<PAGE>
Information contained herein is subject to completion or amendment.
Filed pursuant to Rule 424(b)(3)
Registration #333-17365
SUBJECT TO COMPLETION, DATED DECEMBER 13, 1996
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED DECEMBER 11, 1996
$125,000,000
[SCHOLASTIC LOGO]
SCHOLASTIC CORPORATION
% NOTES DUE , 2003
------------------------
Interest on the Notes is payable on and of
each year, commencing , 1997. The Notes are not redeemable prior
to maturity and are not entitled to any sinking fund. The Notes will be
represented by one or more global Notes registered in the name of the nominee of
The Depository Trust Company. Beneficial interests in the global Notes will be
shown on, and transfers thereof will be effected only through, records
maintained by the Depositary and its direct and indirect participants. Except as
described herein, Notes in definitive form will not be issued. The Notes will be
issued only in registered form in denominations of $1,000 and integral multiples
thereof. The Notes will trade in the Depositary's Same-Day Funds Settlement
System until maturity, and secondary market trading activity for the Notes will
therefore settle in immediately available funds. All payments of principle and
interest will be made by the Company in immediately available funds. See
'Description of the Notes'.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING UNDERWRITING PROCEEDS TO
PRICE(1) DISCOUNT(2) COMPANY(1)(3)
--------------- --------------- ---------------
<S> <C> <C> <C>
Per Note................................................... % % %
Total...................................................... $ $ $
</TABLE>
- ------------------
(1) Plus accrued interest, if any, from , 1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $ payable by the Company.
------------------------
The Notes offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the Notes
will be ready for delivery in book-entry form only through the facilities of the
Depositary in New York, New York, on or about December , 1996, against payment
therefor in immediately available funds.
GOLDMAN, SACHS & CO.
CITICORP SECURITIES, INC.
ALEX. BROWN & SONS
INCORPORATED
------------------------
The date of this Prospectus Supplement is December , 1996.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
THE COMPANY
Scholastic Corporation, together with its subsidiaries and affiliates
(collectively hereinafter referred to in this Section as 'Scholastic' or the
'Company'), is among the leading publishers and distributors of children's
books, classroom and professional magazines and other educational materials,
with operations in the United States, Canada, the United Kingdom, Australia, New
Zealand, France and Mexico. Scholastic distributes most of its products directly
to children and teachers in elementary and secondary schools. During its
seventy-six years of serving schools, Scholastic has developed strong name
recognition associated with quality and dedication to learning and has achieved
a leading market position in the school-based distribution of children's books
and magazines.
The Company's domestic book publishing business consists primarily of the
publication and distribution of children's books in paperback editions through
school book clubs, school book fairs, trade distribution in retail stores and
classroom and library sales. Based on its market research, competitive
intelligence and information obtained through the conduct of its business, the
Company believes that it operates the largest school book club program and the
largest school book fair business in the United States. In fiscal 1996,
Scholastic sold in excess of 200 million children's books in the United States.
The Company's book publishing operations also include the publication of
supplementary texts for classroom use as well as professional books and other
materials sold to classroom teachers. Additionally, the Company entered the
market for core-curriculum materials and has been investing heavily in this area
as a source of future growth in sales and profits.
Scholastic's domestic magazine publishing business consists primarily of
the publication of classroom magazines distributed to children in school,
professional magazines directed to teachers and other education professionals
and consumer magazines. In fiscal 1996, the United States circulation of the
Company's classroom magazines was 7.1 million. The Company's other domestic
operations include the distribution of educational computer software, the
production and distribution of child and family-oriented video and television
programming and the merchandising and licensing of book properties.
Most of the Company's domestic revenues are generated by targeted direct
mail programs to schools and by telephone sales representatives. Additionally,
the Company has a school sales force of full-time and part-time representatives
calling on schools to sell its supplementary texts, educational software and
library book programs, as well as its newly developed core-curriculum materials.
For trade distribution, the Company has a retail sales force calling on
bookstores and other retail outlets that include the sale of children's books.
The Company's international business consists of six operating
subsidiaries, four of which publish and distribute children's books, magazines,
supplementary text products and educational software and two of which serve
primarily as distributors of children's books published by Scholastic as well as
outside publishers. For the year ended May 31, 1996, approximately 80% of
international revenues were derived from the sale of children's books.
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The following table sets forth Scholastic's revenues by product line for
the five fiscal years ended May 31:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Domestic
Book publishing.............................. $657,511 $516,827 $428,283 $361,282 $305,896
Magazine publishing.......................... 81,595 84,027 72,964 66,661 64,037
Media, TV/Movie Productions and Licensing.... 39,795 19,491 17,998 17,550 15,762
International.................................. 149,698 129,546 112,345 106,784 103,650
-------- -------- -------- -------- --------
Total..................................... $928,599 $749,891 $631,590 $552,277 $489,345
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
Scholastic's revenues have grown at an average annual compounded rate (the
''compounded growth rate'') of approximately 17% from fiscal 1992 through fiscal
1996. This growth was driven primarily by Scholastic's domestic book publishing
revenues which have yielded a compounded growth rate of approximately 21%.
DOMESTIC BOOK PUBLISHING (71% OF REVENUES)
CHILDREN'S BOOK PUBLISHING
The Company has published books since 1948 and is one of the largest
English language publishers of children's books. The majority of children's
books sold by the Company are distributed in the United States and
internationally directly to children and teachers through its school-based clubs
and book fairs. The Company has created and maintained a long-standing franchise
in the educational market and, in addition, has significantly expanded its trade
presence in recent years. As a result, Scholastic's domestic book publishing
revenues have more than doubled from fiscal 1992 through fiscal 1996.
The Company offers a broad range of quality children's literature. Many of
the books offered by the Company have received awards for excellence in
children's literature, including the Caldecott and the Newbery awards. The
Company obtains titles for sale in its distribution channels from three
principal sources. First, the Company publishes paperback and/or hardcover
editions of books written by outside authors under exclusive publication
agreements with the Company or written by the Company's editorial staff.
Scholastic generally owns rights to sell these original titles in all channels
of distribution including school and trade. The second source for titles
consists of paperback reprints of books originally published by other publishers
for which the Company acquires rights under license agreements to sell
exclusively in the school market. The third source for titles is from the
Company's purchase of finished books from other publishers to be sold in the
school market. The Company currently maintains a backlist (a list of titles
published as new titles in prior years) of over 5,000 titles.
All of the Company's books are manufactured by independent printers. The
printers generally are selected on a basis of competitive bidding, and the
Company, when it deems it to be appropriate, enters into multi-year agreements
which guarantee printers a certain percentage of Scholastic volume in exchange
for favorable pricing terms. Scholastic purchases its paper from paper
manufacturers, wholesalers, distributors and printers.
The Company distributes its children's books principally through four
distribution channels: school book clubs, school book fairs, sales to classrooms
and libraries and trade distribution to retail bookstores. In the school market
the Company distributes books directly to teachers and students through school
book clubs (including continuity programs) and school book fairs. The Company
believes that it is the largest operator of school book clubs and school book
fairs in the United States. The Company also distributes books to the school
market through sales to classrooms and libraries. The fourth distribution
channel is sales to the trade market. The Company's trade channel has grown
significantly in recent years, with sales in fiscal 1996 up in excess of 60%
over fiscal 1995 and more
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than double the fiscal 1994 level. By utilizing these distribution channels and
distributing its products internationally, the Company's volumes permit it to
realize economies in book production and distribution. The Company believes its
multiple distribution channels and volumes help attract top quality authors,
editors, illustrators and publishers seeking widespread distribution in both the
specialized school market and the trade market.
BOOK CLUBS. In fiscal 1996, the Company operated ten school-based book
clubs: Firefly(Registered), serving pre-kindergarten and kindergarten students;
SeeSaw(Registered), serving kindergarten and first grade students ('K-1'
grades); two Carnival(Registered) clubs, one serving students in kindergarten
through second grade and the other serving third through sixth grade students;
Lucky Book Club(Registered), serving second and third grade students; Arrow Book
Club(Registered), serving fourth through sixth grade students and TAB Book
Club(Registered), serving sixth, seventh and eighth grade students. As of
January 23, 1996, the Company acquired and began running three Trumpet clubs,
which together serve pre-K through sixth grade students. In addition, the
Company creates special theme based offers targeted to the different grade
levels during the year, e.g.--holiday offers, science offers, curriculum offers,
Spanish offers, etc. The Company also operates Fun-Tastic-At-Home!, The
Baby-sitters Collector Club, and The Baby-sitters Little Sister Friendship Club,
Thrills & Chills, Clifford's Learning Library, Hello Reader, Box Car, Thriller,
The Magic School Bus and Laugh Attack, which are book club continuity programs
promoted primarily through schools, which deliver paperback books to children at
home and bill parents at home.
The Company founded its first book club in 1948 and believes that it
currently operates the largest school book club program in the United States.
The Company estimates that over 80% of all elementary school teachers in the
United States participate in book clubs, with more than 75% of these teachers
using Scholastic book clubs sometime during the year. Domestic book club
revenues have grown in recent years, primarily as a result of the expansion of
book club continuity programs, volume increases in its school-based book clubs,
the purchase of additional clubs, increases in special book club offers, and to
a lesser degree, because of inflation-related price increases and the selection
by children of higher-priced items.
The Company believes that teachers participate in school book clubs because
they feel that quality books at affordable prices will be of interest to
students and improve students' reading skills. The Company also believes
teachers are attracted because the book clubs offer easy access to a broad range
of books. The Company mails promotional pieces containing order forms to
teachers in the vast majority of the pre-K through eighth grade classrooms in
the United States on a monthly basis throughout the school year. Participation
in any month does not create an obligation to participate in any subsequent
month, nor does it preclude participation in a competitor's book club.
Teachers who wish to participate in a book club distribute the order forms
to their students, who may choose from approximately 40 to 50 selections at
substantial reductions from retail prices. The teacher consolidates the
students' orders and payments and mails or phones them to the Company, which
then delivers the books to the teacher for distribution to the students.
Teachers who participate in the book clubs may accumulate credits for the
purchase of additional books and other items primarily for use in their
classrooms.
The sources of books for the Company's school book clubs are reprints
licensed from other publishers for school distribution, original publications
and finished books purchased from other publishers. The Company generally
re-offers titles from its backlist through the book clubs every two or three
years.
The Company processes and fulfills most orders for its book clubs, as well
as for its other school sales (except book fairs) and trade distribution, from
its warehouse and distribution facility in Jefferson City, Missouri. Orders for
the book clubs are shipped to customers by Roadway Package System, United Parcel
Service and U.S. Mail and generally are delivered within 14 days from when the
teacher places the order in the mail.
The Jefferson City facility has an automated inventory picking and order
processing system which allows the Company to provide a high level of customer
service and timely delivery to its customers.
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Customer service representatives are also available to handle
customer inquiries and expedite shipments.
In its book club business, the Company competes on the basis of book
selection, price, promotion and customer service. The Company believes that its
broad selection of titles, many of which are distributed in this channel
exclusively by Scholastic, combined with low unit manufacturing costs and its
large number of promotion mailings, enable the Company to compete effectively.
BOOK FAIRS. The Company believes it operates the largest school book fair
business in the United States. The Company entered the book fair business in
1981 through an acquisition in California. In 1983, the Company became a
national book fair operator as a result of its acquisition of Great American
Book Fairs(Registered). Since that time, the Company has grown its book fair
business primarily through geographic expansion, selected acquisitions and
increased penetration of its existing markets. The Company operates book fairs
in all 50 states under the name Scholastic Book Fairs.
Book fairs are generally one week-long events conducted on school premises
and sponsored by school librarians and/or parent-teacher organizations. Book
fair events expose children to hundreds of new books and allow children the
opportunity to purchase books of their choice. Although the Company provides the
school with the books and book display cases, the school actually conducts the
book fair. The Company believes that the primary motivation of the schools is to
provide their students with quality books at reasonable prices in order to help
them become more interested in reading. In addition, the schools retain a
portion of book fair sale proceeds to be used to purchase books, supplies and
equipment for the school.
In fiscal 1994, the Company launched a new class of fairs called Scholastic
Books on Tour(Registered). This program features an expanded list of titles
supported by exciting merchandise displays and book character costumes designed
to create a dynamic Book Fair event open to the entire family.
Over two-thirds of all titles offered in the Company's book fairs are
licensed reprints or are purchased directly from other publishers.
The Company operates its book fairs in the United States on a regional
basis through 15 sales offices and 73 warehouse locations. The marketing of book
fairs is performed from the sales offices by telephone sales representatives.
The Company's books and display cases are delivered to schools from the
Company's warehouses by a fleet of leased vehicles. The Company's customer
service function is performed from the regional and branch offices, supported by
field service representatives.
The Company believes that its competitive advantages in the book fair
business includes the strength of the relationship between its sales
representatives and schools, broad geographic coverage, a high level of customer
service and breadth of product selection. Approximately 90% of the schools that
sponsored a Scholastic Book Fair in fiscal 1995 sponsored a Scholastic Book Fair
again in fiscal 1996.
TRADE. The Company distributes its original publications through the trade
distribution channel. Almost all of the titles distributed to the trade market
are also offered in the Company's school book clubs and book fairs. In the
Company's publishing program, over 2,000 titles are maintained for trade
distribution including the popular Goosebumps(Registered), The Baby-sitters
Club(Registered), The Magic School Bus(Registered), and Clifford The Big Red
Dog(Registered) series. The Company believes that its increased presence in the
trade market is important in attracting outside authors for publication and
complements the Company's school-based book distribution businesses.
The Company has a field sales organization which focuses on selling the
broad range of Scholastic books to book store accounts. Penguin USA performs
invoicing, billing and collections for Scholastic in connection with trade
distribution.
The Company's sales in the trade market are led by the highly successful
Goosebumps(Registered) series, with 68 titles and 150 million copies in print as
of August 1996, and The Baby-sitters Club(Registered) series, with 245 titles
published and 149 million copies in print as of that date. Another
Scholastic-developed property that also generates significant sales is The Magic
School Bus(Registered) series with 23 titles published
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and 24 million copies in print as of August 1996. Series such as I
Spy(Trademark), Clifford The Big Red Dog(Registered) and Hello
Reader(Registered) continue to anchor the successful Cartwheel Books(Registered)
imprint. The Scholastic Children's Dictionary was published in the Summer of
1996 and greatly enhances the reference line which already includes successful
series such as First Discovery and Voyages of Discovery. The Blue Sky
Press(Registered) and Scholastic Press(Registered) imprints have attracted some
of the best talents in children's publishing, including Eve Bunting, Leo and
Diane Dillon, Virginia Hamilton, Barry Moser, Walter Dean Myers, Dav Pilkey,
Cynthia Rylant, Mark Teague, Nancy Willard and Ed Young.
CLASSROOM AND LIBRARY SALES. Many elementary school teachers use paperback
books in conjunction with basal textbooks to teach reading and other subjects.
In addition to offering book clubs and book fairs, Scholastic serves this need
by offering individual titles and collections of paperback books for classrooms
and school libraries. In fiscal 1996, approximately two-thirds of the school
districts in the United States ordered books and collections from the Company.
The majority of the titles sold directly to school classrooms and libraries are
the same as those offered through the Company's book clubs and book fairs.
The purchase of individual titles and book collections are generally funded
by school budgets. Classrooms and libraries may order directly through catalogs
mailed to the schools and through the Company's school sales force. Processing
and fulfillment of these orders are handled in the Jefferson City distribution
center.
INSTRUCTIONAL PUBLISHING
The Instructional Publishing group develops and distributes instructional
materials (both supplemental and core-curriculum programs) directly to schools
in addition to managing classroom and library sales of children's books through
the Company's school sales force. Based on industry research, the Company
believes that the K-6 market for instructional material in such areas as
language arts, math, science, social studies, health, etc. is in excess of $2.0
billion annually.
Publishing for the K-6 market is being affected by a number of factors,
including the shift toward skill-based instruction balanced with the philosophy
of literature-based instruction (the teaching of reading and other subjects
utilizing whole books such as trade or paperback books) and the increasing role
of teachers in selecting materials for use in the classroom. Additionally, there
is increasing flexibility in 'adoption' states, where state boards approve or
'list' instructional materials that local school boards, individual schools and
teachers can purchase. In these states, the state boards are listing a greater
number of instructional materials, thereby giving the local school boards,
individual schools and teachers a wider range of instructional materials from
which to select.
The Company believes that these changes provide an opportunity to
substantially expand its presence in the instructional materials market. To
capitalize on this opportunity, the Company's strategies are the following:
publish multimedia programs which provide schools with innovative alternatives
to programs offered by other publishers; concentrate its publishing in the K-6
grade market, which is the largest part of the market; focus its publishing in
language arts and science where the Company has successful book and magazine
publishing programs; use existing books and magazines from other Scholastic
publishing groups; and cross-market its new programs to the more than one
million teachers who currently participate in Scholastic's book clubs and use
its magazines. To implement these strategies, the Company has expanded its
marketing and editorial staff and is investing in training and expanding its
school sales force.
Pursuant to this strategy, the Company completed the publication of
Scholastic Literacy Place(Registered), its K-6 reading program, and
Solares(Trademark), a Spanish elementary reading
program. The Company is pleased with the market reaction to Scholastic Literacy
Place(Registered). The program has been adopted in California, the single
largest adoption market.
In fiscal 1996, the Company also completed a revision and update of its
popular K-6 grade science program, Scholastic Science Place(Registered). Sales
of Scholastic Science Place in Kentucky, Alabama and other states were strong.
The Company expects continued success in open territory states with the updated
program as it plans the publication of the second edition of Scholastic Science
Place.
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The Company expanded Wiggleworks(Registered), its standard-setting CD-ROM
based beginning literacy program, to include a Windows(Registered) version, in
addition to the popular Macintosh-based product. Also, a network version will be
ready for shipment in fiscal 1997.
The Early Childhood publishing division's, The Early Childhood
Workshop(Trademark), a pre-kindergarten and kindergarten core-curriculum
program, was successfully sold in Texas primarily in the Company's first quarter
of fiscal 1996, garnering approximately two-thirds of the market. The total
spending on prepublication costs relating to these core-curriculum programs in
early childhood, reading, language arts, science, technology and math has been
approximately $100.0 million from fiscal 1991 to fiscal 1996.
In the fourth quarter of fiscal 1996, the Company recorded a charge for
programs that did not meet market needs or are being deemphasized. This charge
consisted of the unamortized prepublication and inventory costs of the Company's
K-2 math program and several older supplemental instructional programs.
MAGAZINE PUBLISHING (9% OF REVENUES)
GENERAL
Scholastic complements its school-based book publishing business with the
publication of classroom magazines, which are used as supplementary educational
materials, and professional magazines, directed at teachers and education
professionals. Most of the Company's classroom and professional magazines carry
the Scholastic name, which reinforces the Company's widely recognized
educational reputation with students, teachers and school administrators. The
Company's reputation for publishing quality magazines, maintaining an extensive
magazine mailing list and having a large customer base of teachers helps
generate customers for its book clubs and other Scholastic products as well as
its magazines. At the same time, the Company uses its book club mailings to help
secure additional circulation for its classroom and professional magazines. The
Company also publishes two consumer magazines for small business and home office
professionals and a magazine for parents of children in pre-K and Kindergarten
classes.
CLASSROOM MAGAZINES
The Company's 34 classroom magazines are designed to encourage students to
read and to supplement the formal learning program by bringing subjects of
current interest into the classroom. The subjects covered include English,
reading, literature, math, science, current events, social studies and foreign
languages. The most well known of the Company's U.S. magazines are Scholastic
News(Registered) and Junior Scholastic(Registered).
The Company's classroom magazine circulation in the United States for
fiscal 1996 was 7.1 million. Approximately two-thirds of the circulation is in
the K-6 grades, with the balance in grades seven through twelve. In fiscal 1996,
teachers in approximately 60% of the elementary schools and 70% of the high
schools in the United States used the Company's classroom magazines.
The various classroom magazines are distributed on a weekly, bi-weekly or
monthly basis during the school year. A majority of circulation revenue is paid
for by the schools and the remainder by students. Circulation revenue accounted
for approximately two-thirds of the Company's classroom magazine revenues in
fiscal 1996. Several of the magazines distributed in secondary schools carry
advertising.
The Company markets its classroom magazines largely by direct mail and
telephone sales representatives. The Company maintains an extensive database of
teachers and schools which it utilizes for promotional efforts. The order
processing for classroom magazines is conducted at the Company's Jefferson City
facility.
Additionally, the Company develops and distributes customized marketing
programs sponsored by major corporations, government agencies and other
organizations which want to reach young people and educators. Customized
programs may include single-sponsor magazines, posters, teaching guides,
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integrated teaching kits, educational videos and other promotional media. In
fiscal 1996, the Company developed programs for the United States Department of
Agriculture, Discover Card Services, Inc., Fuji Photo Film USA, NYNEX
Corporation, the Michael Jordan Foundation, Paramount Pictures Inc. and AT&T.
PROFESSIONAL PUBLISHING AND EARLY CHILDHOOD PUBLISHING
The Company publishes four magazines directed at teachers and educational
professionals: Instructor(Trademark), Early Childhood Today(Trademark),
Electronic Learning(Registered) and Scholastic Coach. Total circulation for
these magazines in fiscal 1996 was in excess of 400,000. The magazines are
distributed throughout the academic year. Subscriptions are solicited by direct
mail to teachers and subscriptions are cross-marketed to teachers through the
book clubs. The Company also publishes Scholastic Parent and Child(Registered)
magazine, which is directed at parents and distributed through schools and day
care programs. Scholastic Parent and Child's circulation is approximately 1.0
million. The magazines carry outside advertising, advertising for the Company's
other products and advertising for clients that sponsor customized programs.
Sponsors include Microsoft Corp., Apple Computer, Viacom International Inc.,
General Mills, Inc., Disney and the Chrysler Corporation. In fiscal 1996,
advertising revenue represented the majority of the professional publishing and
early childhood magazine revenues.
The professional publishing division also publishes professional books and
continuity programs consisting of instructional materials designed for and
generally purchased by teachers. Professional books are marketed through
Scholastic book clubs, catalogs, direct mail solicitations and by the Company's
trade sales force to teacher stores and book stores. The early childhood
division also publishes children's books and a pre-K and kindergarten curriculum
program, The Early Childhood Workshop. In fiscal 1996, sales of The Early
Childhood Workshop represented approximately two-thirds of the market share in
the Texas state adoption, producing revenues of approximately $20.0 million.
Revenues from these items are included in domestic book publishing revenues.
SCHOLASTIC SOHO GROUP
In 1983, the Company introduced a national consumer magazine, now called
Home Office Computing(Registered). In its 13th year, Home Office Computing is a
leading magazine for technology reliant home office professionals. In
recognition of the magazine's rapidly expanding franchise as the leading
publisher for the small office and home office ('SOHO') market, the Company
reorganized this business as the SOHO group. In fiscal 1996, the group launched
a sister publication entitled Small Business Computing(Trademark). This new
offering, combined with the growth of custom publishing, is expected to result
in higher revenues for the SOHO group in fiscal 1997. With combined circulation
of 560,000, both magazines attract companies such as America Online, Epson, IBM,
Microsoft Corp. and Hewlett Packard, among others, as its principal advertisers.
In fiscal 1996, the SOHO group carried 890 pages of advertising. The group also
provides specialized newsletters and books. It also has a presence on America
Online and the World Wide Web and sells sponsorships for both sites.
MEDIA, TV/MOVIE PRODUCTIONS AND LICENSING (4% OF REVENUES)
TV/MOVIE PRODUCTIONS AND LICENSING
Scholastic Productions, Inc. ('SPI'), a wholly-owned subsidiary of the
Company, extends the Company's franchises worldwide by developing and producing
quality children's programming for distribution in multimedia formats. In
addition, SPI licenses and develops products originated by third parties. SPI
orchestrates consumer marketing campaigns and manages the licensing of consumer
products and promotions for each franchise. SPI is also responsible for the
selection of video cassettes sold through the book clubs and for sales of books
and other products through non-traditional channels.
In fiscal 1996, the SPI-produced The Magic School Bus(Trademark) ('MSB')
television series aired its second season on PBS and completed production of an
additional 13 episodes for the third season. Thirteen additional episodes will
be produced in fiscal 1997, bringing the series total to 52. The series
commenced airing daily in the fall of 1996. MSB, which has won numerous awards
including an Emmy for Lily Tomlin, is the most popular series for school-aged
children on PBS. In November 1995, SPI
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launched the Traveling Magic School Bus, an actual recreation of the bus from
the book and animated series, which through April 1996 has traveled around the
country visiting over 50 schools, libraries, retail stores and book fairs,
reaching nearly 250,000 fans. In addition to the continuation of the domestic
marketing and consumer products program for MSB, SPI initiated an international
licensing program during fiscal 1996 in conjunction with independent licensing
agents in the United Kingdom, Italy, Germany and France. The series television
rights have been licensed in all major international territories by Nelvana
Ltd., Scholastic's international distributor. Warner Home Video successfully
continued to release the episodes of the first two seasons domestically on video
cassette. SPI co-produced its third, fourth and fifth in a series of MSB
CD-ROM's with Microsoft Corporation on Oceans, Geology and Dinosaurs. All MSB
CD-ROM's are in the top 20 best-selling titles for children.
In October 1995, the SPI-produced Goosebumps(Registered) TV series
premiered with a one-hour special on the Fox Children's Network ('FCN'). The
first 13 episodes of Goosebumps aired this fiscal year and was rated the #1
children's series on television. The inaugural video cassette released by Fox
Home Video in March 1996, the premiere one-hour prime time special, 'The Haunted
Mask', was on the list of top-selling videos when initially released. An
additional 17 episodes and four one hour specials have been ordered by FCN; two
of the specials aired in fiscal 1996, with the balance to air during the
1996/1997 broadcast year. The success of the TV series has helped launch a very
successful Goosebumps marketing and consumer products program. There are
currently 45 Goosebumps licensees in the United States producing over 1,500
different products. In addition, during fiscal 1996, SPI was able to secure
major domestic promotional campaigns with General Mills and Kraft. Major
domestic consumer promotions planned for or occurring during fiscal 1997 include
four divisions of PepsiCo (Taco Bell, Frito Lay, Pepsi and Pizza Hut), as well
as the Hershey Corporation. Saban International, on behalf of FCN, is currently
licensing Goosebumps TV rights internationally. During fiscal 1997, Goosebumps
marketing and consumer products programs are launching internationally in
Australia, New Zealand, the United Kingdom, Germany and Canada. The first
Goosebumps CD-ROM was released by DreamWorks SKG, in conjunction with their
partner Microsoft Corporation, in November 1996.
Other Scholastic franchises in development for potential multimedia
exploitation include Animorphs(Trademark), one of the Company's new children's
book series. SPI also has a variety of original children's and family oriented
projects in development as the basis of future programming opportunities.
During fiscal 1996, SPI-produced properties, including The Magic School Bus
and Goosebumps TV series episodes, as well as the feature films Indian in the
Cupboard and The Baby-sitters Club, generated strong video cassette sales
through Scholastic's Book Clubs. Book sales through non-traditional channels
increased as a result of strong merchandising placement for the Company's
franchises in retail accounts as well as promotional premium book opportunities
working cooperatively with SPI's marketing group. These book revenues are
included in domestic book publishing revenues.
MEDIA
In fiscal 1994, the Company created a technology and new media division.
The mission of this division is threefold: (1) publish and sell educational
software and multimedia products to schools and homes; (2) support other
Scholastic divisions' technology efforts (including the creation and integration
of technology components into the Instructional Publishing group's
core-curriculum materials); and (3) explore and develop opportunities in
telecommunications and interactive networks, including the Scholastic
Network(Trademark), which is available to educators via America Online and the
Internet, as well as Internet-based applications for delivery of Scholastic
products and services.
The Company has published educational computer software since 1982, which
is sold to schools by sales representatives, catalog and other direct marketing
methods and educational distributors serving the school market. The Company also
sells consumer software through book clubs and, since 1991, has also sold
software through a classroom software club modeled after its classroom book
clubs. In fiscal 1997, the Company launched a second software club aimed at
younger children. The Company acquires software for distribution in all of these
channels through a combination of licensing, internal
S-9
<PAGE>
development, contracting with independent software developers and third-party
distribution arrangements.
In fiscal 1994 the Company launched, through a special arrangement with
America Online, the Scholastic Network(Trademark), the first online service
developed especially for educators and students. It offers compelling in-class
experiences for the kindergarten through twelfth grade market and will be
available on the Internet in fiscal 1997. Also in fiscal 1994, the Company
initiated a corporate presence on the Internet with a home page on the World
Wide Web. Scholastic.com provides users of the World Wide Web with an overview
of the Company's activities, resource libraries for educators, an education
store and special programming tied to Scholastic Network's content. In fiscal
1997, the Scholastic Network(Trademark) became part of Scholastic.com as a paid
service.
Scholastic increased its video presence with the acquisition in fiscal 1996
of Weston Woods Studios, Inc., a producer of award-winning videos of animated
versions of children's books.
Revenues from video and new media group in the aggregate have historically
been less than 5% of the Company's revenues and profitability has been marginal.
The Scholastic Network (Trademark) has generated a loss since its launch in
fiscal 1994.
INTERNATIONAL (16% OF REVENUES)
Scholastic conducts its international operations through six wholly-owned
subsidiaries located in Canada, Australia, the United Kingdom, New Zealand,
France and Mexico. The operations in France and Mexico are tests of school-based
distribution in these countries, while the Company's other subsidiaries publish
and distribute children's books, magazines, supplementary text products and
educational software. In fiscal 1996, approximately 80% of international
revenues were derived from the sale of children's books.
The Company markets its products internationally in the same manner as in
the United States and, therefore, markets primarily to schools through book
clubs and book fairs. Although book clubs account for the largest share of
international revenues, book fairs and the trade market have grown rapidly in
recent years.
Each subsidiary is responsible for its own editorial, production, sales and
fulfillment operations. The Canadian subsidiary distributes a substantial
percentage of United States originated Scholastic books, whereas the United
Kingdom subsidiary distributes very few. Scholastic products that were
originated in the United States account for approximately 40% of Australia's and
New Zealand's lines of children's books.
In fiscal 1996, the Company acquired School Book Fairs Ltd. ('School Book
Fairs'), the United Kingdom subsidiary of Pages Inc. The Company is in the
process of integrating School Book Fairs with its own school book fair business,
Scholastic Book Fairs, to form a single operating unit, while continuing to
market the two separate and competitive book fair brands.
In fiscal 1994, the Company purchased the United Kingdom based Mary Glasgow
Publications, a publisher of foreign language and English language reading
magazines which are distributed throughout Europe and North America.
Scholastic's domestic classroom magazine division distributes these foreign
language magazines in the United States and Scholastic's Canadian subsidiary
markets these in Canada.
In November 1996, the Company entered into an agreement to acquire Red
House Books Ltd., a United Kingdom company principally engaged in the sale of
children's and family books through direct mail, school book clubs and party
plans in the United Kingdom.
COMPETITION
The domestic market for educational materials is highly competitive.
Competition is based on the quality and range of educational materials made
available, price, promotion and customer service. There are many competitors in
the domestic educational materials market, including one other national
S-10
<PAGE>
school book club operator, two other national school book fair operators
(together with smaller regional operators, including local bookstores), numerous
other paperback book, textbook and supplementary text publishers, national
publishers of classroom, professional and personal computer magazines with
substantial circulation, producers of programming, and publishers of computer
software. Competition may increase further to the extent that other entities
enter the market and to the extent that current competitors or new competitors
develop and introduce new educational materials that compete directly with the
educational materials distributed by the Company.
The Company also has numerous competitors in each of the foreign countries
in which it conducts business.
EMPLOYEES
As of May 31, 1996, Scholastic employed approximately 3,800 persons in
full-time jobs and 650 in hourly or part-time jobs in the United States and
approximately 1,000 persons in its international subsidiaries. The number of
part-time employees fluctuates during the year because the Company's business is
closely correlated with the school year. The Company believes that its relations
with employees are good.
COPYRIGHT AND TRADEMARKS
The name 'Scholastic' is a registered trademark in the United States and in
countries where the Company has international subsidiaries. The Company has also
registered in the United States the names of each of its major domestic book
clubs, the titles of its major magazines and the names of all of its
core-curriculum programs. The Company's international subsidiaries have also
registered some names of their respective book clubs and magazines. Although
individual book titles are not subject to trademark protection, the Company has
registered the names of certain series, such as The Baby-sitters
Club(Registered) and The Magic School Bus(Registered).
All of the Company's publications, including books, magazines and software,
are subject to copyright protection. Copyright and trademark infringement is
vigorously defended by the Company and, as necessary, outside counsel may be
retained to assist in such protection.
S-11
<PAGE>
RECENT OPERATING RESULTS
On December 10, 1996, the Company announced earnings for the second quarter
ended November 30, 1996.
The Company reported revenues of $342.2 million for the three months ended
November 30, 1996, which was $47.6 million, or 16%, greater than the comparable
quarter last year. Net income for the quarter was $38.5 million, an increase of
$7.3 million, or 24%, over the comparable period last year. Fully diluted
earnings per share increased to $2.21 in the second quarter from $1.81 last
year, a 22% increase.
Revenue for the six months ended November 30, 1996 totaled $500.8 million,
which was $71.0 million, or 17%, greater than last year. Operating income
increased 16%, to $46.4 million, over the prior year period. Net income
increased 15%, to $24.5 million, or $1.47 per share on a fully diluted basis.
Domestic book publishing, up $22.6 million over last year's second quarter,
or 11%, was the largest contributor to the revenue growth in the quarter. The
book fair channel had the largest growth rate, resulting from an increased
number of fairs and increased revenues per fair. The Company successfully
integrated the Trumpet book club, which was acquired in January 1996 and
accounted for the increase in total book club sales in the second quarter. Trade
sales remained constant from the prior year's strong second quarter performance,
which had increased by 100% over the second quarter of fiscal 1995.
Media, TV/Movie Productions and Licensing realized a 129% increase in
revenue over last year's second quarter, primarily due to royalties from
Goosebumps merchandise licensing. International operations had a strong quarter,
with revenues increasing 27% over last year's second quarter, aided by growth in
the United Kingdom, which benefitted from the Pages book fair acquisition in
March 1996.
Operating income grew faster than sales, due to significant increases in
high margin merchandise license product royalties, combined with improved
international and children's book publishing margins.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Revenues
Domestic
Book publishing......................................... $234,681 $212,096 $347,143 $310,071
Magazine publishing..................................... 28,787 27,861 35,135 34,011
Media, TV/Movie Productions and Licensing............... 20,995 9,149 28,843 11,476
International.............................................. 57,711 45,504 89,642 74,243
-------- -------- -------- --------
Total revenues............................................... 342,174 294,610 500,763 429,801
Costs and expenses........................................... 276,607 241,400 454,391 389,851
-------- -------- -------- --------
Operating income............................................. 65,567 53,210 46,372 39,950
Net interest expense......................................... 4,211 3,014 7,582 5,365
-------- -------- -------- --------
Earnings before taxes........................................ 61,356 50,196 38,790 34,585
Tax provision................................................ 22,886 19,074 14,311 13,255
-------- -------- -------- --------
-------- -------- -------- --------
Net income................................................... $ 38,470 $ 31,122 $ 24,479 $ 21,330
Weighted average shares outstanding
Primary.................................................... 16,322 16,180 16,254 16,100
Fully diluted.............................................. 17,781 17,661 17,763 17,009
Net income per share
Primary.................................................... $ 2.36 $ 1.92 $ 1.51 $ 1.32
Fully diluted.............................................. $ 2.21 $ 1.81 $ 1.47 $ 1.31
</TABLE>
USE OF PROCEEDS
The Company expects to use the net proceeds of the sale of the Notes
offered hereby principally to repay certain domestic bank indebtedness, bearing
interest at current rates ranging from 5.875% to 7.25% (based on LIBOR + 0.375%
or on a prime rate based formula), under loan agreements which expire on May 31,
2000, and for general corporate purposes.
S-12
<PAGE>
CAPITALIZATION
The following table summarizes the capitalization of the Company at May 31,
1996 and August 31, 1996 and as adjusted to give effect to (i) the issuance of
the Notes offered hereby and (ii) the application of the net proceeds from the
sale of the Notes to repay certain indebtedness.
<TABLE>
<CAPTION>
AUGUST 31, 1996
-----------------------
MAY 31, 1996 ACTUAL AS ADJUSTED
------------ -------- -----------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt........................................ $ 271 $ 217 $ 217
Long-term debt........................................................... 186,810 248,750 124,679
Shareholders' equity..................................................... 288,647 275,656 275,656
------------ -------- -----------
Total capitalization..................................................... $475,728 $524,623 $ 400,552
------------ -------- -----------
------------ -------- -----------
Cash and cash equivalents................................................ $ 4,300 $ 1,095 $ 1,095
------------ -------- -----------
------------ -------- -----------
</TABLE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the 'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the financial statements, notes thereto and other financial
information included in the documents incorporated herein by reference. The
selected financial data for each of the five years in the period ended May 31,
1996 are derived from consolidated financial statements of the Company which
have been examined and reported upon by Ernst & Young LLP, independent auditors.
See 'Experts'. The data presented for the three month periods ended August 31,
1996 and 1995 are derived from unaudited financial statements and include, in
the opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the data for such periods. The results for
the three month period ended August 31, 1996 are not necessarily indicative of
the results to be expected for the full fiscal year. Scholastic's first quarter
is traditionally a loss period due to significantly lower revenues from the
Company's school-based book club, book fair and classroom magazine businesses,
which operate at a substantially lower level during the summer months and incur
a higher level of operating expenses as a percentage of revenue.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31, YEAR ENDED MAY 31,
---------------------------------------- --------------------------------------------
1996 1995 1996 1995 1994 1993
------------------ ------------------ -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues.................. $158,589 $135,191 $928,599 $749,891 $631,590 $552,277
Cost of goods sold.............. 93,735 75,541 466,030 355,968 297,069 265,675
Selling, general and
administrative expenses....... 80,561 70,388 367,376 316,263 271,354 231,736
Other operating costs:
Goodwill, Trademarks, and
License amortization and
depreciation................ 3,488 2,522 13,054 10,010 7,603 5,808
Impairment of assets.......... -- -- 24,304(1) -- -- --
Other charges................. -- -- -- -- -- --
Operating (loss) income......... (19,194) (13,260) 57,835 67,650 55,564 49,058
Interest expense, net........... 3,371 2,351 11,170 5,395 2,856 2,259
Net (loss) income............... (13,991) (9,792) 31,897(3) 38,578 24,794(4) 28,104
Net (loss) income per
share--fully diluted.......... $(0.88) $(0.62) $1.97(3) $2.37 $1.53(4) $1.75
Weighted average shares
outstanding--fully diluted.... 15,884 15,707 17,341 16,286 16,155 16,430
BALANCE SHEET DATA
(END OF PERIOD):
Working capital................. $222,523 $196,052 $177,082 $136,775 $100,297 $ 62,997
Total assets.................... 742,340 622,153 673,166 505,864 390,040 263,191
Long-term debt.................. 248,750 174,530 186,810 91,518 39,605 3,261
Stockholders' equity............ 275,656 242,185 288,647 250,213 205,832 153,493
</TABLE>
<TABLE>
<CAPTION>
1992
--------
<S> <C>
STATEMENT OF INCOME DATA:
Total revenues.................. $489,345
Cost of goods sold.............. 236,032
Selling, general and
administrative expenses....... 203,903
Other operating costs:
Goodwill, Trademarks, and
License amortization and
depreciation................ 6,134
Impairment of assets.......... --
Other charges................. 10,291(2)
Operating (loss) income......... 32,985
Interest expense, net........... 11,408
Net (loss) income............... 12,953
Net (loss) income per
share--fully diluted.......... $1.05
Weighted average shares
outstanding--fully diluted.... 13,329
BALANCE SHEET DATA
(END OF PERIOD):
Working capital................. $ 64,513
Total assets.................... 226,043
Long-term debt.................. 23,387
Stockholders' equity............ 111,707
</TABLE>
(Footnotes on next page)
S-13
<PAGE>
(Footnotes from previous page)
- ------------------
(1) Fiscal 1996 includes a non-cash charge relating to the impairment of certain
assets of $24,304. A significant portion of this charge was determined in
connection with the Company's early adoption of Statement of Financial
Accounting Standards No. 121, which requires an evaluation of the
realization of long-lived asset carrying values. This charge consists of the
unamortized prepublication ($10,809) and inventory ($13,495) costs of the
Company's K-2 math program, several older supplemental instructional
publishing programs and other selected titles. The fully diluted impact of
the charge is $0.88 per share.
(2) Fiscal 1992 includes a provision for nonrecurring relocation charges of
$4,100 relating to the consolidation of the Company's New York staff and
includes a provision for a nonrecurring charge of $6,191, relating to the
restructuring of the Company's financial commitment for theatrical motion
picture productions. The combined fully diluted impact of these provisions
is $0.46 per share.
(3) Fiscal 1996 net income and net income per share-fully diluted excluding the
$24,304 non-cash charge would have been $46,801 and $2.85, respectively.
(4) Fiscal 1994 includes a provision for a nonrecurring charge of $8,135 (net of
tax) with a fully diluted impact of $0.51 per share relating to the
cumulative effect of changes in accounting principles due to the adoption of
financial accounting standards on postretirement benefits (other than
pensions), postemployment benefits and income taxes. Also included is a
$1,305 tax benefit to reflect the effect on net deferred income taxes
resulting from the increase in the federal tax rate from 34% to 35%.
S-14
<PAGE>
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby (referred to in the accompanying Prospectus as the 'Senior Debt
Securities') supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Senior Debt Securities
set forth in the Prospectus, to which description reference is hereby made.
GENERAL
The Notes will be issued as a single series under the Senior Indenture,
dated as of December , 1996, between the Company and the Trustee which is more
fully described in the accompanying Prospectus under 'Description of Debt
Securities'. The Notes are unsecured and unsubordinated obligations of the
Company and will be limited to $125,000,000 aggregate principal amount. The
Notes will mature on , 2003 and will not be redeemable prior to
maturity.
The Notes will bear interest at the rate per annum set forth on the cover
page of this Prospectus Supplement from , 1996, or from the most
recent date to which interest has been paid or provided for, payable
semi-annually on each and , commencing
, 1997, to the persons in whose name the Notes are registered
at the close of business on the preceding or
, as the case may be. The Notes are subject to defeasance and
discharge and to defeasance of certain obligations as described in the
Prospectus.
BOOK-ENTRY PROCEDURES
The Notes will be issued in the form of one or more fully registered global
Notes which will be deposited with, or on behalf of, The Depository Trust
Company, as Depositary (the 'Depositary'), located in the Borough of Manhattan,
The City of New York, and will be registered in the name of the Depositary or a
nominee of the Depositary.
Ownership of beneficial interest in a global Note will be limited to
participants and to persons that may hold interests through institutions that
have accounts with the Depositary ('participants'). Ownership of beneficial
interests by participants in a global Note will be shown on, and the transfer of
that ownership interest will be effected only through, records maintained by the
Depositary for such global Note. Ownership of beneficial interests in such
global Note by persons that hold through participants will be shown on, and the
transfer of that ownership interest within each participant will be effected
only through, records maintained by such participants.
Payment of principal of and interest on and Notes represented by any such
global Note will be made to the Depositary or its nominee, as the case may be,
as the sole registered owner and the sole Holder of the Notes represented
thereby for all purposes under the Indenture. None of the Company, the Trustee
or any agent of the Company or the Trustee will have any responsibility or
liability for any aspect of the Depositary's records relating to or payments
made on account of beneficial ownership interests in a global Note representing
any Notes or any other aspect of the relationship between the Depositary and its
participants or the relationship between such participants and the owners of
beneficial interests in a global Note owning through such participants or for
maintaining, supervising or reviewing any of the Depositary's records relating
to such beneficial ownership interests.
The Company has been advised by the Depositary that upon receipt of any
payment of principal of or interest on any such global Note, the Depositary will
immediately credit, on its book-entry registration and transfer system, the
accounts of participants with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such global Note as
shown on the records of the Depositary. The accounts to be credited shall be
designated by the Underwriters. Payments by participants to owners of beneficial
interests in a global Note held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for customer accounts registered in 'street name', and will be
the sole responsibility of such participants.
No global Note may be transferred except as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or
S-15
<PAGE>
by the Depositary or any such nominee to a successor of the Depositary or a
nominee of such successor.
A global Note representing Notes is exchangeable for definitive Notes in
registered form, only if (x) the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary for such global Note or if at any
time the Depositary ceases to be a clearing agency registered under the
Securities Exchange Act of 1934 (the 'Exchange Act'), (y) the Company in its
sole discretion determines that such global Note shall be exchangeable for
definitive Notes in registered form and notifies the Trustee thereof or (z) an
Event of Default with respect to the Notes represented by such global Note has
occurred and is continuing. Any global Note that is exchangeable pursuant to the
preceding sentence shall be exchangeable for definitive Notes issuable in
authorized denominations in registered form, aggregating a like amount. Such
definitive Notes shall be registered in the names of the owners of the owners of
the beneficial interests in such global Note as the Depositary shall direct.
Except as provided above, owners of beneficial interests in such a global
Note will not be entitled to receive physical delivery of Notes in definitive
form and will not be considered the Holders thereof for any purpose under the
Indenture, and no global Note representing Notes shall be exchangeable.
Accordingly, each person owning a beneficial interest in such a global Note must
rely on the procedures of the Depositary and, if such person is not a
participant, on the procedures of the participant through which such person owns
its interest, to exercise any rights of a Holder under the Indenture or such
global Note. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a global Note.
The Company understands that under existing industry practices, in the
event that the Company requests any action of Holders or that an owner of a
beneficial interest in such a global Note desires to give or take any action
which a Holder is entitled to give or take under the Indenture, the Depositary
would authorize the participants holding the relevant beneficial interests to
give or take such action, and such participants would authorize beneficial
owners owning through such participants to give or take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
The Depositary has advised the Company that the Depositary is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a 'clearing corporation' within the
meaning of the New York Uniform Commercial Code, and a 'clearing agency'
registered under the Exchange Act. The Depositary was created to hold the
securities of its participants and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations, and certain other
organizations some of whom (and/or their representatives) own the Depositary.
Access to the Depositary's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Settlement for the Notes will be made in immediately available funds. The
Notes will trade in the Depositary's Same-Day Funds Settlement System until
maturity, and therefore the Depositary will require secondary trading activity
in the Notes to be settled in immediately available funds.
REGARDING THE TRUSTEE
Citibank, N.A. will be the trustee under the Senior Indenture and is a
party to existing credit agreements with the Company and certain of its
subsidiaries. Citibank, N.A. also maintains other banking arrangements with the
Company and its subsidiaries in the ordinary course of business.
S-16
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
and the Pricing Agreement, the Company has agreed to sell to each of the
Underwriters named below, and each of such Underwriters has severally agreed to
purchase, the principal amount of the Notes set forth opposite its name below:
PRINCIPAL
AMOUNT
UNDERWRITER OF NOTES
---------
Goldman, Sachs & Co.............................................. $
Citicorp Securities, Inc.........................................
Alex. Brown & Sons Incorporated..................................
---------
$
Under the terms and conditions of the Underwriting Agreement and the
Pricing Agreement, the Underwriters are committed to take and pay for all of the
Notes, if any are taken.
The Underwriters propose to offer the Notes in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus Supplement and in part to certain securities dealers at such price
less a concession of % of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a concession not to exceed
% of the principal amount of the Notes to certain brokers and dealers. After
the Notes are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the Underwriters.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that the Underwriters intend to
make a market in the Notes but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
An affiliate of Citicorp Securities, Inc. from time to time conducts
banking transactions with the Company and its subsidiaries in the normal course
of business, and such affiliate is a party to certain of the Company's existing
credit agreements. An amount that may exceed 10% of the net proceeds from the
sale of the Notes will be used to repay the indebtedness under such credit
agreements. Accordingly, this offering is being conducted in conformity with
Rules 2710(8) and 2720(c)(3) of the Conduct Rules of the National Association of
Securities Dealers, Inc.
S-17
<PAGE>
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<PAGE>
$175,000,000
SCHOLASTIC CORPORATION
DEBT SECURITIES, PREFERRED STOCK AND COMMON STOCK
------------------------
Scholastic Corporation (the 'Company') may from time to time offer,
together or separately, (1) its debt securities (the 'Debt Securities'), which
may be either senior debt securities (the 'Senior Debt Securities') or
subordinated debt securities (the 'Subordinated Debt Securities'), (2) shares of
its preferred stock, par value $1 per share, in one or more series (the
'Preferred Stock') and (3) shares of its common stock, par value $.01 per share
(the 'Common Stock'). The Debt Securities, the Preferred Stock and the Common
Stock are collectively referred to herein as the 'Securities'.
The Securities offered pursuant to this Prospectus may be issued in one or
more series or issuance and will be limited to $175,000,000 aggregate public
offering price (or its equivalent (based on the applicable exchange rate at the
time of sale) in one or more foreign currencies, currency units or composite
currencies as shall be designated by the Company). Certain specific terms of the
particular Securities in respect of which this Prospectus is being delivered are
set forth in the accompanying Prospectus Supplement (the 'Prospectus
Supplement'), including, where applicable, in the case of Debt Securities, the
specific title, aggregate principal amount, the denomination, whether such Debt
Securities are secured or unsecured obligations, maturity, premium, if any, the
interest rate (which may be fixed, floating or adjustable), the time and method
of calculating payment of interest, if any, the place or places where principal
of (and premium, if any) and interest, if any, on such Debt Securities will be
payable, the currency in which principal of (and premium, if any) and interest,
if any, on such Debt Securities will be payable, any terms of redemption at the
option of the Company or the holder, any sinking fund provisions, terms for any
conversion or exchange into other Securities, the initial public offering price
and other special terms, and, in the case of Preferred Stock, the specific
title, the aggregate amount, any dividend (including the method of calculating
payment of dividends), liquidation, redemption, voting and other rights, any
terms for any conversion or exchange into other Securities, the initial pubic
offering price and other special terms. If so specified in the applicable
Prospectus Supplement, Debt Securities of a series may be issued in whole or in
part in the form of one or more temporary or permanent global securities. The
Company's Common Stock is listed on the Nasdaq National Market System under the
symbol 'SCHL'. Any Common Stock sold pursuant to a Prospectus Supplement will be
listed on such exchange, subject to official notice of issuance.
Unless otherwise specified in a Prospectus Supplement, the Senior Debt
Securities, when issued, will be unsecured and will rank equally with all other
unsecured and unsubordinated indebtedness of the Company. The Subordinated Debt
Securities, when issued, will be subordinated in right of payment to all Senior
Debt (as defined herein) of the Company, including any outstanding Senior Debt
Securities. See 'Description of Debt Securities--Subordination of Subordinated
Debt Securities'.
The Prospectus Supplement may contain information concerning U.S. federal
income tax considerations, if applicable to the Securities offered.
The Securities may be sold directly, through agents, underwriters or
dealers as designated from time to time, or through a combination of such
methods. See 'Plan of Distribution'. If agents of the Company or any dealers or
underwriters are involved in the sale of the Securities in respect of which this
Prospectus is being delivered, the names of such agents, dealers or underwriters
and any applicable commissions or discounts, if any, are set forth in or may be
calculated from the Prospectus Supplement with respect to such Securities.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER 11, 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and in
accordance therewith files periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the 'Commission'). Such
reports, proxy statements and other information can be inspected and copied at
prescribed rates at the public reference facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and at the
Commission's regional offices in Chicago (Citicorp Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661) and in New York (7 World Trade Center,
13th Floor, New York, New York 10048). Copies of such materials can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a website
that contains reports, proxy and information statements and other information
regarding registrants that file electronically. The address of the website is
http://www.sec.gov. The Common Stock is listed on the Nasdaq National Market
System ('Nasdaq'), and these records and other information can also be inspected
at the reading room of the library of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., 2nd Floor, Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-3 (the 'Registration Statement') under the Securities Act of 1933, as amended
(the 'Securities Act'). This Prospectus does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Prospectus the
following documents or information filed with the Commission:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1996 (the 'Form 10-K');
(b) the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 1996 (the 'Form 10-Q');
(c) the Company's Current Report on Form 8-K filed June 24, 1996 (the
'Form 8-K'); and
(d) all documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act on or after the date of this
Prospectus and prior to the termination of the offering made hereby.
Any statement contained herein or in any document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for the purpose of this Prospectus to the extent that a subsequent statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or oral
request of any such person, a copy of any or all of the information incorporated
herein by reference other than exhibits to such information (unless such
exhibits are specifically incorporated by reference into such information).
Requests should be made to the Investor Relations Department of the Company at
555 Broadway, New York, New York 10012 (telephone 212-343-6100).
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS, IF ANY, MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
SECURITIES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
THE COMPANY
The Company (including, for the purposes of this Section only, the
Company's direct and indirect subsidiaries) is one of the leading publishers and
distributors of children's books, classroom and professional magazines and other
educational materials, with operations in the United States, Canada, the United
Kingdom, Australia, New Zealand, France and Mexico. The Company distributes most
of its products directly to children and teachers in elementary and secondary
schools. During its seventy-six years of serving schools, the Company has
developed strong name recognition associated with quality and dedication to
learning and has achieved a leading market position in the school-based
distribution of children's books and magazines.
The Company's domestic book publishing business consists primarily of the
publication and distribution of children's books in paperback editions through
school book clubs, school book fairs, trade distribution in retail stores and
classroom and library sales. Based on its market research, competitive
intelligence and information obtained through the conduct of its business, the
Company believes that it operates the largest school book club program and the
largest school book fair business in the United States. In fiscal 1996, the
Company sold in excess of 200 million children's books in the United States. The
Company's book publishing operations also include the publication of
supplementary texts for classroom use as well as professional books and other
materials sold to classroom teachers. Additionally, the Company has entered the
market for core-curriculum materials and has been investing in this area as a
source of future growth in sales and profits.
The Company's domestic magazine publishing business consists primarily of
the publication of classroom magazines distributed to children in school,
professional magazines directed to teachers and other education professionals
and consumer magazines. In fiscal 1996, the United States circulation of the
Company's classroom magazines was 7.1 million. The Company's other domestic
operations include the distribution of educational computer software, the
production and distribution of child and family-oriented video and television
programming and the merchandising and licensing of book properties.
Most of the Company's domestic revenues are generated by targeted direct
mail programs to schools and by telephone sales representatives. Additionally,
the Company has a school sales force of full-time and part-time representatives
calling on schools to sell its supplementary texts, educational software and
library book programs as well as its newly developed core-curriculum materials.
For trade distribution, the Company has a retail sales force calling on
bookstores and other retail outlets that include the sale of children's books.
The Company's international business consists of six operating
subsidiaries, four of which publish and distribute children's books, magazines,
supplementary text products, and educational software and two of which serve
primarily as distributors of children's books published by the Company as well
as outside publishers. For the fiscal year ended May 31, 1996, approximately 80%
of international revenues were derived from the sale of children's books.
Scholastic Corporation was incorporated under the laws of the State of
Delaware in 1986. The Company (including its predecessors) was originally
established as a publishing company in 1920 by Maurice R. Robinson and was a
public company (with its common stock traded on Nasdaq) from 1969 until 1987.
The Company became a public company again in 1992. The Company's principal
executive offices are located at 555 Broadway, New York, New York 10012, and its
telephone number is (212) 343-6100.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company and its consolidated subsidiaries for the periods indicated. The
ratio of earnings to fixed charges represents the number of times that fixed
charges were covered by earnings. In computing the ratio, earnings represent
pretax income or (loss) (excluding cumulative effect of accounting changes) plus
fixed charges (excluding capitalized interest). Fixed charges consist of
interest expense (including capitalized interest), a portion of rental expense
which is considered representative of the interest factor, and amortization of
debt discount and expense. This table will be updated in any Prospectus
Supplements to the extent required.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED FISCAL YEAR ENDED MAY 31,
AUGUST 31, --------------------------------------------
1996 1996 1995 1994 1993 1992
---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges............. (a) 3.54(b) 6.26 7.74 8.05 2.39(c)
</TABLE>
- ------------------
(a) Earnings did not cover fixed charges by $22.6 million for the three months
ended August 31, 1996. The Company's first fiscal quarter historically
produces an operating loss due to higher expenses without accompanying
revenues during the summer months.
(b) Includes a non-recurring charge of $24.3 million pretax relating to the
impairment of certain assets. Excluding this charge, the ratio of earnings
to fixed charges would have been 4.86.
(c) Includes a provision for non-recurring charges of $10.3 million pretax
related to the relocation of the New York staff and the restructuring of the
Company's financial commitment for theatrical motion picture productions.
Excluding these charges, the ratio of earnings to fixed charges would have
been 3.05.
USE OF PROCEEDS
Except as may otherwise be set forth in the applicable Prospectus
Supplement, the net proceeds from the sale of the Securities will be added to
the Company's general funds and used for general corporate purposes, which may
include the repayment of indebtedness, capital expenditures and possible
acquisitions.
DESCRIPTION OF DEBT SECURITIES
The Senior Debt Securities are to be issued under an Indenture (the 'Senior
Indenture'), between the Company, as issuer, and Citibank, N.A., as Trustee (the
'Trustee'). The Subordinated Debt Securities are to be issued under a separate
Indenture (the 'Subordinated Indenture'), also between the Company, as issuer,
and Citibank, N.A., as Trustee. The Senior Indenture and Subordinated Indenture
are sometimes referred to collectively as the 'Indentures'. A copy of the form
of each Indenture is filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The Debt Securities may be issued from time to time
in one or more series. The particular terms of each series, or of Debt
Securities forming a part of a series, which are offered by a Prospectus
Supplement will be described in such Prospectus Supplement.
The following summaries of certain provisions of the Indentures do not
purport to be complete and are subject, and are qualified in their entirety by
reference, to all the provisions of the Indentures, including the definitions
therein of certain terms, and, with respect to any particular Debt Securities,
to the description of the terms thereof included in the Prospectus Supplement
relating thereto. Wherever particular Sections or defined terms of the
Indentures are referred to herein or in a Prospectus Supplement, such Sections
or defined terms are incorporated by reference herein or therein, as the case
may be.
4
<PAGE>
GENERAL
The Indentures will provide that Debt Securities in separate series may be
issued thereunder from time to time without limitation as to aggregate principal
amount. The Company may specify a maximum aggregate principal amount for the
Debt Securities of any series. (Section 301) The Debt Securities are to have
such terms and provisions which are not inconsistent with the Indentures,
including as to maturity, principal and interest, as the Company may determine.
Unless otherwise specified in the applicable Prospectus Supplement, the Senior
Debt Securities when issued will be unsecured and unsubordinated obligations of
the Company and will rank on a parity with all other unsecured and
unsubordinated indebtedness of the Company. The Subordinated Debt Securities
when issued will be subordinated in right of payment to the prior payment in
full of all Senior Debt of the Company, including any outstanding Senior Debt
Securities, as described under 'Subordination of Subordinated Debt Securities'
and in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will set forth whether the Debt
Securities offered shall be Senior Debt Securities or Subordinated Debt
Securities, the price or prices at which the Debt Securities to be offered will
be issued and will describe the following terms of such Debt Securities: (1) the
title of such Debt Securities; (2) any limit on the aggregate principal amount
of such Debt Securities or the series of which they are a part; (3) the Person
to whom any interest on a Debt Security of the series shall be payable, if other
than the Person in whose name that Debt Security (or one or more predecessor
Debt Securities) is registered at the close of business on the Regular Record
Date for such interest; (4) the date or dates on which the principal of any of
such Debt Securities will be payable; (5) the rate or rates at which any of such
Debt Securities will bear interest, if any, the date or dates from which any
such interest will accrue, the Interest Payment Dates on which any such interest
will be payable and the Regular Record Date for any such interest payable on any
Interest Payment Date; (6) the place or places where the principal of and any
premium and interest on any of such Debt Securities will be payable; (7) the
period or periods within which, the price or prices at which and the terms and
conditions on which any of such Debt Securities may be redeemed, in whole or in
part, at the option of the Company; (8) the obligation, if any, of the Company
to redeem or purchase any of such Debt Securities pursuant to any sinking fund
or analogous provision or at the option of the Holder thereof, and the period or
periods within which, the price or prices at which and the terms and conditions
on which any of such Debt Securities will be redeemed or purchased, in whole or
in part, pursuant to any such obligation; (9) the denominations in which any of
such Debt Securities will be issuable, if other than denominations of $1,000 and
any integral multiple thereof; (10) if the amount of principal of or any premium
or interest on any of such Debt Securities may be determined with reference to
an index or pursuant to a formula, the manner in which such amounts will be
determined; (11) if other than the currency of the United States of America, the
currency, currencies or currency units in which the principal of or any premium
or interest on any of such Debt Securities will be payable (and the manner in
which the equivalent of the principal amount thereof in the currency of the
United States of America is to be determined for any purpose, including for the
purpose of determining the principal amount deemed to be Outstanding at any
time); (12) if the principal of or any premium or interest on any of such Debt
Securities is to be payable, at the election of the Company or the Holder
thereof, in one or more currencies or currency units other than those in which
such Debt Securities are stated to be payable, the currency, currencies or
currency units in which payment of any such amount as to which such election is
made will be payable, the periods within which and the terms and conditions upon
which such election is to be made and the amount so payable (or the manner in
which such amount is to be determined); (13) if other than the entire principal
amount thereof, the portion of the principal amount of any of such Debt
Securities which will be payable upon declaration of acceleration of the
Maturity thereof; (14) if the principal amount payable at the Stated Maturity of
any of such Debt Securities will not be determinable as of any one or more dates
prior to the Stated Maturity, the amount which will be deemed to be such
principal amount as of any such date for any purpose, including the principal
amount thereof which will be due and payable upon any Maturity other than the
Stated Maturity or which will be deemed to be Outstanding as of any such date
(or, in any such case, the manner in which such deemed principal amount is to be
determined); (15) if applicable, that such Debt Securities, in whole or any
specified part, are defeasible pursuant to the provisions of the Indentures
described under 'Defeasance and Covenant
5
<PAGE>
Defeasance--Defeasance and Discharge' or 'Defeasance and Covenant
Defeasance--Defeasance of Certain Covenants,' or under both such captions; (16)
if applicable, the terms of any right to convert Debt Securities into shares of
Common Stock of the Company or other securities or property; (17) whether any of
such Debt Securities will be issuable in whole or in part in the form of one or
more Global Securities and, if so, the respective Depositaries for such Global
Securities, the form of any legend or legends to be borne by any such Global
Security in addition to or in lieu of the legends referred to under 'Form,
Exchange and Transfer' or 'Global Securities' and, if different from those
described under such captions, any circumstances under which any such Global
Security may be exchanged in whole or in part for Securities registered, and any
transfer of such Global Security in whole or in part may be registered, in the
names of Persons other than the Depositary for such Global Security or its
nominee; (18) any addition to or change in the Events of Default applicable to
any of such Debt Securities and any change in the right of the Trustee or the
Holders to declare the principal amount of any of such Debt Securities due and
payable; (19) any addition to or change in the covenants in the Indentures
described under 'Restrictive Covenants' applicable to any of such Securities;
and (20) any other terms of such Debt Securities not inconsistent with the
provisions of the relevant Indenture. (Section 301)
Debt Securities, including Original Issue Discount Securities, may be sold
at a substantial discount below their principal amount. Certain special United
States federal income tax considerations (if any) applicable to Debt Securities
sold at an original issue discount will be described in the applicable
Prospectus Supplement under 'United States Taxation'. In addition, certain
special United States federal income tax or other considerations (if any)
applicable to any Debt Securities which are denominated in a currency or
currency unit other than United States dollars will be described in the
applicable Prospectus Supplement.
CONVERSION RIGHTS
The terms on which Debt Securities of any series are convertible into
Common Stock or other securities or property will be set forth in the Prospectus
Supplement relating thereto. Such terms shall include provisions as to whether
conversion is mandatory or at the option of the holder and may include
provisions pursuant to which the number of shares of Common Stock or other
securities or property to be received by the Holders of Debt Securities upon
conversion would be calculated according to the market price of Common Stock or
other securities or property as of a time stated in the applicable Prospectus
Supplement. (Article Fourteen)
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the Prospectus Supplement, the following
provisions will apply to the Subordinated Debt Securities.
The Subordinated Debt Securities will, to the extent set forth in the
Subordinated Indenture, be subordinate in right of payment to the prior payment
in full of all Senior Debt, including the Senior Debt Securities. Upon any
payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, the holders of Senior Debt will first be
entitled to receive payment in full of all amounts due thereon or to be due
thereon, if any, on such Senior Debt before the Holders of the Subordinated Debt
Securities will be entitled to receive or retain any payment in respect of the
principal of (and premium, if any) or interest, if any, on the Subordinated Debt
Securities. (Section 1502)
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are not holders of Senior Debt or Holders of
Subordinated Debt Securities may recover less, ratably, than holders of Senior
Debt and may recover more, ratably, than the Holders of the Subordinated Debt
Securities.
6
<PAGE>
In the event of the acceleration of the maturity of any Subordinated Debt
Securities, the holders of all Senior Debt outstanding at the time of such
acceleration will first be entitled to receive payment in full of all amounts
due thereon before the Holders of the Subordinated Debt Securities will be
entitled to receive any payment upon the principal of (or premium, if any) or
interest, if any, on the Subordinated Debt Securities. (Section 1503)
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the Subordinated Debt Securities may be made if there shall
have occurred and be continuing a default in any payment with respect to Senior
Debt, or an event of default with respect to any Senior Debt resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default. (Section 1504) For purposes of the
subordination provisions, the payment, issuance and delivery of cash, property
or securities (other than stock and certain subordinated securities of the
Company) upon conversion of a Subordinated Debt Security will be deemed to
constitute payment on account of the principal of such Subordinated Debt
Security.
'Senior Debt' means the principal of (and premium, if any) and interest, if
any, (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company to the extent that such
claim for post-petition interest is allowed in such proceeding) on Debt (as
defined below), including all fees and other amounts payable in connection with
such indebtedness, any obligations of the Company in respect of overdrafts,
foreign exchange contracts and currency exchange agreements, letters of credit,
bankers' acceptances, interest rate protection agreements, and any loans or
advances from banks, whether or not evidenced by notes or similar instruments
and all amendments, renewals, extensions, modifications and refundings of any
such indebtedness or obligation, whether incurred on or prior to the date of the
Subordinated Indenture or thereafter incurred, unless, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding, it
is provided that such obligations are not superior in right of payment to the
Subordinated Debt Securities or to other Debt which is pari passu with, or
subordinated to, the Subordinated Debt Securities; provided, however, that
Senior Debt shall not be deemed to include the Subordinated Debt Securities.
'Debt' means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business), (v) the maximum fixed redemption or repurchase
price of redeemable stock of such Person at the time of determination, (vi)
every obligation to pay rent or other payment amounts of such Person with
respect to any Sale and Lease-Back Transaction (as defined under 'Restrictive
Covenants--Limitations on Sale and Lease-Back Transactions') to which Person is
a party and (vii) every obligation of the type referred to in the foregoing
clauses (i) through (vi) of another Person and all dividends of another Person
the payment of which, in either case, such Person has guaranteed or is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise.
The Subordinated Indenture does not limit or prohibit the incurrence of
additional Senior Debt, which may include indebtedness that is senior to the
Subordinated Debt Securities, but subordinate to other obligations of the
Company. The Senior Debt Securities, when issued, will constitute Senior Debt.
The Prospectus Supplement may further describe the provisions, if any,
applicable to the subordination of the Subordinated Debt Securities of a
particular series.
FORM, EXCHANGE AND TRANSFER
The Debt Securities of each series will be issuable only in fully
registered form, without coupons, and, unless otherwise specified in the
applicable Prospectus Supplement, only in denominations of $1,000 and integral
multiples thereof. (Section 302)
7
<PAGE>
At the option of the Holder, subject to the terms of the Indentures and the
limitations applicable to Global Securities, Debt Securities of each series will
be exchangeable for other Debt Securities of the same series of any authorized
denomination and of a like tenor and aggregate principal amount. (Section 305)
Subject to the terms of the Indentures and the limitations applicable to
Global Securities, Debt Securities may be presented for exchange as provided
above or for registration of transfer (duly endorsed or with the form of
transfer endorsed thereon duly executed) at the office of the Security Registrar
or at the office of any transfer agent designated by the Company for such
purpose. No service charge will be made for any registration of transfer or
exchange of Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. Such transfer or exchange will be effected upon the Security
Registrar or such transfer agent, as the case may be, being satisfied with the
documents of title and identity of the person making the request. The Company
has appointed the Trustee as Security Registrar. Any transfer agent (in addition
to the Security Registrar) initially designated by the Company for any Debt
Securities will be named in the applicable Prospectus Supplement. (Section 305)
The Company may at any time designate additional transfer agents or rescind the
designation of any transfer agent or approve a change in the office through
which any transfer agent acts, except that the Company will be required to
maintain a transfer agent in each Place of Payment for the Debt Securities of
each series. (Section 1002)
If the Debt Securities of any series (or of any series and specified terms)
are to be redeemed in part, the Company will not be required to (i) issue,
register the transfer of or exchange any Debt Security of that series (or of
that series and specified terms, as the case may be) during a period beginning
at the opening of business 15 days before the day of mailing of a notice of
redemption of any such Debt Security that may be selected for redemption and
ending at the close of business on the day of such mailing or (ii) register the
transfer of or exchange any Debt Security so selected for redemption, in whole
or in part, except the unredeemed portion of any such Debt Security being
redeemed in part. (Section 305)
GLOBAL SECURITIES
Some or all of the Debt Securities of any series may be represented, in
whole or in part, by one or more global securities which will have an aggregate
principal amount equal to that of the Debt Securities represented thereby (a
'Global Security'). Each Global Security will be registered in the name of a
depositary (the 'Depositary') or a nominee thereof identified in the applicable
Prospectus Supplement, will be deposited with such Depositary or nominee or a
custodian therefor and will bear a legend regarding the restrictions on
exchanges and registration of transfer thereof referred to below and any such
other matters as may be provided for pursuant to the Indentures.
Notwithstanding any provision of the Indentures or any Debt Security
described herein, no Global Security may be exchanged in whole or in part for
Debt Securities registered, and no transfer of a Global Security in whole or in
part may be registered, in the name of any Person other than the Depositary for
such Global Security or any nominee of such Depositary unless (i) the Depositary
has notified the Company that it is unwilling or unable to continue as
Depositary for such Global Security or has ceased to be qualified to act as such
as required by the Indentures, (ii) there shall have occurred and be continuing
an Event of Default with respect to the Debt Securities represented by such
Global Security or (iii) there shall exist such circumstances, if any, in
addition to or in lieu of those described above as may be described in the
applicable Prospectus Supplement. All securities issued in exchange for a Global
Security or any portion thereof will be registered in such names as the
Depositary may direct. (Sections 204 and 305)
As long as the Depositary, or its nominee, is the registered Holder of a
Global Security, the Depositary or such nominee, as the case may be, will be
considered the sole owner and Holder of such Global Security and the Debt
Securities represented thereby for all purposes under the Debt Securities and
the Indentures. Except in the limited circumstances referred to above, owners of
beneficial interests
8
<PAGE>
in a Global Security will not be entitled to have such Global Security or any
Debt Securities represented thereby registered in their names, will not receive
or be entitled to receive physical delivery of certificated Debt Securities in
exchange therefor and will not be considered to be the owners or Holders of such
Global Security or any Debt Securities represented thereby for any purpose under
the Debt Securities or the Indentures. All payments of principal of and any
premium and interest on a Global Security will be made to the Depositary or its
nominee, as the case may be, as the Holder thereof. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. These laws may impair the
ability to transfer beneficial interests in a Global Security.
Ownership of beneficial interests in a Global Security will be limited to
institutions that have accounts with the Depositary or its nominee
('participants') and to persons that may hold beneficial interests through
participants. In connection with the issuance of any Global Security, the
Depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of Debt Securities represented by the Global
Security to the accounts of its participants. Ownership of beneficial interests
in a Global Security will be shown only on, and the transfer of those ownership
interests will be effected only through, records maintained by the Depositary
(with respect to participants' interests) or any such participant (with respect
to interests of persons held by such participants on their behalf). Payments,
transfers, exchanges and others matters relating to beneficial interests in a
Global Security may be subject to various policies and procedures adopted by the
Depositary from time to time. None of the Company, the Trustee or any agent of
the Company or the Trustee will have any responsibility or liability for any
aspect of the Depositary's or any participant's records relating to, or for
payments made on account of, beneficial interests in a Global Security, or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of interest on a Debt Security on any Interest Payment Date will be made to the
Person in whose name such Debt Security (or one or more Predecessor Debt
Securities) is registered at the close of business on the Regular Record Date
for such interest. (Section 307)
Unless otherwise indicated in the applicable Prospectus Supplement,
principal of and any premium and interest on the Debt Securities of a particular
series will be payable at the office of such Paying Agent or Paying Agents as
the Company may designate for such purpose from time to time, except that at the
option of the Company payment of any interest may be made by check mailed to the
address of the Person entitled thereto as such address appears in the Security
Register. Unless otherwise indicated in the applicable Prospectus Supplement,
the corporate trust office of the Trustee in The City of New York will be
designated as the Company's sole Paying Agent for payments with respect to Debt
Securities of each series. Any other Paying Agents initially designated by the
Company for the Debt Securities of a particular series will be named in the
applicable Prospectus Supplement. The Company may at any time designate
additional Paying Agents or rescind the designation of any Paying Agent or
approve a change in the office through which any Paying Agent acts, except that
the Company will be required to maintain a Paying Agent in each Place of Payment
for the Debt Securities of a particular series. (Section 1002)
All moneys paid by the Company to a Paying Agent for the payment of the
principal of or any premium or interest on any Debt Security which remain
unclaimed at the end of two years after such principal, premium or interest has
become due and payable will be repaid to the Company, and the Holder of such
Debt Security thereafter may look only to the Company for payment thereof.
(Section 1003)
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RESTRICTIVE COVENANTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
following provisions will apply to the Senior Debt Securities.
Limitations on Liens
The Senior Indenture will provide that the Company will not issue, incur,
create, assume or guarantee, and will not permit any Restricted Subsidiary (as
defined below) to issue, incur, create, assume or guarantee, any debt for
borrowed money secured by a mortgage, security interest, pledge, lien, charge or
other encumbrance ('mortgages') upon any Principal Property (as defined below)
of the Company or any Restricted Subsidiary or upon any shares of stock or
indebtedness of any Restricted Subsidiary (whether such Principal Property,
shares or indebtedness are now existing or owned or hereafter created or
acquired) without in any such case effectively providing concurrently with the
issuance, incurrence, creation, assumption or guarantee of any such secured
debt, or the grant of a mortgage with respect to any such indebtedness, that the
Senior Debt Securities (together with, if the Company shall so determine, any
other indebtedness of or guarantee by the Company or such Restricted Subsidiary
ranking equally with the Senior Debt Securities) shall be secured equally and
ratably with (or, at the option of the Company, prior to) such secured debt. The
foregoing restriction, however, will not apply to: (a) mortgages on property
existing at the time of acquisition thereof by the Company or any Subsidiary,
provided that such mortgages were in existence prior to the contemplation of
such acquisition; (b) mortgages on property, shares of stock or indebtedness or
other assets of any corporation existing at the time such corporation becomes a
Restricted Subsidiary, provided that such mortgages are not incurred in
anticipation of such corporation becoming a Restricted Subsidiary; (c) mortgages
on property, shares of stock or indebtedness existing at the time of acquisition
thereof by the Company or a Restricted Subsidiary or mortgages thereon to secure
the payment of all or any part of the purchase price thereof, or mortgages on
property, shares of stock or indebtedness to secure any indebtedness for
borrowed money incurred prior to, at the time of, or within 270 days after, the
latest of the acquisition thereof, or, in the case of property, the completion
of construction, the completion of improvements, or the commencement of
substantial commercial operation of such property for the purpose of financing
all or any part of the purchase price thereof, such construction, or the making
of such improvements; (d) mortgages to secure indebtedness owing to the Company
or to a Restricted Subsidiary; (e) mortgages existing at the date of the Senior
Indenture; (f) mortgages on property of a corporation existing at the time such
corporation is merged into or consolidated with the Company or a Restricted
Subsidiary or at the time of a sale, lease or other disposition of the
properties of a corporation as an entirety or substantially as an entirety to
the Company or a Restricted Subsidiary, provided that such mortgage was not
incurred in anticipation of such merger or consolidation or sale, lease or other
disposition; (g) mortgages in favor of the United States or any State, territory
or possession thereof (or the District of Columbia), or any department, agency,
instrumentality or political subdivision of the United States or any State,
territory or possession thereof (or the District of Columbia), to secure
partial, progress, advance or other payments pursuant to any contract or statute
or to secure any indebtedness incurred for the purpose of financing all or any
part of the purchase price or the cost of constructing or improving the property
subject to such mortgages; (h) mortgages created in connection with the
acquisition of assets or a project financed with, and created to secure, a
Nonrecourse Obligation (as defined below); and (i) extensions, renewals,
refinancings or replacements of any mortgage referred to in the foregoing
clauses (a), (b), (c), (d), (e), (f), (g), and (h) provided, however, that any
mortgages permitted by any of the foregoing clauses (a), (b), (c), (d), (e),
(f), (g), and (h) shall not extend to or cover any property of the Company or
such Restricted Subsidiary, as the case may be, other than the property, if any,
specified in such clauses and improvements thereto, and provided further that
any refinancing or replacement of any mortgages permitted by the foregoing
clauses (g) and (h) shall be of the type referred to in such clauses (g) or (h),
as the case may be.
Notwithstanding the restrictions described in the preceding paragraph, the
Company or any Restricted Subsidiary will be permitted to issue, incur, create,
assume or guarantee debt secured by a mortgage which would otherwise be subject
to such restrictions, without equally and ratably securing
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the Senior Debt Securities, provided that after giving effect thereto, the
aggregate amount of all debt so secured by mortgages (not including mortgages
permitted under clauses (a) through (i) above) does not exceed 15% of the
Consolidated Net Tangible Assets (as defined below) of the Company as most
recently determined on or prior to such date.
Limitations on Sale and Lease-Back Transactions
The Senior Indenture will provide that the Company will not, nor will it
permit any Restricted Subsidiary to, enter into any Sale and Lease-Back
Transaction (as defined below) with respect to any Principal Property, other
than any such transaction involving a lease for a term of not more than three
years or any such transaction between the Company and a Restricted Subsidiary or
between Restricted Subsidiaries, unless (a) the Company or such Restricted
Subsidiary would be entitled to incur indebtedness secured by a mortgage on the
Principal Property involved in such transaction at least equal in amount to the
Attributable Debt (as defined below) with respect to such Sale and Lease-Back
Transaction, without equally and ratably securing the Senior Debt Securities,
pursuant to the limitation on liens in the Senior Indenture; or (b) the Company
shall apply an amount equal to the greater of the net proceeds of such sale or
the Attributable Debt with respect to such Sale and Lease-Back Transaction
within 180 days of such sale to either (or a combination of) the retirement
(other than any mandatory retirement, mandatory prepayment or sinking fund
payment or by payment at maturity) of debt for borrowed money of the Company or
a Restricted Subsidiary that matures more than 12 months after the creation of
such indebtedness or the purchase, construction or development of other
comparable property.
Certain Definitions Applicable to Covenants
The term 'Attributable Debt' when used in connection with a Sale and
Lease-Back Transaction involving a Principal Property shall mean, at the time of
determination, the lesser of: (a) the fair value of such property (as determined
in good faith by the Board of Directors of the Company); or (b) the present
value of the total net amount of rent required to be paid under such lease
during the remaining term thereof (including any renewal term or period for
which such lease has been extended), discounted at the rate of interest set
forth or implicit in the terms of such lease or, if not practicable to determine
such rate, the weighted average interest rate per annum (in the case of Original
Issue Discount Securities, the imputed interest rate) borne by the Senior Debt
Securities of each series outstanding pursuant to the Indenture compounded
semi-annually. For purposes of the foregoing definition, rent shall not include
amounts required to be paid by the lessee, whether or not designated as rent or
additional rent, on account of or contingent upon maintenance and repairs,
insurance, taxes, assessments, water rates and similar charges. In the case of
any lease which is terminable by the lessee upon the payment of a penalty, such
net amount shall be the lesser of the net amount determined assuming termination
upon the first date such lease may be terminated (in which case the net amount
shall also include the amount of the penalty, but no rent shall be considered as
required to be paid under such lease subsequent to the first date upon which it
may be so terminated) and the net amount determined assuming no such
termination.
The term 'Consolidated Net Tangible Assets' shall mean, as of any
particular time, total assets (excluding applicable reserves and other properly
deductible items) less: (a) total current liabilities, except for (1) notes and
loans payable, (2) current maturities of long-term debt and (3) current
maturities of obligations under capital leases; and (b) goodwill, patents and
trademarks, to the extent included in total assets; all as set forth on the most
recent consolidated balance sheet of the Company and its Restricted Subsidiaries
and computed in accordance with generally accepted accounting principles.
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The term 'Nonrecourse Obligation' means indebtedness or other obligations
substantially related to (i) the acquisition of assets not previously owned by
the Company or any Restricted Subsidiary or (ii) the financing of a project
involving the development or expansion of properties of the Company or any
Restricted Subsidiary, as to which the obligee with respect to such indebtedness
or obligation has no recourse to the Company or any Restricted Subsidiary or any
assets of the Company or any Restricted Subsidiary other than the assets which
were acquired with the proceeds of such transaction or the project financed with
the proceeds of such transaction (and the proceeds thereof).
The term 'Principal Property' shall mean the land, land improvements,
buildings and fixtures (to the extent they constitute real property interests,
including any leasehold interest therein) constituting the principal corporate
office, any manufacturing facility or any distribution center (whether now owned
or hereafter acquired) which: (a) is owned by the Company or any Subsidiary; (b)
is located within any of the present 50 states of the United States (or the
District of Columbia); (c) has not been determined in good faith by the Board of
Directors of the Company not to be materially important to the total business
conducted by the Company and its Subsidiaries taken as a whole; and (d) has a
market value on the date as of which the determination is being made in excess
of 2.0% of Consolidated Net Tangible Assets of the Company as most recently
determined on or prior to such date.
The term 'Restricted Subsidiary' shall mean any Subsidiary that owns any
Principal Property.
The term 'Sale and Lease-Back Transaction' shall mean any arrangement with
any person providing for the leasing by the Company or any Restricted Subsidiary
of any Principal Property which property has been or is to be sold or
transferred by the Company or such Restricted Subsidiary to such person.
The term 'Subsidiary' shall mean any corporation of which at least a
majority of the outstanding voting stock having the power to elect a majority of
the board of directors of such corporation is at the time owned, directly or
indirectly, by the Company or by one or more other Subsidiaries, or by the
Company and one or more other Subsidiaries. For the purposes of this definition,
'voting stock' means stock which ordinarily has voting power for the election of
directors, whether at all times or only so long as no senior class of stock has
such voting power by reason of any contingency.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indentures will provide that the Company may not consolidate with or
merge into, or convey, transfer or lease its properties and assets substantially
as an entirety to, any Person (a 'successor Person'), and may not permit any
Person to merge into, or convey, transfer or lease its properties and assets
substantially as an entirety to, the Company, unless (i) the successor Person
(if any) is a corporation, partnership, trust or other entity organized and
validly existing under the laws of any domestic jurisdiction and assumes the
Company's obligations on the Debt Securities and under the Indentures, (ii)
immediately after giving effect to the transaction, and treating any
indebtedness which becomes an obligation of the Company or any Subsidiary as a
result of the transaction as having been incurred by it at the time of the
transaction, no Event of Default, and no event which, after notice or lapse of
time or both, would become an Event of Default, shall have occurred and be
continuing, (iii) if, as a result of the transaction, property of the Company
would become subject to a Lien that would not be permitted under the limitation
on liens described above under 'Restrictive Covenants--Limitations on Liens',
the Company takes such steps as shall be necessary to secure the Debt
Securities, if any, equally and ratably with (or prior to) the indebtedness
secured by such Lien and (iv) certain other conditions are met. (Section 801)
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default under the
Indentures with respect to Debt Securities of any series: (a) failure to pay
principal of or any premium on any Debt Security of that series when due,
whether or not such payment is prohibited by the subordination provisions of the
Subordinated Indenture; (b) failure to pay any interest on any Debt Securities
of that series when due, continued for 30 days, whether or not such payment is
prohibited by the subordination provisions of the
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Subordinated Indenture; (c) failure to deposit any sinking fund payment, when
due, in respect of any Debt Security of that series, whether or not such deposit
is prohibited by the subordination provisions of the Subordinated Indenture; (d)
failure to perform any other covenant of the Company in the Indentures (other
than a covenant included in the Indentures solely for the benefit of a series
other than that series), continued for 60 days after written notice has been
given by the Trustee, or the Holders of at least 25%in aggregate principal
amount of the Outstanding Debt Securities of that series, as provided in the
Indentures; (e) certain events in bankruptcy, insolvency or reorganization; and
(f) any other Event of Default specified in the applicable Prospectus
Supplement. (Section 501)
The Indentures will provide that if an Event of Default (other than an
Event of Default described in clause (e) above) with respect to the Debt
Securities of any series at the time Outstanding shall occur and be continuing,
either the Trustee or the Holders of at least 25% in aggregate principal amount
of the Outstanding Securities of that series by notice as provided in the
Indentures may declare the principal amount of the Debt Securities of that
series (or, in the case of any Debt Security that is an Original Issue Discount
Security or the principal amount of which is not then determinable, such portion
of the principal amount of such Debt Security, or such other amount in lieu of
such principal amount, as may be specified in the terms of such Debt Security)
to be due and payable immediately. If an Event of Default described in clause
(e) above with respect to the Debt Securities of any series at the time
Outstanding shall occur, the principal amount of all the Debt Securities of that
series (or, in the case of any such Original Issue Discount Security or other
Debt Security, such specified amount) will automatically, and without any action
by the Trustee or any Holder, become immediately due and payable. After any such
acceleration, but before a judgment or decree based on acceleration, the Holders
of a majority in aggregate principal amount of the Outstanding Securities of
that series may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the non-payment of accelerated
principal (or other specified amount), have been cured or waived as provided in
the Indentures. (Section 502) For information as to waiver of defaults, see
'Modification and Waiver'.
Subject to the provisions of the Indentures relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indentures at the request or direction of any of the Holders, unless such
Holders shall have offered to the Trustee reasonable indemnity. (Section 603)
Subject to such provisions for the indemnification of the Trustee, the Holders
of a majority in aggregate principal amount of the Outstanding Securities of any
series will have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee with respect to the Debt Securities of that
series. (Section 512)
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indentures, or for the appointment of a
receiver or a trustee, or for any other remedy thereunder, unless (i) such
Holder has previously given to the Trustee written notice of a continuing Event
of Default with respect to the Debt Securities of that series, (ii) the Holders
of at least 25% in aggregate principal amount of the Outstanding Securities of
that series have made a written request, and such Holder or Holders have offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee and
(iii) the Trustee has failed to institute such proceeding, and has not received
from the Holders of a majority in aggregate principal amount of the Outstanding
Securities of that series a direction inconsistent with such request, within 60
days after such notice, request and offer. (Section 507) However, such
limitations do not apply to a suit instituted by a Holder of a Debt Security for
the enforcement of payment of the principal of or any premium or interest on
such Debt Security on or after the applicable due date specified in such Debt
Security. (Section 508)
The Indentures will include a covenant requiring the Company to furnish to
the Trustee annually a statement by certain of its officers as to whether or not
the Company, to their knowledge, is in default in the performance or observance
of any of the terms, provisions and conditions of the Indentures and, if so,
specifying all such known defaults. (Section 1004)
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MODIFICATION AND WAIVER
Modifications and amendments of the Indentures may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Securities of each series affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the Holder of each Outstanding Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any Debt Security, (b) reduce the
principal amount of, or any premium or interest on, any Debt Security, (c)
reduce the amount of principal of an Original Issue Discount Security or any
other Debt Security payable upon acceleration of the Maturity thereof, (d)
change the place or currency of payment of principal of, or any premium or
interest on, any Debt Security, (e) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debt Security, (f) in the
case of Subordinated Debt Securities, modify the subordination provisions in a
manner adverse to the Holders of the Subordinated Debt Securities, (g) reduce
the percentage in principal amount of Outstanding Securities of any series, the
consent of whose Holders is required for modification or amendment of the
Indentures, (h) reduce the percentage in principal amount of Outstanding
Securities of any series necessary for waiver of compliance with certain
provisions of the Indentures or for waiver of certain defaults or (i) modify
such provisions with respect to modification and waiver. (Section 902)
The Indentures will provide that the Holders of a majority in aggregate
principal amount of the Outstanding Securities of any series may waive, on
behalf of the Holders of all Debt Securities of such series, compliance by the
Company with certain restrictive provisions of the Indentures. (Sections 1010
and 1008 of the Senior Indenture and the Subordinated Indenture, respectively)
The Holders of a majority in principal amount of the Outstanding Securities of
any series may waive any past default under the Indentures, except a default in
the payment of principal, premium or interest and certain covenants and
provisions of the Indentures which cannot be amended without the consent of the
Holder of each Outstanding Security of such series affected. (Section 513)
The Indentures will provide that in determining whether the Holders of the
requisite principal amount of the Outstanding Securities have given or taken any
direction, notice, consent, waiver or other action under the Indentures as of
any date, (i) the principal amount of an Original Issue Discount Security that
will be deemed to be Outstanding will be the amount of the principal thereof
that would be due and payable as of such date upon acceleration of the Maturity
thereof to such date, (ii) if, as of such date, the principal amount payable at
the Stated Maturity of a Debt Security is not determinable (for example, because
it is based on an index), the principal amount of such Debt Security deemed to
be Outstanding as of such date will be an amount determined in the manner
prescribed for such Debt Security and (iii) the principal amount of a Debt
Security denominated in one or more foreign currencies or currency units that
will be deemed to be Outstanding will be the U.S. dollar equivalent, determined
as of such date in the manner prescribed for such Debt Security, of the
principal amount of such Debt Security (or, in the case of a Debt Security
described in clause (i) or (ii) above, of the amount described in such clause).
Certain Debt Securities, including those for whose payment or redemption money
has been deposited or set aside in trust for the Holders and those that have
been fully defeased pursuant to Section 1302, will not be deemed to be
Outstanding. (Section 101)
Except in certain limited circumstances, the Company will be entitled to
set any day as a record date for the purpose of determining the Holders of
Outstanding Securities of any series entitled to give or take any direction,
notice, consent, waiver or other action under the Indentures, in the manner and
subject to the limitations provided in the Indentures. In certain limited
circumstances, the Trustee will be entitled to set a record date for action by
Holders. If a record date is set for any action to be taken by Holders of a
particular series, such action may be taken only by persons who are Holders of
Outstanding Securities of that series on the record date. To be effective, such
action must be taken by Holders of the requisite principal amount of such Debt
Securities within a specified period following the record date. For any
particular record date, this period will be 180 days or such other shorter
period as may be specified by the Company (or the Trustee, if it set the record
date), and may be shortened or lengthened (but not beyond 180 days) from time to
time. (Section 104)
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DEFEASANCE AND COVENANT DEFEASANCE
If and to the extent indicated in the applicable Prospectus Supplement, the
Company may elect, at its option at any time, to have the provisions of Section
1302, relating to defeasance and discharge of indebtedness, or Section 1303,
relating to defeasance of certain restrictive covenants in the Indentures,
applied to the Debt Securities of any series, or to any specified part of a
series. (Section 1301)
Defeasance and Discharge. The Indentures will provide that, upon the
Company's exercise of its option (if any) to have Section 1302 applied to any
Subordinated Debt Securities, the provisions of Article Fifteen of the
Subordinated Indenture relating to subordination will cease to be effective and,
with respect to any Debt Securities, the Company will be discharged from all its
obligations with respect thereto (except for certain obligations to exchange or
register the transfer of Debt Securities, to replace stolen, lost or mutilated
Debt Securities, to maintain paying agencies and to hold moneys for payment in
trust) upon the deposit in trust for the benefit of the Holders of such Debt
Securities of money or U.S. Government Obligations, or both, which, through the
payment of principal and interest in respect thereof in accordance with their
terms, will provide money in an amount sufficient to pay the principal of and
any premium and interest on such Debt Securities on the respective Stated
Maturities in accordance with the terms of the Indentures and such Debt
Securities. Such defeasance or discharge may occur only if, among other things,
the Company has delivered to the Trustee an Opinion of Counsel to the effect
that the Company has received from, or there has been published by, the United
States Internal Revenue Service a ruling, or there has been a change in tax law,
in either case to the effect that Holders of such Debt Securities will not
recognize gain or loss for federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to federal income tax on
the same amount, in the same manner and at the same times as would have been the
case if such deposit, defeasance and discharge were not to occur. (Sections 1302
and 1304)
Defeasance of Certain Covenants. The Indentures will provide that, upon
the Company's exercise of its option (if any) to have Section 1303 applied to
any Debt Securities, the Company may omit to comply with certain restrictive
covenants, including those described under 'Restrictive Covenants' and in the
last sentence under 'Consolidation, Merger and Sale of Assets' and any that may
be described in the applicable Prospectus Supplement, and the occurrence of
certain Events of Default, which are described above in clause (d) (with respect
to such restrictive covenants) under 'Events of Default' and any that may be
described in the applicable Prospectus Supplement, will be deemed not to be or
result in an Event of Default, in each case with respect to such Debt
Securities, and, in the case of the Subordinated Indenture, the provisions of
Article Fifteen relating to subordination will cease to be effective with
respect to any Subordinated Debt Securities. The Company, in order to exercise
such option, will be required to deposit, in trust for the benefit of the
Holders of such Debt Securities, money or U.S. Government Obligations, or both,
which, through the payment of principal and interest in respect thereof in
accordance with their terms, will provide money in an amount sufficient to pay
the principal of and any premium and interest on such Debt Securities on the
respective Stated Maturities in accordance with the terms of the Indentures and
such Debt Securities. The Company will also be required, among other things, to
deliver to the Trustee an Opinion of Counsel to the effect that Holders of such
Debt Securities will not recognize gain or loss for federal income tax purposes
as a result of such deposit and defeasance of certain obligations and will be
subject to federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit and defeasance were not
to occur. In the event the Company exercised this option with respect to any
Debt Securities and such Debt Securities were declared due and payable because
of the occurrence of any Event of Default, the amount of money and U.S.
Government Obligations so deposited in trust would be sufficient to pay amounts
due on such Debt Securities at the time of their respective Stated Maturities
but may not be sufficient to pay amounts due on such Debt Securities upon any
acceleration resulting from such Event of Default. In such case, the Company
would remain liable for such payments. (Sections 1303 and 1304)
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NOTICES
Notices to Holders of Debt Securities will be given by mail to the
addresses of such Holders as they may appear in the Security Register. (Sections
101 and 106)
TITLE
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name a Debt Security is registered as the absolute
owner thereof (whether or not such Debt Security may be overdue) for the purpose
of making payment and for all other purposes. (Section 308)
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed
in accordance with, the law of the State of New York. (Section 112)
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DESCRIPTION OF PREFERRED STOCK
The following is a description of certain general terms and provisions of
the Preferred Stock. The particular terms of any series of Preferred Stock will
be described in the applicable Prospectus Supplement. If so indicated in a
Prospectus Supplement, the terms of any such series may differ from the terms
set forth below. Certain provisions applicable to the Preferred Stock are set
forth below in 'Description of Capital Stock'.
The summary of terms of the Company's Preferred Stock contained in this
Prospectus does not purport to be complete and is subject to, and qualified in
its entirety by, the provisions of the Company's Certificate of Incorporation
and the certificate of designations relating to each series of the Preferred
Stock (each, a 'Certificate of Designations'), which will be filed with the
Commission and incorporated by reference as an exhibit to the Registration
Statement of which this Prospectus is a part at or prior to the time of issuance
of such series of the Preferred Stock.
The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares of preferred stock, par value $1 per share. The Company's
Preferred Stock may be issued from time to time in one or more series, without
shareholder approval, when authorized by the Board of Directors. Subject to
limitations prescribed by law, the Board of Directors is authorized to fix,
before the issuance of any shares of a particular series of Preferred Stock, the
number of shares to be included in such series, the dividend rate per annum and
any restrictions, limitations and conditions upon the payment of dividends, the
redemption price or prices, if any, and the terms and conditions of redemption,
any sinking fund provisions for the redemption or purchase of the shares of such
series of Preferred Stock, the terms and conditions on which the shares of such
series are convertible, if they are convertible, the amount or amounts to which
the holders of shares of such series shall be entitled upon the voluntary or
involuntary liquidation, dissolution or winding up of the Company and any other
rights, preferences and limitations pertaining to such series as may be
determined by the Board of Directors. Thus, the Board of Directors, without
shareholder approval, could authorize the issuance of Preferred Stock with
voting, conversion and other rights that could adversely affect the voting power
and other rights of holders of Common Stock or other series of Preferred Stock.
No Preferred Stock is currently outstanding.
The Preferred Stock shall have the dividend, liquidation, redemption and
voting rights set forth below unless otherwise described in a Prospectus
Supplement relating to a particular series of the Preferred Stock. The
applicable Prospectus Supplement will describe the following terms of the series
of Preferred Stock in respect of which this Prospectus is being delivered: (1)
the designations and stated value per share of such Preferred Stock and the
number of shares offered; (2) the amount of liquidation preference per share;
(3) the initial public offering price at which such Preferred Stock will be
issued; (4) the dividend rate (or method of calculation), the dates on which
dividends shall be payable and the dates from which dividends shall commence to
cumulate, if any; (5) any redemption or sinking funds provisions; (6) any
conversion or exchange rights; and (7) any additional voting, dividend,
liquidation, redemption, sinking fund and other rights, preferences, privileges,
limitations and restrictions.
GENERAL
The Preferred Stock offered hereby will be issued in one or more series.
Shares of Preferred Stock, upon issuance against full payment of the purchase
price therefor, will be fully paid and nonassessable. Neither the par value nor
the liquidation preference is indicative of the price at which the Preferred
Stock will actually trade on or after the date of issuance. The Prospectus
Supplement will contain, if applicable, a description of certain United States
federal income tax consequences relating to the purchase and ownership of the
series of Preferred Stock offered by such Prospectus Supplement.
RANK
The Preferred Stock shall, with respect to dividend rights and rights upon
liquidation, winding up and dissolution of the Company, rank prior to the
Company's Common Stock and to all other classes and series of equity securities
of the Company now or hereafter authorized, issued or outstanding (the
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Common Stock and such other classes and series of equity securities collectively
may be referred to herein as the 'Junior Stock'), other than any classes or
series of equity securities of the Company ranking on a parity with (the 'Parity
Stock') or senior to (the 'Senior Stock') the Preferred Stock as to dividend
rights and rights upon liquidation, winding up or dissolution of the Company.
The Preferred Stock shall be junior to all outstanding indebtedness for borrowed
money of the Company. The Preferred Stock shall be subject to creation of Senior
Stock, Parity Stock and Junior Stock to the extent not expressly prohibited by
the Company's Certificate of Incorporation.
DIVIDENDS
Holders of shares of Preferred Stock of any series shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds of the
Company legally available for payment, cash dividends, payable at such dates and
at such rates per share per annum as described in the applicable Prospectus
Supplement. Such rate may be fixed or variable or both. Each declared dividend
shall be payable to holders of record as they appear at the close of business on
the stock books of the Company on such record dates, not more than 60 calendar
days preceding the payment dates therefor, as are determined by the Board of
Directors (each of such dates, a 'Record Date').
Such dividends may be cumulative or noncumulative, as described in the
applicable Prospectus Supplement. If dividends on a series of Preferred Stock
are noncumulative and if the Board of Directors fails to declare a dividend in
respect of a dividend period with respect to such series, then holders of such
Preferred Stock will have no right to receive a dividend in respect of such
dividend period, and the Company will have no obligation to pay the dividend for
such period, whether or not dividends are declared payable on any future
dividend payment dates.
No full dividends shall be declared or paid or set apart for payment on
preferred stock of the Company of any series ranking, as to dividends, on a
parity with or junior to the series of Preferred Stock offered by the applicable
Prospectus Supplement for any period unless full dividends for the immediately
preceding dividend period on such Preferred Stock (including any accumulation in
respect of unpaid dividends for prior dividend periods, if dividends on such
Preferred Stock are cumulative) have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof is set apart for
such payment. When dividends are not so paid in full (or a sum sufficient for
such full payment is not so set apart) upon such Preferred Stock and any other
preferred stock of the Company ranking on a parity as to dividends with the
Preferred Stock, dividends upon shares of such Preferred Stock and dividends on
such other preferred stock shall be declared pro rata so that the amount of
dividends declared per share on such Preferred Stock and such other preferred
stock shall in all cases bear to each other the same ratio that accrued
dividends for the then-current dividend period per share on the shares of such
Preferred Stock (including any accumulation in respect of unpaid dividends for
prior dividend periods, if dividends on such Preferred Stock are cumulative) and
accrued dividends, including required or permitted accumulations, if any, on
shares of such other preferred stock, bear to each other.
CONVERTIBILITY
The terms, if any, on which shares of Preferred Stock of any series may be
exchanged for or converted (mandatorily or otherwise) into shares of Common
Stock of the Company or another series of Preferred Stock or other securities or
property of the Company will be set forth in the applicable Prospectus
Supplement. See 'Description of Capital Stock'.
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REDEMPTION
The terms, if any, on which shares of Preferred Stock of any series may be
redeemed will be set forth in the applicable Prospectus Supplement.
LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company, the holders of a series of Preferred
Stock will be entitled, subject to the rights of creditors, but before any
distribution or payment to the holders of Common Stock or any other security
ranking junior to the Preferred Stock on liquidation, dissolution or winding up
of the Company, to receive an amount per share as set forth in the applicable
Prospectus Supplement plus accrued and unpaid dividends for the then-current
dividend period (including any accumulation in respect of unpaid dividends for
prior dividend periods, if dividends on such series of Preferred Stock are
cumulative). If the amounts available for distribution with respect to the
Preferred Stock and all other outstanding stock of the Company ranking on a
parity with the Preferred Stock upon liquidation are not sufficient to satisfy
the full liquidation rights of all the outstanding Preferred Stock and stock
ranking on a parity therewith, then the holders of each series of such stock
will share ratably in any such distribution of assets in proportion to the full
respective preferential amount (which in the case of preferred stock may include
accumulated dividends) to which they are entitled. After payment of the full
amount of the liquidation preference, the holders of shares of Preferred Stock
will not be entitled to any further participation in any distribution of assets
by the Company.
VOTING
The Preferred Stock of a series will not be entitled to vote, except as
described below or in the applicable Prospectus Supplement and as required by
applicable law. The Board of Directors, in its discretion, may, upon issuance of
any series of Preferred Stock, grant voting power to the holders of such
Preferred Stock to elect not more than two additional members of the Board of
Directors in the event of an arrearage in the payment of dividends on any such
series; however, such right to elect two additional directors is applicable to
all series of Preferred Stock in the aggregate and not to each series thereof in
the event that more than one series is outstanding. Notwithstanding the election
of two directors by the holders of Preferred Stock, the holders of Common Stock
shall only be entitled to elect at least one-fifth of the members of the Board
of Directors as constituted prior to the election of such two additional
directors by the holders of the Preferred Stock.
Without the affirmative vote of a majority of the shares of Preferred Stock
any series then outstanding (voting separately as a class together with any
Parity Stock), the Company may not (i) increase or decrease the aggregate number
of authorized shares of such series, (ii) increase or decrease the par value of
the shares of such series or (iii) alter or change the powers, preferences or
special rights of the shares of such series so as to affect them adversely.
NO OTHER RIGHTS
The shares of a series of Preferred Stock will not have any preferences,
voting powers or relative, participating, optional or other special rights
except as set forth above or in the applicable Prospectus Supplement, the
Certificate of Incorporation and in the applicable Certificate of Designations
or as otherwise required by law.
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TRANSFER AGENT AND REGISTRAR
The transfer agent for each series of Preferred Stock will be described in
the applicable Prospectus Supplement.
DESCRIPTION OF COMMON STOCK
The voting power of the Company's capital stock is vested exclusively in
the holders of shares of Class A Stock, as long as any shares of Class A Stock
shall remain outstanding, subject only to the right of the holders of shares of
Common Stock, voting as a class at each annual meeting of the Company, to elect
such minimum number of directors as shall equal at least one-fifth of the
members of the Board of Directors (with a minimum of one director) and except as
otherwise provided by law. The total number of directors of which holders of
Common Stock are entitled to elect one-fifth does not include any directors
elected by holders of any series of Preferred Stock which may be issued by the
Company. Neither the Certificate of Incorporation nor the By-laws of the Company
may be amended to deny the holders of the Common Stock such right to elect at
least one-fifth of the members of the Board of Directors, without the consent of
the holders of a majority of the Common Stock.
The Certificate of Incorporation does not provide for cumulative voting.
Accordingly, the holders of more than 50% of the Class A Stock voting for the
election of directors can elect up to four-fifths of the members of the Board of
Directors if they choose to do so, in which event the holders of the remaining
shares of Class A Stock will not be able to elect any person or persons to the
Board of Directors.
The holders of Class A Stock have the right, at their option, at any time
and from time to time, to convert such shares into shares of Common Stock on a
share-for-share basis. Shares of Class A Stock surrendered for conversion must
be canceled and may not be reissued.
With the exception of voting rights and conversion rights, and subject to
the rights of the holders of Preferred Stock at any time outstanding, the Class
A Stock and the Common Stock, both of which are classes of common stock, are of
equal rank and entitle the holders thereof to the same and identical rights and
privileges. Consequently, subject to the prior rights of the holders of
Preferred Stock at any time outstanding, the holders of Class A Stock and Common
Stock are equally entitled to receive dividends as declared by the Board of
Directors and are equally entitled to receive any distributions made to
stockholders upon any liquidation, dissolution or winding up of the Company.
All outstanding shares of Class A Stock and Common Stock are validly
issued, fully paid and nonassessable. The Class A Stock and the Common Stock
carry no preemptive rights and are not redeemable or entitled to the benefits of
any sinking fund and, except as described above in the case of Class A Stock are
not convertible into any other security of the Company.
The Company is subject to Section 203 of the Delaware General Corporation
Law ('Section 203'). Under Section 203 certain 'business combinations' between a
Delaware corporation, whose stock generally is publicly traded or held of record
by more than 2,000 stockholders, and an 'interested stockholder' are prohibited
for a three-year period following the date that such stockholder became an
interested stockholder, unless (i) the corporation has elected in its
certificate of incorporation not to be governed by Section 203 (the Company has
not made such an election), (ii) the business combination was approved by the
board of directors of the corporation before the other party to the business
combination became an interested stockholder, (iii) upon consummation of the
transaction that made it an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
commencement of the transaction (excluding voting stock owned by directors who
are also officers or held in employee benefit plans in which the employees do
not have a confidential right to tender stock held by the plan) or (iv) the
business combination is approved by the board of directors of the corporation
and ratified by two-thirds of the voting stock which the interested stockholder
does not own. The three-year prohibition also does not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation and
a person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with
20
<PAGE>
approval of a majority of the corporation's directors. The term 'business
combination' is defined generally to include mergers or consolidations between a
Delaware corporation and an interested stockholder, transactions with an
interested stockholder involving the assets or stock of the corporation or its
majority-owned subsidiaries, and transactions which increase an interested
stockholder's percentage ownership of stock. The term 'interested stockholder'
is defined generally as those stockholders who become beneficial owners of 15%
or more of a Delaware corporation's voting stock. However, in the case of the
Company, certain exceptions to the definition of the term 'interested
stockholder' apply to Richard Robinson, Chairman of the Board, President and
Chief Executive Officer of the Company and to the Trust under the Will of
Maurice R. Robinson, each of whom owns in excess of 15% of the Company's Class A
Stock.
Pursuant to an Indenture, dated as of August 15, 1995, between the Company
and Bankers Trust Company, as trustee, the Company has agreed not to amend its
Certificate of Incorporation or By-laws if, as a result of such amendment, (a)
the Company could (i) pay dividends to the holders of the Class A Stock without
paying to the holders of the Common Stock a dividend per share at least equal to
the dividend per share paid to holders of the Class A Stock or (ii) reclassify,
subdivide or combine one class of its common stock without reclassifying,
subdividing or combining the other class of common stock, on an equal per share
basis, (b) the holders of Common Stock would cease to elect at least one-fifth
of the directors (with a minimum of at least one director), except as otherwise
provided by law and provided that the total number of directors of which holders
of Common Stock are entitled to elect one-fifth does not include any directors
elected by holders of any series of preferred stock which may be issued by the
Company, (c) the holders of Class A Stock and the Common Stock would not share
equally, on a share-for-share basis, in any distribution of the Company's assets
upon any liquidation, dissolution or winding-up of the Company or would not have
equal rights, on a share-for-share basis, in the event of any merger or
consolidation of the Company in which shares of common stock of the Company are
converted into cash, securities or other property, or (d) a share of Class A
Stock could be converted into more than one share of Common Stock. (Section 1209
of the Indenture)
The Company's Transfer Agent and Registrar for its Common Stock is
ChaseMellon Shareholder Services, L.L.C. Proxy statements and other materials
concerning annual or special meetings of stockholders of the Company are
distributed by mail to holders of record in accordance with applicable law and
the Certificate of Incorporation and By-laws of the Company.
The foregoing summary is qualified in its entirety by reference to the
provisions of the Certificate of Incorporation of the Company, as amended, its
By-laws and the Delaware General Corporation Law.
PLAN OF DISTRIBUTION
The Company may sell Securities to or through underwriters and also may
sell Securities directly to other purchasers or through agents.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from the Company or from purchasers of Securities for whom they may
act as agents in the form of discounts, concessions or commissions. Underwriters
may sell Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers and agents that participate in the distribution of
Securities may be deemed to be underwriters, and any discounts or commissions
received by them from the Company and any profit on the resale of Securities by
them may be deemed to be underwriting discounts and commissions, under the
Securities Act. Any such underwriter or agent will be identified, and any such
compensation received from the Company will be described, in the relevant
Prospectus Supplement.
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<PAGE>
Under agreements which may be entered into by the Company, underwriters and
agents who participate in the distribution of Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
If so indicated in the relevant Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
pursuant to contracts providing for payment and delivery on a future date.
Institutions with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Company. The obligations of any purchaser
under any such contract will be subject to the condition that the purchase of
the offered Securities shall not at the time of delivery be prohibited under the
laws of the jurisdiction to which such purchaser is subject. The underwriters
and such other agents will not have any responsibility in respect of the
validity or performance of such contracts.
VALIDITY OF THE SECURITIES
The validity of the Securities offered hereby will be passed upon for the
Company by Coudert Brothers, New York, New York and for any underwriters by
Sullivan & Cromwell, New York, New York. Andrew S. Hedden, a partner of Coudert
Brothers, is a director of the Company.
EXPERTS
The consolidated financial statements of Scholastic Corporation appearing
or incorporated by reference in the Company's Annual Report on Form 10-K for the
year ended May 31, 1996 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements and financial
statement schedule are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company................................... S-2
Recent Operating Results...................... S-12
Use of Proceeds............................... S-12
Capitalization................................ S-13
Selected Financial Data....................... S-13
Description of Notes.......................... S-15
Underwriting.................................. S-17
PROSPECTUS
Available Information......................... 2
Incorporation of Certain Documents by
Reference................................... 2
The Company................................... 3
Ratio of Earnings to Fixed Charges............ 4
Use of Proceeds............................... 4
Description of Debt Securities................ 4
Description of Preferred Stock................ 17
Description of Common Stock................... 20
Plan of Distribution.......................... 21
Validity of the Securities.................... 22
Experts....................................... 22
</TABLE>
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$125,000,000
SCHOLASTIC CORPORATION
% NOTES DUE , 2003
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[SCHOLASTIC LOGO]
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GOLDMAN, SACHS & CO.
CITICORP SECURITIES, INC.
ALEX. BROWN & SONS
INCORPORATED
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