UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM  8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):  June 26, 2018

_______________________________________________________________________

LEE ENTERPRISES, INCORPORATED

 (Exact name of Registrant as specified in its charter)

_______________________________________________________________________

Commission File Number 1-6227

201 N. Harrison Street, Davenport, Iowa  52801

(Address of Principal Executive Offices)

(563) 383-2100

Registrant's telephone number, including area code

_____________________________________________________________________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

                                                                                                                                                                                        Emerging growth company         [  ]

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.                                                                                                                                     [  ]

Item 1.01.

Entry into a Material Definitive Agreement.

On June 26, 2018, Lee Enterprises, Incorporated (the "Company") has joined with BH Media Group, Inc ("BH Media"), in an agreement for Lee to manage Berkshire Hathaway's newspaper and digital operations in 30 markets ("BH Media"), beginning July 2, 2018 (the "Management Agreement"). Certain terms of the Management Agreement are as follows:

·	The Company will, subject to terms of the Management Agreement, operate BH Media consistent with how it manages its own newspaper and digital operations. Certain management decisions will require approval by Berkshire Hathaway.

·	The Management Agreement commences on July 2, 2018 and extends for a term of five years. The Management Agreement may be extended thereafter for successive one-year terms on such terms as may be mutually agreed to by the Company and Berkshire Hathaway.

·	The Management Agreement provides for the Company to be paid a fixed annual fee of $5 million, payable quarterly in arrears.

·	The Management Agreement also provides for the Company to earn a variable fee based on a percentage of annual EBITDA of BH Media over $34 million as follows:

o	For the twelve months ending June 2019, the variable fee percentage is 33.3%

o	For the twelve months ending June 2020, the variable fee percentage is 33.3%

o	For the twelve months ending June 2021, the variable fee percentage is 50%

o	For the twelve months ending June 2022, the variable fee percentage is 50%

o	For the twelve months ending June 2023, the variable fee percentage is 50%

The variable fee is payable annually in arrears.

The foregoing summary description of the Management Agreement does not purport to be complete and is qualified in its entirety by reference to the Management Agreement, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference.

Item 7.01.    Regulation FD Disclosure.

On June 26, 2018, the Company issued a press release relating to the Management Agreement described in Item 1.01 above. A copy of the press release is furnished as Exhibit 99.1 to this report and incorporated herein by reference. Other items disclosed include:

·	Based on its present projections and assumptions, the Company expects that it will receive approximately $50 million in total fees from the Management Agreement over the course of the five year agreement.

·	As of the end of the June quarter, debt totaled $499.8 million, a reduction of $68.7 million over the last twelve months.

FORWARD-LOOKING STATEMENTS — The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This filing contains information that may be deemed forward-looking that is based largely on our current expectations, and is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those anticipated. Among such risks, trends and other uncertainties, which in some instances are beyond our control, are:

•	Our ability to generate cash flows and maintain liquidity sufficient to service our debt;

•	Our ability to comply with the financial covenants in our credit facilities;

•	Our ability to refinance our debt as it comes due;

•	Our ability to manage declining print revenue;

•	That the warrants issued in our refinancing will not be exercised;

•	The impact and duration of adverse conditions in certain aspects of the economy affecting our business;

•	Changes in advertising and subscription demand;

•	Changes in technology that impact our ability to deliver digital advertising;

•	Potential changes in newsprint, other commodities and energy costs;

•	Interest rates;

•	Labor costs;

•	Legislative and regulatory rulings, including new tax legislation;

•	Our ability to achieve planned expense reductions;

•	Our ability to maintain employee and customer relationships;

•	Our ability to manage increased capital costs;

•	Our ability to maintain our listing status on the NYSE;

•	Competition; and

•	Other risks detailed from time to time in our publicly filed documents.

 

 

Any statements that are not statements of historical fact (including statements containing the words "may", "will", "would", "could", "believes", "expects", "anticipates", "intends", "plans", "projects", "considers" and similar expressions) generally should be considered forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made as of the date of this release. We do not undertake to publicly update or revise our forward-looking statements, except as required by law.

Item 9.01.    Financial Statements and Exhibits.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

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Exhibit 10.1 – Management Agreement between Lee Enterprises, Inc. and BH Media Group, Inc.

 

CONFIDENTIAL

EXECUTION COPY

MANAGEMENT AGREEMENT

This MANAGEMENT AGREEMENT (this "Agreement") is entered into as of June 26, 2018, by and between BH Media Group, Inc., a Delaware corporation ("BH"), and Lee Enterprises, Incorporated, a Delaware corporation ("Lee").  BH and Lee are each referred to herein as a "Party," and are referred to together as the "Parties."

WHEREAS, BH is a Berkshire Hathaway Inc. ("Berkshire") company that owns and operates daily and weekly newspapers and other publications and related digital platforms;

WHEREAS, Lee is a leading provider of local news, information and advertising in primarily midsize markets; and

WHEREAS, BH and Lee are entering into this Agreement in order for Lee to manage certain of BH's newspapers and corresponding digital sites, as more fully set forth herein.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Parties hereby agree as follows:

ARTICLE I
TERM

The term of this Agreement (the "Term") will begin on July 2, 2018 (the "Start Date") and, unless sooner terminated pursuant to Section 4.1, will continue for five (5) fiscal years ending June 25, 2023, and may thereafter be extended for successive one (1) fiscal year  periods on such terms as may be mutually agreed by the Parties. The one (1) fiscal year period beginning on the Start Date and each successive period during the Term is referred to as a "Contract Year."

ARTICLE II
MANAGEMENT OF NEWSPAPERS

 

 

 

ARTICLE III
FINANCIAL TERMS

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annual unaudited Newspaper Financial Statements together with an EBITDA calculation of the Newspapers for the Contract Year. The Berkshire Reporting Financial Statements and the Newspaper Financial Statements will be prepared in accordance with U.S. generally accepted accounting principles, as consistently applied by Berkshire with respect to BH's business.  The calculation of EBITDA will be based on the Newspaper Financial Statements and will include or exclude certain items as set forth in Exhibit C.  Lee will provide BH with copies of or access to supporting documentation reasonably requested by BH.  If BH disagrees with Lee's calculation of EBITDA for a Contract Year, it will promptly inform Lee of such disagreement, and the Relationship Managers will cooperate in good faith to resolve the disagreement in a manner consistent with the spirit and intent of this Agreement.  The books and records maintained by Lee, including the books and records relating to BH used in preparing the quarterly and annual financial reporting packages or in preparing or filing any tax reports or returns, shall be the property of BH and made available to BH or Berkshire or their representatives upon the request of BH or Berkshire and, in any event, furnished to BH or Berkshire upon termination of this Agreement.  In addition, Berkshire and its outside auditors will be granted full access as needed to any other books and records of Lee relating to the Berkshire Reporting Financial Statements and the management services and Shared Services provided by Lee hereunder, as may be needed by Berkshire to prepare its quarterly and annual consolidated financial statements, to audit or review such statements, and for tax, internal audit or internal control purposes of BH or Berkshire.

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ARTICLE IV
TERMINATION

(i)

the EBITDA for a Contract Year (as calculated pursuant to Section 3.1) is less than $20,000,000; or

(ii)

the other Party voluntarily files for bankruptcy or insolvency, or is subject to an involuntary filing for bankruptcy or insolvency that is not dismissed within 60 days.

(i)

any person or group of related persons has become the beneficial owner of more than 50% of Lee's voting equity interests or Lee sells all or substantially all of its assets to a third party; or

(ii)

Lee has not refinanced or otherwise satisfied its Senior Secured Notes prior to February 13, 2022 or its Second Lien Term Notes prior to November 15, 2022.

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ARTICLE VI
LIMITATION OF LIABILITY

EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS ARTICLE, IN NO EVENT WILL LEE'S AGGREGATE LIABILITY ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT EXCEED THE GREATER OF (i) $5,000,000 OR (ii) THE FEES PAID BY BH UNDER SECTION 3.2 FOR THE CONTRACT YEAR MOST RECENT TO THE DATE OF THE MOST RECENT CLAIM FOR DAMAGES BY BH MULTIPLIED BY TWO (2), WHETHER BASED IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, OR ANY OTHER THEORY, AND EVEN IF LEE HAS BEEN ADVISED OF THE POSSIBILITY THEREOF. IN NO EVENT WILL THIS ARTICLE BE CONSIDERED TO HAVE FAILED OF ITS ESSENTIAL PURPOSE. The limitations of liability set forth in this Article will not apply to Lee's indemnification obligations under Section 9.2.

ARTICLE VII
EXCLUSION OF CONSEQUENTIAL DAMAGES

EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS ARTICLE, IN NO EVENT WILL LEE BE LIABLE FOR LOST PROFITS OR FOR ANY EXEMPLARY, PUNITIVE, INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT, WHETHER BASED IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, OR ANY OTHER THEORY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY THEREOF. IN NO EVENT WILL THIS ARTICLE BE CONSIDERED TO HAVE FAILED OF ITS ESSENTIAL PURPOSE. The exclusion of damages set forth in this Article will not apply to a Party's indemnification obligations under Section 9.2 with respect to damages required to be paid to a third party.

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ARTICLE VIII

CONFIDENTIALITY

ARTICLE IX

LIABILITIES

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10.1 Notices.  Any notice to be given hereunder will be in writing and delivered personally, sent by reputable overnight courier service (charges prepaid and signature required), or sent by registered or certified mail (postage prepaid and return receipt requested), in each case according to the instructions set forth below. Such notices will be deemed given: if personally delivered, at the time of delivery; if sent by overnight courier service, at the time of delivery as reported by the courier service; and if sent by U.S. registered or certified mail, at the time of delivery as reported by the U.S. post office.

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may be amended only by a written instrument executed and delivered by both Parties.  No agreement extending or waiving any provision of this Agreement will be valid or binding unless it is in writing and is executed and delivered by or on behalf of the Person against which it is sought to be enforced.

10.4 Severability.  Whenever possible, each provision of this Agreement will be interpreted in such manner as to be valid and enforceable under applicable law.  If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid or unenforceable, such provision shall be ineffective only to the extent of such prohibition, illegality or unenforceability, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

10.5 No Third-Party Beneficiaries. Except as set forth in the Parties' indemnification obligations, there are no third-party beneficiaries under this Agreement.

10.6 Independent Contractors.  The Parties are independent contractors, and nothing in this Agreement creates a partnership, joint venture, agency or fiduciary relationship between the Parties. Lee's obligations and duties to BH are limited to those expressly set forth in this Agreement. Nothing in this Agreement creates any employment relationship between a Party and the other Party's personnel.

10.7 Governing Law; Consent to Jurisdiction.  This Agreement will be interpreted and construed in accordance with, and any and all claims arising out of or relating to this Agreement, whether arising in contract, tort, or statute, will be governed by the laws of the State of Delaware, including its statutes of limitations, without giving effect to any conflict-of-laws or other rule that would result in the application of the laws of a different jurisdiction. Each Party hereby irrevocably submits to the exclusive jurisdiction of the federal and state courts located in Wilmington, Delaware for the purpose of any claims arising out of or relating to this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above.

BH MEDIA GROUP, INC.

Name: Terry J. Kroeger

Title:   President

LEE ENTERPRISES, INCORPORATED

Name:  Mary E. Junck
Title:    Executive Chairman

 

 

[Signature Page to Management Agreement]

 

EXHIBIT B

Decisions that do not require approval by BH, unless specifically rejected in the annual budget process:

·	Reducing staff and non-union benefits to be consistent with Lee staffing and benefits

·	Adjusting ad rates consistent with past practices which are approved by the publisher

·	Spending for unbudgeted capital expenditures under $0.1 million

·	Reducing employees that are eliminated in conjunction with Lee consolidation and transformation strategies

·	Paying severance consistent with past BH policies

·	Entering into contracts with Lee's third-party vendors or Lee's internal services that are at rates substantially similar or lower than those charged to Lee's newspapers.

Decisions that require specific approval by BH, if not approved in the annual budget process:

(the underlined headings are provided for convenience and do not identify decisions requiring approval separate from the bullet items)

Compensation and labor matters:

·	Determination of the compensation of top BH executive management, including entering into employment contracts

·	Entering into contracts with existing unions or with newly-formed bargaining units

·	Adjusting total annual compensation of an employee by more than $100,000

Actions relating to publication:

·	Changes in days of publication

·	Additional circulation pricing actions

·	Outsourcing printing

Asset sales, purchases and contract matters with respect to BH:

·	Acquiring, disposing or closing a newspaper or business

·	Entering into contracts, leases or commitments over $1.0 million

·	Selling an asset, real or personal property, with sales price over $0.5 million

Insurance matters with respect to BH:

·	Purchasing of property, casualty and liability insurance coverages

·	Settling of insurance claims over $0.5 million

·	Using proceeds received from insurance loss settlements

Other matters:

·	Placing liens on assets of BH

·	Adopting new accounting principles for BH, except as required by GAAP

·	Shared Services

B-1

EXHIBIT C

As set forth in Section 3.1, EBITDA will be calculated in accordance with GAAP.

The EBITDA calculations will include the following:

·	Fixed Fees to Lee

·	Fees for Shared Services

·	Severance costs

The EBITDA calculations will exclude the following:

·	Non-cash charges including depreciation, amortization, impairments of fixed or intangible assets and the like

·	Capital gains and losses resulting from the sale of assets

·	Variable Fees to Lee

·	Expenses arising from circumstances existing prior to the Start Date (including any such expenses continuing after the Start Date), even if paid on or after the Start Date, and any corresponding insurance proceeds or similar reimbursement

 

C-1

Exhibit 99.1 - News Release – Management Agreement with Berkshire Hathaway, Inc.

201 N. Harrison St. 
Davenport, IA 52801
lee.net

 

DAVENPORT, Iowa (June 26, 2018) – Lee Enterprises, Incorporated (NYSE: LEE), has joined with BH Media Group, Inc, in an agreement for Lee to manage Berkshire Hathaway's newspaper and digital operations in 30 markets, beginning July 2, 2018. The agreement provides Lee with flexibility to implement revenue initiatives and business transformation consistent with how it manages its own newspaper and digital operations in 49 markets, while Berkshire Hathaway continues as owner of BH Media.

Warren E. Buffett, chairman and CEO of Berkshire Hathaway, said: "I love our newspapers and am passionate about the vital role they serve in our communities. Although the challenges in publishing are clear, I believe we can benefit by joining efforts. Lee Enterprises' growth in digital market share and revenue has outpaced the industry. Lee also has led the industry in overall innovation and performance, all while faithfully fulfilling its public trust as an indispensable source for local news, information and advertising. Our missions and goals match exactly, our markets are similar, and we both have excellent managers. Operating together will strengthen both of us, and Lee is logical to lead the process."

Mary Junck, executive chairman of Lee Enterprises, said, "Berkshire Hathaway has been a significant investor across our capital structures for years, most recently in the $94 million refinancing of our Pulitzer Notes, which we redeemed in 2015, two years ahead of schedule. Our relationship has been positive for both and has become a foundation for us to come together in this agreement."

She added: "This is an attractive strategic alliance for Lee, as it enables us to generate more cash flow, speed our debt reduction, enhance our industry leadership and further advance our abilities as we introduce our digital and print strategies at BH Media properties. Also, we are honored to be trusted by Warren Buffett and Berkshire Hathaway, among the most admired business icons in history. The publishing business is in transition, to be sure, but we remain positive about our future, as many print opportunities remain and digital audiences and revenue continue to grow and flourish."

Kevin D. Mowbray, Lee president and CEO, said the management agreement has an initial term of five years and that Lee will receive an annual fixed fee of $5 million plus a significant percentage of profits over benchmarks. He said the operating framework gives Lee broad latitude to manage, while strategic decisions will be agreed upon jointly. He noted that BH Media will retain editorial control, consistent with Lee's policy of local editorial decision-making.

"In addition to the primary benefit of deploying Lee's successful strategies at BH Media, this alliance provides a significant expansion of operating scale, adding 30 markets to our own 49," he said.

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"Together, we will have new opportunities across the board, especially in digital sales, advertising customer relationships, shared services and contracts with vendors and suppliers."

In addition to 30 daily newspaper and digital operations, BH Media Group includes 47 paid weekly newspapers with websites and 32 other print products, reinforcing its position as, like Lee, the primary source for local news, information and advertising. Daily newspapers include:

·	ALABAMA: Dothan Eagle, Opelika-Auburn News

·	IOWA: The Daily Nonpareil in Council Bluffs

·	NEBRASKA: Omaha World-Herald, The Grand Island Independent, Scottsbluff Star-Herald, The North Platte Telegraph, Kearney Hub, York News-Times

·	NEW JERSEY: The Press of Atlantic City

·	NORTH CAROLINA: Winston-Salem Journal, Greensboro News & Record, The News Herald in Morganton, The McDowell News, Statesville Record and Landmark, Hickory Daily Record

·	OKLAHOMA: Tulsa World

·	SOUTH CAROLINA: The Florence Morning News

·	TEXAS: The Eagle in Bryan-College Station, Waco Tribune-Herald.

·	VIRGINIA: Richmond Times-Dispatch, The Daily Progress in Charlottesville, The Roanoke Times, Bristol Herald Courier, News & Advance in Lynchburg, Martinsville Bulletin, Danville Register & Bee, The Free Lance-Star in Fredericksburg, Culpeper Star-Exponent, The News Virginian in Waynesboro.

The contract excludes management of BH Media television assets, as well as Berkshire Hathaway's separate newspaper, The Buffalo News.

Conference call

Lee has scheduled a conference call and audio webcast for 11:00 a.m. CDT today. The live webcast will be accessible at http://tinyurl.com/Leecall. The webcast also will be available for replay two hours later. Several analysts have been invited to ask questions on the call. Questions from other participants may be submitted by participating in the webcast. The call also may be monitored on a listen-only line by dialing toll free 800-967-7154 and entering a passcode of 583485 at least five minutes before the scheduled beginning. Participants on the listen-only line will not have the opportunity to ask questions.

About Lee Enterprises

Lee Enterprises is based in Davenport, IA, and is a leading provider of local news and information, and a major platform for advertising, with daily newspapers, rapidly growing digital products and nearly 300 weekly and specialty publications serving 49 markets in 21 states. Lee's markets include St. Louis, MO; Lincoln, NE; Madison, WI; Davenport, IA; Billings, MT; Bloomington, IL; and Tucson, AZ. Lee Common Stock is traded on the New York Stock Exchange under the symbol LEE. For more information, please visit lee.net.

Forward-looking statements

Certain statements contained in the news release are "forward looking" within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on current expectations. Details about risks associated with forward-looking statements are included in recent SEC filings. Lee does not update forward-looking statements.

Contact: Dan Hayes, IR@lee.net, 563-383-2100

 

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