ridder and McClatchy for purposes of this and the foregoing analyses, Morgan Stanley noted that no company utilized in this analysis is identical to Knight Ridder and McClatchy because of differences among the business mix, geographic presence, operations, capital structure and other characteristics of each of Knight Ridder, McClatchy and the comparable newspaper companies. In evaluating the comparable newspaper companies and selecting the valuation multiples to apply, Morgan Stanley made qualitative judgments and assumptions with regard to industry performance, general business, economic, regulatory, market and financial conditions and other matters, many of which are beyond the control of Knight Ridder and McClatchy, such as the impact of competition on the businesses of Knight Ridder and McClatchy and the newspaper industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of Knight Ridder or McClatchy or the industry or in the markets in general. Mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using comparable company data.

Discounted Equity Value Analysis. Morgan Stanley performed a discounted equity value analysis, which is designed to provide insight into the future price of a company’s common equity as a function of the company’s future earnings and its current forward price to earnings multiples. The resulting value is subsequently discounted to arrive at a present value for the company’s stock price.

 

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Morgan Stanley calculated the future stock price of Knight Ridder at December 31, 2006 assuming an EBITDA multiple of 8.25x to 8.75x applied to Knight Ridder’s 2007 estimated EBITDA based on (1) Equity Research Estimates with 50% accomplishment of Management Initiatives, (2) Management Case A and (3) Management Case B. Morgan Stanley then discounted these future stock prices to the end of first quarter of 2006 at a cost of equity of 8% to 10%. Based on the aforementioned projections and assumptions, the discounted equity value analysis implied the following valuation range of Knight Ridder’s common stock:

 

Knight Ridder

   Implied Valuation Range for
Knight Ridder Common Stock

Equity Research Estimates with 50% accomplishment of Management Initiatives

   $ 52.73 - $58.24

Management Case A

   $ 57.20 - $63.04

Management Case B

   $ 66.33 - $72.84

Morgan Stanley noted that the per share merger consideration was $67.25 as of March 10, 2006.

Precedent Transactions Analysis. Morgan Stanley provided a precedent transactions analysis, which is designed to derive the value of a company based on financial terms and premiums of selected precedent transactions that share characteristics with the merger.

Morgan Stanley reviewed the precedent transactions’ acquisition premiums based on the mean of the percentage premium paid over each target’s unaffected stock price, which is defined as stock price four weeks prior to the earliest of (1) a deal announcement, (2) the announcement of a competing bid and (3) market rumors for the applicable transaction, in acquisitions of U.S.-based public companies, focusing on deals with an aggregate value of $100 million or more since 2000. Morgan Stanley reviewed transactions where the consideration used to acquire the target was either all cash, all stock or a mix of cash and stock. Based on these analyses, Morgan Stanley derived a reference range of such premiums of 15% to 30%. Applying these ranges to Knight Ridder’s undisturbed stock price on October 31, 2005 implied a valuation of Knight Ridder’s common stock of $61.39 to $69.39. Morgan Stanley noted that the per share merger consideration was $67.25 as of March 10, 2006.

Morgan Stanley also reviewed and analyzed certain publicly available information, including the transaction value, and certain financial information of the target company, relating to selected precedent transactions involving other companies in the newspaper sector and calculated certain valuation multiples implied by such information. Morgan Stanley chose transactions based on the similarity of the target companies to Knight Ridder. Morgan Stanley reviewed last twelve months EBITDA multiples (hereinafter referred to as LTM EBITDA) and analyzed historical multiple trends for the sector. The following acquisition transactions were reviewed in connection with this analysis:

 

    Providence-Blackstone / Freedom Communications, Inc.

 

    Journal Register / 21st Century

 

    Lee Enterprises, Inc. / Pulitzer Inc.

 

    Fortress / Liberty Group Publishing, Inc.

Morgan Stanley then derived from these precedent transactions a reference range of LTM EBITDA multiples of 10.0x to 11.5x. Applying this range of multiples to Knight Ridder’s 2005 EBITDA (adjusted for the acquisition of Boise, Olympia and Bellingham newspapers and excluding Detroit and Tallahassee newspapers), Morgan Stanley calculated an implied valuation range for Knight Ridder common stock of $64.79 to $78.92 per share. Morgan Stanley noted that the per share merger consideration was $67.25 as of March 10, 2006.

Morgan Stanley further noted that the merger and acquisition transaction environment varies over time because of macroeconomic factors such as interest rate and equity market fluctuations and microeconomic factors such as industry results and growth expectations. Morgan Stanley noted that no company or transaction

 

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reviewed was identical to Knight Ridder or the merger and that, accordingly, these analyses involve complex considerations and qualitative judgments concerning differences in financial and operating characteristics of Knight Ridder and each of the comparable companies as well as other factors that would affect the acquisition values in the comparable transactions, including the size, regulatory and economic characteristics of the markets of each company and the competitive environment in which it operates. Mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using comparable transaction data.

Knight Ridder Discounted Cash Flow Analysis. Morgan Stanley performed a five-year discounted cash flow analysis of Knight Ridder based upon each of Management Case A and Management Case B.

Utilizing such projections, Morgan Stanley calculated the annual after-tax unlevered free cash flows for fiscal years 2006 through 2010. Morgan Stanley estimated a range of terminal values calculated in 2010 utilizing perpetual growth rates. Morgan Stanley applied a range of perpetual growth rates of 0.5% to 1.0% to the unlevered free cash flows in the terminal year. Morgan Stanley then discounted the unlevered free cash flow streams and the estimated terminal value to a present value at a discount rate of 7.5% to 8.0%. The discount rate utilized in this analysis was chosen based upon an analysis of the weighted average cost of capital of Knight Ridder and other comparable companies. Based on the aforementioned projections and assumptions, the discounted cash flow analysis of Knight Ridder yielded an implied valuation range of Knight Ridder common stock of $58.10 to $69.96 per share utilizing Management Case A and $73.84 to $87.96 per share utilizing Management Case B. Morgan Stanley noted that the per share merger consideration was $67.25 as of March 10, 2006.

McClatchy Discounted Cash Flow Analysis. Morgan Stanley performed a five-year discounted cash flow analysis of McClatchy based upon its Management Case.

Utilizing such projections, Morgan Stanley calculated the annual after-tax unlevered free cash flows for fiscal years 2006 through 2010. Morgan Stanley estimated a range of terminal values calculated in 2010 utilizing perpetual growth rates. Morgan Stanley applied a range of perpetual growth rates of 0.5% to 1.0% to the unlevered free cash flows in the terminal year. Morgan Stanley then discounted the unlevered free cash flow streams and the estimated terminal value to a present value at a discount rate of 7.5% to 8.0%. The discount rate utilized in this analysis was chosen based upon an analysis of the weighted average cost of capital of McClatchy and other comparable companies. Based on the aforementioned projections and assumptions, the discounted cash flow analysis of McClatchy yielded an implied valuation range of McClatchy common stock of $70.93 to $80.36. Morgan Stanley noted that McClatchy’s closing stock price on October 31, 2005 was $62.68 and on March 10, 2006 was $53.24.

Leveraged Buy-Out Analysis. Morgan Stanley also analyzed Knight Ridder from the perspective of a potential purchaser that was primarily a financial buyer that would effect a leveraged buyout of Knight Ridder. Morgan Stanley extrapolated Knight Ridder’s financials based on its Management Case A over a five-year period. Morgan Stanley determined to use Management Case A for the analysis as it represented the most meaningful projections in the event that a leveraged financing was initiated.

Utilizing such projections, Morgan Stanley calculated the annual after-tax levered free cash flows for fiscal years 2006 through 2011. For the purpose of this analysis, Morgan Stanley assumed a capital structure based on 7.5x 2005 EBITDA debt level. Morgan Stanley also assumed that a financial buyer would exit its Knight Ridder investment in 2011 at a value range that represented the same multiple which the analysis assumed a financial buyer initially invests in 2006 (sensitized at 9.0x to 10.5x EBITDA). Morgan Stanley then assumed a required internal rate of return for the hypothetical buyer in the range of approximately 20% to 25%. Based on the aforementioned projections and assumptions, the leveraged buy-out analysis of Knight Ridder yielded an implied valuation range of Knight Ridder common stock of $57.50 to $70.00 per share. Morgan Stanley noted that the per share merger consideration was $67.25 as of March 10, 2006.

Pro-Forma Analysis. Morgan Stanley valued the pro-forma impact of the merger on the successor company for 2006 and 2007 using two cases: (1) Pro-forma case based on Equity Research Estimates and 0% accomplishment of

 

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Management Initiatives for Knight Ridder and Equity Research Estimates for McClatchy (Case I) and (2) Pro-forma case based on Management Case B except assuming 0% accomplishment of Management Initiatives for Knight Ridder and Management Case for McClatchy (Case II). In each of Case I and Case II, Morgan Stanley assumed 0% accomplishment of Management Initiatives because it had been instructed by McClatchy that the successor company would not implement certain of the Management Initiatives and that other Management Initiatives overlapped with the estimated synergies. Both cases were also adjusted to include $60 million of pre-tax annual net synergies. Both cases were adjusted for the planned divestitures of the following twelve Knight Ridder’s newspapers: Aberdeen American News, Akron Beacon Journal, Contra Costa Times, Duluth News Tribune, Ft. Wayne News Sentinel, Grand Forks Herald, Monterey Herald, Philadelphia Inquirer, Philadelphia Daily News, San Jose Mercury News, St. Paul Pioneer Press and Wilkes-Barre Time Leader.

Morgan Stanley analyzed the value of the successor company based on the comparable company analysis, discounted equity value and discounted cash flow methodologies described above.

For the comparable company analysis, Morgan Stanley relied on the comparable newspaper companies and selected trading metrics that were used for the comparable company analysis of each Knight Ridder and McClatchy. Morgan Stanley valued the successor company using the reference range of market trading multiples that were derived to value McClatchy on a standalone basis.

For the discounted equity value analysis, Morgan Stanley calculated the future stock price of the successor company at December 31, 2006 and December 31, 2007, assuming an EBITDA multiple of 8.50x to 9.00x applied to the successor company 2007 and 2008 estimated EBITDA based on the aforementioned cases. Morgan Stanley then discounted these future stock prices to the end of first quarter of 2006 at a cost of equity of 8% to 10%.

For the discounted cash flow analysis, Morgan Stanley performed a five-year discounted cash flow analysis of the successor company based on Case II for 2006. Utilizing such projections, Morgan Stanley calculated the annual after-tax unlevered free cash flows for fiscal years 2006 through 2010. Morgan Stanley estimated a range of terminal values calculated in 2010 utilizing perpetual growth rates. Morgan Stanley applied a range of perpetual growth rates of 0.5% to 1.0% to the unlevered free cash flows in the terminal year. Morgan Stanley then discounted the unlevered free cash flow streams and the estimated terminal value to a present value at a discount rate of 7.5% to 8.0%. The discount rate utilized in this analysis was chosen based upon an analysis of the weighted average cost of capital of comparable companies.

For the 2007 Basis valuation analyses, Morgan Stanley discounted derived future stock prices to the end of first quarter of 2006 at a cost of equity of 9%.

Based on the aforementioned projections, assumptions and methodologies, Morgan Stanley derived the following valuation ranges of the pro-forma common stock:

 

2006 Basis

   Implied Valuation Range for Successor
Company’s Common Stock

Case I

  

Aggregate Value / 2006 Estimated EBITDA

   $ 40.90 - $45.86

Equity Value / 2006 Estimated Earnings

   $ 41.09 - $46.96

Equity Value / 2006 Estimated Free Cash Flow

   $ 39.15 - $48.94

Discounted Equity Value

   $ 43.32 - $48.78

Case II

  

Aggregate Value / 2006 Estimated EBITDA

   $ 43.34 - $48.44

Equity Value / 2006 Estimated Earnings

   $ 43.52 - $49.73

Equity Value / 2006 Estimated Free Cash Flow

   $ 41.23 - $51.54

Discounted Equity Value

   $ 49.67 - $55.57

Discounted Cash Flow

   $ 57.36 - $71.29

 

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2007 Basis

   Implied Valuation Range for Successor
Company’s Common Stock

Case I

  

Aggregate Value / 2007 Estimated EBITDA

   $ 43.62 - $48.44

Equity Value / 2007 Estimated Earnings

   $ 46.91 - $53.62

Equity Value / 2007 Estimated Free Cash Flow

   $ 50.48 - $63.10

Discounted Equity Value

   $ 46.80 - $53.07

Case II

  

Aggregate Value / 2007 Estimated EBITDA

   $ 50.01 - $55.19

Equity Value / 2007 Estimated Earnings

   $ 53.29 - $60.90

Equity Value / 2007 Estimated Free Cash Flow

   $ 55.95 - $69.93

Discounted Equity Value

   $ 54.75 - $61.74

Morgan Stanley noted that McClatchy’s price per share was $53.24 as of March 10, 2006. Morgan Stanley also noted that the 2007 valuation represented a longer term trading perspective of the successor company’s business plan.

Morgan Stanley also sensitized the pro forma impact of the merger on the pro forma earnings and free-cash flow per share assuming a range of EBITDA annual growth rates for 2006 and 2007. Pre-tax net synergies of $60 million per year were incorporated into the analysis and Morgan Stanley sensitized EBITDA annual growth rates ranging from 0% to 7%. For 2006, Morgan Stanley observed that the merger would result in earnings per share dilution ranging from 5% to 16% and free cash flow per share accretion/dilution ranging from 2% dilution to 10% accretion. For 2007, Morgan Stanley observed that the merger would result in earnings per share accretion ranging from 1% to 23% and free cash flow per share accretion ranging from 23% to 45%.

Recapitalization Alternative. In conjunction with the aforementioned valuation analyses, Morgan Stanley also evaluated a recapitalization scenario in which Knight Ridder would use a leveraged debt capital structure to effect a return of capital to investors through a share repurchase.

Morgan Stanley assumed a $2.0 billion return of capital, implying pro-forma leverage of 6.5x 2005 EBITDA. Morgan Stanley further assumed that the return of capital would be effected through a Dutch auction share repurchase in which Knight Ridder would repurchase 33.6 million of its shares at a $60 per share purchase price. Morgan Stanley then calculated the post-recapitalization per share value utilizing three operational cases: (i) Equity Research Estimates with 50% accomplishment of Management Initiatives, (ii) Management Case A and (iii) Management Case B, and in each case applied a series of financial multiples for each of 2006 and 2007, including estimated EBIDTA, estimated Price Earnings and estimated free cash flow multiples. For the 2007 valuation analyses, Morgan Stanley discounted derived future stock prices to the end of first quarter of 2006 at a cost of equity of approximately 11%. For each scenario, Morgan Stanley calculated the “Package Value” of the recapitalization alternative by adding the equity value of Knight Ridder post-recapitalization to the total amount of capital returned to investors.

The varying assumptions underlying the multiple scenarios and time periods analyzed by Morgan Stanley resulted in a broad range of per share Package Values. After evaluation of these ranges, Morgan Stanley indicated a near-term Package Value range of approximately $48 to $64 per share to current Knight Ridder shareholders for the recapitalization scenario.

Morgan Stanley performed a variety of financial and comparable analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex process and is not susceptible to partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor considered. Furthermore, Morgan Stanley believes that the summary provided and the analyses described above must be considered as a whole and that selecting any portion of the analyses, without considering all of them as a whole, would create an incomplete

 

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view of the process underlying Morgan Stanley’s analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above should not be taken to be the view of Morgan Stanley with respect to the actual value of Knight Ridder or McClatchy common stock or the value of the successor company.

In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business, regulatory, and economic conditions and other matters, many of which are beyond the control of Morgan Stanley, Knight Ridder or McClatchy. Any estimates contained in the analyses of Morgan Stanley are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

The opinion of Morgan Stanley was one of the many factors taken into consideration by Knight Ridder’s board of directors in making its determination to approve the proposed transaction. Consequently, the analyses as described above should not be viewed as determinative of the opinion of Knight Ridder’s board of directors with respect to the merger consideration or of whether Knight Ridder’s board of directors would have been willing to agree to a different merger consideration. The foregoing summary does not purport to be a complete description of all of the analyses performed by Morgan Stanley.

Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan Stanley, as part of its investment banking business, is continuously engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate, estate and other purposes. In the ordinary course of its trading, brokerage, investment management and financing activities, Morgan Stanley or its affiliates may actively trade the debt and equity securities of Knight Ridder, McClatchy and their affiliates for its own accounts or for the accounts of its customers and, accordingly, may at any time hold long or short positions in such securities.

Pursuant to an engagement letter, Knight Ridder has agreed to pay Morgan Stanley customary fees in connection with the merger that are fixed in amount and not contingent upon the consummation of the merger. Knight Ridder has also agreed to reimburse Morgan Stanley for its fees and expenses incurred performing its services. In addition, Knight Ridder has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of Morgan Stanley’s engagement and any related transactions. In the past, Morgan Stanley and its affiliates have provided financial advisory and financing services for Knight Ridder and certain of their affiliates and have received fees for the rendering of these services. Morgan Stanley may also seek to provide Knight Ridder, McClatchy or their affiliates services in the future and may receive fees in connection with such services.

Interests of Certain Persons in the Merger

In considering the recommendation of the Knight Ridder board of directors with respect to the merger agreement and the merger, Knight Ridder’s shareholders should be aware that some of Knight Ridder’s executive officers and directors have interests in the mergers and have arrangements that are different from, or in addition to, those of Knight Ridder’s shareholders generally. The Knight Ridder board of directors was aware of these interests and considered them, among other matters, in reaching its decisions to adopt the merger agreement and the merger and to recommend that Knight Ridder’s shareholders vote in favor of approving the merger agreement and the merger.

 

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Equity Compensation. The merger agreement provides that seven days prior to the completion of the merger, all unvested options will become vested. After that time optionholders may exercise the options before the completion of the merger. Any options that are not exercised before the completion of the merger will be cashed out upon completion of the merger, and each Knight Ridder stock option, whether vested or unvested, including those held by executive officers and directors of Knight Ridder, will be cancelled and converted into the right to receive upon completion of the merger an amount in cash per share subject to the option equal to the excess, if any, of the cash value of the blended merger consideration over the per share exercise price of the option. In addition, the merger agreement provides that, upon completion of the merger, each other stock-based award based upon shares of Knight Ridder common stock (other than restricted shares), including those held by executive officers and directors of Knight Ridder, will vest, be cancelled and be converted into the right to receive upon completion of the merger, an amount in cash equal to the cash value of the blended merger consideration for each share subject to such stock-based award earned under the plan governing the terms of such award. Upon completion of the merger, each restricted share will vest and be treated as all other shareholders. Based on Knight Ridder equity compensation awards held by executive officers and directors of Knight Ridder as of May 8, 2006 and assuming a closing date of June 26, 2006, upon completion of the merger, P. Anthony Ridder, Steven Rossi, Hilary Schneider, Art Brisbane and Mary Jean Connors and the other executive officers and non-employee directors, respectively, as a group, would vest, as of completion of the merger, in respect of 235,666, 104,666, 78,000, 77,000 and 88,332 and 301,451 and 88,325 shares subject to their stock options, 8,650, 5,472, 5,516, 5,516 and 5,340 and 40,876 and 0 shares with respect to their performance units and 20,420, 8,215, 8,225, 8,225 and 8,186 and 34,607 and 0 shares with respect to their restricted stock units.

Income Security Agreements. Each of Knight Ridder’s executive officers other than the chief legal officer, including P. Anthony Ridder, Steven Rossi, Hilary Schneider, Art Brisbane and Mary Jean Connors, is party to an income security agreement. The income security agreements provide that, in the event that during the three-year period following a change of control, such as the merger, the executive’s employment is terminated by Knight Ridder without “cause” or by the executive for “good reason,” then not later than the fifth business day following the date of termination, Knight Ridder will pay the executive a lump sum cash payment equal to three times the greater of (1) the sum of the salary and cash bonus payable to the executive for the last full calendar year preceding the severance payment or (2) the sum of the executive’s annualized salary and the maximum cash bonus the executive could have earned for the then current calendar year. In addition, upon such a termination, the executive will be entitled to medical and life insurance continuation for the three-year period following the executive’s termination of employment or until the executive dies, if earlier. In the event that the executive would be subject to the excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, the executive will receive an additional payment such that he is placed in the same after-tax position as if no excise tax had been imposed. Assuming that the merger is completed on June 26, 2006 and each of the executive officers’ employment is terminated without “cause” or by the executive for “good reason” immediately after completion, the amount of cash severance (based upon current base salaries and most current bonus opportunities) that would be payable to each of P. Anthony Ridder, Steven Rossi, Hilary Schneider, Art Brisbane and Mary Jean Connors and the other executive officers as a group is $9,363,900, $4,426,800, $4,462,500, $4,462,500 and $4,319,700 and $29,929,935, respectively.

Indemnification. The merger agreement includes provisions relating to indemnification and insurance for directors and officers of Knight Ridder. Please see the section entitled “The Merger Agreement—Indemnification and Insurance” beginning on page 86 of this prospectus/proxy statement/information statement for more detail regarding the indemnification and insurance provisions in the merger agreement.

Board of Directors and Management of McClatchy Following the Merger

Pursuant to the merger agreement, McClatchy agreed to take all actions necessary such that, immediately following completion of the merger, two directors of Knight Ridder acceptable to McClatchy will become members of the McClatchy board of directors.

 

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Regulatory Approvals

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the merger may not be consummated unless certain filings have been submitted to the FTC and the Antitrust Division of the U.S. Department of Justice and certain waiting period requirements have been satisfied. McClatchy and Knight Ridder filed the appropriate notification and report forms with the FTC and with the Antitrust Division on March 27, 2006.

The FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions like the merger. At any time before or after the completion of the merger, the FTC or the Antitrust Division could take any action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger or seeking the divestiture of substantial assets of McClatchy and Knight Ridder. In addition, certain private parties, as well as state attorneys general, may challenge the transaction under antitrust laws under certain circumstances.

McClatchy and Knight Ridder believe that the completion of the merger will not violate any antitrust laws. There can be no assurance, however, that a challenge to the merger on antitrust grounds will not be made, or, if such a challenge is made, what the result will be.

Listing on the New York Stock Exchange of McClatchy Shares Issued Pursuant to the Merger

McClatchy will use all commercially reasonable efforts to cause the shares of McClatchy Class A common stock to be issued in connection with the merger to be authorized for listing on the New York Stock Exchange before the completion of the merger, subject to official notice of issuance. This listing is a condition to the completion of the merger.

Delisting and Deregistration of Knight Ridder Common Stock After the Merger

When the merger is completed, Knight Ridder common stock will be delisted from the New York Stock Exchange and deregistered under the Exchange Act.

Appraisal Rights

No dissenters’ or appraisal rights are available with respect to shares of capital stock of Knight Ridder or shares of McClatchy Class A common stock in connection with the merger.

Holders of record of McClatchy Class B common stock who did not act by written consent to adopt the merger agreement and the transactions contemplated by the merger agreement, including the merger, and who otherwise comply with the applicable provisions of Section 262 of the Delaware General Corporation Law, which we refer to throughout this prospectus/proxy statement/information statement as the DGCL, will be entitled to exercise appraisal rights under Section 262 of the DGCL.

The following discussion is not a complete statement of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262 of the DGCL, which is reprinted in its entirety as Annex E and incorporated into this prospectus/proxy statement/information statement by reference. All references in Section 262 of the DGCL and in this summary to a “shareholder,” “stockholder” or “holder” are to the record holder of the shares of McClatchy Class B common stock as to which appraisal rights are asserted.

Under Section 262 of the DGCL, holders of shares of McClatchy Class B common stock who follow the procedures set forth in Section 262 of the DGCL will be entitled to have their McClatchy Class B common stock appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of these shares of McClatchy Class B common stock, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest, if any, as determined by that court.

 

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Under Section 262 of the DGCL, when a proposed merger is approved pursuant to Section 228 or Section 253 of the DGCL, then McClatchy, as a constituent corporation to the merger, must notify each of the holders of Class B common stock before the effective date of the merger of the adoption of the merger agreement and the transactions contemplated by the merger agreement, including the merger, by written consent of McClatchy Class B stockholders, and that appraisal rights are available to those who did not act by written consent to approve the merger agreement. McClatchy must include in this required notice a copy of Section 262 of the DGCL.

This prospectus/proxy statement/information statement constitutes the required notice to the holders of these shares of McClatchy Class B common stock and the applicable statutory provisions of the DGCL are attached to this prospectus/proxy statement/information statement as Annex E. Any McClatchy Class B stockholder who wishes to exercise their appraisal rights or who wishes to preserve their right to do so should review the following discussion and Annex E carefully, because failure to timely and properly comply with the procedures specified in Annex E will result in the loss of appraisal rights under the DGCL.

A holder of McClatchy Class B common stock wishing to exercise appraisal rights must not have acted by written consent in favor of the approval and adoption of the merger agreement and must deliver to McClatchy within 20 days after the date that this prospectus, proxy statement/information is mailed a written demand for appraisal of their McClatchy Class B common stock. This demand must reasonably inform McClatchy Class B of the identity of the stockholder and of the stockholder’s intent thereby to demand appraisal of their shares. A holder of McClatchy Class B common stock wishing to exercise appraisal rights must be the record holder of these shares of McClatchy Class B common stock on the date the written demand for appraisal is made and must continue to hold these shares of McClatchy Class B common stock through the effective date of the merger. Accordingly, a holder of McClatchy Class B common stock who is the record holder of McClatchy Class B common stock on the date the written demand for appraisal is made, but who thereafter transfers these shares of McClatchy Class B common stock prior to consummation of the merger, will lose any right to appraisal in respect of these shares of McClatchy Class B common stock.

Only a holder of record of McClatchy Class B common stock on March 12, 2006, the date the McClatchy Class B stockholders acted by written consent to adopt the merger agreement, is entitled to assert appraisal rights for the shares of McClatchy Class B common stock registered in that holder’s name. A demand for appraisal should be executed by or on behalf of the holder of record, fully and correctly, as the holder’s name appears on the holder’s stock certificates, should specify the holder’s mailing address and the number of shares registered in the holder’s name, and must state that the person intends to demand appraisal of the holder’s shares pursuant to the merger agreement. If the shares of McClatchy Class B common stock are held of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand should be made in that capacity, and if the McClatchy Class B common stock is held of record by more than one holder as in a joint tenancy or tenancy in common, the demand should be executed by or on behalf of all joint holders. An authorized agent, including an agent for one or more joint holders, may execute a demand for appraisal on behalf of a holder of record. The agent, however, must identify the record holder or holders and expressly disclose the fact that, in executing the demand, the agent is acting as agent for the holder or holders. A record holder such as a broker who holds McClatchy Class B common stock as nominee for several beneficial owners may exercise appraisal rights with respect to the shares of McClatchy Class B common stock held for one or more beneficial owners while not exercising appraisal rights with respect to the McClatchy Class B common stock held for other beneficial owners. In this case, the written demand should set forth the number of shares of McClatchy Class B common stock as to which appraisal is sought. When no number of shares of McClatchy Class B common stock is expressly mentioned, the demand will be presumed to cover all McClatchy Class B common stock in brokerage accounts or other nominee forms held by such record holder, and those who hold shares in brokerage accounts or other nominee forms and who wish to exercise appraisal rights under Section 262 of the DGCL are urged to consult with their brokers to determine the appropriate procedures for the making of a demand for appraisal by such a nominee.

All written demands for appraisal should be sent or delivered to McClatchy, 2100 Q Street, Sacramento, CA 95816, Attention: Corporate Secretary.

 

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Within ten days after the effective date of the merger, McClatchy, which is the surviving company in the merger, will notify each former McClatchy Class B stockholder who has properly asserted appraisal rights under Section 262 of the DGCL of the date the merger became effective.

Within 120 days after the effective date of the merger, but not thereafter, the surviving company or any former McClatchy Class B stockholder who has complied with the statutory requirements summarized above may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares of McClatchy Class B common stock that are entitled to appraisal rights. McClatchy is not under any obligation to and has no present intention to file a petition with respect to the appraisal of the fair value of the shares of McClatchy Class B common stock. Accordingly, it is the obligation of McClatchy Class B stockholders wishing to assert appraisal rights to take all necessary action to perfect and maintain their appraisal rights within the time prescribed in Section 262 of the DGCL.

Within 120 days after the effective date of the merger, any former McClatchy Class B stockholder who has complied with the requirements for exercise of appraisal rights will be entitled, upon written request, to receive from the surviving company a statement setting forth the aggregate number of shares of McClatchy Class B common stock not voted in favor of adopting the merger agreement and the transactions contemplated by the merger agreement, including the merger, and with respect to which demands for appraisal have been timely received and the aggregate number of former holders of these shares of McClatchy Class B common stock. These statements must be mailed within ten days after a written request therefore has been received by the surviving company or within 10 days after expiration of the period for delivery of demands for appraisal under Section 262 of the DGCL, whichever is later.

If a petition for an appraisal is filed timely with the Delaware Court of Chancery by a former McClatchy Class B stockholder and a copy thereof is served upon the surviving company, the surviving company will then be obligated within 20 days of service to file with the Delaware Register in Chancery a duly certified list containing the names and addresses of all former McClatchy Class B stockholders who have demanded appraisal of their shares of McClatchy Class B common stock and with whom agreements as to value have not been reached. After notice to such former McClatchy Class B stockholders as required by the Delaware Court of Chancery, the Delaware Court of Chancery may conduct a hearing on such petition to determine those former McClatchy Class B stockholders who have complied with Section 262 of the DGCL and who have become entitled to appraisal rights thereunder. The Delaware Court of Chancery may require the former McClatchy Class B stockholders who demanded appraisal of their shares of McClatchy Class B common stock to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceeding. If any former stockholder fails to comply with such direction, the Delaware Court of Chancery may dismiss the proceedings as to that former stockholder.

After determining which, if any, former McClatchy Class B stockholders are entitled to appraisal, the Delaware Court of Chancery will appraise their shares of McClatchy Class B common stock, determining their “fair value,” exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. McClatchy Class B stockholders considering seeking appraisal should be aware that the fair value of their shares of McClatchy Class B common stock as determined under Section 262 of the DGCL could be more than, the same as or less than the value the Class B common stock was given pursuant to the merger agreement if they did not seek appraisal of their shares of McClatchy Class B common stock.

The costs of the appraisal action may be determined by the Delaware Court of Chancery and levied upon the parties as the Delaware Court of Chancery deems equitable. Upon application of a former McClatchy Class B stockholder, the Delaware Court of Chancery may also order that all or a portion of the expenses incurred by any former McClatchy Class B stockholder in connection with an appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts used in the appraisal proceeding, be charged pro rata against the value of all of the shares of McClatchy Class B common stock entitled to appraisal.

 

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Any holder of McClatchy Class B common stock who has duly demanded an appraisal in compliance with Section 262 of the DGCL will not, after the consummation of the merger, be entitled to vote the shares of McClatchy Class B common stock subject to this demand for any purpose or be entitled to the payment of dividends or other distributions on those shares of McClatchy Class B common stock (except dividends or other distributions payable to holders of record of McClatchy Class B common stock as of a record date prior to the effective date of the merger).

If any stockholder who properly demands appraisal of their McClatchy Class B common stock under Section 262 of the DGCL fails to perfect, or effectively withdraws or loses, their right to appraisal, as provided in Section 262 of the DGCL, that stockholder’s shares of McClatchy Class B common stock will continue to remain in existence in accordance with the merger agreement. A McClatchy Class B stockholder will fail to perfect, or effectively lose or withdraw, their right to appraisal if, among other things, no petition for appraisal is filed within 120 days after the effective date of the merger, or if the stockholder delivers to McClatchy Class B or the surviving company, as the case may be, a written withdrawal of their demand for appraisal. Any attempt to withdraw an appraisal demand in this matter more than 60 days after the effective date of the merger will require the written approval of the surviving company and, once a petition for appraisal is filed, the appraisal proceeding may not be dismissed as to any holder absent court approval.

Failure to follow the steps required by Section 262 of the DGCL for perfecting appraisal rights may result in the loss of these rights, in which event the McClatchy Class B stock will continue to remain in existence and such stockholder will receive no payment for their Class B common stock, in accordance with the merger agreement.

Consequently, any McClatchy Class B stockholder willing to exercise appraisal rights is urged to consult with legal counsel prior to attempting to exercise such rights.

Accounting Treatment of the Merger

McClatchy will account for the merger using the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations,” with McClatchy treated as the acquiring entity. Accordingly, consideration paid by McClatchy will be allocated to Knight Ridder’s assets and liabilities based upon their estimated fair values as of the date of completion of the merger. The results of operations of Knight Ridder will be included in McClatchy’s results of operations from the date of the closing of the merger.

Material U.S. Federal Income Tax Consequences of the Merger

Subject to the assumptions and limitations discussed below, in the opinions of Wilson Sonsini Goodrich & Rosati, P.C., counsel to McClatchy, and Wachtell, Lipton, Rosen & Katz, counsel to Knight Ridder, the following discussion sets forth the material U.S. federal income tax consequences of the merger to Knight Ridder shareholders. This discussion is based on the Internal Revenue Code, U.S. Treasury regulations, judicial authorities, published positions of the Internal Revenue Service, and other applicable authorities, all as currently in effect and all of which are subject to change, possibly with retroactive effect. It does not discuss all aspects of U.S. federal income taxation that may be relevant to a particular shareholder in light of such shareholder’s particular circumstances (such as a shareholder that acquired shares of Knight Ridder common stock in connection with certain stock option or stock purchase plans or in certain other compensatory transactions, that holds shares of Knight Ridder common stock as part of a hedge, appreciated financial position, straddle or conversion transaction or that is subject to the alternative minimum tax) or to a person that may be subject to special treatment under the Internal Revenue Code (such as a shareholder that is a tax-exempt entity, a financial institution or insurance company, a dealer or broker in securities, a non-U.S. person or entity, or a partnership or other entity treated as a partnership for U.S. federal income tax purposes). This summary is addressed only to shareholders that are citizens or residents of the United States, corporations or other entities treated as corporations created or organized in the United States or any political subdivision of the United States, or persons

 

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otherwise treated as U.S. persons for U.S. federal income tax purposes. This summary does not discuss any tax considerations under local or state laws or non-U.S. laws, or under estate, gift, excise or other non-income tax laws. It does not discuss the tax consequences of transactions effectuated prior or subsequent to, or concurrently with, the merger (whether or not in connection with the merger). This summary assumes that the shares of Knight Ridder common stock are held as capital assets within the meaning of Section 1221 of the Internal Revenue Code (generally, assets held for investment purposes).

ACCORDINGLY, KNIGHT RIDDER SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING APPLICABLE U.S. FEDERAL, STATE AND LOCAL TAX CONSEQUENCES AND NON-U.S. TAX CONSEQUENCES.

The merger has been structured to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Completion of the merger is conditioned upon the receipt by McClatchy and Knight Ridder of closing tax opinions to the effect that the merger will so qualify. The closing tax opinions will be subject to certain assumptions, limitations and qualifications and will be based upon the truth and accuracy of certain customary factual representations of McClatchy and Knight Ridder. Although the merger agreement allows McClatchy and Knight Ridder to waive this condition to closing, neither McClatchy nor Knight Ridder anticipates doing so. If either McClatchy or Knight Ridder does waive this condition, you will be informed of this waiver prior to being asked to vote on the merger. The closing tax opinions will neither bind the Internal Revenue Service or any court nor preclude the Internal Revenue Service from asserting, or a court from sustaining, a contrary position. No ruling has been or is expected to be obtained from the Internal Revenue Service as to the U.S. federal income tax consequences of the merger.

The following material U.S. federal income tax consequences would result if the merger qualifies as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code:

(i) A Knight Ridder shareholder who receives McClatchy Class A common stock and cash in exchange for Knight Ridder common stock in the merger will recognize gain equal to the lesser of the amount of cash received (other than cash in lieu of a fractional share of McClatchy Class A common stock) and the gain realized. The gain realized will be the excess of (a) the sum of the fair market value of the McClatchy Class A common stock and the amount of cash received in the merger over (b) the shareholder’s tax basis in the Knight Ridder common stock surrendered in the merger. A pro rata portion of the cash will be treated as received in exchange for each share of Knight Ridder stock surrendered. No loss will be permitted to be recognized. For this purpose, a shareholder must calculate gain or loss separately for each identifiable block of Knight Ridder common stock (i.e., stock purchased at the same time for the same price) that is surrendered in the merger, and the shareholder may not offset a loss recognized on one block of stock against gain recognized on another block of stock.

(ii) The aggregate tax basis of the McClatchy Class A common stock received by a Knight Ridder shareholder in the merger (including a fractional share deemed received and redeemed as described below) will be the same as the tax basis in the Knight Ridder common stock exchanged therefor, increased by the gain recognized in the merger and reduced by the cash received in the merger (other than cash received instead of a fractional share of McClatchy Class A common stock). Recently finalized Treasury regulations provide guidance on how a shareholder holding multiple blocks of Knight Ridder common stock may allocate basis in such stock among shares of McClatchy Class A common stock received in the merger. Shareholders are urged to consult their own tax advisors regarding the proper allocation of their tax basis under the final Treasury regulations.

(iii) The holding period of the McClatchy Class A common stock received by a Knight Ridder shareholder in the merger (including a fractional share deemed received and redeemed as described below) will include the holding period of the Knight Ridder common stock exchanged therefor. Recently finalized Treasury regulations provide guidance on how a shareholder holding multiple blocks of Knight Ridder common stock may determine the holding period in the shares of McClatchy Class A common stock

 

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received in the merger. Shareholders are urged to consult their own tax advisors regarding the proper determination of their holding period under the final Treasury regulations.

(iv) In the case of cash received instead of a fractional share of McClatchy Class A common stock, such fractional share will be treated as having been issued and then redeemed for cash in a separate transaction. The deemed redemption of a fractional share generally will result in capital gain or loss to the shareholder measured by the difference between the proceeds of the redemption and the basis of the fractional share.

(v) No gain or loss will be recognized by Knight Ridder or McClatchy in the merger.

In general, any gain recognized by a Knight Ridder shareholder will be capital gain, and will be long term capital gain (taxable at a maximum rate of 15% under current law) if the holding period of Knight Ridder common stock exchanged in the merger is more than one year, provided that the receipt of the cash consideration in the merger is not treated as a dividend for U.S. federal income tax purposes. The receipt of the cash consideration by a Knight Ridder shareholder in the merger generally will not be treated as a dividend if it results in a meaningful reduction in such shareholder’s proportionate equity interest in McClatchy, as compared to the interest such shareholder would have had if the cash consideration instead had been paid in additional shares of McClatchy Class A common stock, and taking into account the application of certain attribution rules under the Internal Revenue Code. If a shareholder has a minimal equity interest in McClatchy and no right to exercise control over McClatchy’s corporate affairs, a relatively minor reduction in such shareholder’s proportionate interest should be considered a meaningful reduction.

In order to avoid “backup withholding” of federal income tax on payments to Knight Ridder shareholders, unless an exception applies, each Knight Ridder shareholder must provide the payor with such stockholder’s correct taxpayer identification number (TIN) on IRS Form W-9 (or, if appropriate, another withholding form) and certify under penalties of perjury that such number is correct and that such shareholder is not subject to backup withholding. A Form W-9 or substitute Form W-9 will be provided to you. If a Knight Ridder shareholder fails to provide the correct TIN or certification, payments received may be subject to backup withholding at a 28% rate. Certain stockholders, including all corporations, are not subject to backup withholding. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is furnished to the IRS.

Material Differences in the Rights of Shareholders

The following is a description of the material differences between the rights of holders of McClatchy Class A common stock and the rights of holders of Knight Ridder common stock. While we believe that this description covers the material differences between the two, this summary may not contain all of the information that is important to you. This summary is not intended to be a complete discussion of the charter documents of McClatchy and Knight Ridder and it is qualified in its entirety by applicable Delaware law and Florida law, as well as by McClatchy’s and Knight Ridder’s respective certificate of incorporation or articles of incorporation and bylaws. You should carefully read this entire prospectus/proxy statement/information statement and the other documents we refer to for a more complete understanding of the differences between being a shareholder of McClatchy and being a shareholder of Knight Ridder. McClatchy and Knight Ridder have filed with the SEC their respective certificate of incorporation or articles of incorporation and bylaws and will send copies of these documents to you upon your request. See the section entitled “Where You Can Find More Information” on page 124.

McClatchy is a Delaware corporation, and Knight Ridder is a Florida corporation. The rights of each company’s shareholders are generally governed by the laws of the State of Delaware for McClatchy stockholders and the laws of the State of Florida for Knight Ridder shareholders, and each company’s certificate of incorporation or articles of incorporation and bylaws. Upon completion of the merger, shareholders of Knight

 

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Ridder will be entitled to become stockholders of McClatchy, and Delaware law and the McClatchy certificate of incorporation and bylaws will govern the rights of former Knight Ridder shareholders. The only change to the McClatchy certificate of incorporation to be adopted in connection with the merger is an increase in the number of shares of McClatchy Class A common stock authorized for issuance from 100,000,000 to 200,000,000.

If your shares are held by a broker or other financial intermediary in “street name” rather than directly by you as a person whose name is entered on the share register of either McClatchy or Knight Ridder, you must rely on procedures established by that broker or financial intermediary in order to assert your rights as a shareholder against either McClatchy or Knight Ridder, as applicable.

Authorized Capital Stock

Knight Ridder’s amended and restated articles of incorporation authorize the issuance of 270,000,000 shares of capital stock, consisting of 250,000,000 shares of common stock, par value two and one-twelfth cents per share, and 20,000,000 shares of preferred stock, par value one dollar. As of May 8, 2006, 67,910,409 shares of common stock and no shares of preferred stock are issued and outstanding. Knight Ridder’s preferred stock includes two authorized series of stock, Series A junior participating preferred stock, having 1,500,000 shares authorized and no shares issued and outstanding, and Series B preferred stock, having 1,758,242 shares authorized and no shares issued and outstanding.

McClatchy’s amended and restated certificate of incorporation authorizes the issuance of 160,000,000 shares of capital stock, consisting of 100,000,000 shares of Class A common stock, par value one-cent per share, and 60,000,000 shares of Class B common stock, par value one-cent per share. As of May 1, 2006, 20,641,840 shares of Class A common stock are issued and outstanding, and 26,192,397 shares of Class B common stock are issued and outstanding. The number of authorized shares for either Class A or Class B common stock may be increased or decreased by a vote of the majority of the voting power of all of the then outstanding shares of all common stock, voting as a single class.

Conversion of Shares

Knight Ridder’s articles of incorporation provide that the board of directors may, by majority vote, issue additional series of stock with conversion rights or exchange rights.

McClatchy’s certificate of incorporation provides that each share of Class B common stock is convertible by the shareholder at any time into an equal number of shares of Class A common stock.

Restrictions on Transfers of Shares

Neither Knight Ridder’s articles of incorporation or its bylaws restrict the transfer of any shares of Knight Ridder stock, except for certain restrictions on Series B shares, if issued.

Neither McClatchy’s certificate of incorporation or its bylaws restricts the transfer of any shares of McClatchy stock.

Board of Directors

Knight Ridder’s articles of incorporation and bylaws provide that the number of directors comprising the Knight Ridder board of directors shall be determined by resolution of the board, but may in no event be less than ten nor more than twenty directors. No resolution to change the number of directors may shorten the tenure of an existing director. As of the date of this prospectus/proxy statement/information statement, the Knight Ridder board has ten members.

 

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McClatchy’s bylaws provide that the number of directors compromising the McClatchy board of directors shall be fixed, and may be changed from time to time by a resolution of a majority of McClatchy’s directors, provided that resolutions reducing the number of directors cannot take effect until the next election of directors. As of the date of this prospectus/proxy statement/information statement, the McClatchy board of directors has fourteen members.

Election of Directors

Knight Ridder’s bylaws provide that directors are to be elected at an annual meeting of stockholders or at a special meeting called for the purpose of electing directors. The candidates from the slate of nominees receiving the greatest number of votes are elected. The board is classified, with approximately one-third of the board elected each year to a three year term. If shares of the Series A junior participating preferred stock are issued, any dividends payable to the Series A junior participating preferred stock remain unpaid for six full quarters, the holders of all series of preferred stock are entitled to vote as a separate class to elect two directors, and the number of directors is increased by two. This right continues until all unpaid dividends have been paid in full or declared and set apart for payment.

McClatchy’s certificate of incorporation and bylaws provide that the holders of Class A common stock, voting as a separate class, can elect a number of directors equal to 25% of the total number of directors annually. In the event that this is not a whole number, the number is rounded up to the nearest whole number. The remaining 75% of directors are elected by the Class B common stockholders annually. The directors voted upon by the Class A and Class B common stockholders are from separate slates of nominees. A plurality of the votes cast by each of the Class A and Class B common stockholders is sufficient to elect directors. No cumulative voting is authorized.

Removal of Directors

Knight Ridder’s articles of incorporation provide that directors may be removed only for cause by the stockholders at an annual or special meeting. Removal requires an affirmative vote of 80% of the cumulative voting power of all capital stock entitled to vote.

McClatchy’s bylaws provide that the holders of Class A common stock can remove any directors elected by Class A common stockholders at any time, with or without cause. The holders of Class B common stock can remove directors elected by Class B common stockholders or elected by directors who themselves were elected by Class B common stockholders. Notwithstanding these shareholder powers, the board may remove any director for cause to the extent permitted by law.

Filling Vacancies on the Board of Directors

Knight Ridder’s articles of incorporation provide that when there is a vacancy on the board of directors, including a vacancy created by an increase in the size of the board of directors, the remaining directors may fill the vacancy by a majority vote, until the next election of directors by the shareholders.

McClatchy’s bylaws provide that when there are fewer than the authorized number of directors, the board may choose directors, by resolution of a majority of directors in office, to fill the vacancies until the next election of directors takes place.

Shareholder Voting

Knight Ridder’s articles of incorporation provide that each holder of common stock is entitled to one vote per common share, and that shareholders may only act at an annual or special meeting.

 

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McClatchy’s certificate of incorporation provides that, except for votes pertaining to the election and removal of directors as described above, the holders of Class A common stock vote together with the holders of Class B common stock as a single class. However, Class A stockholders have one-tenth of a vote per share and Class B stockholders have one vote per share, giving the Class B stockholders a substantial amount of control over McClatchy. A majority of the outstanding voting power of the common stock present at the meeting, either in person or by proxy, is required for a valid vote on any non-election or removal of director matter.

Dividends

Knight Ridder’s articles of incorporation provide that generally, preferred stock is entitled to a preference over common stock in the distribution of dividends or assets, as determined by the board. McClatchy’s certificate of incorporation provides that any dividend declared with respect to shares of Class A common stock must be matched by an identical dividend with respect to shares of Class B common stock; and any dividend declared with respect to shares of Class B common stock must also be matched by an identical dividend for Class A common stock.

Reorganization and Liquidation Rights

Knight Ridder’s articles of incorporation provide that, in the event of a merger or consolidation, Series A junior preferred shares, if issued, are entitled to receive an exchange value equal to 100 times the value received as consideration for each share of common stock. In the event of a liquidation of the corporation, Series A junior participating preferred shares are entitled to the greater of (1) $100.00 per share plus any unpaid and accrued dividends, or (2) 100 times the amount to be distributed to each share of common stock. In the event of a merger or consolidation, Series B preferred stock, if issued, is entitled to receive the consideration per share that would be received if each share had been fully converted into common stock. In the event of a liquidation of the corporation, Series B preferred stock is entitled to $0.01 per share plus the amount that each share would have received had it been fully converted into common stock.

McClatchy’s certificate of incorporation provides that in the event of a merger or consolidation, both Class A and Class B common stock are treated equally. In the event of a liquidation of the corporation, holders of both Class A common stock and holders of Class B common stock are entitled to share ratably in the assets available for distribution.

Notice of Shareholder Meetings

Knight Ridder’s bylaws provide that notice of all meetings of Knight Ridder shareholders must be provided not less than ten days and not more than 60 days before such meeting to all stockholders entitled to notice of or entitled to vote at the meeting.

McClatchy’s certificate of incorporation provides that notice of all meetings of McClatchy stockholders must be provided not less than ten days and not more than sixty days before such meeting to all stockholders entitled to notice of or entitled to vote at the meeting.

Ability to Call Special Meetings of Shareholders

Knight Ridder’s bylaws provide that a special meeting of the shareholders may be called by the Chairman of the Board, the Vice-Chairman of the Board, the President, a Vice President, the Board acting at a meeting or by majority written consent, or by the holders of 10% of all of the shares entitled to vote at the meeting.

McClatchy’s bylaws provide that special meetings of the stockholders may be called by the board of directors for any lawful purpose.

 

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Mergers and Consolidations

Knight Ridder’s articles of incorporation provide that the affirmative vote of the holders of two-thirds of the combined common stock and preferred stock, voting as a single class, is generally required to approve any consolidation or merger of the corporation. The articles of incorporation also provide that, in the event 90% or more of the circulation of the Knight Ridder newspapers will not be maintained following completion of a proposed business combination, the affirmative vote of 80% of the combined vote of the common stock and preferred stock, voting as a single class, will be required to approve any such consolidation or merger of the corporation. The affirmative vote of 80% of the combined vote of the common stock and preferred stock, voting as a single class, is also required to approve any consolidation or merger that would result in a foreign person or entity owning more than 20% of Knight Ridder, or a consolidation or merger transaction with a person or entity who was the holder of more than 15% of Knight Ridder’s outstanding voting stock, subject to certain exceptions.

McClatchy’s stockholders rights to vote on mergers and consolidation of the corporation are governed by Delaware law.

Amendment of Certificate of Incorporation & Bylaws

Knight Ridder’s articles of incorporation provide that, except as otherwise provided in the articles or by law, the affirmative vote of a majority of the shares entitled to vote on the amendment is required to amend the articles. Knight Ridder’s articles of incorporation also provide that any amendment of the sections of the articles governing the number of directors, classification of the board, removal of directors and vacancies on the board, supermajority approval requirements for certain business combinations and prohibiting action by written consent require the affirmative vote of 80% of the shares entitled to vote on the amendment. Knight Ridder’s bylaws provide that the bylaws may be amended or repealed by the board of directors. However, the shareholders may amend or repeal the bylaws adopted by the board, adopt new bylaws, and may prescribe that any bylaw approved by the shareholders may not be amended or repealed by the board.

McClatchy’s certificate of incorporation may be amended as provided by Delaware law; provided, however, that changes to the authorized capital of the corporation require the affirmative vote of the holders of a majority of the voting power of all common stock voting together as a single class, and amending or repealing the provisions relating to director indemnification require the affirmative vote of 66-2/3% of all common stock voting together as a single class. McClatchy’s certificate of incorporation provides that the board of directors is expressly authorized to make, alter or repeal the bylaws of the corporation.

Indemnification of Officers and Directors

Subject to certain limitations, the Florida Business Corporation Act (FBCA) provides that a corporation may indemnify any person who is or was a director, officer, employee or agent of the corporation against liability incurred in any proceeding, if such person acted in good faith and reasonably believed that such actions were in the best interest of the corporation or, with respect to any criminal proceeding, if such person had no reasonable cause to believe such action was unlawful. The FBCA also requires a Florida corporation to indemnify such persons to the extent they are successful on the merits or otherwise in defending a proceeding, or if a court determines they should be indemnified. It also permits a Florida corporation to advance expenses incurred in defense of a proceeding on certain conditions.

The FBCA also permits a Florida corporation to further indemnify and make advances to such persons by other means (such as by contract or bylaw provision) unless a judgment or other final adjudication establishes that such person’s actions or omissions which were material to the cause of action constitute any of the following: (1) a crime, unless such person had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe it unlawful; (2) a transaction from which he derived an improper personal benefit; (3) an action in violation of Florida Statutes Section 607.0834 (which section pertains to unlawful distributions to shareholders); or (4) willful misconduct or a conscious disregard for the best interests of the corporation in a proceeding by or in the right of the corporation to procure a judgment in its favor or in a proceeding by or in the right of a shareholder.

 

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These broader rights are applicable under Knight Ridder’s bylaws, which provide as a contract right that the corporation will indemnify an officer or director in any action brought against them by reason of their status as officer or director of the corporation to the fullest extent permitted by Florida law. The corporation may also, at its discretion, indemnify other employees or agents to the same extent. No change to the bylaws, or the Florida law, may alter the duty of the corporation to indemnify any individual in an existing matter. The bylaws also provide for mandatory advancement of expenses subject to certain conditions.

McClatchy’s certificate of incorporation provides that directors shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except: (1) for liability for breach of their duty of loyalty to the corporation or its stockholders, (2) for acts not in good faith or which involve intentional misconduct or a knowing violation of the law, (3) under section 174 of the Delaware General Corporation Law, or (4) for any transaction for which the director derived an improper personal benefit.

McClatchy’s certificate of incorporation further provides that each officer and director of the corporation shall be indemnified for expenses in defending themselves in actions arising out of their duties as directors or officers, to the maximum extent allowed under Delaware law. The certificate further allows the corporation to enter into contracts or use other means to provide specific indemnifications to officers and directors, as well as enter into arrangements to endure the ability to pay these indemnification obligations.

Additionally, the merger agreement provides that all rights to indemnification in favor of officers, directors or employees of both McClatchy and Knight Ridder will survive the merger, and that McClatchy will honor the indemnification provisions of the articles of incorporation of any Knight Ridder subsidiary or other independent indemnification agreements of Knight Ridder, will not amend the indemnification provisions of the surviving company, and will maintain Knight Ridder’s directors’ and officers’ insurance policies for six years after completion of the merger, to the extent permitted by law. Further, from the effective date of the merger forward, McClatchy will indemnify the officers and directors of Knight Ridder in any action brought against them by reason of their status as officer or director. See “The Merger Agreement—Indemnification and Insurance” on page 86.

Limitation on Director Liability

With respect to Knight Ridder, section 607.0831 of the FBCA provides that a director is not personally liable for monetary damages to the corporation or any other person for any statement, vote, decision, or failure to act, regarding corporate management or policy by a director, unless: (1) the director breached or failed to perform his or her duties as a director, and (2) the director’s breach of, or failure to perform, those duties constitutes:

 

    a violation of the criminal law, unless the director had reasonable cause to believe his or her conduct was lawful or had no reasonable cause to believe his or her conduct was unlawful. A judgment or other final adjudication against a director in any criminal proceeding for a violation of the criminal law estops that director from contesting the fact that his or her breach, or failure to perform, constitutes a violation of the criminal law; but does not estop the director from establishing that he or she had reasonable cause to believe that his or her conduct was lawful or had to reasonable cause to believe that his or her conduct was unlawful,

 

    a transaction from which the director derived an improper personal benefit, either directly or indirectly,

 

    a circumstance under which the liability provisions of Section 607.0834 of the FBCA are applicable (which section pertains to unlawful distributions to shareholders),

 

    in a proceeding by or in the right of the corporation to procure a judgment in its favor or by or in the right of a shareholder, conscious disregard for the best interest of the corporation, or willful misconduct, or

 

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    in a proceeding by or in the right of someone other than the corporation or a shareholder, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property.

With respect to McClatchy, Section 102(b)(7) of the Delaware General Corporation Law provides that, subject to certain limitations, the certificate of incorporation of a corporation may contain a provision limiting the liability of a director for monetary damages for breach of fiduciary duty. McClatchy’s certificate of incorporation provides that a director will not be liable for monetary damages for breach of fiduciary duty, except for liability for:

 

    any breach of the director’s duty of loyalty to the corporation or its stockholders,

 

    acts or omissions not in good faith or involving intentional misconduct or a knowing violation of the law,

 

    the unlawful payment of dividends or unlawful stock purchases or redemptions, or

 

    transactions where the director receives a personal benefit.

Dissenters’ Rights

Subject to certain exceptions, Florida law does not provide dissenters’ rights for shareholders of corporations that are listed on the NYSE (such as Knight Ridder).

With respect to McClatchy, Section 262 of the Delaware General Corporation Law provides to stockholders who dissent from a merger or consolidation of the corporation the right to demand and receive payment of the fair value of their shares as appraised by the Delaware Chancery Court. However, stockholders do not have appraisal rights if they are holders of shares of the constituent corporation surviving a merger if the merger did not require approval of the stockholders of the surviving corporation, or if the shares they hold, at the record date for determination of stockholders entitled to vote at the meeting of stockholders to act upon the merger or consolidation, or on the record date with respect to action by written consent, are:

 

    listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc.; or

 

    held of record by more than 2,000 stockholders.

Those stockholders, however, will have appraisal rights if the merger agreement requires that they receive for their shares anything other than:

 

    shares of the surviving corporation;

 

    shares of another corporation which is either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 stockholders;

 

    cash in lieu of fractional shares; or

 

    some combination of the above.

McClatchy Class A common stock is listed on the NYSE. Accordingly, the holders of Class A shares are not be entitled to appraisal rights in connection with the merger. However, as discussed in detail in the section entitled “Appraisal Rights,” holders of McClatchy Class B common stock are entitled to appraisal rights pursuant to Section 262(b) of the Delaware General Corporation Law.

 

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Interested Shareholder Transactions

The FBCA provides that, unless a specified exception is met, an interested shareholder (i.e., a person owning 10% or more of a corporation’s outstanding voting stock) may not engage in an affiliated transaction (including a merger or other significant corporate transactions) with a Florida corporation unless such transaction is approved by two-thirds of the voting shares of the corporation excluding the shares beneficially owned by the interested shareholder.

This provision is not applicable under certain circumstances, including when (1) a majority of the disinterested directors approve the transaction, (2) the corporation has not had more than 300 shareholders of record at any time during the three years prior to the date on which the affiliated transaction was announced, (3) the interested shareholder has beneficially owned at least 80% of the outstanding voting shares of the corporation for at least five years prior to the date on which the affiliated transaction was announced, (4) the interested shareholder is the beneficial owner of at least 90% of the outstanding voting shares of the corporation exclusive of shares acquired directly from the corporation in a transaction not approved by a majority of the disinterested directors, (5) the corporation is an investment company registered under the Investment Company Act of 1940, or (6) in the affiliated transaction, “fair price” consideration is paid to the holders of each class or series of voting shares and certain other conditions are met.

Section 203 of the Delaware General Corporation Law provides that, subject to certain exceptions, a corporation may not enter into any business combination with an interested stockholder (i.e., a person owning 15% or more of the outstanding voting stock of the corporation) for a period of three years following the date they became an interested stockholder, unless:

 

    the board of directors gave prior approval to either the business combination or the transaction making the stockholder an interested stockholder,

 

    on completion of the transaction making the stockholder an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation, or

 

    after completion of the transaction making the stockholder an interested stockholder, the business combination is approved 66 2/3% of the outstanding stock voted at a special meeting, excluding stock owned by the interested stockholder.

Section 203 allows a corporation to except itself from this provision through an amendment to its certificate of incorporation, but McClatchy has not done so.

Control Shares

Under the FBCA, unless there is a provision in the articles of incorporation or bylaws electing not to be governed by this provision, “control shares” (shares that would otherwise have voting power for the election of directors in certain ranges of ownership over 20%) acquired in a control-share acquisition have the same voting rights as were accorded to the shares before such acquisition only to the extent granted by a resolution approved by the majority of all the votes entitled to be cast by the class or series of the shareholders of the issuing corporation. Knight Ridder has not opted out of this provision, and its bylaws provide that the corporation is authorized to redeem control shares to the fullest extent permitted by the statute.

The Delaware General Corporation Law does not contain a control share acquisition provision, instead relying on the provisions of Section 203 as described in “Interested Shareholder Transactions” above.

Constituencies Provision

Under the FBCA, in discharging his or her duties, a director may consider such factors as the director deems relevant, including the long-term prospects and interests of the corporation and its shareholders, and the social,

 

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economic, legal or other effects of any action on the employees, suppliers, customers of the corporation and its subsidiaries, the communities and society in which the corporation or its subsidiaries operate and the economy of the state and the nation.

McClatchy’s certificate of incorporation provides that the board of directors may, in determining the policies and actions of the corporation, consider all of the relevant factors which are in the best interests of the corporation, including and in addition to the financial interests of the stockholders, community standards and values, the welfare of employees, and the quality and independence of the corporation and its publishing enterprise.

 

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THE MERGER AGREEMENT

The following summary describes the material provisions of the merger agreement. This summary is qualified in its entirety by reference to the merger agreement, a copy of which is attached as Annex A to this prospectus/proxy statement/information statement and is incorporated into this prospectus/proxy statement/information statement by reference. The provisions of the merger agreement are complicated and are not easily summarized. You are encouraged to read the merger agreement in its entirety for a more complete understanding of the merger agreement.

Structure of the Merger

The merger agreement provides for the merger of Knight Ridder with and into McClatchy with McClatchy continuing as the surviving corporation after the merger and the separate corporate existence of Knight Ridder shall cease.

Completion and Effectiveness of the Merger

We will complete the merger when all of the conditions to completion of the merger contained in the merger agreement described in the section entitled “The Merger Agreement—Conditions to Completion of the Merger” beginning on page 88 of this prospectus/proxy statement/information statement are satisfied or waived, including the approval of the merger and the merger agreement by the shareholders of Knight Ridder.

The closing of the merger will take place no later than the second business day after all conditions to the merger have been satisfied or waived, or on such date as McClatchy and Knight Ridder may agree. The merger will become effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware and the filing of articles of merger with the Secretary of State of the State of Florida.

We are working to complete the merger as quickly as possible. Because completion of the merger is subject to governmental and regulatory approvals and other conditions, we cannot predict the exact timing of the merger, but we expect the merger to be completed during the summer of 2006.

Merger Consideration

Upon completion of the merger, each share of Knight Ridder common stock outstanding immediately prior to the effective time of the merger will be canceled and extinguished and automatically converted into the right to receive (1) 0.5118 of a share of McClatchy Class A common stock and (2) $40.00 in cash upon surrender of the certificate representing such share of Knight Ridder common stock.

The consideration to be paid (i.e., 0.5118 of a share of McClatchy Class A common stock and $40.00 in cash for each share of Knight Ridder common stock) in the merger will be equitably adjusted to reflect the effect of any reclassification, recapitalization, stock split, reverse stock split, or combination, exchange or readjustment of shares, or any stock dividend or stock distribution (excluding in each case normal quarterly cash dividends), or other like change with respect to McClatchy Class A common stock or Knight Ridder common stock effected on or after the date of the merger agreement and prior to completion of the merger. Options to purchase shares of Knight Ridder common stock shall be treated in the manner summarized in the section entitled “The Merger Agreement—Treatment of Knight Ridder Stock Options” beginning on page 80 of this prospectus/proxy statement/information statement. Restricted shares of Knight Ridder common stock shall be treated in the manner summarized in the section entitled “The Merger Agreement—Treatment of Knight Ridder Restricted Stock” beginning on page 80 of this prospectus/proxy statement/information statement.

Each share of Knight Ridder common stock held by Knight Ridder or owned by McClatchy or any of their direct or indirect wholly owned subsidiaries immediately prior to the merger will automatically be cancelled and retired and shall cease to exist and none of Knight Ridder, McClatchy or any of their direct or indirect wholly owned subsidiaries will receive any securities of McClatchy or other consideration in exchange for those shares.

 

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Based on the exchange ratio and the number of shares of Knight Ridder common stock outstanding as of March 12, 2006, and assuming the exercise of all outstanding options to purchase shares of Knight Ridder common stock, whether vested or unvested, which were in-the-money as of March 12, 2006, a total of approximately 35,008,525 shares of McClatchy Class A common stock will be issued in connection with the merger to holders of shares of Knight Ridder common stock, and a total cash payment of approximately $2.7 billion will be paid to the holders of shares of Knight Ridder common stock in connection with the merger.

McClatchy will finance the transactions contemplated by the merger agreement with a $3.75 billion bank debt facility. McClatchy has received commitments from Bank of America, N.A., Banc of America Securities LLC, JPMorgan Chase Bank, N.A. and J.P. Morgan Securities Inc. to underwrite the financing of the merger.

Fractional Shares

McClatchy will not issue any fractional shares of common stock in connection with the merger. Instead, each holder of Knight Ridder common stock who would otherwise be entitled to receive a fraction of a share of McClatchy Class A common stock will be entitled to receive a cash payment representing such holder’s proportionate interest, if any, in the proceeds from the sale by the exchange agent for the merger in one or more transactions at the then-prevailing market price(s) of shares of Knight Ridder common stock. The shares sold by the exchange agent will be the excess of the aggregate number of shares of Knight Ridder common stock delivered to the exchange agent by McClatchy sufficient to pay the aggregate merger consideration in exchange for all of the Knight Ridder shares of common stock outstanding over the aggregate number of whole shares of McClatchy Class A common stock to be distributed to the holders of Knight Ridder common stock.

Exchange of Knight Ridder Stock Certificates for McClatchy Stock Certificates

Promptly following completion of the merger, the exchange agent will mail to each record holder of Knight Ridder common stock a letter of transmittal and instructions for surrendering the record holder’s Knight Ridder stock certificates or book-entry shares in exchange for the whole shares of McClatchy Class A common stock, and cash to be paid in the merger, including cash, if any, in lieu of any fractional shares. Only those holders of Knight Ridder common stock who properly surrender their Knight Ridder stock certificates or book-entry shares in accordance with the exchange agent’s instructions will receive:

 

    the whole shares of McClatchy Class A common stock and cash to which such holder is entitled pursuant to the merger agreement;

 

    a cash payment, if any, in lieu of any fractional share of McClatchy Class A common stock; and

 

    dividends or other distributions, if any, to which they are entitled under the terms of the merger agreement.

The surrendered certificates and book-entry shares representing Knight Ridder common stock will be canceled. After the effective time of the merger, each certificate or book-entry share representing shares of Knight Ridder common stock that has not been surrendered will represent only the right to receive each of the items, as the case may be, enumerated above. Following the completion of the merger, Knight Ridder will not register any transfers of Knight Ridder common stock on its stock transfer books. Holders of Knight Ridder common stock should not send in their Knight Ridder stock certificates until they receive a letter of transmittal from the exchange agent for the merger, with instructions for the surrender of Knight Ridder stock certificates or book-entry shares.

Distributions with Respect to Unexchanged Shares

Holders of Knight Ridder common stock are not entitled to receive any dividends or other distributions on McClatchy Class A common stock until the merger is completed. After the merger is completed, holders of Knight Ridder common stock certificates will be entitled to dividends and other distributions declared or made after completion of the merger with respect to the number of whole shares of McClatchy Class A common stock

 

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which they are entitled to receive upon exchange of their Knight Ridder stock certificates, but they will not be paid any dividends or other distributions on the McClatchy Class A common stock until they surrender their Knight Ridder stock certificates to the exchange agent in accordance with the exchange agent’s instructions.

Transfers of Ownership and Lost Stock Certificates

McClatchy will issue only (1) the number of whole shares of McClatchy Class A common stock and cash to which such holder is entitled pursuant to the merger agreement, (2) a cash payment, if any, in lieu of any fractional share of McClatchy Class A common stock, and (3) dividends or other distributions, if any, to which such holder is entitled under the terms of the merger agreement, in a name other than the name in which a surrendered Knight Ridder stock certificate or book-entry share is registered if the person requesting such exchange presents to the exchange agent all documents required to show and effect the unrecorded transfer of ownership and to show that such person paid any applicable stock transfer taxes. If a Knight Ridder stock certificate is lost, stolen or destroyed, the holder of such certificate shall be required to deliver an affidavit and may need to deliver a bond prior to receiving any of the merger consideration.

Treatment of Knight Ridder Stock Options

Each option to purchase shares of Knight Ridder common stock, whether vested or unvested, outstanding as of the date seven days prior to the effective time of the merger shall immediately vest as to 100% of the shares subject to such option and shall, to the extent not exercised prior, be cashed out at the effective time of the merger as described hereinafter. The consideration for each such Knight Ridder stock option is an amount in cash equal to the excess, if any of (A) the product of (1) the number of shares of Knight Ridder common stock issuable upon exercise of such option multiplied by (2) the sum of (x) $40.00 plus (y) the product of 0.5118 multiplied by the closing price of McClatchy Class A common stock on the last trading day immediately preceding the closing of the merger, over (B) the aggregate exercise price of such Knight Ridder stock option.

Each right of any kind to receive shares of Knight Ridder common stock or benefits measured, in whole or in part, by the value of a number of shares of Knight Ridder common stock granted under any Knight Ridder stock plan or benefit plan, other than (1) shares of restricted stock (which shall be treated in the manner summarized in the section entitled “The Merger Agreement—Treatment of Knight Ridder Restricted Stock” beginning on page 80 of this prospectus/proxy statement/information statement), (2) any 401(k) plan of Knight Ridder or (3) rights to acquire common stock in connection with any Knight Ridder employee stock purchase plan (which shall be treated in the manner summarized in the section entitled “The Merger Agreement—Treatment of Rights Under the Knight Ridder Employee Stock Purchase Plan” beginning on page 81 of this prospectus/proxy statement/information statement) whether vested or unvested, which is outstanding immediately prior to the effective time of the merger shall become fully vested and converted into a right to receive the option consideration per share of Knight Ridder common stock to which such award makes reference to be paid to holders of such rights in accordance with the terms of such rights, pursuant to the consideration payable to holders of options to purchase Knight Ridder common stock as set forth in the foregoing paragraph.

The compensation committee of Knight Ridder’s board of directors will pass such resolutions as are reasonably necessary to implement the foregoing, which will be subject to the review and approval of McClatchy, not to be unreasonably withheld.

Treatment of Knight Ridder Restricted Stock

Each award of restricted Knight Ridder common stock shall become fully vested immediately prior to the effective time of the merger, and converted into the right to receive the merger consideration as summarized in the section entitled, “The Merger Agreement—Merger Consideration” beginning on page 78 of this prospectus/proxy statement/information statement. The compensation committee of Knight Ridder’s board of directors will pass such resolutions as are reasonably necessary to implement the foregoing, which will be subject to the review and approval of McClatchy, not to be unreasonably withheld.

 

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Treatment of Rights Under the Knight Ridder Employee Stock Purchase Plan

At the effective time of the merger, the Knight Ridder Employee Stock Purchase Plan shall be terminated. In connection with such termination, the last day of the final purchase period (as defined in the Knight Ridder’s Employee Stock Purchase Plan) shall be deemed to be the date that is seven days prior to the effective time of the merger, as a result of which each participant therein shall be entitled to purchase prior to the effective time of the merger a number of whole shares of Knight Ridder common stock calculated pursuant to the terms of Knight Ridder’s Employee Stock Purchase Plan and Knight Ridder shall retain accumulated payroll deductions, thereby causing all such shares of Knight Ridder common stock that are converted into the right to receive the merger consideration as summarized in the section entitled, “The Merger Agreement—Merger Consideration” beginning on page 78 of this prospectus/proxy statement/information statement.

Representations and Warranties

The merger agreement contains generally customary representations and warranties made by McClatchy and Knight Ridder regarding aspects of their respective businesses. In particular, the assertions embodied in the representations and warranties contained in the merger agreement are qualified by information in confidential disclosure schedules provided by McClatchy and Knight Ridder to each other in connection with the signing of the merger agreement. These disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the merger agreement. Moreover, certain representations and warranties in the merger agreement were used for the purpose of allocating risk between McClatchy and Knight Ridder rather than establishing matters as facts. Accordingly, you should not rely on the representations and warranties in the merger agreement as characterizations of the actual state of facts about McClatchy or Knight Ridder. In addition, certain representations and warranties are qualified by the likelihood of a material adverse effect. See the section entitled “The Merger Agreement—Material Adverse Effect” beginning on page 89 of this prospectus/proxy statement/information statement. These representations and warranties relate to the following subject matters with respect to each party:

 

    corporate organization, qualifications to do business, corporate standing and corporate power;

 

    absence of violation of the articles of incorporation or certificate of incorporation, as the case may be, and bylaws and the certificates of incorporation, bylaws and similar organizational documents of subsidiaries;

 

    ownership of significant subsidiary capital stock and the absence of certain restrictions or encumbrances with respect to the capital stock of any significant subsidiary;

 

    capitalization;

 

    corporate authorization to enter into and consummate the transactions contemplated by the merger agreement and the enforceability of the merger agreement;

 

    governmental and regulatory approvals required to complete the merger;

 

    absence of any conflict or violation of any applicable legal requirements, corporate charter and bylaws, of each of Knight Ridder and McClatchy and the charter, bylaws and similar organizational documents of their respective subsidiaries as a result of entering into and consummating the transactions contemplated by the merger agreement;

 

    the effect of entering into and consummating the transactions contemplated by the merger agreement on material contracts;

 

    filings and reports with the SEC;

 

    financial statements;

 

    internal controls and procedures;

 

    the absence of undisclosed liabilities;

 

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    compliance with applicable laws;

 

    compliance with applicable environmental laws and regulations;

 

    absence of any material adverse change in business from December 25, 2005 through March 12, 2006, the date of the merger agreement;

 

    taxes;

 

    absence of conduct that is reasonably likely to prevent the merger from qualifying as a reorganization;

 

    intellectual property;

 

    possession of and compliance with permits required for the operation of business;

 

    litigation;

 

    payment, if any, required to be made to brokers and agents on account of the merger;

 

    transactions with affiliates;

 

    employee benefit plans and labor relations;

 

    absence of breaches of material contracts;

 

    accuracy of information supplied in this prospectus/proxy statement/information statement and the related registration statement filed by McClatchy with the SEC;

 

    approvals by the board of directors;

 

    vote required for stockholder approvals;

 

    the lack of foreign ownership of more than 20% of the capital stock of McClatchy or Knight Ridder; and

In addition, Knight Ridder made representations and warranties regarding:

 

    the inapplicability of state takeover statutes to the merger;

 

    real property matters; and

 

    the taking of necessary action so that the transactions contemplated by the merger agreement, including the merger, will not result in the grant of any rights to any person to purchase shares of Series A Junior Participating preferred stock of Knight Ridder, pursuant to the terms of the Rights Agreement dated June 21, 1996, as amended, between Knight Ridder and Chase Mellon Stockholder Services, LLC, as rights agent.

In addition, McClatchy made representations and warranties regarding:

 

    the sufficiency of cash on hand at the closing of the merger to pay the full aggregate amount of the cash consideration in the merger and to satisfy its obligations under the merger agreement;

 

    that immediately after giving effect to the transactions contemplated by the merger agreement, McClatchy as the surviving corporation, including its subsidiaries, will not have incurred debts beyond its ability to pay such debts as they become due, the assets taken as a whole shall exceed its respective debts, and that it will not have unreasonably small capital to carry on its business as presently conducted or as proposed to be conducted; and

 

    the lack of ownership of capital stock of Knight Ridder or rights to acquire such capital stock, and that there are no voting agreements with respect to Knight Ridder capital stock to which McClatchy or any of its subsidiaries is a party.

The representations and warranties contained in the merger agreement will not survive the merger, but they form the basis of certain conditions to McClatchy’s and Knight Ridder’s obligations to complete the merger.

 

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Covenants of Knight Ridder

Knight Ridder has agreed that, until completion of the merger or termination of the merger agreement, except as (1) contemplated by the merger agreement, (2) may be required by applicable law or (3) may be agreed to by McClatchy, it will, (a) conduct its and its subsidiaries’ business in the ordinary course of business and (b) that it and its subsidiaries shall use commercially reasonable efforts to preserve intact their present business organizations and to preserve their relationships with significant customers, suppliers, licensors, licensees and others with which they have business dealings.

Under the merger agreement, Knight Ridder also agreed that, until the earlier of the completion of the merger or termination of the merger agreement, or unless McClatchy consents in writing (which consent may not be unreasonably withheld), Knight Ridder has agreed that, with certain exceptions, Knight Ridder will not, and will not permit any of its subsidiaries to, among other things, undertake the following actions:

 

    authorize or pay any dividends on or make any distribution with respect to its outstanding shares of capital stock, except:

 

    dividends and distributions paid or made by its directly or indirectly wholly owned subsidiaries in the ordinary course of business; and

 

    Knight Ridder may continue to pay regular quarterly cash dividends on the Knight Ridder common stock consistent with past practice (not to exceed $0.37 per share per quarter);

 

    adjust, split, combine or reclassify any of its capital stock;

 

    subject to certain exceptions, (1) increase compensation or other benefits, (2) enter into any material employment, consulting, special retirement, change of control, separation, severance or retention agreement or (3) change the employment status, title or other material term or material condition of employment of any publisher or executive editor (except as contemplated by the merger agreement);

 

    establish, adopt, enter into or amend any benefit plan, collective bargaining agreement, plan, trust, fund, or other policy or arrangement, except, in each case, as would not result in a material increase in cost to Knight Ridder;

 

    entering into certain labor or employment arbitration awards or settlements;

 

    subject to certain exceptions, bargain with any union representing any employees of Knight Ridder or its subsidiaries;

 

    other than in the ordinary course of business consistent with past practice, enter into or make any loans or advances to any of its officers, directors, employees, agents or consultants, or make any change in its existing borrowing or lending arrangements for or on behalf of any of such persons, except as required by the terms of any benefit plan;

 

    materially change its financial accounting policies or procedures, except as required by law;

 

    materially amend its articles of incorporation or bylaws;

 

    issue, sell, pledge, dispose of or otherwise encumber any shares of Knight Ridder capital stock or any rights, warrants or options to acquire such shares of capital stock, other than pursuant to (1) transactions among Knight Ridder and its wholly owned subsidiaries or among Knight Ridder’s wholly owned subsidiaries, (2) any exercise of Knight Ridder stock options and settlement of any Knight Ridder stock-based awards outstanding on March 12, 2006 and (3) shares of Knight Ridder common stock issued in the ordinary course of business pursuant to Knight Ridder’s 401(k) plan;

 

    subject to certain exceptions, purchase, redeem or otherwise acquire any shares of its capital stock or any rights, warrants or options to acquire any such shares;

 

    subject to certain exceptions, incur indebtedness or in any way assume the indebtedness of another person, except in the ordinary course of business;

 

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    other than in the ordinary course of business, sell, transfer, mortgage, encumber or otherwise dispose of any material assets or properties;

 

    modify, amend, terminate or waive any rights in a manner adverse to Knight Ridder under (a) any contract containing any covenant limiting the right of Knight Ridder or its subsidiaries to engage in any material line of business or compete with any person in any material line of business; (b) any contract under which such modification, amendment, termination or waiver of any right would have a material adverse impact on the proposed divestitures (as discussed in the section entitled “The Merger Agreement—Proposed Divestitures” beginning on page 87 of this prospectus/proxy statement/information statement) or otherwise have material adverse effect on Knight Ridder; (c) any mortgages, indentures, financial guarantees, loans or credit agreements, security agreements or other contracts relating to the borrowing of money or extension of credit, other than in the ordinary course of business or (d) any material settlement agreement which contains continuing material obligations of Knight Ridder or any of its subsidiaries;

 

    enter into any material contracts other than in the ordinary course of business;

 

    file or amend any tax return other than in the ordinary course of business, make or change any material tax election, or settle or compromise any material tax liability;

 

    enter into any new line of business material to it and its subsidiaries, taken as a whole;

 

    make any material investment either by purchase of equity interests or purchase of assets other than in the ordinary course of business;

 

    subject to certain exceptions, settle any material claim, action or proceeding; and

 

    agree, in writing or otherwise, to take any of the foregoing actions.

Covenants of McClatchy

McClatchy has agreed that, until completion of the merger or termination of the merger agreement, except as (1) contemplated by the merger agreement, (2) may be required by applicable law or (3) may be agreed to by Knight Ridder, it will, (a) conduct its and its subsidiaries’ business in, and such entities shall not take any action except in, the ordinary course of business and (b) that it and its subsidiaries shall use commercially reasonable efforts to preserve intact their present business organizations and to preserve their relationships with significant customers, suppliers, licensors, licensees and others with which they have business dealings.

Under the merger agreement, McClatchy also agreed that, until the earlier of the completion of the merger or termination of the merger agreement, or unless Knight Ridder consents in writing, McClatchy has agreed that, with certain exceptions, McClatchy will not, and will not permit any of its subsidiaries to, among other things, undertake the following actions:

 

    authorize or pay any dividends on or make any distribution with respect to its outstanding shares of capital stock, except:

 

    dividends and distributions paid or made by its directly or indirectly wholly owned subsidiaries in the ordinary course of business; and

 

    McClatchy may continue to pay regular quarterly cash dividends on the McClatchy Class A common stock consistent with past practices;

 

    adjust, split, combine or reclassify any of its capital stock;

 

    materially change its financial accounting policies or procedures, except as required by law;

 

    amend its articles of incorporation or bylaws;

 

   

issue, sell, pledge, dispose of or otherwise encumber any shares of McClatchy capital stock, or any rights, warrants or options to acquire or with respect to any such shares of capital stock, other than pursuant to (i) any exercise of options to purchase shares of McClatchy Class A common stock and or

 

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other securities convertible into shares of McClatchy Class A common stock outstanding on March 12, 2006 or as may be granted after March 12, 2006 as permitted under the merger agreement (ii) any benefit plan of McClatchy, as it exists on March 12, 2006, (iii) the sale of shares of McClatchy Class A common stock pursuant to the exercise of options to purchase McClatchy Class A common stock if necessary to effectuate an optionee direction upon exercise or for withholding of taxes, and (iv) the grant of equity compensation awards in the ordinary course of business consistent with past practice in accordance with McClatchy’s customary schedule;

 

    purchase, redeem or otherwise acquire, directly or indirectly, any shares of its capital stock or any rights, warrants or options to acquire any such shares, except for transactions among McClatchy and its wholly owned subsidiaries or among McClatchy’s wholly owned subsidiaries and except in the ordinary course of business consistent with past practice,

 

    subject to certain exceptions, incur indebtedness or in any way assume the indebtedness of another person, except in the ordinary course of business;

 

    other than in the ordinary course of business, sell, transfer, mortgage, encumber or otherwise dispose of any material assets or properties;

 

    take or agree to take any action (including entering into agreements with respect to any acquisitions, mergers, consolidations or business combinations) which would reasonably be expected to prevent, materially delay or materially impair the ability of McClatchy to consummate the merger; and

 

    agree, in writing or otherwise, to take any of the foregoing actions.

Other Covenants

The merger agreement contains a number of other covenants by McClatchy and Knight Ridder, including:

 

    Preparation of Registration Statement and Proxy Statement. McClatchy and Knight Ridder agreed to promptly prepare and file the proxy statement/prospectus/information statement included as part of this registration statement. Both parties also agreed to use reasonable best efforts to have the registration statement declared effective by the SEC as promptly as practicable.

 

    Meeting of Knight Ridder Shareholders. Subject to the provisions of the merger agreement, Knight Ridder agreed to take all actions necessary to hold the Knight Ridder annual meeting to consider and vote upon the approval of the merger agreement and the merger.

 

    McClatchy Stockholder Approval. McClatchy agreed to take all actions necessary to obtain the written consent of its stockholders to the approval of the merger agreement, the issuance of shares of McClatchy Class A common stock in the merger and the amendment to McClatchy’s restated certificate of incorporation immediately following the entry into the merger agreement which approval was obtained on March 12, 2006 and no further approval is required by McClatchy stockholders.

 

    Treatment as a Reorganization. McClatchy and Knight Ridder have each agreed to use their reasonable best efforts to, and to cause their respective subsidiaries to, cause the merger to qualify as a reorganization within Section 368(a) of the Internal Revenue Code. McClatchy and Knight Ridder each agreed to use their reasonable best efforts to deliver tax representation letters as reasonably necessary or appropriate for their counsel to render opinions that the merger constitutes a “reorganization” within Section 368(a) of the Internal Revenue Code.

 

    Access to Information. Subject to certain exceptions, each party has agreed to afford the other party’s officers, employees, accountants, consultants, legal counsel, financial advisors and agents and other representatives, reasonable access during normal business hours to the properties, employees, contracts, commitments, books and records of such party and its subsidiaries and any report, schedule or other document filed or received by such party pursuant to the requirements of applicable laws, during the period prior to the effective time of the merger, subject to certain limitations.

 

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    Public Announcements. McClatchy and Knight Ridder have agreed to consult with one another before issuing any press release or otherwise making any public statements about the merger or related transactions, unless otherwise required by any applicable laws or regulations.

 

    Stock Exchange Listing. McClatchy has agreed to cause the shares of its Class A common stock to be issued in the merger to be approved for listing on the New York Stock Exchange, subject to official notice of issuance, prior to the closing of the merger.

 

    Affiliates. Knight Ridder has agreed to use reasonable best efforts to obtain a letter agreement from all Knight Ridder shareholders who, in the judgment of Knight Ridder, may be affiliates of Knight Ridder pursuant to which those stockholders would, among other things, agree not to transfer shares of McClatchy Class A common stock they receive pursuant to the merger in violation of the Securities Act and related rules and regulations.

 

    Third Party Consents. McClatchy and Knight Ridder each agreed to use best efforts to obtain all necessary consents, approvals or waivers from third parties which are required to be obtained in connection with the consummation of the merger.

Indemnification and Insurance

The merger agreement requires McClatchy, for a period of six years after the completion of the merger, to honor the exculpation, indemnification and advancement of expenses provisions of Knight Ridder’s articles of incorporation and bylaws, and to maintain such provisions in the similar organization documents of Knight Ridder in effect immediately prior to the effective time of the merger or in any indemnification agreements of Knight Ridder or its subsidiaries with any of their respective directors, officers or employees in effect immediately prior to the effective time of the merger. Further, McClatchy agreed that it shall not amend, repeal or otherwise modify any such provisions, or the exculpation, indemnification or advancement of expenses provisions of McClatchy’s certificate of incorporation and bylaws set in any manner that would adversely affect the rights thereunder of any individuals who at the effective time of the merger were current or former directors, officers or employees of McClatchy or any of its subsidiaries. Further, McClatchy agreed to provide indemnity to the current and former directors of Knight Ridder and its subsidiaries in their capacities as such.

In addition, for a period of six years after the effective time of the merger, McClatchy shall also cause to be maintained in effect the current policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by Knight Ridder and its subsidiaries with respect to matters arising on or before the effective time of the merger, or policies with terms and conditions that are no less favorable to the insured than those of Knight Ridder’s directors’ and officers’ insurance policy in effect as of March 12, 2006, subject to specified cost limitations.

Employee Benefits

The merger agreement provides that until December 31, 2006, McClatchy shall provide or cause to be provided to each active non-union employee of Knight Ridder compensation and benefits that are reasonably equivalent in the aggregate to the benefits that such employees participated in prior to the effective time of the Merger. Such covenant does not include (among other things) equity compensation, annual or other periodic cash incentive compensation, or payment upon separation from service. McClatchy also agreed to provide, between January 1, 2007 and December 31, 2007, each active non-union employee of Knight Ridder compensation and benefits that are reasonably equivalent in the aggregate to the benefits that such employees participated in prior to the effective time of the Merger or that are substantially equivalent in the aggregate to the compensation and benefits of similarly situated McClatchy employees. Such covenant also does not include (among other things) equity compensation, annual or other periodic cash incentive compensation, or payment upon separation from service. The covenant described herein does not extend to any employee who is employed by newspapers to be sold as described below in the section entitled “Proposed Divestitures” after the newspaper employing that employee is sold.

 

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In addition, the merger agreement provides that McClatchy will honor a severance plan schedule for certain corporate officers and Knight Ridder Digital employees that provides for severance in amounts ranging from two weeks of base pay per year of service to a maximum of 52 weeks of base pay. Corporate officers and Knight Ridder Digital employees with the rank of director or above will receive a minimum of eight weeks of base pay. In addition, individuals receiving severance payments will receive up to six months of subsidized COBRA continuation coverage at the same rate as in effect for active employees.

Except with respect to accruals under defined benefit pension plans, McClatchy agreed that Knight Ridder employees will be credited with their service under Knight Ridder’s employee benefits plans for all McClatchy plans that they later participate in, except to the extent that it would result in a duplication of benefits.

The merger agreement provides that until December 31, 2006, McClatchy would continue Knight Ridder’s retiree welfare programs, including medical, prescription drugs and retiree life insurance programs, on terms and conditions substantially equivalent in duration, scope, value, participant cost, vesting and otherwise to those in effect as of the effective time with respect to all Knight Ridder employees and retirees who were receiving benefits under such programs at the effective time or were eligible immediately prior to the effective time to receive benefits. After December 31, 2006, McClatchy agreed to keep in place certain retiree welfare programs for individuals who retired prior to December 31, 1993.

In addition, Knight Ridder agreed that it would not communicate verbally or in writing to groups of Knight Ridder employees or retirees regarding the benefits that will be in place after the Effective Time, unless such communications are agreed to by McClatchy (such consent not to be unreasonably withheld).

Proposed Divestitures

As part of the merger, McClatchy intends to divest 12 Knight Ridder newspapers, mainly located in cities that do not fit McClatchy’s longstanding acquisition criteria, chiefly involving growing markets. The largest are The Philadelphia Inquirer and San Jose Mercury News. Others include Knight Ridder’s other Philadelphia paper, The Philadelphia Daily News; Akron Beacon Journal (OH); The Wilkes-Barre Times Leader (PA); Aberdeen American News (SD); Grand Forks Herald (ND); The Ft. Wayne News-Sentinel (IN); Contra Costa Times (CA); The Monterey County Herald (CA); and Duluth News Tribune (MN). The St. Paul Pioneer Press (MN) is to be sold due to anticipated antitrust concerns involving McClatchy’s (Minneapolis) Star Tribune.

Knight Ridder has agreed to provide, and cause its subsidiaries and employees to provide, McClatchy with reasonable cooperation in connection with the arrangement of potential sales of assets or properties (including those listed in the above-paragraph) after the consummation of the merger as may be reasonably requested by McClatchy and which would not unreasonably disrupt the operations of Knight Ridder or any of its subsidiaries or that could reasonably be expected to constitute a violation of applicable law.

McClatchy has agreed to require any acquiror of any business or asset of Knight Ridder or its subsidiaries disposed of within 12 months following the consummation of the merger and any acquiror of any business or asset of Knight Ridder or its subsidiaries constituting part of the proposed divestitures, to comply with its obligations with respect to retiree welfare programs and severance which are set forth in the merger agreement and summarized in the section entitled “The Merger Agreement—Employee Benefits” beginning on page 86 of this prospectus/proxy statement/information statement, or McClatchy shall satisfy such obligations itself.

On April 26, 2006, McClatchy and MediaNews Group, Inc. entered into a Stock and Asset Purchase Agreement. Pursuant to the terms and subject to the conditions set forth in the MediaNews purchase agreement and following the completion of the merger of Knight Ridder with and into McClatchy, McClatchy will sell to MediaNews the outstanding capital stock of certain entities and certain related assets used to conduct the business of operating the San Jose Mercury News, Contra Costa Times and certain associated publications for $736.8 million in cash and MediaNews will assume certain liabilities related to the entities and related assets purchased.

 

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On April 26, 2006, McClatchy and The Hearst Corporation entered into a Stock and Asset Purchase Agreement. Pursuant to the terms and subject to the conditions set forth in the Hearst purchase agreement and following the completion of the merger of Knight Ridder with and into McClatchy, McClatchy will sell to Hearst the outstanding capital stock of certain entities and certain related assets used to conduct the business operating the Monterey (CA) Herald, the St. Paul Pioneer Press newspapers and certain associated publications for $263.2 million in cash and Hearst will assume certain liabilities related to the entities and related assets purchased.

The completion of these sales is subject to various conditions, including, among other things, the consummation of the merger of Knight Ridder with and into McClatchy, the expiration or termination of the applicable Hart-Scott-Rodino waiting period with respect to the sales and completion of both of the sales on the same day.

Board of Directors of McClatchy Following the Merger

The McClatchy board of directors agreed to take all actions necessary such that, immediately following completion of the merger, two directors of Knight Ridder acceptable to McClatchy shall become members of the McClatchy board.

Regulatory Approvals; Antitrust Matters; Best Efforts to Obtain Regulatory Approvals

McClatchy and Knight Ridder each agreed to coordinate and cooperate with one another and use best efforts to comply with, and refrain from actions that would impede compliance with, applicable laws, regulations and any other requirements of any governmental entity. McClatchy and Knight Ridder also agreed, to make promptly all filings and submissions required by any governmental entity in connection with the merger and the other transactions contemplated by the merger agreement, including those filings or submissions required under the Hart-Scott-Rodino Act, as well as any other comparable merger notification or control laws of any applicable jurisdiction, as agreed by the parties.

Conditions to Completion of the Merger

The respective obligations of McClatchy and Knight Ridder to complete the merger and the other transactions contemplated by the merger agreement are subject to the satisfaction or waiver, by all parties, of each of the following conditions before completion of the merger:

 

    the merger agreement and the merger shall have been duly approved by the shareholders of Knight Ridder;

 

    the stockholders of McClatchy shall have (1) adopted the merger agreement and approved the merger, (2) approved the issuance of shares of McClatchy Class A common stock and (3) approved the amendment to McClatchy’s certificate of incorporation, which approval was obtained on March 12, 2006, pursuant to an action by written consent;

 

    no law, regulation, injunction or order has been enacted or issued by a governmental entity of competent jurisdiction which is in effect and has the effect of making the merger illegal or otherwise prohibiting consummation of the merger;

 

    the SEC shall have declared McClatchy’s registration statement, of which this prospectus/proxy statement/information statement is a part, effective, and no stop order suspending its effectiveness shall have been issued and no proceedings for suspension of the registration statement’s effectiveness, shall have been initiated;

 

    all waiting periods (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act with respect to the merger and the other transactions contemplated by the merger agreement shall have expired or terminated early;

 

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    any other approvals required to be obtained by Knight Ridder for the consummation of the merger agreement, shall have been obtained, except where such failure would not have, individually or in the aggregate, a material adverse effect on McClatchy or Knight Ridder;

 

    McClatchy and Knight Ridder shall have each received from their respective tax counsel an opinion to the effect that the merger will constitute a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code; and

 

    the shares of McClatchy Class A common stock to be issued pursuant to the merger shall have been authorized for listing on the New York Stock Exchange, subject to official notice of issuance.

In addition, individually, the respective obligations of McClatchy and Knight Ridder to effect the merger and the other transactions contemplated by the merger agreement are subject to the satisfaction or waiver of the following additional conditions:

 

    the representations and warranties of the other party which are qualified by a material adverse effect shall be true and correct in all respects as so qualified as of March 12, 2006 and at and as of the date the merger is completed as though made at and as of the date the merger is completed, except to the extent the representations and warranties of the other party address matters only as of a particular date, then they must be true and correct as of that date;

 

    the representations and warranties of the other party which are not qualified by a material adverse effect shall be true and correct at and as of March 12, 2006 and at and as of the date the merger is completed as though made at and as of the date the merger is completed; except for such failures to be true and correct as would not have, in the aggregate, a material adverse effect on such party (except for certain representations regarding such party’s capitalization, which shall be true and correct in all material respects), except to the extent the representations and warranties of the other party address matters only as of a particular date, then they must be true and correct as of that date; and

 

    the other party has in all material respects performed all obligations and complied with all covenants required by the merger agreement to be performed or complied with by it prior to completion of the merger.

Material Adverse Effect

Under the terms of the merger agreement, a material adverse effect on either McClatchy or Knight Ridder is defined to mean any facts, circumstances, events or changes that are, or would reasonably be expected to become, materially adverse to the business, financial condition or continuing operations of the company and its subsidiaries, taken as a whole. However, under the terms of the merger agreement, a material adverse effect does not include the following facts, circumstances, events or changes:

 

    generally affecting the newspaper industry in the United States or the economy or the financial or securities markets in the United States or elsewhere in the world, including regulatory and political conditions or developments (including any outbreak or escalation of hostilities or acts of war or terrorism);

 

    resulting from the announcement or the existence of, or compliance with, the merger agreement or the transactions contemplated thereby, including the effect of the announcement of, or the existence of the plan to make, the proposed divestitures (see the section entitled “The Merger Agreement—Proposed Divestitures” beginning on page 87 of this prospectus/proxy statement/information statement); provided that this exception generally does not apply to representations and warranties with respect to the absence of conflicts with applicable organizational documents and material contracts;

 

    resulting from any litigation arising from allegations of a breach of fiduciary duty or other violation of applicable law relating to the merger agreement or the transactions contemplated thereby; or

 

    resulting from changes in applicable law, GAAP or accounting standards.

 

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No Solicitation of Alternative Transaction by Knight Ridder

Subject to certain exceptions described below, Knight Ridder has agreed that it and its subsidiaries will not directly or indirectly:

 

    solicit, initiate or knowingly encourage any inquiry with respect to, or the making, submission or announcement of, any alternative proposal (as defined below);

 

    participate in any negotiations regarding an alternative proposal with, or furnish any nonpublic information regarding an alternative proposal to, any person that has made or, to Knight Ridder’s knowledge, is considering making an alternative proposal;

 

    engage in discussions regarding an alternative proposal with any person that has made or, to Knight Ridder’s knowledge, is considering making an alternative proposal, except to notify such person as to the existence of these no solicitation provisions;

 

    approve, endorse or recommend any alternative proposal; or

 

    enter into any letter of intent or agreement in principle or any agreement providing for any alternative proposal (except for certain confidentiality agreements as discussed below).

However, prior to the approval of the merger agreement by Knight Ridder’s shareholders, Knight Ridder may consider and participate in discussions with respect to an alterative proposal which constitutes a superior proposal (as defined below) or which the Knight Ridder board of directors determines in good faith is reasonably expected to result in a superior proposal, then Knight Ridder may take the following actions:

 

    furnish nonpublic information to the third party making such alternative proposal, if, and only if, prior to so furnishing such information, Knight Ridder receives from the third party an executed confidentiality agreement on terms substantially similar, with respect to confidentiality, to the terms of Knight Ridder’s confidentiality agreement with McClatchy; and

 

    engage in discussions or negotiations with the third party with respect to the alternative proposal.

Knight Ridder has agreed to provide notice to McClatchy upon receipt of any alternative proposal or any request for nonpublic information which it reasonably believes would lead to an alternative proposal, and shall provide McClatchy with the material terms of such alternative proposal, or of such request or inquiry and shall provide McClatchy with such reasonable information as is reasonably necessary to keep McClatchy reasonably informed with respect to any material current developments regarding any such alternative proposal, or regarding any such request or inquiry.

Knight Ridder may, at any time prior to approval of the merger and the merger agreement by the Knight Ridder shareholders, withdraw, modify or qualify its recommendation to its shareholders regarding the merger and the merger agreement if:

 

    the Knight Ridder board of directors has concluded in good faith, after consultation with its outside legal and, in some cases, financial advisors, that the failure of the board of directors to effect a change of its recommendation would be reasonably likely to result in a breach of the directors’ fiduciary obligations to Knight Ridder shareholders under applicable law; and

 

    Knight Ridder shall send McClatchy written notice of its intention to effect a change of recommendation at least three business days prior to effecting such a change of recommendation.

As used in the merger agreement, “alternative proposal” means any bona fide proposal or offer made by any person (other than a proposal or offer by McClatchy or any of its subsidiaries) for:

 

    a merger, reorganization, share exchange, consolidation, business combination, recapitalization, dissolution, liquidation or similar transaction involving Knight Ridder;

 

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    the acquisition by any person of 15% or more of the assets of Knight Ridder, and its subsidiaries, taken as a whole; or

 

    the acquisition by any person of 15% or more of the outstanding shares of any class of capital stock of Knight Ridder, or 15% or more of the voting power represented by the outstanding voting securities of Knight Ridder.

As used in the merger agreement, “superior proposal” means an unsolicited bona fide written offer made by a third party to acquire all or substantially all of the assets of Knight Ridder and its subsidiaries as a whole or at least a majority of the total outstanding voting securities of Knight Ridder on terms that the Knight Ridder board of directors determines in good faith, after consultation with Knight Ridder financial and legal advisors, and considering such factors as the Knight Ridder board of directors considers to be appropriate (including the timing, ability to finance and likelihood of consummation of such proposal), are more favorable to Knight Ridder and its shareholders than the transactions contemplated by the merger agreement.

Termination of the Merger Agreement

The merger agreement may be terminated in accordance with its terms at any time prior to completion of the merger, whether before or after approval of the merger agreement and the merger by Knight Ridder shareholders:

 

    by mutual written consent of McClatchy and Knight Ridder;

 

    by McClatchy or Knight Ridder if the merger is not completed by an “end date” of September 30, 2006 (which may be extended until a date not later than December 31, 2006 at the option of either McClatchy or Knight Ridder so long as certain other conditions contained in the merger agreement have been satisfied or waived), except that this right to terminate the merger agreement is not available to any party who has breached in any material respect its obligations under the merger agreement in any manner that shall have proximately caused the failure of the merger to occur on or before that date;

 

    by McClatchy or Knight Ridder, if there is an injunction permanently restraining, enjoining or otherwise prohibiting completion of the merger which is final and non-appealable, provided that the party seeking to terminate the merger agreement shall have used its best efforts to remove such injunction;

 

    by McClatchy or Knight Ridder if the proposal for the approval of the merger agreement and the merger fails to receive the requisite affirmative vote at the Knight Ridder annual meeting or at any adjournment of that meeting;

 

    by McClatchy or Knight Ridder if the other party shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the merger agreement, which breach or failure to perform would constitute the failure of a condition to closing and cannot be cured by the “end date” discussed above, provided that such party shall have given the other party written notice, delivered at least thirty days prior to such termination, notifying such party of such breach or failure to perform;

 

    by McClatchy, if, prior to approval by the Knight Ridder shareholders of the merger and the merger agreement, Knight Ridder has (1) failed to recommend that its stockholders approve the merger and the merger agreement in the prospectus/proxy statement/information statement, (2) changed its recommendation to the Knight Ridder shareholders in a manner adverse to McClatchy or (3) approved or recommended any alternative proposal in connection with an alternative proposal; and

 

    by Knight Ridder, if prior to approval by the Knight Ridder shareholders of the merger and the merger agreement, Knight Ridder has changed its recommendation to the Knight Ridder shareholders in a manner adverse to McClatchy in compliance with the terms of the merger agreement.

 

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Effect of Termination

In the event the merger agreement is terminated as described above, the merger agreement will become void and neither McClatchy nor Knight Ridder will have any liability under the merger agreement, except that:

 

    both McClatchy and Knight Ridder will remain liable for intentional breach of the merger agreement; and

 

    designated provisions of the merger agreement, including the payment of fees and expenses, the termination fee described below and the confidential treatment of information, will survive termination.

Payment of Termination Fee

Under the terms of the merger agreement, Knight Ridder must pay a termination fee of $171.9 million in cash to McClatchy in the following circumstances:

1. (a) prior to the termination of the merger agreement, any alternative proposal (substituting 20% for the 15% thresholds set forth in the definition of “alternative proposal”; provided, that any proposals for the acquisition of any of the proposed divestitures shall not be included in the calculation of such 20% threshold with respect to assets of Knight Ridder and its subsidiaries) is publicly proposed or publicly disclosed prior to, and not withdrawn at the time of, the Knight Ridder annual meeting;

(b) the merger agreement is terminated by McClatchy or Knight Ridder because the Knight Ridder shareholders failed to approve the merger and the merger agreement at the Knight Ridder annual meeting; and

(c) concurrently with or within nine months after such termination, a transaction the proposal of which would constitute an alternative proposal (substituting 50% for the 15% thresholds set forth in the definition of “alternative proposal”) defined in the merger agreement as a “qualifying transaction” shall have occurred or any definitive agreement providing for a qualifying transaction shall have been entered into; or

2. the merger agreement is terminated by Knight Ridder prior to approval by the Knight Ridder shareholders of the merger and the merger agreement, because Knight Ridder changed its recommendation to its shareholders regarding the merger and the merger agreement in compliance with the provisions set forth in the merger agreement; or

3. the merger agreement is terminated by McClatchy prior to approval by the Knight Ridder shareholders of the merger and the merger agreement, because Knight Ridder failed to recommend to its shareholders the approval of the merger and the merger agreement in this prospectus/proxy statement/information statement or changed its recommendation to the Knight Ridder shareholders in a manner adverse to McClatchy or shall have approved or recommended any alternative acquisition proposal.

Such payment is to be made, in the case of termination by Knight Ridder as described in (2) above, concurrently with such termination, or in the case of termination by McClatchy as described in (3) above, two business days after the date of such termination, or, otherwise, upon the earlier of (i) the consummation of such qualifying transaction and (ii) Knight Ridder’s entry into a definitive agreement providing for a qualifying transaction.

Knight Ridder shall not be required to pay the termination fee on more than one occasion. Payment of a termination fee is not in lieu of damages incurred in the event of an intentional breach of the merger agreement. If McClatchy has to make a claim against Knight Ridder to obtain payment of the termination fee and such claim results in a judgment against Knight Ridder, then Knight Ridder will also have to pay McClatchy’s reasonable costs and expenses, including reasonable attorneys’ fees and expenses, in connection with the suit together with interest on the unpaid termination fee.

 

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Fees and Expenses

In general, all costs and expenses incurred in connection with the merger agreement will be paid by the party incurring such expenses, except that those expenses incurred in connection with filing, printing and mailing the registration statement and this prospectus/proxy statement/information statement and all fees paid in respect of any Hart-Scott-Rodino or other regulatory filing shall be borne by McClatchy.

Amendment and Waiver of the Merger Agreement

We may amend or waive any provision of the merger agreement at any time prior to the completion of the merger; however, after any approval of the merger agreement by the Knight Ridder and McClatchy stockholders, there may not be, without further approval of the stockholders, any amendment or waiver of the merger agreement that shall by applicable law require the approval of the McClatchy or Knight Ridder shareholders, and the effectiveness of such amendment or waiver shall be subject to such approval.

Dissenting Shares

No dissenters’ or appraisal rights are available with respect to shares of capital stock of Knight Ridder or shares of McClatchy Class A common stock in connection with the merger. Shares of McClatchy Class B common stock who did not act, by written consent, to adopt the merger agreement are entitled to appraisal rights pursuant to Section 262(b) of the Delaware General Corporation Law. Any shares of McClatchy Class B common stock held by a holder who has not effectively withdrawn or lost such holder’s appraisal rights under Section 262 of the Delaware General Corporation Law will, from and after the consummation of the merger, no longer be entitled to be voted for any purpose or to receive payment of dividends or other distributions under (except dividends or other distributions payable to stockholders of record as of a date which is prior to the consummation of the merger) and the holder of those shares will only be entitled to appraisal rights under the Delaware General Corporation Law. However, if any holder of dissenting shares effectively withdraws or loses appraisal rights under the Delaware General Corporation Law, then that holder’s shares will represent shares of Class B common stock of McClatchy as the surviving corporation in the merger. Failure to take any of the steps required under Section 262(b) of the Delaware General Corporation Law on a timely basis may result in a loss of those appraisal rights. The provisions of Delaware law that grant appraisal rights and govern such procedures are attached as Annex E.

RECOMMENDATION

The Knight Ridder board of directors recommends that shareholders vote FOR the approval of the merger agreement and the merger.

 

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PROPOSAL 2: ADJOURNMENT

OF THE ANNUAL MEETING

Knight Ridder is asking its shareholders to vote on a proposal to adjourn or postpone the 2006 Annual Meeting of Shareholders of Knight Ridder, if necessary, to permit the solicitation of proxies if there are not sufficient votes at the time of the annual meeting to approve the proposal to approve the merger agreement and the merger with McClatchy.

The Knight Ridder board of directors recommends that shareholders vote FOR the approval of the adjournment proposal.

PROPOSAL 3: ELECTION OF DIRECTORS

How is the board structured?

Knight Ridder’s board of directors is divided into three classes, generally serving staggered three-year terms so that the term of one class expires at each annual meeting. Knight Ridder’s board of directors currently consists of ten directors. Three directors will be elected at this year’s annual meeting for three-year terms expiring in 2009 until their successors are elected and qualified, or until his or her earlier death, resignation or removal. The other seven directors who were elected at prior annual meetings will continue to serve for their respective terms.

Who is nominated to stand for election?

The following individuals, each of whom is a current director of the Knight Ridder, have been nominated to stand for election at the 2006 annual meeting for three-year terms expiring in 2009: Ronald D. Mc Cray, Patricia Mitchell and M. Kenneth Oshman. The principal occupation and certain other information about each of the nominees, as well as the continuing directors, including each director’s age as of April 14, 2006, are set forth on the following pages.

Kidder Ridder has no reason to believe that any of the nominees will be unable or unwilling to serve if elected. However, if any nominee should become unable or unwilling for any reason to serve, proxies may be voted for another person nominated as a substitute by the Knight Ridder board of directors, or the board of directors may reduce the number of directors.

The board of directors recommends that shareholders vote FOR each of the following nominees.

Knight Ridder Director Nominees for Election for a Three-Year Term Expiring in 2009

 

LOGO   

RONALD D. MC CRAY, age 49              Director since 2003

Senior Vice President—Law and Government Affairs

Kimberly-Clark Corporation

 

Mr. Mc Cray has served as Senior Vice President—Law and Government Affairs of Kimberly-Clark Corporation, a global health and hygiene company which produces tissue, personal care and health care products, since November 2004 and Senior Vice President—Law and Government Affairs from 2003 to November 2004. He is responsible for global strategic, legal management, corporate governance and internal audit matters. Mr. Mc Cray has held a variety of positions with Kimberly-Clark since 1987, including Vice President/Associate General Counsel and Secretary from 2001 to 2003, Vice President/Chief Counsel and Secretary from 1999 to 2001, Vice President and Chief Counsel (Latin American and Neenah Operations) from 1996 to 2001. He is also a member of the Council on Foreign Relations.

 

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LOGO   

PATRICIA MITCHELL, age 63              Director since 2002

President and Chief Executive Officer

The Museum of Television and Radio

 

Ms. Mitchell has served as the President and Chief Executive Officer of the Museum of Television and Radio since March 2006, and previously served as the President and Chief Executive Officer of the Public Broadcasting Service from 2000 to 2006. Prior to that she served as President of CNN Productions and Time Inc. Television at Time Warner from 1992 to 2000. Ms. Mitchell serves as a director of Bank of America Corporation and is a member of the Board of Trustees of the Sundance Institute and the Women’s Leadership Advisory Council of the Kennedy School of Government.

LOGO   

M. KENNETH OSHMAN, age 65              Director since 1996

Chairman and Chief Executive Officer

Echelon Corporation

 

Since 1989, Mr. Oshman has served as Chairman and Chief Executive Office of Echelon Corporation, a networking company providing hardware and software products that enable everyday devices to connect to each other and the Internet. Mr. Oshman co-founded Rolm Corporation in 1969 and served as Chief Executive Officer, President and Director until Rolm’s merger with IBM in 1984. From 1984 to 1986, Mr. Oshman served as a Vice President of IBM. He is also a director of Sun Microsystems, Inc.

Knight Ridder Directors Continuing in Office Until 2007
LOGO   

KATHLEEN FOLEY FELDSTEIN, age 65              Director since 1998

President

Economics Studies, Inc.

 

Ms. Feldstein has served as President of Economics Studies, Inc., a private consulting firm, since 1987. She serves as a director of BellSouth Corporation and BlackRock Closed End Mutual Funds. She is also a Trustee of the Committee for Economic Development, the Museum of Fine Arts, Boston and McLean Hospital.

LOGO   

THOMAS P. GERRITY, age 64              Director since 1998

Professor of Management

The Wharton School

 

Mr. Gerrity has served as Professor of Management at the Wharton School of the University of Pennsylvania since 1990 and served as Dean from 1990 to 1999. Mr. Gerrity serves as a director of CVS Corporation, Fannie Mae, Sunoco, Hercules Incorporated and Internet Capital Group, Inc.

LOGO   

GONZALO F. VALDES-FAULI, age 59              Director since 1992

Retired Vice-Chairman

Barclays Capital

 

Mr. Valdes-Fauli is a retired Vice-Chairman of Barclays Capital, the investment banking division of Barclays Bank, London, England. Mr. Valdes-Fauli served as a member of the management committee of Barclays Capital from 1988 to 2001. He was Group Chief Executive of Barclays Bank Latin America from 1988 to 2001. He is a director of Blue Cross/Blue Shield of Florida, director of Gildan Activewear, Inc., Chairman of the Board of Directors of Broadspan Capital, LLC and Chairman of Banco Republic, Dominican Republic. Mr. Valdes-Fauli is a Trustee of the University of Miami.

 

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Knight Ridder Directors Continuing in Office Until 2008
LOGO   

MARK A. ERNST, age 47              Director since 2004

Chairman, President & Chief Executive Officer

H&R Block, Inc.

 

Mr. Ernst has served as Chairman of the Board of Directors of H&R Block, Inc., a provider of tax preparation, mortgage services and financial products and services, since 2002, Chief Executive Officer since 2001, President since 1999, Chief Operating Officer from September 1998 through December 2000 and Executive Vice President from September 1998 until September 1999. Prior to joining H&R Block, Inc. Mr. Ernst served as a senior executive with American Express Company. Mr. Ernst is a director of Great Plains Energy Incorporated and a member of the board of directors of numerous civic organizations.

LOGO   

VASANT PRABHU, age 46              Director since 2003

Executive Vice President and Chief Financial Officer

Starwood Hotels & Resorts Worldwide, Inc.

 

Mr. Prabhu has served as Executive Vice President and Chief Financial Officer of Starwood Hotels & Resorts Worldwide, Inc., a hotel and leisure company, since January 2004. Previously, Mr. Prabhu served as Executive Vice President/Chief Financial Officer and President/E-Commerce of Safeway, Inc. from 2000 through December 2003, President/Information and Media Group at McGraw-Hill Companies from 1998 to 2000, and in various finance roles at PepsiCo, Inc. from 1992 to 1998.

 

LOGO   

P. ANTHONY RIDDER, age 65              Director since 1987

Chairman of the Board and Chief Executive Officer

Knight-Ridder, Inc.

 

Mr. Ridder has served as Chairman and Chief Executive Officer of Knight Ridder since 1995, as President of the Company from 1989 to 1995, and as President of the Newspaper Division of the Company from 1986 to 1995. Mr. Ridder joined the San Jose Mercury News in 1964 and served as Publisher from 1977 to 1986.

LOGO   

JOHN E. WARNOCK, age 65              Director since 2001

Co-Chairman

Adobe Systems, Inc.

 

Mr. Warnock is a founder of Adobe Systems, Inc., a developer of software solutions for network publishing, and has served as Chairman from 1989 to 1997 and as Co-Chairman since 1997. Mr. Warnock served as Chief Executive Officer of Adobe Systems, Inc. from 1982 through December 2000 and Chief Technical Officer from December 2000 to March 2001. Mr. Warnock is a director of Salon Media Group, Inc. and a member of the Board of Trustees of the American Film Institute and Folger Shakespeare Library.

 

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Corporate Governance at Knight Ridder

The Knight Ridder board of directors is responsible for overseeing Knight Ridder’s affairs for the benefit of its shareholders. The principal functions of the board and its committees are to:

 

    Review and approve specific corporate actions as required by law and by applicable stock exchanges and/or trading systems on which Knight Ridder’s shares are listed or traded;

 

    Select, regularly evaluate and, as necessary, replace the chief executive officer; determine senior management compensation; and review executive succession planning;

 

    Review and, where appropriate, approve major strategies, financial objectives and other plans of Knight Ridder;

 

    Advise management on specific issues facing Knight Ridder;

 

    Oversee processes for evaluating the adequacy of internal controls, risk management, financial reporting and compliance, and satisfy itself as to the adequacy of such processes; and

 

    Nominate directors and ensure that the structure and practices of the board provide for sound corporate governance.

The principal functions of the board and its committees are more fully described in the corporate governance guidelines adopted by Knight Ridder’s board. Knight Ridder has also adopted a written code of business ethics that applies to all its employees, including its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and all other officers. Any amendments to, or waivers of, this code of ethics will be disclosed on Knight Ridder’s website promptly following the date of such amendment or waiver. Both the corporate governance guidelines and the code of business ethics are available on Knight Ridder’s website at www.kri.com on the “Corporate Governance” page, under the Investor Information section. You may also obtain a copy of the corporate governance guidelines or the code of business ethics without charge by writing to: Knight Ridder, 50 West San Fernando Street, Suite 1500, San Jose, CA 95113, Attn: Corporate Secretary.

Director Independence

Currently, the Knight Ridder board of directors consists of ten members, nine of whom the board has determined are “independent” under the rules of the NYSE and Knight Ridder’s corporate governance guidelines. Mr. Ridder, Knight Ridder’s Chairman and Chief Executive Officer, is the only non-independent director on the board. Under the NYSE rules, a director is considered “independent” if the board affirmatively determines that he or she has no material relationship with Knight Ridder, either directly or as a partner, shareholder or officer of an organization that has a relationship with Knight Ridder. The NYSE rules permit the adoption of, and the board has adopted, categorical standards to assist it in making determinations of independence. Under these standards, the board has determined a director will not be considered independent if any of the following standards apply:

 

    he or she is, or has been, an employee of Knight Ridder or an affiliate of Knight Ridder during the last three years;

 

    he or she receives, or has received, any direct compensation from Knight Ridder or from an affiliate of Knight Ridder, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service) during the last three years;

 

    he or she is, or has been, affiliated with or employed in a professional capacity by the present or former internal or external auditor of Knight Ridder during the last three years;

 

    he or she is, or has been, employed as an executive officer of another company where any of Knight Ridder’s present executives serve or have served on that other company’s compensation committee during the last three years;

 

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    he or she is an executive officer or an employee of a company that makes payments to, or receives payments from, Knight Ridder for property or services in an amount that, in any single fiscal year, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues during the last three years; and

 

    he or she has any immediate family members who (i) serve or have served as an executive officer of Knight Ridder or an affiliate of Knight Ridder during the last three years, (ii) receive or have received direct compensation of more than $100,000 per year from the Company or an affiliate of Knight Ridder during the last three years or (iii) satisfy the criteria set forth in the third through fifth bullet points above.

Executive Sessions of the Board

On a regular basis, including annually when it reviews Mr. Ridder’s performance, the non-management board members meet in executive session without Mr. Ridder or other members of management. Although the board does not formally designate a presiding director for such executive sessions, the non-management board members may designate a director to chair the meeting whenever they believe that would be useful. Absent such a designation, the chairs of each of the Audit Committee, Nominating and Corporate Governance Committee and Compensation Committee rotate as the presiding director of such meetings. Interested parties may provide their concerns to Knight Ridder’s non-management directors by writing to the Presiding Director, care of the Corporate Secretary, Knight Ridder, 50 West San Fernando Street, Suite 1500, San Jose, CA 95113. The Corporate Secretary will forward all such correspondence to each of the non-management board members.

Board Committees and Attendance

Each director is expected to attend all meetings of the board and all meetings of board committees of which the director is a member. Directors are also expected to attend Knight Ridder’s Annual Meeting. In 2005, all of Knight Ridder’s directors attended the Annual Meeting. During fiscal year 2005, the board of directors met seven times and the committees of the board held a total of 13 meetings. Each of the nominees for election at the Annual Meeting and each of the continuing directors attended at least 75% of the meetings of the board and of the committees of the board on which he or she served.

The board currently has five active standing committees: Audit, Compensation, Nominating and Corporate Governance, Environmental Affairs and Executive. All of these committees are comprised of non-employee directors who are “independent” in accordance with the NYSE’s listing standards except for the Environmental Affairs and Executive Committees on which Mr. Ridder, Knight Ridder’s Chairman and Chief Executive Officer, serves. The Audit, Compensation and Nominating and Corporate Governance Committees operate under written charters which are available on Knight Ridder’s website at www.kri.com on the “Corporate Governance” page, under the Investor Information section. You may also obtain a copy of the corporate governance guidelines without charge by writing to: Knight Ridder, 50 West San Fernando Street, Suite 1500, San Jose, CA 95113, Attn: Corporate Secretary. Below is a brief description of each committee.

 

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Knight Ridder Audit Committee

 

Members   

Principal Functions

   Meetings
in 2005

Gonzalo Valdes-Fauli, Chair

Mark A. Ernst

Kathleen Foley Feldstein

Vasant Prabhu

  

•      Ensures that Knight Ridder conducts its business in conformance with appropriate legal and regulatory standards and requirements.

 

•      Annually selects, appoints, evaluates, determines the compensation of, and retains the independent auditors, reviews the services to be performed by the independent auditors and the terms of their engagement, exercises oversight of their activities and, where appropriate, terminates and/or replaces the independent auditors.

 

•      Reviews with management and the independent auditors Knight Ridder’s quarterly and annual periodic reports and other financial disclosures such as earnings releases.

 

•      Reviews the results of each external audit and considers the adequacy of Knight Ridder’s internal controls.

 

•      Determines the duties and responsibilities of the internal auditors, reviews the internal audit program, and oversees other activities of the internal auditing staff.

 

•      Prepares a report to shareholders included in Knight Ridder’s annual proxy statement.

   7*

* Management and the independent auditors also met with the Audit Committee chair 4 times in 2005 to review earnings releases.

The board has determined that each member of the Audit Committee is “independent” and “financially literate” in accordance with the listing standards of the NYSE, and, in accordance with SEC and NYSE requirements, meets additional independence standards applicable to audit committee members. In addition, the board has determined that Messrs. Ernst and Prabhu are “audit committee financial experts” as defined under SEC rules.

 

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Knight Ridder Compensation Committee

 

Members   

Principal Functions

   Meetings
in 2005

M. Kenneth Oshman, Chair

Thomas P. Gerrity

Patricia Mitchell

Vasant Prabhu

Gonzalo Valdes-Fauli

  

•      Administers Knight Ridder’s incentive compensation plans and its stock option plans, including the review and grant of stock options to all eligible employees and directors.

 

•      Reviews and approves corporate goals and objectives relevant to Mr. Ridder’s compensation, evaluates his performance, and together with the other independent directors, determines and approves Mr. Ridder’s compensation.

 

•      After receiving input from the chief executive officer, makes recommendations to the board regarding non-chief executive officer compensation, incentive compensation plans and equity-based plans.

 

•      Oversees the selection of the chief executive officer and recommends to the board the process by which a new chief executive officer is selected.

 

•      Prepares a report to shareholders included in Knight Ridder’s annual proxy statement.

   5

Knight Ridder Nominating and Corporate Governance Committee

 

Members   

Principal Functions

   Meetings
in 2005

Kathleen Foley Feldstein, Chair

Thomas P. Gerrity

Ronald D. Mc Cray

M. Kenneth Oshman

John Warnock

  

•      Makes recommendations to the board regarding the size and composition of the board.

 

•      Establishes procedures for the nomination process and recommends candidates for election to the board.

 

•      Makes committee assignments and selects committee chairs.

 

•      Reviews and reports to the board on corporate governance matters.

 

•      Reviews and makes recommendations to the board regarding non-employee director compensation (including equity plans).

 

•      Oversees the evaluation of the board and management.

   1

In accordance with its charter, when a vacancy exists on the board, the Nominating and Corporate Governance Committee identifies and evaluates potential director candidates and recommends to the board individuals to fill such vacancy either through appointment by the board or through election by shareholders. The Nominating and Corporate Governance Committee considers recommendations of management, shareholders and others. The Nominating and Corporate Governance Committee has the sole authority to retain and terminate any consultants or search firms used to identify director candidates.

When evaluating a potential director candidate, the Nominating and Corporate Governance Committee considers such criteria as it deems appropriate, including a candidate’s judgment, skill, diversity, experience with

 

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businesses and other organizations of comparable nature or size, and the interplay of a candidate’s experience with the experience of other Board members. This evaluation process is the same for nominees submitted by our shareholders. The Nominating and Corporate Governance Committee did not receive any recommendations from shareholders proposing candidates for election at the 2006 annual meeting.

Knight Ridder Environmental Affairs Committee

 

Members   

Principal Functions

   Meetings
in 2005

Patricia D. Mitchell, Chair

Ronald D. Mc Cray

P. Anthony Ridder

John Warnock

  

•      Oversees the policies of Knight Ridder designed to carry out Knight Ridder’s commitment to preserving the natural environment of the communities it serves and the safety of its workplaces.

   1

Executive Committee

 

Members   

Principal Functions

   Meetings
in 2005

P. Anthony Ridder, Chair

Kathleen Foley Feldstein

M. Kenneth Oshman

  

•      When the board is not in session, the Executive Committee may exercise all powers of the board delegated to it, except certain actions specified in Knight Ridder’s bylaws, a copy of which is available on Knight Ridder’s website at www.kri.com.

   0

Director Compensation

Director compensation is established in accordance with Knight Ridder’s Compensation Plan for Non-employee Directors. Knight Ridder’s board of directors adopted the director plan effective July 1, 1997. Only non-employee directors are eligible to receive awards under the director plan. As described below, the director plan provides that non-employee directors receive the following compensation: (1) an annual retainer fee payable one half in Knight Ridder common stock and one half in cash or stock, at the director’s election; (2) board and committee meeting attendance fees; (3) an annual stock option grant; and (4) in certain cases, retirement benefits.

Currently, non-employee directors receive an annual retainer of $60,000. Half of this retainer is paid in Knight Ridder’s common stock, and a director may choose to receive the balance in cash or stock. The annual retainer fee is paid in equal quarterly installments. Employee directors do not receive any compensation for serving as a member of Knight Ridder’s board of directors.

Non-employee directors receive a fee of $1,500 for each board meeting and meeting of shareholders and $1,000 for each committee meeting attended except for Audit Committee members who receive $1,500 per meeting. Each non-employee director who chairs a committee receives the following annual fee: Audit Committee $10,000; Compensation Committee $8,000; Nominating and Corporate Governance Committee $8,000; and Environmental Affairs Committee $5,000. Knight Ridder also reimburses directors for travel and other expenses incurred in attending meetings.

Each December, each non-employee director is granted an option to purchase 5,000 shares of Knight Ridder’s common stock at the fair market value of Knight Ridder’s common stock on the date the option is granted. Options have a term of ten years and vest in equal annual installments over a three-year period from the date of grant. Vested options may be exercised: (1) while serving as a director; (2) within five years after termination of service due to disability or retirement; (3) the earlier of three years after death or five years after termination of service if a director dies while serving on the board; or (4) within three months after an optionee ceases to be a director for any other reason. Payment is required upon exercise of an option and may be made in cash or by delivery to Knight Ridder of shares of Knight Ridder’s common stock or a combination of cash and shares.

 

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In accordance with the director plan, directors who met the following eligibility requirements when they retired from the board receive an annual lifetime benefit commencing upon retirement from the board if: (i) they were never employed by Knight Ridder; (ii) were age 65 or older on July 1, 1996; and (iii) had at least five years of service (or, if disabled, following at least two years of service) when they retired from the board. The benefit ranges from 50% of the annual retainer fee for directors who retired after five years of service to 100% of the annual retainer fee for directors who retired with ten or more years of service. None of Knight Ridder’s current non-employee directors are eligible for this retirement benefit.

Compensation Committee Interlocks and Insider Participation

During 2005, the Knight Ridder Compensation Committee was comprised of the following five non-employee directors: M. Kenneth Oshman, Chair, Thomas P. Gerrity, Patricia Mitchell, Vasant Prabhu and Gonzalo Valdes-Fauli. No member of the Compensation Committee served as an officer or employee of Knight Ridder or any of its subsidiaries during 2005. In addition, during 2005, no executive officer of Knight Ridder served as a director or as a member of the compensation committee of a company which employs a director of Knight Ridder.

Certain Relationships and Related Transactions

From time to time, Knight Ridder and its subsidiaries engage in transactions with companies where one of Knight Ridder’s executive officers or directors or a member of his or her immediate family has a direct or indirect interest. All of these transactions, including those described below, are in the ordinary course of business and at competitive rates and prices.

Mark Ernst, a director of Knight Ridder, is Chairman, President and Chief Executive Officer H&R Block, and Vasant Prabhu, a director of Knight Ridder, is Executive Vice President/Chief Financial Officer of Starwood Hotels & Resorts Worldwide, Inc., each of which purchases advertising from certain of Knight Ridder’s newspapers.

Gonzalo F. Valdes-Fauli, a director of Knight Ridder, is a former Vice-Chairman of Barclays Capital and former Group Chief Executive Officer of Barclays Bank, Latin America, an affiliate of Barclays Bank plc, which provides certain pension management services to Knight Ridder.

Peter B. Ridder, President and Publisher of The Charlotte Observer, is a brother of Knight Ridder’s Chairman and Chief Executive Officer, P. Anthony Ridder, and Par Ridder, President and Publisher of the St. Paul Pioneer Press, is the son of P. Anthony Ridder. In 2005, Peter B. Ridder and Par Ridder received aggregate compensation of $540,465 and $429,196, respectively.

In November 2005, at Knight Ridder’s request, Peter Ridder postponed his announced December 31, 2005 retirement and continued his role as Chairman and Publisher of The Charlotte Observer until the close of any strategic transaction that may take place in 2006. Mr. Ridder’s agreement with Knight Ridder provides that he will receive a lump-sum cash payment equal to 50% of his annual base salary. Payment will be made at the date of the close of a strategic transaction or at the time the Board of Directors decides to no longer pursue a strategic transaction.

In November 2005, Knight Ridder and Par Ridder entered into an agreement similar to that of similarly situated publishers with Knight Ridder that would provide Mr. Ridder a separation package if a change in control of the company occurs and Mr. Ridder is terminated from employment within 18 months of the change in control. The separation package would be payable only if both events take place and would consist of a lump-sum payment equal to two times his annual base salary of $306,800 and two times his target annual incentive award (which is calculated as 50% of base pay).

 

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PROPOSAL 4: APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee of the Knight Ridder board has selected Ernst & Young LLP, an Independent Registered Public Accounting Firm, to examine the books and accounts of Knight Ridder for the year 2006, and Knight Ridder is asking its shareholders to ratify its selection. Ernst & Young has served as the Knight Ridder’s independent registered public accounting firm since 1951. Representatives of Ernst & Young will be present at the meeting and will have the opportunity to make a statement if they desire to do so. They will also be available to respond to appropriate questions from shareholders.

Knight Ridder’s bylaws do not require that the shareholders ratify the appointment of Ernst & Young as its independent registered public accounting firm. Knight Ridder is seeking ratification because it believes it is a matter of good corporate governance practice. If shareholders do not ratify the appointment, the Audit Committee will reconsider whether to retain Ernst & Young, but may retain Ernst & Young as Knight Ridder’s independent registered public accounting firm. Even if the appointment is ratified, the Audit Committee in its discretion may change the appointment at any time during the year if it determines that a change would be in the best interests of Knight Ridder and its shareholders.

Fees and Services of Ernst & Young LLP

For the fiscal years 2005 and 2004, fees for professional services provided by Ernst & Young were as follows (in thousands):

 

     2005    2004

Audit Fees (1)

   $ 1,667    $ 2,122

Audit-Related Fees (2)

     449      350

Tax Fees (3)

     —        80

All Other Fees

     —        —  
             

Total

   $ 2,116    $ 2,552
             

(1) Includes fees associated with the annual audit of Knight Ridder’s consolidated financial statements, the annual audit of internal control over financial reporting, reviews of Knight Ridder’s quarterly reports on Form 10-Q and fees related to regulatory filings.
(2) Audit-related fees relate principally to audits of Knight Ridder-sponsored employee benefit plans, as well as other audits and audit-related services for subsidiaries and affiliates.
(3) Tax fees relate to tax compliance services.

Audit Committee’s Pre-Approval Policies and Procedures

In accordance with the SEC’s requirements regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the independent registered public accounting firm. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by Ernst & Young LLP.

Under the policy, particular services or categories of services are pre-approved, subject to a specific budget. During 2005 and 2004, all services provided by Ernst & Young LLP were approved by the Audit Committee pursuant to this policy.

The Knight Ridder audit committee and the Knight Ridder board of directors recommend that shareholders vote FOR ratification of the appointment of Ernst & Young LLP as Knight Ridder’s registered public accounting firm for 2006.

 

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REPORT OF THE AUDIT COMMITTEE OF KNIGHT RIDDER

The Audit Committee of the board is comprised of four non-employee directors. The board has determined that each member of the Audit Committee is “independent” and “financially literate” in accordance with the listing standards of the NYSE, and, in accordance with SEC and NYSE requirements, meets additional independence standards applicable to audit committee members. In addition, the board has determined that Messrs. Ernst and Prabhu are “audit committee financial experts” as defined by the SEC.

Pursuant to the Audit Committee’s charter, the Audit Committee is responsible for assisting Knight Ridder’s board of directors in fulfilling its oversight responsibilities in reviewing (i) the quality and integrity of Knight Ridder’s financial statements, (ii) Knight Ridder’s audit process, financial reporting function, systems of internal controls and compliance programs, (iii) the independent auditors’ qualifications and independence, and (iv) Knight Ridder’s compliance with legal and regulatory standards and requirements. Knight Ridder’s management retains primary responsibility for Knight Ridder’s financial statements and the financial reporting process, including the system of internal control over financial reporting. Knight Ridder’s independent auditors, Ernst & Young, are responsible for performing an independent audit of Knight Ridder’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board and for issuing a report on such audit.

In fulfilling its responsibilities, during fiscal year 2005, the Audit Committee met seven times, and held discussions with management, Knight Ridder’s internal auditors and Ernst & Young. The Audit Committee Chair met with management and Ernst & Young four additional times in 2005 to review Knight Ridder’s quarterly earnings releases. The full Audit Committee reviewed Knight Ridder’s quarterly and annual financial statements with both management and Ernst & Young prior to issuance. Management has represented to the Audit Committee, and Ernst & Young reported, that the financial statements were prepared in accordance with U.S. generally accepted accounting principles.

The Audit Committee discussed with Knight Ridder’s internal and external auditors the scope and plans for their respective audits. The Audit Committee met with the internal and external auditors, with and without management present, to discuss the results of their examinations, evaluations of Knight Ridder’s internal controls and the quality of Knight Ridder’s financial reporting. The Audit Committee also reviewed and discussed with management, the internal auditors and Ernst & Young management’s report on Knight Ridder’s internal control over financial reporting and Ernst & Young’s attestation.

The Audit Committee has also discussed with Ernst & Young the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (Communication with Audit Committees). In addition, the Audit Committee has received from and discussed with Ernst & Young its written disclosures and letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and has discussed with Ernst & Young the independent auditors’ independence from management and Knight Ridder. The Audit Committee has also considered whether the provision of non-audit services by Ernst & Young in 2005 is compatible with maintaining the auditors’ independence.

Based upon these reviews and discussions, the Audit Committee has recommended to the board that Knight Ridder’s audited financial statements for the fiscal year ended December 25, 2005 be included in Knight Ridder’s Annual Report on Form 10-K for fiscal year ended December 25, 2005. The Audit Committee has also selected Ernst & Young as Knight Ridder’s independent auditors for fiscal year 2006 and we are presenting the selection to shareholders for ratification.

The Audit Committee

Gonzalo F. Valdes-Fauli, Chair

Mark Ernst

Kathleen Foley Feldstein

Vasant Prabhu

 

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PROPOSAL 5: SHAREHOLDER PROPOSAL

The Newspaper Guild-CWA Defense Fund, 501 Third Street, N.W., 6th floor, Washington, D.C. 20001-2797, has given notice of its intention to propose the resolution set forth below at the 2006 Annual Meeting of Knight Ridder Shareholders. Knight Ridder will provide the stock ownership of the shareholder proponent upon request to the Corporate Secretary of Knight Ridder. If the shareholder proponent, or a representative who is qualified under state law, is present and submits the proposal for a vote, Knight Ridder shareholders will vote on the proposal at the 2006 Annual Meeting of Knight Ridder Shareholders.

“Resolved: The shareholders request that the Board of Directors adopt a policy, in compliance with state law, and without affecting the current sale agreement with the McClatchy Company, to take the steps necessary in any future sale or disposition of Company newspapers to assure that the newspapers will continue to serve their respective communities, including subscribers, readers, advertisers and customers, with at least the same degree of journalistic excellence, integrity and independence as existed under the ownership of our Company.”

The Newspaper Guild-CWA Defense Fund has submitted the following statement in support of its resolution:

“SUPPORTING STATEMENT:

For over 114 years, Knight Ridder and its predecessors have stood for quality journalism. According to our Company’s statement of vision and values:

Our historic mission, to inform our communities, is a privilege, responsibility and source of competitive strength. We will be worthy of its First Amendment protection. Our commitment to our customers and to the people of Knight Ridder is fundamental to our success. We will reflect the diversity of the audiences we serve, including viewpoints and cultures, in our content and in our workforces. [http://www.knightridder.com/about/vision.html]

Indeed, Knight Ridder has embedded the ideal of journalistic excellence in our Articles of Incorporation. Article Ten declares that certain business combinations shall require the affirmative vote of 80% of the voting stock, unless the continuing directors determine, by a majority vote, that the newspapers would continue to serve their respective communities and other constituencies (including, without limitation, subscribers, readers, advertisers and customers) with the same degree of journalistic excellence, integrity and independence as existed . . . under the ownership of Knight Ridder. [http://www.knightridder.com/investor/corpgov/articles.html]

The importance of these values was illustrated recently by Knight Ridder journalist Chris Adams at the Newspaper Guild-CWA Freedom Award Fund Banquet on May 3, 2006. In receiving a Heywood Brown Award of Substantial Distinction (along with co-author Alison Young), Adams stated that their winning series on poor treatment of American veterans could not have been written without the dedication and far-sighted commitment of Knight Ridder management. “When they set up the investigative unit,” continued Adams, “Tony Ridder said that Knight Ridder needed to have this if we were going to serve our communities, and we were speaking for people around the country. Knight Ridder gave us the resources to do the journalism.”

It is our understanding that the current sale agreement with the McClatchy Company will require the affirmative approval of 80% of the voting stock. That high threshold could lead to defeat of the proposal, and the continuation of Knight Ridder as an independent company that could negotiate future sales or dispositions of newspaper assets.

 

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As Shareholders, we believe that Knight Ridder, and all of our papers, should stand by our core values, whether the pending acquisition is approved or not. We believe the proposed policy could help to perpetuate the Knight Ridder promise to customers, people, shareholders and communities that the social contributions of Knight Ridder, including its longstanding commitments to journalistic excellence, integrity and independence, will withstand the test of time.”

The Knight Ridder board of directors recommends that shareholders vote AGAINST the shareholder proposal.

 

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REPORT ON EXECUTIVE COMPENSATION BY THE KNIGHT RIDDER COMPENSATION COMMITTEE

Overview

The Compensation Committee of the Board administers Knight Ridder’s executive compensation program, and in consultation with senior management, establishes Knight Ridder’s general compensation philosophy and oversees the development and implementation of compensation programs. Each member of the Committee is independent as defined by the NYSE’s listing standards.

In July 2003, the Committee adopted a charter that describes the Committee’s purpose, goals and responsibilities and membership guidelines. A copy of the charter is available on the corporate governance section of Knight Ridder’s website at www.kri.com.

The Committee has furnished the following report on executive compensation for 2005:

What is our executive compensation philosophy?

We firmly believe that the interests of Knight Ridder and its employees are inseparable. In support of that principle, the Committee has designed Knight Ridder’s executive compensation program to support what we believe to be an appropriate relationship between executive pay and the creation of shareholder value. To promote Knight Ridder’s performance, we link a significant portion of executive compensation to Knight Ridder’s operating results and to shareholder return. The objectives of our program are:

 

    To align the interests of executives with the long-term interests of shareholders through awards whose value over time depends upon the performance of Knight Ridder’s common stock;

 

    To provide compensation comparable to that offered by other peer companies, enabling Knight Ridder to attract, retain and motivate talented executives who are critical to Knight Ridder’s long-term success;

 

    To motivate key executives to achieve strategic business initiatives and to reward them for their achievement; and

 

    To strongly encourage, and to set guidelines for, substantial stock ownership by executives.

What are the elements of executive compensation?

In 2005, the Committee structured executive compensation to consist principally of base salary, annual bonus, long-term incentive awards, performance-based restricted stock awards and stock options. In this way, a significant portion of the value ultimately realized by the executives, including the Chairman and Chief Executive Officer, will depend upon Knight Ridder’s performance and can be considered “at risk.”

Knight Ridder’s executives also participate in a retirement plan (including a qualified pension plan and a benefits restoration plan), health plan, 401(k) plan and other voluntary benefit plans that Knight Ridder makes available to all employees generally. Among these are relocation benefits, such as temporary living expenses. One-time relocation bonuses are sometimes provided to employees to assist with miscellaneous moving expenses and help compensate for housing differentials. Knight Ridder also provides executives with a voluntary deferred compensation arrangement, which is similar to those typically offered to executives by the companies with which Knight Ridder competes for talent.

How did we determine base salaries for 2005?

The Committee establishes senior executive salaries based on our review of the executive’s performance and compensation history, and information on salary levels at comparable companies. Each year the Committee conducts a competitive compensation analysis for the top five executives. For 2005, this analysis was based on comparative data prepared by Compensia Inc., an outside compensation consulting firm that the Committee has retained to advise it on executive compensation matters.

 

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The comparison group we chose for compensation purposes consisted primarily of our peers in the newspaper industry who were willing to participate in the custom compensation survey sponsored by Knight Ridder (Comparison Group). For 2005, the Comparison Group consisted of Belo Corp., Dow Jones & Co., Gannett Co., Media General, The New York Times Co., E.W. Scripps Co., and Tribune Co. We obtained data for the Comparison Group from a number of sources, including proxy statements, other publicly available information, available published surveys and a sponsored survey commissioned by Knight Ridder examining compensation for officer positions among the Comparison Group.

Base Salaries of Executive Officers

Effective January 1, 2005, Art Brisbane, Steve Rossi and Hilary Schneider each accepted new roles as Senior Vice Presidents. The Compensation Committee reviewed compensation data for the Comparison Group, changes to the scope of their responsibilities and performance over fiscal 2004 to determine appropriate salary adjustments for each executive. The base salaries of our executives approximate the 75th percentile for salaries of similar executive roles in the Comparison Group. The base salary for each of the named executive officers in 2005 is reported in the Summary Compensation Table that follows this report.

Base Salary of the Chief Executive Officer

In 2005, Mr. Ridder received a base salary of $980,000, which is the salary rate that has been in effect for him since March 1, 2003. Competitively, Mr. Ridder’s salary falls between the market median and 75th percentile among the Comparison Group. The Committee believes that a salary increase for Mr. Ridder was appropriate based on his performance in 2004 and based on salary levels for CEOs in the Comparison Group. However, the Committee also recognized that any salary paid to Mr. Ridder exceeding $1,000,000 would not be deductible to Knight Ridder under Section 162(m) of the Internal Revenue Code. Therefore, the Committee decided not to award a salary increase to Mr. Ridder and instead approved an increase in his performance-based annual incentive opportunity from 80% to 85% of base salary.

How did we determine bonuses for 2005?

Annual Incentive Plan

We award cash bonuses under Knight Ridder’s Annual Incentive Plan. Under the plan, participants are eligible for target cash bonuses ranging from 25% of salary in the case of participants whose annual salary is less than $100,000 to 50% in the case of those whose salary exceeds $250,000, and 85% for Mr. Ridder. In 2005, 65% of an executive’s bonus potential was tied to financial performance. Thirty-five percent was tied to specific non-financial objectives for Knight Ridder. For corporate participants, financial performance was defined as the operating profit results of Knight Ridder on a consolidated basis compared to budget. For business unit participants, financial performance was defined as the operating profit results of the individual business unit compared to its budget. Plan participants may elect to defer any portion of their bonus to a later year.

Financial Performance

Under the plan, if Knight Ridder (or a business unit) meets its financial budget, the executive receives 100% of the portion of the potential bonus tied to financial performance (i.e., 65%). If operating profit performance is below 90% of the financial budget, the financial performance award will be 0% of target. If operating profit performance falls between 90% and 100%, the financial performance award will be between 0% and 100% of target. If operating profit is above budget, then the financial awards paid to plan participants will be up to 300% of the targeted bonus (if the budget is exceeded by more than 20%). In order to achieve a payout under the plan greater than 200%, two criteria must be met: business unit operating profit must be at least 12% above prior year; and business unit operating profit must exceed Year 2000 levels. The total financial award payout for all participants in a business unit will be capped once the aggregate bonus amount above target bonus equals 25% of the amount that actual operating profit performance exceeds target.

 

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Non-Financial Performance

For senior executives, 35% of the target bonus opportunity is based on achievement of non-financial objectives. Non-financial objectives consist of measurable performance targets in each of the areas listed below. Executives may earn between 0% and 100% of the target amount based on achievement of the non-financial goals. For 2005, the non-financial goals were in the areas of:

 

    Circulation;

 

    Audience;

 

    Journalism;

 

    Strategic Revenue;

 

    Succession Planning; and

 

    Diversity

Bonuses for Executive Officers

In 2005, the Committee awarded bonuses to each executive officer under the Annual Incentive Plan equal to 33.8% of their target bonus. Financial performance was 91.34% of budget, resulting in the financial performance award being 13.4% of the targeted amount. Non-financial performance achievement was 71.6 points out of 100 possible points, resulting in the non-financial performance award being 71.6% of the targeted amount. The actual bonus payment for each of the named executive officers is set forth in the Summary Compensation Table that follows this report.

Bonus for the Chief Executive Officer

Mr. Ridder participates in Knight Ridder’s Annual Incentive Plan which aligns participating executives’ compensation directly to Knight Ridder’s operating results and ultimately to shareholder value. For 2005, Mr. Ridder’s bonus target was set at 85% of his salary ($833,000). As described above, based on corporate financial and non-financial performance, Mr. Ridder earned a bonus equal to 33.8% of the bonus target, or $281,304.

What were the long-term incentive awards in 2005?

For 2005, the Compensation Committee made some changes to long-term incentive awards that reflect changes in the competitive marketplace as well as changes in the stock-based compensation accounting rules that affecting stock options. For the first time in 2005, the total long-term incentive strategy included performance-based restricted stock units (RSUs) in addition to stock options and Long-Term Incentive Plan awards that Knight Ridder has historically awarded.

Performance-Based Restricted Stock Units (RSUs)

Subsequent to shareholder approval of the amended Knight Ridder Equity Incentive Plan in 2005, the Compensation Committee decided to award RSUs in place of a significant portion of the annual stock option grant. Recipients of RSUs are entitled to receive full-value shares of Knight Ridder common stock if both performance-based and time-based vesting criteria are met.

In order to meet the performance-based criteria, Knight Ridder must meet or exceed a target operating profit level for the fiscal year following the year in which the awards were granted. If the operating profit target is not met, the entire award will be cancelled. If the operating profit target is met, 25% of the award will vest when the target is met (approximately one year after grant) and 25% of the award will vest on each of the second, third and fourth anniversaries of the date of grant, such that the entire award will be vested four years after grant. The RSU awards will qualify as “performance-based awards” under Section 162(m) of the Internal Revenue Code when they vest.

 

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2005 Stock Option Grants

Under the terms of Knight Ridder’s Equity Incentive Plan, the Committee may grant executive officers and other key employees options to purchase shares of Knight Ridder’s common stock at the fair market value (i.e., market price) on the option grant date. The options granted in 2005 vest in four equal installments over a four-year period from the date of grant and expire ten years after the date of grant.

As noted in the discussion of the RSUs above, the grant of stock options was reduced from historical practices in order to provide for the addition of restricted stock units while maintaining total long-term incentive grant practices (RSUs plus stock options plus Long-Term Incentive Plan awards) in line with competitive norms. Accordingly, total stock option grants to officers and other key contributors were approximately 45% of the total stock option grants in 2004. The grants are designed to permit those executives who contribute to the performance of Knight Ridder and the market price of its common stock to benefit along with shareholders from increases in the value of Knight Ridder’s common stock.

Long-Term Incentive Plan

In January 2003, upon the recommendation of this Committee, the Board approved and adopted a cash-based long-term incentive plan (LTIP). The plan was intended to motivate and reward executives for achieving total shareholder return (TSR) equal to or greater than the median TSR of four newspaper competitors: Dow Jones & Co., Gannett Co., The New York Times Co., and Tribune Co. Participants were selected to participate in the plan prior to the commencement of a three-year performance period and were eligible to receive a cash award after the end of the 2003 to 2005 performance period if certain specified performance targets are achieved. Any executive who was hired or promoted into a position that would have normally been eligible to participate after the start of the performance period was eligible to earn an award on a pro-rated basis. An executive’s ability to receive an award was contingent upon and related directly to the total return received by shareholders on their investment in Knight Ridder’s stock over the three-year period (January 2003—December 2005), compared to the return received by shareholders of the companies in the Comparison Group. TSR is calculated by adding a company’s annual stock appreciation and dividends (assuming dividends were reinvested at the end of each quarter in which a dividend is paid). TSR must be both above the median of the four newspaper competitors and positive before any awards will be paid. If Knight Ridder’s TSR performance is better than all of the newspaper competitors, 100% of the awards will be paid. For the January 2003—December 2005 performance period, TSR results for the newspaper competitors and Knight Ridder were as follows:

 

Company

   Compound Annual
TSR

Dow Jones

     -3.3%

Gannett

     -3.9%

New York Times

   -14.8%

Tribune

   -10.8%

Median

     -7.3%

Knight Ridder

      2.2%

Because Knight Ridder’s TSR performance was positive and was better than all of the newspaper competitors, 100% of the target long-term incentive plan awards were paid to participants in January 2006.

What were the total long-term incentives awarded to executive officers?

Each of the Named Executive Officers participated in the RSU program, the stock option program and the Long-Term Incentive Plan. The Committee considered competitive data on the Comparison Group companies, Knight Ridder’s overall performance and individual performance in development of long-term incentive grant

 

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recommendations. The Committee approved RSU and stock option grants that, when combined with the annualized Long-Term Incentive Plan provides long-term incentive opportunities between the median and 75th percentile of the Comparison Group.

What is our position on the deductibility of executive compensation?

Section 162(m) of the Internal Revenue Code limits federal income tax deductions by Knight Ridder for compensation paid to the chief executive officer and the four other most highly compensated officers to $1 million per year. Certain types of compensation in excess of $1 million are deductible by Knight Ridder if performance-based and approved by stockholders. The Committee believes that a substantial portion of an executive’s compensation should be based on Knight Ridder’s performance and, in determining the amount and form of compensation, the Committee considers the net cost of that compensation, including whether it will generate a tax deduction for Knight Ridder. As a result, it is the Committee’s policy that most, if not all, of its executive compensation should be tax deductible. However, the Committee recognizes that there may be times when other corporate objectives outweigh the desirability of a tax deduction. Therefore, the Committee has not adopted a policy that all compensation must qualify as deductible under Section 162(m).

What are Knight Ridder’s stock ownership guidelines?

To support Knight Ridder’s desire to increase management stock ownership, Knight Ridder established stock ownership guidelines for all of Knight Ridder’s executive officers and certain other key employees. We believe that the guidelines represent an appropriate level of ownership of Knight Ridder common stock as a multiple of the executive’s annual base salary (based on the market value of the stock). The multiple ranges from five times base salary (in the case of Mr. Ridder), to three times base salary (in the case of corporate senior vice presidents), to two times base salary (in the case of corporate vice presidents and publishers of Knight Ridder’s largest newspapers). Knight Ridder’s executive officers and certain other key employees are expected to achieve the applicable level of ownership over a three-year period.

The Committee b