James Fang, the son of publisher Florence Fang, broke the news at a 2:30 p.m. staff meeting, reading a one-sentence statement saying the daily paper could no longer continue in its current format.
As the employees were handed their pink slips, the Examiner held a press conference to announce its plan to stop charging 25 cents per copy and switch to free distribution at news racks and stores around San Francisco.
About 40 people lost their jobs, said Examiner Executive Editor Zoran Basich. The paper will continue with about 15 reporters, editors and photographers and use more material from several other free papers owned by the Fang family, Basich said.
"It's a tough business climate," Basich said. "We had to make some tough decisions to ensure the long-term health of the paper."
All the computers and phone lines were turned off before the meeting, and the staff was given about an hour clear out their desks, the fired workers said.
They were given their last week's paycheck and told to return Monday to learn more about severance packages. The average severance package will be about eight days of pay, Basich said.
The Fangs took control of the paper from the Hearst Corp. in November 2000, in a deal that helped Hearst gain antitrust approval of its $660 million purchase of the much-larger San Francisco Chronicle.
The deal provided the Fang family with a $66.7 million subsidy from New York-based Hearst, spread over three years. The agreement was broken into three payments of $16.7 million the first year, and up to $25 million in the each of the next two years. Basich said he didn't know whether this year's $25 million subsidy had already been exhausted.
"Clearly, we knew we were going to have to do something sooner or later," Basich said.
A call left with Florence Fang's assistant wasn't returned as of late Friday afternoon.
Friday's layoffs happened so quickly that columnist Warren Hinckle returned from a late lunch not knowing whether he was among the lucky few who still had a job. Security guards refused to let him into the office, so he turned around and left.
"What was I supposed to do? Punch them?" Hinckle said.
Basich told The Associated Press that Hinckle still has a job.
Workers seemed to be taking the news in stride, after years of similar purges at businesses burned by a high technology slump that has zapped the San Francisco Bay area's once-thriving economy.
"I think that's pretty standard procedure," said dance critic Rachel Howard. "I have heard all kinds of dot-com horror stories."
The uncertainties raised by Friday's layoffs marked the latest chapter in the Examiner's melodramatic history dating back to 1887.
In its early years, the paper often served as a bully pulpit for the agenda of newspaper legend William Randolph Hearst, known as "The Chief" or the "Old Man" around the Examiner newsroom.
Hearst established the Examiner as one of the country's most flamboyant papers in the country while employing some of literature's best-known names, including Ambrose Bierce, Jack London, Mark Twain and, more recently, Hunter Thompson.
The paper thrived for years until switching to afternoons as part of a profit-sharing agreement with the rival San Francisco Chronicle in 1965.
The profit-sharing arrangement made money for Hearst, but spelled the beginning of the end for the Examiner as a widely read paper.
The paper's circulation dropped from 303,000 in 1965 to 96,000 when Hearst turned over the paper to the Fang family in November 2000. The Fangs haven't submitted audited circulation figures. Basich said the paper sold between 40,000 and 50,000 weekday copies.
The Fangs' previous experience in publishing had been concentrated in a group of free papers called The Independent that often trumpeted the family's political views. The Independent group of papers will now help produce stories for the Examiner.
The Fangs' track record at The Independent had raised concerns whether the family intended to put out a competitive metropolitan newspaper or just keep it running until the Hearst subsidy ran out.