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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended Commission File Number: 0-19860
February 28, 1999
SCHOLASTIC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3385513
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
555 BROADWAY, NEW YORK, NEW YORK 10012
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212-343-6100)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title Number of shares outstanding
of each class as of March 31, 1999
------------- --------------------
Common Stock, $.01 par value 15,628,739
Class A Stock, $.01 par value 828,100
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SCHOLASTIC CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1999
INDEX
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PART I - FINANCIAL INFORMATION Page
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Item 1. Financial Statements
Condensed Consolidated Statement of Operations for the
Three and Nine Months Ended February 28, 1999 and 1998 1
Condensed Consolidated Balance Sheet at February 28, 1999
and 1998 and May 31, 1998 2
Condensed Consolidated Statement of Cash Flows for the
Nine Months Ended February 28, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
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</TABLE>
i
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHOLASTIC CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
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THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
1999 1998 1999 1998
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Revenues $ 267.3 $ 239.0 $ 820.7 $ 760.5
Operating costs and expenses:
Cost of goods sold 133.5 121.8 406.6 394.5
Selling, general and
administrative expenses 123.6 110.8 360.1 317.6
Depreciation 4.2 3.6 12.4 10.8
Goodwill and trademark
amortization 1.1 1.6 3.9 5.0
Impairment of assets -- 11.4 -- 11.4
---------- --------- ---------- ----------
Total operating costs and
expenses 262.4 249.2 783.0 739.3
Operating income/(loss) 4.9 (10.2) 37.7 21.2
Interest expense, net (4.6) (4.8) (14.5) (15.5)
Gain on sale of SOHO Group -- 10.0 -- 10.0
---------- --------- ---------- ----------
Income/(loss) before
provision/(benefit) for
income taxes 0.3 (5.0) 23.2 15.7
Provision/(benefit) for income
taxes 0.1 (1.9) 8.8 6.0
---------- --------- ---------- ----------
Net income/(loss) $ 0.2 $ (3.1) $ 14.4 $ 9.7
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Net income/(loss) per Class A and Common share:
Basic $ 0.01 $ (0.19) $ 0.88 $ 0.60
Diluted $ 0.01 $ (0.19) $ 0.86 $ 0.60
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</TABLE>
SEE ACCOMPANYING NOTES
1
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SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT PER SHARE DATA)
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February 28, 1999 May 31, 1998 February 28, 1998
------------------------- ------------------ -----------------------
(UNAUDITED) (UNAUDITED)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1.6 $ 5.1 $ 0.9
Accounts receivable less allowance for
doubtful accounts 129.2 116.7 116.3
Inventories 267.6 199.3 244.2
Deferred taxes 48.1 41.8 29.9
Prepaid and other deferred expenses 24.2 19.8 27.8
--------- --------- ---------
Total current assets 470.7 382.7 419.1
Property, plant and equipment, net 143.0 136.8 132.9
Prepublication costs 88.2 86.3 88.8
Other assets and deferred charges 170.1 157.8 161.6
--------- -------- --------
Total assets $ 872.0 $ 763.6 $ 802.4
--------- --------- ---------
--------- --------- ---------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit $ 15.7 $ 9.8 $ 3.3
Accounts payable 105.5 76.9 82.3
Accrued royalties 35.6 19.4 31.4
Deferred revenue 21.8 10.5 21.6
Other accrued expenses 55.7 65.1 51.2
--------- --------- ---------
Total current liabilities 234.3 181.7 189.8
NONCURRENT LIABILITIES:
Long-term debt 277.9 243.5 287.9
Other noncurrent liabilities 22.0 20.3 18.7
--------- --------- ---------
Total noncurrent liabilities 299.9 263.8 306.6
STOCKHOLDERS' EQUITY:
Class A Stock, $.01 par value 0.0 0.0 0.0
Common Stock, $.01 par value 0.2 0.2 0.2
Additional paid-in capital 211.5 205.1 204.8
Accumulated earnings 169.0 154.6 140.7
Accumulated other comprehensive income:
Foreign currency translation adjustment (6.1) (5.0) (2.9)
Less shares held in treasury (36.8) (36.8) (36.8)
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Total stockholders' equity 337.8 318.1 306.0
--------- --------- ---------
$ 872.0 $ 763.6 $ 802.4
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SEE ACCOMPANYING NOTES
2
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SCHOLASTIC CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
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NINE MONTHS ENDED FEBRUARY 28,
1999 1998
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NET CASH PROVIDED BY OPERATING ACTIVITIES $ 45.1 $ 43.5
CASH FLOWS USED IN INVESTING ACTIVITIES:
Prepublication costs (28.8) (18.3)
Additions to property, plant and equipment (18.1) (11.3)
Royalty advances (18.1) (23.4)
Business and trademark acquisition-related payments (15.7) (0.4)
Production costs (11.9) (8.9)
Proceeds from the sale of the SOHO Group -- 19.2
Other (3.1) (3.5)
--------- ----------
Net cash used in investing activities (95.7) (46.6)
CASH FLOWS PROVIDED BY/(USED IN) FINANCING ACTIVITIES:
Borrowings under loan agreement and revolver 213.1 210.3
Repayments of loan agreement and revolver (178.9) (210.6)
Borrowings under lines of credit 49.3 39.9
Repayments of lines of credit (42.9) (41.4)
Other 6.5 0.9
--------- ----------
Net cash provided by/(used in) financing activities 47.1 (0.9)
--------- ----------
Net decrease in cash and cash equivalents (3.5) (4.0)
Cash and cash equivalents at beginning of period 5.1 4.9
--------- ----------
Cash and cash equivalents at end of period $ 1.6 $ 0.9
--------- ----------
--------- ----------
SUPPLEMENTAL INFORMATION:
Income taxes paid $ 20.2 $ 11.4
Interest paid $ 17.2 $ 18.7
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SEE ACCOMPANYING NOTES
3
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SCHOLASTIC CORPORATION
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE DATA)
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1. COMPANY
Scholastic Corporation (together with its subsidiaries, the "Company" or
"Scholastic") is a global children's publishing and media company producing and
distributing material for children, teachers and parents. Scholastic 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, the United Kingdom, Canada, Australia, New Zealand, Mexico, Hong
Kong and India. Scholastic distributes most of its products directly to children
and teachers in elementary and secondary schools. During its seventy-nine 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 has also used its proven system to develop successful children's books
and then build these brands into multimedia assets.
2. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have not been
audited, but reflect those adjustments consisting of normal recurring items
which management considers necessary for a fair presentation of financial
position, results of operations and cash flow. These financial statements should
be read in conjunction with the consolidated financial statements and related
notes in the 1997/1998 Annual Report to Stockholders.
The results of operations for the three and nine months ended February 28, 1999
and 1998 are not necessarily indicative of the results expected for the full
year. Due to the seasonal fluctuations that occur, the prior year's February 28
balance sheet is included for comparative purposes.
Certain prior year amounts have been reclassified in the accompanying
condensed consolidated financial statements to conform to the current year
presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates and
assumptions. Significant estimates that affect the financial statements include,
but are not limited to, book returns, recoverability of inventory,
recoverability of advances to authors, amortization periods and recoverability
of prepublication costs.
3. RECENT ACCOUNTING PRINCIPLES
Effective June 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." This statement
establishes the standards for the reporting and display of comprehensive income
and its components in a full set of general purpose financial statements. The
components of comprehensive income are described in Note 6.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures About Segments
of an Enterprise and
4
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SCHOLASTIC CORPORATION
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE DATA)
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3. RECENT ACCOUNTING PRINCIPLES (CONTINUED)
Related Information." This statement requires that public business enterprises
report certain information about operating segments in financial statements of
the enterprise issued to stockholders. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate, and their major customers. The Company
is required to adopt the provisions of SFAS 131 for the fiscal year ending May
31, 1999. The Company expects to disclose additional information about the
segments of the enterprise as required by SFAS 131.
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132 (SFAS 132), "Employer's Disclosures about
Pensions and Other Post-Retirement Benefits." This statement revises employer's
disclosures about pension and other post-retirement benefit plans. It
standardizes the disclosure requirements for pensions and other post-retirement
benefits, requires additional information on changes in the benefit obligations
and fair values of plan assets that will facilitate financial analysis, and
eliminates certain disclosures required under prior standards. The Company is
required to adopt the provisions of SFAS 132 for the fiscal year ending May 31,
1999.
4. DEBT
LOAN AGREEMENT. The Company and Scholastic Inc. are joint and several borrowers
under a Loan Agreement (the "Loan Agreement") with certain banks which provides
for revolving credit loans and letters of credit. On April 11, 1995, the Company
amended and restated the Loan Agreement, extending the expiration date to May
31, 2000 and expanding the facility to $135.0, with a right, in certain
circumstances, to increase it to $160.0. The Loan Agreement was last amended on
November 28, 1997. Interest charged under this facility is either at the prime
rate or .325% to .90% over LIBOR (as defined). There is a commitment fee charged
which ranges from .10% to .3625% on the unused portion. The amounts charged vary
based upon certain financial measurements. The Loan Agreement contains certain
financial covenants related to debt to overall capital and interest coverage
ratios (as defined), and limits dividends and other distributions. At February
28, 1999, an aggregate of $8.0 of borrowings and $1.0 of letters of credit were
outstanding under the Loan Agreement.
REVOLVER. The Company and Scholastic Inc. have entered into a Revolving Loan
Agreement (the "Revolver") with Sun Bank, N. A., which provides for revolving
credit loans and expires on May 31, 2000. The Revolver has certain financial
covenants related to debt to overall capital and interest coverage ratios (as
defined) and limits dividends and other distributions. On August 14, 1996, the
Revolver was amended to increase the aggregate principal amount to $35.0 and was
last amended on November 28, 1997. At February 28, 1999, the aggregate amount of
borrowings under the Revolver was $31.5.
7% NOTES DUE 2003. In December 1996, the Company issued $125.0 of 7% Notes due
2003 (the "Notes"). The Notes are unsecured and unsubordinated obligations of
the Company and will
5
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SCHOLASTIC CORPORATION
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE DATA)
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4. DEBT (CONTINUED)
mature on December 15, 2003. The Notes are not redeemable prior to maturity.
Interest on the Notes is payable semi-annually on December 15 and June 15 of
each year. The net proceeds (including accrued interest) from the issuance of
the Notes were $123.9 after deducting an underwriting discount and other related
offering costs. The Company utilized the net proceeds primarily to repay amounts
outstanding under the Loan Agreement and the Revolver.
CONVERTIBLE SUBORDINATED DEBENTURES. In August 1995, the Company sold $110.0 of
5.0% Convertible Subordinated Debentures due August 15, 2005 (the "Debentures")
under Regulation S and Rule 144A of the Securities Act of 1933. The Debentures
are listed on the Luxembourg Stock Exchange and the portion sold under Rule 144A
is designated for trading in the Portal system of the National Association of
Securities Dealers, Inc. Interest on the Debentures is payable semi-annually on
August 15 and February 15 of each year. The Debentures are redeemable at the
option of the Company, in whole, but not in part, at any time on or after August
15, 1998 at 100% of the principal amount plus accrued interest. Each Debenture
is convertible, at the holder's option, any time prior to maturity, into Common
Stock of the Company at a conversion price of $76.86 per share.
OTHER -- SHORT-TERM LINES OF CREDIT. At February 28, 1999, the Company's
international subsidiaries had available aggregate lines of credit of $36.9.
There was $15.7 outstanding under these credit lines at February 28, 1999.
5. CONTINGENCIES
The Company and certain officers have been named as defendants in litigation
which alleges, among other things, violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder, resulting from
purportedly materially false and misleading statements to the investing public
concerning the financial condition of the Company. On December 14, 1998, an
order was entered granting the Company's motion to dismiss plaintiffs'
complaint. In dismissing the complaint, the court held that plaintiffs failed to
state a claim upon which relief can be granted and granted plaintiffs leave to
amend the complaint. Pursuant to that order, plaintiffs filed a Second
Consolidated Amended Complaint, on or about February 16, 1999, alleging
substantially similar claims against the Company and one of its officers. The
Company continues to believe that the litigation is without merit and will
continue to vigorously defend against it.
On February 1, 1999, two subsidiaries of the Company commenced an action in
the Supreme Court oF the State Court of New York County of New York against
Parachute Press, Inc. ("Parachute"), the licensor of certain publication and
nonpublication rights to the GOOSEBUMPS-Registered Mark- series, certain
affiliated Parachute companies and R.L. Stine, individually, alleging
material breach of contract and fraud in connection with the agreements under
which such GOOSEBUMPS rights are licensed to the Company. The case, is also,
in part, the subject of two litigations commenced by Parachute following
repeated notices from the Company to Parachute of material breaches by
Parachute of the agreements under which such rights are licensed and the
exercise by the Company of its contractual remedies under the agreements. The
previously reported first Parachute action, in which two subsidiaries of the
Company are defendants and counterclaim plaintiffs, was commenced in the
federal court for the Southern
6
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SCHOLASTIC CORPORATION
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE DATA)
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5. CONTINGENCIES (CONTINUED)
District of New York on November 14, 1997 and was dismissed for lack of
subject matter jurisdiction on January 29, 1999. Parachute has filed an
appeal of the dismissal. The second Parachute action, was filed
contemporaneously with the filing of the Company's complaint on February 1,
1999 in the Supreme Court of the State Court of New York County of New York.
In its two complaints and in its counterclaims, Parachute alleges that the
exercise of contractual remedies by the Company was improper and seeks
declaratory relief and unspecified damages for, among other claims, alleged
breaches of contract and acts of unfair competition. Damages sought by
Parachute include the payment of a total of approximately $36.1 of advances
over the term of the contract, of which approximately $15.3 had been paid at
the time the first Parachute litigation began. The Company is seeking
declaratory relief and damages for, among other claims, breaches of contract,
fraud and acts of unfair competition. Damages sought by the Company include
repayment by Parachute of a portion of the $15.3 advance already paid. The
Company intends to vigorously pursue its claims against Parachute and the
other named defendants and to vigorously defend the new lawsuit and the
appeal. The Company does not believe that this dispute will have a material
adverse effect on its financial condition.
The Company is also engaged in various legal proceedings incident to its normal
business activities. In the opinion of the Company, none of such proceedings is
material to the consolidated financial position of the Company.
6. COMPREHENSIVE INCOME/(LOSS)
The following table sets forth comprehensive income/(loss) for the periods
indicated:
<TABLE>
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THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net income/(loss) $ 0.2 $ (3.1) $ 14.4 $ 9.7
Other comprehensive income/(loss):
Foreign currency translation adjustment
net of provision or benefit for income taxes (0.9) (0.8) (0.8) (1.4)
------- ------- ------- -------
Comprehensive income/(loss) $ (0.7) $ (3.9) $ 13.6 $ 8.3
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
7
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SCHOLASTIC CORPORATION
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE DATA)
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7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
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THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
1999 1998 1999 1998
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Net income/(loss) $ 0.2 $ (3.1) $ 14.4 $ 9.7
Effect of debentures (1) - - - -
-------- ------- -------- --------
Net income/(loss) for diluted earnings per share $ 0.2 $ (3.1) $ 14.4 $ 9.7
-------- ------- -------- --------
-------- ------- -------- --------
Weighted average Class A and Common shares
outstanding for basic earnings per share 16.4 16.2 16.3 16.2
Effect of debentures (1) - - - -
Effect of employee stock options(2) 0.5 - 0.4 0.1
-------- ------- -------- --------
Weighted average Class A and Common shares
outstanding for diluted earnings per share 16.9 16.2 16.7 16.3
-------- ------- -------- --------
-------- ------- -------- --------
Net income/(loss) per Class A and Common share:
Basic $ 0.01 $ (0.19) $ 0.88 $ 0.60
Diluted $ 0.01 $ (0.19) $ 0.86 $ 0.60
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(1) For the three and nine months ended February 28, 1999 and 1998, the effect
of the Debentures on the weighted average Class A and Common shares
outstanding for diluted earnings per share was anti-dilutive and,
therefore, is not included in the calculation.
(2) For the three months ended February 28, 1998, the effect of the employee
stock options on the weighted average Class A and Common shares outstanding
for diluted earnings per share was anti-dilutive and, therefore, is not
included in the calculation.
8
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SCHOLASTIC CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ("MD&A")
(IN MILLIONS, EXCEPT PER SHARE DATA)
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RESULTS OF OPERATIONS
Revenues for the quarter ended February 28, 1999 increased 12% to $267.3 from
$239.0 in the comparable quarter of the prior fiscal year, primarily due to a
$20.3, or 12%, increase in domestic book publishing revenues. Book club and
book fair revenues increased by approximately 12% over the comparable quarter
of the prior fiscal year. Book club revenues benefited from increased orders
and higher revenue per order, reflecting expanded promotion efforts and
strong product selection. Book fairs held a greater number of fairs due in
part to the acquisition of assets of Pages Book Fairs, Inc. (the "Pages
Acquisition") in the first quarter of the current fiscal year. Book fairs
also benefited from higher revenue per fair from premium fairs which feature
a broader product selection. Trade revenues increased by more than 15% due to
the continued success of the Company's branded properties, such as
ANIMORPHS(R), DEAR AMERICA(R), I SPY AND CLIFFORD THE BIG RED DOG(R),
combined with the success of other properties such as TELETUBBIES(TM) and
HARRY POTTER AND THE SORCERER'S STONE by J.K. Rowling. Media, TV/movie
production and licensing revenues increased 41% to $25.9 in the quarter ended
February 28, 1999 from $18.4 in the comparable quarter of the prior fiscal
year, due to the strength of CD-ROM and media properties sales. International
revenues remained level at $41.0, although slightly higher in local
currencies compared to the corresponding quarter of the prior fiscal year.
Total revenues for the nine months ended February 28, 1999 increased 8% to
$820.7 from $760.5 in the comparable period of the prior fiscal year.
As a percentage of revenue, cost of goods sold decreased by approximately 1.%
for the three months ended February 28, 1999 and approximately 2% for the nine
months ended February 28, 1999, over the comparable periods of the prior year.
The decrease in cost of goods sold as a percentage of revenue is due to a change
in product mix, improved purchasing terms and lower paper costs, as well as
modifying specifications in an effort to lower product costs. Selling, general
and administrative expenses as a percentage of revenue were flat for the three
months ended February 28, 1999 and increased by approximately 2.% for the nine
months ended February 28, 1999, compared to the corresponding periods of the
prior year, in the case of the nine month period, reflecting additional
operating expenses related to the Pages Acquisition and Year 2000 computer
readiness costs, as well as other increases in spending due to higher book club
and book fair activity.
Operating income for the quarter ended February 28, 1999 was $4.9 compared to an
operating loss of $10.2 in the same quarter of the prior fiscal year. Operating
income for the nine months ended February 28, 1999 increased by $16.5, or 78%,
versus the nine months ended February 28, 1998. The operating results for the
quarter and nine months ended February 28, 1998 were negatively impacted by the
$11.4 non-cash charge relating to the impairment of assets.
Net income for the quarter ended February 28, 1999 was $0.2, or $0.01 per
diluted share, versus a net loss of $3.1, or $0.19 per diluted share, in the
comparable quarter of the prior year. Net income for the nine months ended
February 28, 1999 was $14.4, or $0.86 per diluted share, versus $9.7, or $0.60
per diluted share, for the nine months ended February 28, 1998.
9
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SCHOLASTIC CORPORATION
ITEM 2. MD&A
(IN MILLIONS, EXCEPT PER SHARE DATA)
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SEASONALITY
The Company's book clubs, book fairs and most of its magazines operate on a
school-year basis; therefore, the Company's business is highly seasonal. As a
consequence, the Company's revenues in the first and third quarters of the
fiscal year are lower than its revenues in the other two fiscal quarters, and
the Company generally experiences a substantial loss from operations in the
first quarter. Typically, book club and book fair revenues are proportionately
larger in the second quarter of the fiscal year, while revenues from the sale of
instructional materials are larger in the first quarter.
For the June through September time period, the Company experiences negative
cash flow due to the seasonality of its business. Historically, as a result of
the Company's business cycle, borrowings have increased during June, July and
August and generally have peaked in September or October, and have been at the
lowest point in May.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased by $3.5 during the nine month
period ended February 28, 1999, compared to a decrease of $4.0 during the
comparable period in the prior fiscal year.
For the nine months ended February 28, 1999, net cash provided by financing
activities was $47.1 compared to net cash used in financing activities of $0.9
for the nine months ended February 28, 1998. Financing activities primarily
consisted of borrowings and repayments under the Company's Loan Agreement and
the Revolver. Borrowings under these facilities have been a primary source of
the Company's liquidity.
Cash used in investing activities was $95.7 and $46.6 for the nine months
ended February 28, 1999 and 1998, respectively. Investing activities
consisted primarily of prepublication cost expenditures, capital
expenditures, royalty advances, business and trademark acquisition-related
payments and production cost expenditures. Prepublication cost expenditures
increased $10.5 to $28.8 for the nine months ended February 28, 1999 over the
comparable period in the prior fiscal year, largely due to the planned
revision to SCHOLASTIC LITERACY PLACE(R). Capital expenditures increased $6.8
to $18.1 for the nine months ended February 28, 1999 compared to the
corresponding period of the prior fiscal year, largely due to the equipping
of a new office and distribution facility for the Company's Canadian
subsidiary. Royalty advances decreased $5.3 from fiscal 1998 to $18.1 in
fiscal 1999, reflecting reduced advance payments in connection with the
GOOSEBUMPS contract extension and a royalty advance made in the third quarter
of fiscal 1998 for the rights to the new STAR WARS(R) trilogy. For the nine
months ended February 28, 1999, business and trademark acquisition-related
payments were $15.7, primarily related to business asset purchases referred
to below. Production cost expenditures increased $3.0 to $11.9 in fiscal 1999
compared to the corresponding period of the prior fiscal year, resulting
primarily from increased production costs associated with the first season of
the ANIMORPHS(R) and DEAR AMERICA(TM) television series partially offset by
decreased costs associated with the GOOSEBUMPS(R) series.
10
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SCHOLASTIC CORPORATION
ITEM 2. MD&A
(IN MILLIONS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
ACQUISITIONS
In the ordinary course of business, the Company explores domestic and
international expansion opportunities, including potential niche and strategic
acquisitions. As part of this process, the Company engages with interested
parties in discussions concerning possible transactions. The Company will
continue to evaluate such opportunities and prospects. Consistent with this
strategy, in June 1998 the Company acquired certain book fair assets of Pages
Book Fairs, Inc. and in January 1999 the Company acquired from International
Thomson Publishing Inc., certain assets of Quality Education Data, which
provides K-12 education data in the United States and Canada.
FINANCING
The Company currently maintains two unsecured credit facilities which provide
for aggregate borrowings of up to $170.0 (with a right, in certain
circumstances, to increase to $195.0), including the issuance of up to $10.0 of
letters of credit. The Company uses these facilities to fund seasonal cash flow
needs and other working capital requirements. At February 28, 1999, the Company
had $39.5 in borrowings outstanding under these facilities at a weighted average
interest rate of 6.03%. These two facilities expire May 31, 2000. The Company
anticipates extending or replacing these facilities during calendar 1999 and
does not anticipate any difficulty in negotiating satisfactory arrangements.
In addition, unsecured lines of credit available to the Company's United
Kingdom, Canadian and Australian operations totaled $36.9 at February 28, 1999.
These lines are used primarily to fund working capital needs. At February 28,
1999, an aggregate of $15.7 in borrowings were outstanding under these lines at
a weighted average interest rate of 6.35%.
The Company believes its existing cash position, combined with funds generated
from operations and funds available under the Loan Agreement and the Revolver,
will be sufficient to finance its ongoing working capital requirements for the
remainder of the fiscal year.
YEAR 2000 READINESS DISCLOSURE
As previously reported, management has initiated an enterprise-wide program to
prepare the Company's computer systems and applications for the Year 2000, as
well as to identify and address any other Year 2000 operational issues which may
affect the Company. Progress reports on the Company's Year 2000 program are
presented regularly to the Company's Board of Directors and senior management.
The Company's Year 2000 program, which was commenced in July 1997 and is
administered by internal staff, assisted by outside consultants, consists of
the following three components relating to the Company's operations: (i)
information technology ("IT") computer systems and applications which may be
impacted by the Year 2000 problem and the actions related thereto, (ii)
non-IT systems and equipment which include embedded technology which may be
impacted by the Year 2000 problem and actions related thereto and (iii) third
party suppliers and customers with which the Company has material
relationships and which could adversely affect
11
<PAGE>
SCHOLASTIC CORPORATION
ITEM 2. MD&A
(IN MILLIONS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
YEAR 2000 READINESS DISCLOSURE (CONTINUED)
the Company if such parties fail to be Year 2000 compliant and the actions
related thereto. The general phases common to all three components of the
Company's Year 2000 program are: (1) ASSESSMENT (the identification, assessment
and prioritization of the Year 2000 issues facing the Company in each of the
above areas and the actions to be taken in respect of such issues or items); (2)
REMEDIATION (implementation of the specific actions determined upon assessment,
including repair, modification or replacement of items that are determined not
to be Year 2000 compliant); (3) TESTING (testing of the new or modified
information systems, other systems and equipment to verify Year 2000 readiness);
(4) CONTINGENCY PLANNING (designing appropriate contingency and business
continuation plans for each Company business unit and location); and (5)
IMPLEMENTATION (actual operation of such systems and equipment and, if
necessary, the actual implementation of any contingency plans in the event Year
2000 problems occur, notwithstanding the Company's remediation program).
The progress to date of the three components of the Company's Year 2000 program
for principal systems, applications or issues affected by the Year 2000 is as
follows:
IT SYSTEMS AND APPLICATIONS. The principal IT systems and applications of the
Company affected by Year 2000 issues are: order entry, purchasing, distribution
and financial reporting. Issues related to vendor supplied software include
financial reporting and certain infrastructure and operating system software.
The Company has completed the Assessment and Remediation phases with respect to
its principal IT systems and applications. In addition, the Company anticipates
that the Testing, Contingency Planning and Implementation phases should be
substantially completed by the end of May 1999. A test plan is in place. In
addition to the foregoing, the Company expects to implement the remainder of
Year 2000 remediated IT systems and applications based on current assessments
prior to August 31, 1999. Excluding normal system upgrades, the Company
estimates that total costs for conversion and testing of new or modified IT
systems and applications will aggregate approximately $13.3 through fiscal 2000,
of which an aggregate of $5.8 has been incurred to date. Total conversion and
testing costs through fiscal 1999 are estimated at $8.3.
NON-IT SYSTEMS AND EQUIPMENT. The principal non-IT systems and equipment of the
Company incorporating embedded technology affected by Year 2000 issues include:
security systems, phone systems, business machines, computers and distribution
systems. The Company has substantially completed the Assessment of its principal
non-IT software and applications, and the Remediation phase related to these
principal systems was also substantially completed by the end of March 1999. The
Testing, Contingency Planning and Implementation phases should be substantially
completed by the end of May 1999. In addition to the foregoing, based on current
assessments, the Company expects to implement the remainder of Year 2000
remediated non-IT systems and applications prior to August 31, 1999. The Company
estimates the total costs for modifying or replacing new systems and equipment
in this area will be approximately $0.5 through fiscal 2000, of which an
aggregate of $0.1 has been incurred to date. Total modification and replacement
costs through fiscal 1999 are estimated at $0.4.
12
<PAGE>
SCHOLASTIC CORPORATION
ITEM 2. MD&A
(IN MILLIONS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
YEAR 2000 READINESS DISCLOSURE (CONTINUED)
MATERIAL THIRD PARTY RELATIONSHIPS. Material third party supplier relationships
affected by Year 2000 issues relate primarily to printing, paper supplies,
distribution, fulfillment, licensing and financial services. The Assessment and
Remediation phases for determining the Year 2000 readiness of the Company's
principal suppliers is an ongoing process. Substantially all of the Company's
principal suppliers have reported that they have initiated Year 2000 programs.
The Company will seek updates from these parties to attempt to ascertain the
adequacy of their programs as it relates to the Company. Testing of critical
systems or services will be done on an as needed basis. The Company anticipates
that it will develop contingency plans with respect to its principal third party
suppliers by the end of May 1999. There can be no assurance, however, that the
Company will be able to predict adequately Year 2000 problems experienced by its
suppliers or to develop adequate contingency plans related thereto. The costs to
the Company in implementing its Year 2000 program in this area, excluding costs
due to unanticipated third party Year 2000 problems, will principally consist of
internal staff costs, which are not expected to be material. No single customer
or small group of customers are material to the Company's financial condition.
Including the costs set forth above, the Company estimates that total program
costs for implementing its Year 2000 program, which includes total costs noted
above for IT systems and applications, will be approximately $13.8, of which
total program costs to date have been $5.9. Total program costs through fiscal
1999 are estimated at $8.7. These costs include costs related to the matters
described above, as well as consulting and other expenses related to
infrastructure and facilities enhancements necessary to prepare the Company for
the Year 2000. The costs do not include internal staff costs incurred or to be
incurred in connection with the implementation of the program. Costs are
generally expected to be expensed as incurred, and it is expected that such
costs will be funded by cash generated from the Company's operations or
borrowings under its credit agreements. The above-stated amounts have been
budgeted for the appropriate fiscal years. Projected Year 2000 costs for fiscal
1999 comprise approximately 25% to 30% of the Company's IT budget for that
period. Based on the current progress of the Company's Year 2000 program, the
Company anticipates its Year 2000 program will be substantially completed by
August 31, 1999. As a result of the Company's Year 2000 program, delays in other
new and continuing IT projects have occurred. However, no material adverse
effect is anticipated from such delays as the Company has procedures in place in
an effort to ensure that critical projects will be handled in a timely manner.
The cost of the Company's Year 2000 program and the dates on which the Company
plans to complete the components of the Year 2000 program are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, many of which are beyond the Company's control.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations of the Company. Such failures could materially and adversely
affect the Company's financial condition, results of operations and cash
flows. Based on current plans and assumptions, the Company does not expect
that the Year 2000 issue will have a material adverse impact on the Company
as a whole. Due to the general uncertainty inherent in the Year 2000 problem,
however, there can be no assurance that all Year 2000 problems will be
foreseen and corrected, or if foreseen, corrected on a timely basis, or that
no material disruption to the Company's business or operations will occur.
Further, the
13
<PAGE>
SCHOLASTIC CORPORATION
ITEM 2. MD&A
(IN MILLIONS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
YEAR 2000 READINESS DISCLOSURE (CONTINUED)
Company's expectations are based on the assumption that there will be no general
failure of external local, national or international systems (including power,
communication, postal or other transportation systems) necessary for the
ordinary conduct of business. The Company is currently assessing those scenarios
in which unexpected failures would have a material adverse effect on the Company
and will attempt to develop contingency plans designed to deal with such
scenarios. There can be no assurance, however, that successful contingency plans
can, in fact, be developed or implemented.
- ------------------------------------------------------------------------------
14
<PAGE>
PART II - OTHER INFORMATION
SCHOLASTIC CORPORATION
- ------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
As previously reported, three purported class action complaints were filed in
the United States District Court for the Southern District of New York against
the Company and certain officers seeking, among other remedies, damages
resulting from defendants' alleged violations of federal securities laws. The
complaints were consolidated. The Consolidated Amended Class Action Complaint
(the "Complaint") was served and filed on August 13, 1997. The Complaint was
styled as a class action, IN RE SCHOLASTIC SECURITIES LITIGATION, 97 Civ. 2447
(JFK), on behalf of all persons who purchased Company common stock from December
10, 1996 through February 20, 1997. The Complaint alleged, among other things,
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
and Rule 10b-5 thereunder, resulting from purported materially false and
misleading statements to the investing public concerning the financial condition
of the Company. Specifically, the Complaint alleged misstatements and omissions
by the Company pertaining to adverse sales and returns of its popular
GOOSEBUMPS(R) book series prior to the Company's interim earnings announcement
on February 20, 1997. In an order dated December 14, 1998, the United States
District Court for the Southern District of New York granted the Company's
motion to dismiss the Complaint. In dismissing the Complaint, the Court held
that plaintiffs had failed to state a claim upon which relief could be granted
and granted plaintiffs leave to amend and re-file the Complaint. Pursuant to
that order, plaintiffs filed a second Consolidated Amended Class Action
Complaint, on or about February 16, 1999, alleging substantially similar claims
against the Company and one of its officers. The Company continues to believe
that the litigation is without merit and shall vigorously defend against it.
On February 1, 1999, two subsidiaries of the Company commenced an action in
the Supreme Court of the State Court of New York County of New York against
Parachute Press, Inc. ("Parachute"), the licensor of certain publication and
nonpublication rights to the GOOSEBUMPS -registered trademark- series,
certain affiliated Parachute companies and R.L. Stine, individually, alleging
material breach of contract and fraud in connection with the agreements under
which such GOOSEBUMPS rights are licensed to the Company. The case, captioned
SCHOLASTIC INC. AND SCHOLASTIC ENTERTAINMENT, INC. V. PARACHUTE PRESS, INC.,
PARACHUTE PUBLISHING, LLC, PARACHUTE CONSUMER PRODUCTS, LLC, AND R.L. STINE
(Index No. 99/600512), is also, in part, the subject of two litigations
commenced by Parachute following repeated notices from the Company to
Parachute of material breaches by Parachute of the agreements under which
such rights are licensed and the exercise by the Company of its contractual
remedies under the agreements. The previously reported first Parachute
action, PARACHUTE PRESS, INC. V. SCHOLASTIC INC., SCHOLASTIC PRODUCTIONS,
INC. AND SCHOLASTIC ENTERTAINMENT INC., 97 Cir. 8510 (JFK), in which two
subsidiaries of the Company are defendants and counterclaim plaintiffs, was
commenced in the federal court for the Southern District of New York on
November 14, 1997 and was dismissed for lack of subject matter jurisdiction on
January 29, 1999. Parachute has filed an appeal of the dismissal. The second
action, captioned PARACHUTE PRESS, INC. V. SCHOLASTIC INC., SCHOLASTIC
PRODUCTIONS, INC. AND SCHOLASTIC ENTERTAINMENT INC. (Index No. 600507/99),
15
<PAGE>
SCHOLASTIC CORPORATION
- ------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
was filed contemporaneously with the filing of the Company's complaint on
February 1, 1999 in the Supreme Court of the State Court of New York County
of New York. In its two complaints and in its counterclaims, Parachute alleges
that the exercise of contractual remedies by the Company was improper and
seeks declaratory relief and unspecified damages for, among other claims,
alleged breaches of contract and acts of unfair competition. Damages sought
by Parachute include the payment of a total of approximately $36.1 of
advances over the term of the contract, of which approximately $15.3 had been
paid at the time the first Parachute litigation began. The Company is seeking
declaratory relief and damages for, among other claims, breaches of contract,
fraud and acts of unfair competition. Damages sought by the Company include
repayment by Parachute of a portion of the $15.3 advance already paid. The
Company intends to vigorously pursue its claims against Parachute and the
other named defendants and to vigorously defend the new lawsuit and the
appeal. The Company does not believe that this dispute will have a material
adverse effect on its financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
10.14 Scholastic Corporation 1998 Employee Stock Purchase Plan,
effective January 1, 1999
10.15 Scholastic Corporation 1998 Management Stock Purchase Plan,
effective January 1, 1999
10.16 Second Amendment to the Scholastic Inc. 401(k) Savings and
Retirement Plan, effective as of January 1, 1999
10.17 Fourth Amendment to the Retirement Income Plan for
Employees of Scholastic Inc., effective as of
January 1, 1999
27.1 Financial Data Schedule for the Nine Months Ended February 28, 1999
27.2 Financial Data Schedule Restated for the Nine Months Ended February 28, 1998
27.3 Financial Data Schedule Restated for the fiscal year ended May 31, 1998
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
SCHOLASTIC CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCHOLASTIC CORPORATION
(Registrant)
Date: April 14, 1999 /s/ Richard Robinson
---------------------------------
Richard Robinson
Chairman of the Board,
President, Chief Executive
Officer and Director
Date: April 14, 1999 /s/ Kevin J. McEnery
---------------------------------
Kevin J. McEnery
Executive Vice President and
Chief Financial Officer
<PAGE>
SCHOLASTIC CORPORATION
FORM 10-Q FOR QUARTERLY PERIOD ENDED FEBRUARY 28, 1999
EXHIBIT INDEX
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Exhibit
Number Description of Document
------- -----------------------
<S> <C>
10.14 Scholastic Corporation 1998 Employee Stock Purchase Plan,
effective January 1, 1999
10.15 Scholastic Corporation 1998 Management Stock Purchase Plan,
effective January 1, 1999
10.16 Second Amendment to the Scholastic Inc. 401(k) Savings and Retirement Plan,
effective as of January 1, 1999
10.17 Fourth Amendment to the Retirement Income Plan for
Employees of Scholastic Inc., effective as of January 1,
1999
27.1 Financial Data Schedule for the Nine Months Ended February 28, 1999
27.2 Financial Data Schedule Restated for the Nine Months Ended February 28, 1998
27.3 Financial Data Schedule Restated for the fiscal year ended May 31, 1998
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 10.14
Scholastic Corporation 1998 Employee Stock Purchase Plan
<PAGE>
- --------------------------------------------------------------------------------
SCHOLASTIC CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
- --------------------------------------------------------------------------------
Effective January 1, 1999
<PAGE>
SCHOLASTIC CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
TABLE OF CONTENTS
1. Purpose................................................................. 1
2. Definitions............................................................. 1
3. Shares Reserved for Plan................................................ 4
4. Administration of the Plan.............................................. 4
5. Participation in the Plan............................................... 5
6. Purchase Price.......................................................... 6
7. Method of Payment....................................................... 6
8. Employee's Election to Purchase. Grants of Options..................... 6
9. Exercise of Option...................................................... 7
10. Delivery of Common Stock................................................ 7
11. Limitations of Number of Shares Which May Be Purchased.................. 8
12. Stockholder Rights...................................................... 9
13. Rights to Purchase Shares Not Transferable.............................. 9
14. Cancellation of Election to Purchase................................... 9
15. Leave of Absence or Layoff..............................................10
16. Effect of Failure to Make Payments When Due.............................11
17. Retirement..............................................................11
18. Death...................................................................11
19. Termination of Employment Other Than for Retirement or Death............12
i
<PAGE>
20. Dividends and Interest..................................................12
21. Application of Funds....................................................12
22. Amendment and Termination...............................................12
23. Reports.................................................................13
24. Effective Date; Governmental Approvals or Consents......................13
25. Notices.................................................................13
26. Regulations and Other Approvals; Governing Law..........................14
27. Withholding of Taxes....................................................14
28. Legend..................................................................14
29. No Employment Rights....................................................15
30. Severability of Provisions..............................................15
31. Construction............................................................15
ii
<PAGE>
SCHOLASTIC CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
The purpose of the Scholastic Corporation 1998 Employee Stock
Purchase Plan (the "Plan") is to encourage and enable eligible employees of
Scholastic Corporation (the "Company") and certain affiliated companies to
acquire proprietary interests in the Company through the ownership of Common
Stock of the Company. The Company believes that employees who participate in the
Plan will have a closer identification with the Company by virtue of their
ability as stockholders to participate in the Company's growth and earnings. It
is the intention of the Company to have the Plan qualify as an "employee stock
purchase plan" under Section 423 of the Code. Accordingly, the provisions of the
Plan shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
2. DEFINITIONS.
The following words or terms have the following meanings:
(a) "AGENT" shall mean the agent, broker or other administrator,
including without limitation, employees of the Employer, appointed by the
Committee pursuant to Section 4(b) hereof.
(b) "ANNUAL PAY" shall mean an amount equal to the sum of (i) the
annual basic rate of pay of an Eligible Employee as determined from the payroll
records of the Company, a Designated Subsidiary or Designated Parent on the
effective date of an offer of Common Stock made pursuant to the Plan and (ii)
such other types of compensation that may be paid to the Eligible Employee by
the Company, a Designated Subsidiary or Designated Parent, as determined by the
Committee to be included as Annual Pay; provided that any such determination
shall be applied on a uniform and consistent basis to all Eligible Employees.
(c) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company or the Executive Committee of such Board of Directors.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" shall mean the committee of the Board of Directors
of the Company appointed to administer the Plan. To the extent that no Committee
exists which has the authority to administer the Plan, the functions of the
Committee shall be exercised by the Board of Directors.
<PAGE>
(f) "COMPANY" shall mean Scholastic Corporation, a corporation
organized under the laws of Delaware (or any successor corporation).
(g) "DESIGNATED PARENT" shall mean any Parent of the Company which
is specifically designated as eligible to participate in the Plan by the
Committee from time to time in its sole discretion.
(h) "DESIGNATED SUBSIDIARIES" shall mean each Subsidiary of the
Company on the effective date of the Plan and future Subsidiaries which are not
specifically excluded from participation by the Committee from time to time in
its sole discretion. Notwithstanding the foregoing, the term "Designated
Subsidiaries" shall not include Subsidiaries located in Foreign Jurisdictions,
unless the Committee specifically designates such Subsidiary as a Designated
Subsidiary.
(i) "ELIGIBLE EMPLOYEE" shall mean any person (i) whose customary
employment is for more than twenty (20) hours per week for an Employer; (ii)
whose customary employment is for more than five (5) months per year; and (iii)
who has completed the Eligibility Period. Notwithstanding the foregoing, the
Committee may exclude the employees of any specified Designated Parent or
Designated Subsidiary from any offering under the Plan.
(j) "ELIGIBILITY PERIOD" shall mean, with respect to any employee,
the ninety (90) day period commencing on the employee's first day of employment
with the Employer. Notwithstanding the foregoing, the Committee may, in its sole
discretion, increase or decrease the length of the Eligibility Period with
respect to the employees of the Company, and any and all Designated Parent and
Designated Subsidiaries; provided that such period shall in no event exceed two
(2) years.
(k) "EMPLOYER" shall mean, with respect to any employee, the Company
or Designated Subsidiary or Designated Parent by which the employee is employed.
(l) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
(m) "EXERCISE DATE" shall mean the last business day of each
Offering Period in which payroll deductions are made under the Plan.
(n) "FOREIGN JURISDICTION" shall mean any jurisdiction outside of
the United States including, without limitation, countries, states, provinces,
and localities.
(o) "MARKET PRICE" for purposes of this Plan, unless otherwise
required by any applicable provision of the Code or any regulations issued
thereunder, as of any date, the last sales price reported for the Common Stock
on the applicable date: (i) as reported on the principal national securities
exchange on which it is then traded or the Nasdaq Stock Market, Inc. or (ii) if
not traded on any such national securities exchange or the Nasdaq Stock Market,
Inc. as quoted on an automated quotation system sponsored by the National
Association of Securities Dealers,
2
<PAGE>
Inc. If the Common Stock is not readily tradable on a national securities
exchange, the Nasdaq Stock Market, Inc. or any automated quotation system
sponsored by the National Association of Securities Dealers, Inc., its Market
Value shall be set in good faith by the Committee.
(p) "OFFERING DATE" shall mean such dates designated by the
Committee in its sole discretion.
(q) "OPTION" shall mean the right or rights granted to Eligible
Employees to purchase the Company's Common Stock under an offering made under
the Plan and pursuant to such Eligible Employees' elections to purchase.
(r) "PARENT" shall mean any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if, at the time of
granting an Option, each of the corporations other than the employer corporation
owns stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
(s) "PARTICIPANT" shall mean an Eligible Employee who participates
in the Plan.
(t) "PLAN" shall mean the Scholastic Corporation 1998 Employee Stock
Purchase Plan, as amended from time to time.
(u) "PURCHASE PERIOD" shall mean such period designated by the
Committee during which installment payments for Common Stock purchased under the
Plan shall be made.
(v) "RULE 16B-3" shall mean Rule 16b-3 promulgated under Section
16(b) of the Exchange Act as then in effect or any successor provisions.
(w) "SHARES", "STOCK' or "COMMON STOCK' shall mean shares of the
Company's common stock, par value $.01 per share.
(x) "SUBSIDIARY" shall mean any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company at the time of
granting an Option, each of the corporations other than the last corporation in
the unbroken chain owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
(y) "SUBSCRIPTION PERIOD" shall mean that period of time designated
by the Committee in any offer of Common Stock under the Plan beginning on the
first day Eligible Employees may elect to purchase Shares and ending on the last
day such elections to purchase are authorized to be received and accepted.
3
<PAGE>
3. SHARES RESERVED FOR PLAN.
(a) The Shares of the Company's Common Stock to be sold to Eligible
Employees under the Plan may, at the election of the Committee, be purchased by
the Agent on the open market or may be treasury shares or newly-issued and
authorized Shares delivered to the Plan, upon such terms as the Committee may
approve. The maximum number of Shares which shall be reserved and made available
for sale under the Plan shall be 200,000, subject to adjustment as provided in
paragraph (b) of this Section. The Shares reserved may be issued and sold
pursuant to one or more offerings under the Plan. With respect to each offering,
the Committee will specify the number of Shares to be made available, the length
of the Subscription Period, the length of the Purchase Period, the Offering
Dates and such other terms and conditions not inconsistent with the Plan as may
be necessary or appropriate. In no event shall the Subscription Period and the
Purchase Period together exceed twenty-seven (27) months for any offering.
(b) In the event of any increase, reduction, or change or exchange
of Common Stock for a different number or kind of Shares or other securities of
the Company by reason of a reclassification, recapitalization, merger,
consolidation, reorganization, stock dividend, stock split or reverse stock
split, combination or exchange of Shares, repurchase of Shares, change in
corporate structure or otherwise, the Committee shall conclusively determine the
appropriate equitable adjustments, if any, to be made under the Plan, including
without limitation adjustments to the number of Shares which have been
authorized for issuance under the Plan but have not yet been placed under
Option, as well as the price per Share of Common Stock covered by each Option
under the Plan which has not yet been exercised.
(c) In the event of the complete liquidation of the Company or of a
reorganization, consolidation or merger in which the Company is not the
surviving Corporation, any Option granted under the Plan shall continue in full
force and effect unless either (i) the Committee modifies such Option so that it
is fully exercisable with respect to all of the Common Stock subject thereto
prior to the effective date of such transaction or (ii) the surviving
corporation issues or assumes a stock option as contemplated under Section
424(a) of the Code.
4. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Committee and the
Committee may select an administrator or any other person to whom its duties and
responsibilities hereunder may be delegated. The Committee shall have full power
and authority, subject to the provisions of the Plan, to promulgate such rules
and regulations as it deems necessary for the proper administration of the Plan,
to interpret the provisions and supervise the administration of the Plan, and to
take all actions in connection therewith or in relation thereto as it deems
necessary or advisable. The Committee may adopt special guidelines and
provisions for persons who are residing in, or subject to the laws of, Foreign
Jurisdictions to comply with applicable tax and securities laws. All
interpretations and determinations of the Committee shall be made in its sole
and absolute discretion based on the Plan document and shall be final,
conclusive and binding on all parties.
4
<PAGE>
(b) The Committee may employ such legal counsel, consultants,
brokers and agents as it may deem desirable for the administration of the Plan
and may rely upon any opinion received from any such counsel or consultant and
any computation received from any such consultant, broker or agent. The
Committee may, in its sole discretion, designate an Agent to administer the
Plan, purchase and sell Shares in accordance with the Plan, keep records, send
statements of account to employees and to perform other duties relating to the
Plan, as the Committee may request from time to time. The Agent shall serve as
custodian for purposes of the Plan and, unless otherwise requested by the
Participant, Common Stock purchased under the Plan shall be held by and in the
name of, or in the name of a nominee of, the custodian for the benefit of each
Participant, who shall thereafter be a beneficial stockholder of the Company.
The Committee may adopt, amend or repeal any guidelines or requirements
necessary for the custody and delivery of the Common Stock, including, without
limitation, guidelines regarding the imposition of reasonable fees in certain
circumstances.
(c) The Company shall, to the fullest extent permitted by law and
the Certificate of Incorporation and By-laws of the Company and, to the extent
not covered by insurance, indemnify each director, officer or employee of the
Employer (including the heirs, executors, administrators and other personal
representatives of such person) and each member of the Committee against all
expenses, costs, liabilities and losses (including attorneys' fees, judgments,
fines, excise taxes or penalties, and amounts paid or to be paid in settlement)
actually and reasonably incurred by such person in connection with any
threatened, pending or actual suit, action or proceeding (whether civil,
criminal, administrative or investigative in nature or otherwise) in which such
person may be involved by reason of the fact that he or she is or was serving
this Plan in any capacity at the request of the Company, except in instances
where any such person engages in willful neglect or fraud. Such right of
indemnification shall include the right to be paid by the Company for expenses
incurred or reasonably anticipated to be incurred in defending any such suit,
action or proceeding in advance of its disposition; provided, however, that the
payment of expenses in advance of the settlement or final disposition of a suit,
action or proceeding, shall be made only upon delivery to the Company of an
undertaking by or on behalf of such person to repay all amounts so advanced if
it is ultimately determined that such person is not entitled to be indemnified
hereunder. Such indemnification shall be in addition to any rights of
indemnification the person may have as a director, officer or employee or under
the Certificate of Incorporation of the Company or the By-Laws of the Company.
Expenses incurred by the Committee or the Board of Directors in the engagement
of any such counsel, consultant or agent shall be paid by the Company.
5. PARTICIPATION IN THE PLAN.
Options to purchase the Company's Common Stock under the Plan shall
be granted to all Eligible Employees; provided, however, that solely to the
extent allowable under Section 423 of the Code, the Committee may determine that
any offering of Common Stock under the Plan will not be extended to all or some
officers, highly compensated employees of the Employer or to those employees
whose principal duties consist of supervising the work of other employees. Any
decision relating to the inclusion or exclusion of any executive officer (as
defined in Rule 3b-7 promulgated under the Exchange Act as then in effect or any
successor provisions) of the Employer pursuant to this Section shall be made
only by the members of the
5
<PAGE>
Committee who are not executive officers of the Employer and who have not
participated or been eligible to participate in this Plan or any similar
employee stock option plan for a period of at least one year prior to such
determination.
6. PURCHASE PRICE.
The purchase price for Shares purchased pursuant to the Plan shall
be determined by the Committee, in its sole discretion, and shall remain in
effect unless modified at least thirty (30) days prior to the applicable
Offering Date, but in no event shall be less than the lesser of: (i) eighty-five
percent (85%) of the Market Price of a Share of Common Stock on the first
business day of the Offering Period or (ii) eighty-five (85%) of the Market
Price of a Share of Common Stock on the Exercise Date. Effective as of the
effective date of the Plan until modified by the Committee, the price per Share
of the Common Stock subject to an offering shall be the lesser of: (i)
eighty-five percent (85%) of the Market Price of a Share of Common Stock on the
first business day of the Offering Period or (ii) eighty-five (85%) of the
Market Price of a Share of Common Stock on the Exercise Date.
7. METHOD OF PAYMENT.
Payment for Shares purchased pursuant to the Plan shall be made in
installments through payroll deductions, with no right of prepayment.
8. EMPLOYEE'S ELECTION TO PURCHASE. GRANTS OF OPTIONS.
(a) In order to participate in the Plan, an Eligible Employee must
sign an election to purchase Shares on a form provided by the Company stating
the Eligible Employee's desire to purchase Shares under the Plan and showing the
amount which the Eligible Employee elects to have withheld from his or her pay
for such payroll period during the Purchase Period. The election to purchase
Shares must be delivered on or before the last day of the Subscription Period to
the person or office designated to receive and accept such elections. An
Eligible Employee may increase or decrease such payroll deductions prior to the
beginning of any subsequent Subscription Period by giving sufficient prior
written notice to the Committee on a form provided by, or acceptable to, the
Committee for such purpose. An Eligible Employee may terminate a payroll
deduction authorization at any time, upon such written notice to the Committee
during such period as designated by the Committee. An authorization shall remain
in effect until modified or terminated by the Eligible Employee or until the
percentage used to determine the Option price is effectively increased.
(b) All payroll deductions made by a Participant shall be credited
to such Participant's account under the Plan. A Participant may not make any
additional payments into such account except as otherwise provided herein.
(c) In the event a Participant makes a hardship withdrawal of
employee deferral (401 (k)) contributions under a 401 (k) profit sharing plan of
the Company, a Subsidiary, or a Parent or an affiliate or any other plan
qualified under Section 401(a) of the Code that contains a Code Section 401(k)
feature, to the extent required by such plan, such Participant's
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payroll deductions and the purchase of Shares under the Plan shall be suspended
until the first payroll period following the Offering Date commencing after the
twelve (12) month period after such hardship withdrawal. If a Participant who
elects a hardship withdrawal under such a 401 (k) profit sharing plan or such
other plan has a cash balance accumulated in his or her account at the time of
withdrawal that has not already been applied to purchase Shares, such cash
balance shall be returned to the Participant as soon as administratively
practicable.
9. EXERCISE OF OPTION.
(a) A Participant's election to purchase Shares shall be exercised
automatically on the Exercise Date, and the maximum number of whole and/or
fractional Shares subject to such Option shall be purchased for such Participant
at the applicable Option price with the accumulated payroll deductions in such
Participant's account. If all or any portion of the Shares cannot reasonably be
purchased on the Exercise Date in the sole discretion of the Committee because
of unavailability or any other reason, such purchase shall be made as soon
thereafter as feasible. In no event shall certificates for any fractional Shares
be issued under the Plan.
(b) If the total number of Shares which would otherwise be subject
to Options granted on an Offering Date exceeds the number of Shares then
available under the Plan (after deduction of all Shares for which Options have
been exercised or are then outstanding), the Committee shall make a pro rata
allocation of the Shares remaining available for Option grant in as uniform a
manner as shall be practicable and as it shall determine to be equitable. In
such event, the Committee shall give written notice to each Participant of such
reduction of the number of Option Shares affected thereby and shall similarly
reduce the rate of payroll deductions, if necessary.
(c) All Shares included in any offering under the Plan in excess of
the total number of Shares which all Participants elect to purchase and all
Shares with respect to which elections to purchase are canceled as provided in
Section 14 shall continue to be reserved for the Plan and shall be available for
inclusion in any subsequent offering under the Plan.
10. DELIVERY OF COMMON STOCK.
(a) Certificates for whole shares of Common Stock shall not be
issued to Participants unless and until requested or as otherwise provided
herein. Such certificates shall be issued as soon as administratively feasible
following the Participant's request for issuance. If a Participant requests
certificates for whole shares of Common Stock, any fractional shares of Common
Stock shall remain in the Participant's account during his or her employment,
unless he or she requests cash in lieu of the fractional shares. A fee fixed by
the Plan's Agent or transfer agent, as the case may be, may be charged to the
Participant for the issuance of certificates of shares of Common Stock and for
the replacement of lost certificates. Certificates for a fractional share of
Common Stock shall not be issued under any circumstance. The Committee or the
Plan's Agent may establish limitations on the issuance of certificates to the
extent allowable by applicable law.
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(b) A Participant may request the Agent to sell all or a portion of
Shares for which certificates have not been issued and receive cash for such
Shares, subject to any brokerage fees or commissions.
(c) Notwithstanding any other provision of the Plan to the contrary,
following a Participant's termination of employment, death or retirement from
the Company, any Subsidiary and any Parent, the Participant (or, in the case of
death, his or her legal representative) shall elect, within such period as
prescribed by the Committee to (i) direct the Committee or Agent to sell all or
a portion of Shares for which certificates have not been issued and receive cash
for such Shares, subject to any brokerage fees or commissions; (ii) receive
certificates for all of the whole Shares and cash in lieu of any fractional
Shares credited to the Participant's account under the Plan; or (iii) receive
payment from the Plan for all Shares in such other manner permitted by the
Committee in its sole discretion, including permitting the transfer of
certificates for all Shares (including fractional Shares) credited to the
Participant's account under the Plan to an individual brokerage account
established by the Agent for the benefit of the Participant or for the benefit
of the Participant and his or her spouse as joint tenants with rights of
survivorship. The Committee may establish and adopt rules dictating the default
election of a Participant (or, in the case of death, his or her legal
representative) who does not make a timely election pursuant to this paragraph
(c). A fee fixed by the Plan's Agent may be charged to the Participant for the
issuance of certificates of Shares.
11. LIMITATIONS OF NUMBER OF SHARES WHICH MAY BE PURCHASED.
(a) Notwithstanding any provisions of the Plan to the contrary, no
individual shall be granted an Option under the Plan:
(i) if, immediately after the grant, such individual (or any
other person whose stock would be attributed to such individual pursuant to
Section 424(d) of the Code) would own stock and/or hold outstanding Options to
purchase stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of any Subsidiary or
Parent; or
(ii) which permits such individual's right to purchase stock
under all employee stock purchase plans (as described in Section 423 of the
Code) of the Company and any Subsidiary or Parent to accrue at a rate which
exceeds twenty five thousand dollars ($25,000) of fair market value of such
stock (determined at the time such option is granted) for any calendar year in
which such option is outstanding at any time; or
(iii) which permits an Eligible Employee to purchase Shares
during any one offering pursuant to the Plan for an aggregate purchase price
(which shall be computed on an annual basis in the event the Purchase Period is
more or less than twelve (12) months) in excess of ten percent (10%) of his or
her Annual Pay.
(b) An Eligible Employee may elect to purchase less than the number
of Shares which he or she is entitled to elect to purchase.
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12. STOCKHOLDER RIGHTS.
The Common Stock purchased upon exercise of an Option hereunder
shall be credited to the Participant's account under the Plan and shall be
deemed to be transferred to the Participant on the Exercise Date. Only upon the
issuance of Shares to a Participant or his agent (and only in respect to such
Shares purchased) shall a Participant obtain the rights of stockholders,
including, without limitation, any right to vote the Shares or receive any
dividends or any other distributions thereon. The Shares purchased will be
issued as soon as practicable after the Exercise Date.
13. RIGHTS TO PURCHASE SHARES NOT TRANSFERABLE.
(a) Neither payroll deductions credited to a Participant's account
nor any rights with regard to the exercise of an Option or to receive Shares
under the Plan may be sold, pledged, assigned or transferred in any manner
otherwise than by will or the laws of descent and distribution. Any such attempt
at assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 10 hereof.
(b) All rights of a Participant granted under this Plan, including
but not limited to, the grant of an Option, the right to exercise an Option and
the ability to authorize payroll deductions shall relate solely to a
Participant, except as otherwise provided in Section 17 hereof.
14. CANCELLATION OF ELECTION TO PURCHASE.
(a) An Eligible Employee who has elected to purchase Shares during a
Purchase Period may (i) cancel his or her election with respect to such Purchase
Period in the amount which he or she has authorized the Company to withhold from
his pay for each payroll period during the Purchase Period. Any such full or
partial cancellation shall be effective upon the delivery by the Eligible
Employee of sufficient prior written notice of cancellation on a form provided
by, or acceptable to, the Committee for such purpose to the office or person
designated by the Committee to receive such elections. Such notice of
cancellation must be so delivered before the close of business on the Exercise
Date. If an Eligible Employee partially cancels his original election by
reducing the amount authorized to be withheld from his pay, he or she shall
continue to make installment payments at the reduced rate for the remainder of
the Purchase Period. Only one partial cancellation may be made during a Purchase
Period, unless otherwise determined by the Committee.
(b) An Eligible Employee's rights upon the full or partial
cancellation of his or her election to purchase Shares shall be limited to the
following:
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(i) to receive in cash, as soon as practicable after delivery
of the notice of cancellation, the cash balance (without interest) then credited
to his or her account, except, in the case of a partial cancellation, he or she
must retain in his or her account the cumulative installment payments made
through the date of cancellation until the end of the Purchase Period, or
(ii) to have the cash balance credited to his account at the
time the cancellation becomes effective applied to the purchase of the number of
Shares such amount will then purchase at the end of the Purchase Period.
(c) A Participant's cancellation of his or her election to purchase
Shares in an offering shall not have any effect upon such Participant's
eligibility to participate in a subsequent offering or in any similar plan which
may hereafter be adopted by the Company.
15. LEAVE OF ABSENCE OR LAYOFF.
(a) A Participant who is granted a leave of absence (including a
military leave) or is laid off during a Purchase Period may at that time (on a
form provided by the Company) elect within such period prescribed by the
Committee, one of the following:
(i) to suspend payments during the leave of absence, or, in
the case of a layoff, he or she may suspend payments for not more than ninety
(90) days, but not in either case beyond the last month of the Purchase Period,
or
(ii) to cancel his election in accordance with Section 14.
(b) If the option described in subparagraph (i) of paragraph (a)
above is elected by the Participant, the Participant at the end of the
suspension period must make up the deficiency in his account either by immediate
lump sum payment or with installment payments so that, assuming the maximum
purchase price per Share, payment for the maximum number of Shares covered by
his option will be completed in the last month of the Purchase Period. If the
Participant elects to make increased installment payments, he or she may,
nevertheless, at any time make up his or her remaining deficiency by making a
lump sum payment.
(c) If a Participant does not return to active service upon the
expiration of his or her leave of absence or within ninety (90) days from the
date of his or her layoff, his or her election to purchase shall be deemed to
have been canceled at the time of the leave of absence or layoff. In the event
that such individual's leave of absence ends and such individual again becomes
an Eligible Employee, payroll deductions shall resume automatically in
accordance with his or her most recent payroll deduction authorization form in
effect prior to the leave of absence, unless he or she elects otherwise.
(d) Notwithstanding any other provision in this Section 15 to the
contrary, in no event shall a Participant be permitted to complete payment for
any Shares after twenty-seven (27) months from the date of the commencement of
the Subscription Period.
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16. EFFECT OF FAILURE TO MAKE PAYMENTS WHEN DUE.
(a) If in any payroll period, for any reason not set forth in
Section 14, a Participant who has filed an election to purchase Shares under the
Plan has no pay or his or her pay is insufficient (after other authorized
deductions) to permit deduction of his or her installment payment, the
Participant may make a payment to the Plan in cash at such time equal to the
amount of the installment payment deficiency. If such cash payment is not so
made, the Participant, when his or her pay is again sufficient to permit the
resumption of installment payments, must pay in cash the amount of the
deficiency in his or her account or arrange for uniformly increased installment
payments so that, assuming the maximum purchase price per Share, payment for the
maximum number of Shares covered by his or her Option will be completed in the
last month of the Purchase Period. If the Participant elects to make increased
installment payments, he or she may, nevertheless, at any time make up the
remaining deficiency by making a lump sum payment.
(b) Subject to paragraph (a) above and other provisions of the Plan
permitting postponement, the Company may treat the failure by a Participant to
make any payment as a cancellation of his or her election to purchase Shares.
Such cancellation will be affected by mailing notice to him or her at his or her
last known business or home address. Upon such mailing, his or her only right
will be to receive in cash the amount credited to his or her account.
17. RETIREMENT.
(a) If a Participant officially retires, as determined by the
Committee, at such time that he or she has an election to purchase Shares in
effect, he or she may, within three (3) months after the date of his or her
retirement date (but in no event later than the end of the Purchase Period), by
delivering written notice to the office or person designated to receive
elections within such time period as prescribed by the Committee, elect to:
(i) Complete the remaining installment payments in cash;
(ii) Make a lump sum payment in the amount of any deficiency
for the remaining portion of the Purchase Period; or
(iii) Cancel his or her election to purchase Shares in
accordance with the provisions of Section 14.
If no such notice is given within such period, the election will be
deemed canceled as of the date of retirement and the only right of the
Participant will be to receive in cash, the cash amount credited to his or her
account.
18. DEATH.
If a Participant, including a retired Participant, dies and has an
election to purchase Shares in effect at the time of his or her death, the legal
representative of the deceased Participant may, within three (3) months from the
date of death (but in no event later than the end
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of the Purchase Period), by delivering written notice on a form prescribed by
the Committee to the office or person designated to receive elections within
such time period as prescribed by the Committee, elect to:
(a) Complete the remaining installment payments in cash;
(b) Make a lump sum payment in the amount of any deficiency for the
remaining portion of the Purchase Period; or
(c) Cancel the election to purchase Shares in accordance with the
provisions of Section 14.
If no such notice is given within such period, the election will be
deemed canceled as of the date of death, and the only right of such legal
representative will be to receive in cash the amount credited to the deceased
Eligible Employee's account.
19. TERMINATION OF EMPLOYMENT OTHER THAN FOR RETIREMENT OR DEATH.
If an Eligible Employee's employment is terminated for any reason
other than retirement or death prior to the end of the Purchase Period, his or
her election to purchase shall thereupon be deemed canceled as of the date on
which his or her employment ended. In such an event, no further payments under
such election will be permitted, and the Eligible Employee's only right will be
to receive in cash the amount credited to his or her account.
20. DIVIDENDS AND INTEREST.
(a) Cash dividends, if any, on Shares acquired through the Plan will
be automatically paid by check directly to the Participant by the Company, or if
applicable, the transfer agent. Dividends paid in property other than cash or
Common Stock shall be distributed to Participants as soon as practicable.
(b) Except as required by law, including without limitation, the
Investment Company Act of 1940, as amended, no interest shall accrue on or be
payable with respect to the payroll deductions of a Participant in the Plan.
21. APPLICATION OF FUNDS.
All funds received by the Company in payment for Shares purchased
under the Plan and held by the Company at any time may be used for any valid
corporate purpose.
22. AMENDMENT AND TERMINATION.
The Company, by action of the Board of Directors (or a duly
authorized committee) or the Committee may at any time terminate, amend or
freeze the Plan. No such termination shall adversely affect Options previously
granted and no amendment may make any change in any Option theretofore granted
which adversely affects the rights of any Participant.
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No amendment shall be effective unless approved by the stockholders of the
Company if stockholder approval of such amendment is required to comply with
Section 423 of the Code or to comply with any other applicable law, regulation
or stock exchange rule. Upon termination of the Plan, the Company shall return
or distribute the payroll deductions credited to a Participant's account (that
have not been used to purchase Shares) and shall distribute or credit Shares
credited to a Participant's account. Upon the freezing of the Plan, any payroll
deductions credited to a Participant's account (that have not been used to
purchase Shares) shall be used to purchase Shares in accordance with Section 9,
substituting the term Exercise Date with the effective date of the freezing of
the Plan.
23. REPORTS.
Individual accounts shall be maintained for each Participant in the
Plan. Statements of account shall be given to Participants at such times
prescribed by the Committee; such statements shall set forth the amounts of
payroll deductions, the purchase price per Share, the number of Shares
purchased, the aggregate Shares in the Participant's account and the remaining
cash balance, if any.
24. EFFECTIVE DATE; GOVERNMENTAL APPROVALS OR CONSENTS.
The Plan is adopted, effective upon January 1, 1999, subject to the
approval of the Plan by stockholders of the Company, to the extent required by
Section 423 of the Code, in accordance with the Company's Certificate of
Incorporation then in effect and applicable state law, within twelve (12) months
before or after the Plan is adopted by the Board of Directors. The Plan and any
offerings and sales to Eligible Employees under it are subject to any
governmental approvals or consents that may be or become applicable in
connection therewith. The Board of Directors or the Committee may make such
changes in the Plan and include such terms in any offering under the Plan as may
be necessary or desirable, in the opinion of counsel, so that the Plan will
comply with the rules and regulations of any governmental authority and so that
Eligible Employees participating in the Plan will be eligible for tax benefits
under the Code or the laws of any state.
25. NOTICES.
All notices or other communications by a Participant to the Company
or the Committee under or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Company or Committee
at the location, or by the person, designated for the receipt thereof and within
the time period prescribed by the Company or Committee. Each Participant shall
be responsible for furnishing the Committee with the current and proper address
for the mailing of notices and the delivery of other information. Any notices or
communications by the Company to a Participant shall be deemed given if directed
to such address and mailed by regular United States mail, first-class and
prepaid. If any item mailed to such address is returned as undeliverable to the
addressee, mailing shall be suspended until the Participant furnishes the proper
address.
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26. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.
(a) This Plan and the rights of all persons claiming hereunder shall
be construed and determined in accordance with the laws of the State of Delaware
without giving effect to the choice of law principles thereof, except to the
extent that such law is preempted by federal law.
(b) The obligation of the Company to sell or deliver Shares with
respect to Options granted under the Plan shall be subject to all applicable
laws, rules and regulations, including all applicable federal and state
securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
(c) To the extent required, the Plan is intended to comply with Rule
16b-3 and the Committee shall interpret and administer the provisions of the
Plan in a manner consistent therewith. Any provisions inconsistent with Rule
16b-3 shall be inoperative and shall not affect the validity of the Plan. The
Committee may establish and adopt administrative guidelines, designed to
facilitate compliance with Section 16(b) of the Exchange Act and Rule 16b-3, as
it may deem necessary or proper for the administration and operation of the Plan
and the transaction of business thereunder.
27. WITHHOLDING OF TAXES.
(a) If the Participant makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of any Share
or Shares issued to such Participant pursuant to such Participant's exercise of
an Option, and such disposition occurs within the two-year period commencing on
the day after the Offering Date or within the one-year period commencing on the
day after the Exercise Date, such Participant shall immediately, or as soon as
practicable thereafter, notify the Company thereof and thereafter immediately
deliver to the Company any amount of federal, state or local income taxes and
other amounts which the Company informs the Participant the Company is required
to withhold.
(b) Notwithstanding anything herein to the contrary, the Employer
shall have the right to make such provisions as it deems necessary to satisfy
any obligations to withhold federal, state, or local income taxes or other taxes
incurred by reason of the issuance of Common Stock pursuant to the Plan.
Notwithstanding anything herein to the contrary, the Employer may require a
Participant to remit an amount equal to the required withholding amount and may
invalidate any election if the Participant does not remit applicable withholding
taxes. Without limiting the generality of the foregoing, any withholding
obligation with regard to any Participant may be satisfied by: (i) reducing the
number of shares of Common Stock otherwise deliverable to the Participant; (ii)
subject to the Committee's prior consent, any method approved by the Committee;
or (iii) by the Participant paying cash directly to the Company.
28. LEGEND.
(a) The Committee may require each person receiving shares pursuant
to the exercise of an Option under the Plan to represent to and agree with the
Company in writing that
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the Participant is acquiring the shares without a view to distribution thereof.
In addition to any legend required by this Plan, the certificates for such
Shares may include any legend which the Committee deems appropriate to reflect
any restrictions on transfer.
(b) All certificates for Shares delivered under the Plan shall be
subject to such stock transfer orders and other restrictions as the Committee
may deem advisable to assist in the compliance with any applicable tax
withholding laws or under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Common
Stock is then listed or any national securities association system upon whose
system the Common Stock is then quoted, any applicable Federal or state
securities law, and any applicable corporate law and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
29. NO EMPLOYMENT RIGHTS.
The establishment and operation of this Plan shall not confer any
legal rights upon any Participant or other person for a continuation of
employment, nor shall it interfere with the rights of an Employer to discharge
any employee and to treat him or her without regard to the effect which that
treatment might have upon him or her as a Participant or potential Participant
under the Plan.
30. SEVERABILITY OF PROVISIONS.
If any provision of the Plan shall be held invalid or unenforceable,
such invalidity or unenforceability shall not affect any other provisions
hereof, and the Plan shall be construed and enforced as if such provisions had
not been included.
31. CONSTRUCTION.
The use of a masculine pronoun shall include the feminine, and the
singular form shall include the plural form, unless the context clearly
indicates otherwise. The headings and captions herein are provided for reference
and convenience only, shall not be considered part of the Plan, and shall not be
employed in the construction of the Plan.
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Exhibit 10.15
Scholastic Corporation 1998 Management Stock Purchase Plan
<PAGE>
- --------------------------------------------------------------------------------
SCHOLASTIC CORPORATION
MANAGEMENT STOCK PURCHASE PLAN
- --------------------------------------------------------------------------------
Effective January 1, 1999
<PAGE>
SCHOALSTIC CORPORATION
MANAGEMENT STOCK PURCHASE PLAN
Table Of Contents
Article 1 - Introduction.....................................................1
Article 2 - Definitions......................................................1
Article 3 - Shares Reserved..................................................4
Article 4 - Administration...................................................4
Article 5 - Eligibility......................................................5
Article 6 - Purchases and Award of RSUs......................................5
Article 7 - Vesting and Payment of RSUs......................................6
Article 8 - Dividend Equivalent Amounts......................................8
Article 9 - Designation of Beneficiary.......................................8
Article 10 - Adjustments.....................................................8
Article 11 - Amendment or Termination of Plan................................9
Article 12 - Miscellaneous Provisions........................................9
i
<PAGE>
SCHOLASTIC CORPORATION
MANAGEMENT STOCK PURCHASE PLAN
ARTICLE 1 - INTRODUCTION
The purpose of the Scholastic Corporation Management Stock Purchase Plan
(the "Plan") is to provide equity incentive compensation to selected management
employees of Scholastic Corporation and its Affiliates. Participants in the Plan
receive restricted stock units at a discount in lieu of a portion or all of
their bonus awards under the Company's annual incentive plan. Under certain
circumstances, the restricted stock units convert into shares of Common Stock.
The Company believes that the Plan creates a means to provide deferred
compensation to such selected management employees and to raise the level of
stock ownership in the Company by such employees thereby strengthening the
mutuality of interests between such employees and the Company's stockholders.
ARTICLE 2 - DEFINITIONS
2.1 AFFILIATE - (i) any corporation, partnership, limited liability company or
other entity as to which the Company possesses a direct or indirect
ownership interest of at least fifty (50) percent or which possesses a
direct or indirect ownership interest of at least 50% in the Company
including, without limitation, any subsidiary corporation (as defined in
Section 424(f) of the Code) and parent corporation (as defined in Section
424(e) of the Code) and (ii) any other entity in which the Company or any
of its Affiliates has a material equity interest, as determined by the
Committee.
2.2 AWARD DATE - the date a Bonus for a year is paid or otherwise would be
paid.
2.3 AWARD VALUE - the Fair Market Value of a share of Common Stock on the
Award Date.
2.4 BENEFICIARY - a Beneficiary or Beneficiaries designated by the Participant
under Article 9.
2.5 BONUS - a Participant's annual award for a Fiscal Year under the Company's
Annual Incentive Plan.
2.6 BOARD OF DIRECTORS - the Board of Directors of the Company or the
Executive Committee of such Board of Directors.
2.7 CAUSE - any of the following: (i) any act or acts by the Participant
constituting a felony under the laws of the United States, any state
thereof, or any political subdivision thereof, (ii) the Participant's
willful and continued failure to perform the duties assigned to him or her
as an employee or consultant of the Company or Affiliate; (iii) any
material breach by the Participant of any employment or consulting
agreement with the Company or Affiliate; (iv) dishonesty, gross negligence
or malfeasance by the Participant in the performance of his or her duties
as an employee or consultant of the Company or Affiliate or any conduct by
the Participant which involves a material conflict of interest
<PAGE>
with any business of the Company or Affiliate; or (v) the taking or
knowingly omitting to take any other action or actions in the performance
of the Participant's duties as an employee or consultant of the Company or
Affiliate without informing appropriate members of management to whom such
Participant reports, which action or actions, in the determination of the
Committee, have caused or substantially contributed to the material
deterioration in the business of the Company and its Affiliates, taken as
a whole.
2.8 CODE - the Internal Revenue Code of 1986, as amended from time to time.
2.9 COMMITTEE - the committee of the Board of Directors authorized to
administer the Plan. To the extent that no Committee exists which has the
authority to administer the Plan, the functions of the Committee shall be
exercised by the Board of Directors. The Committee shall consist of two or
more non-employee directors, each of whom is intended to be, to the extent
required by Rule 16b-3, a "non-employee director" as defined in Rule
16b-3. If for any reason the appointed Committee does not meet the
requirements of Rule 16b-3, such noncompliance shall not affect the
validity of any grants of RSUs hereunder, interpretations or other actions
of the Committee.
2.10 COMMON STOCK OR STOCK - Common Stock of the Company, par value $.01 per
share.
2.11 COMPANY - Scholastic Corporation, a corporation organized under the laws
of the State of Delaware (or any successor).
2.12 COST - the cost of purchasing an RSU under the Plan as of an Award Date,
as determined by the Committee in its sole discretion, but in no event
less than eighty-five (85%) percent of the Fair Market Value of a share of
Common Stock on the Award Date. The cost shall be established as of the
applicable Award Date and shall remain in effect unless modified by the
Committee at least thirty (30) days prior to the applicable Award Date.
Effective as of the effective date of the Plan until modified by the
Committee, the Cost shall be eighty-five (85%) percent of the Fair Market
Value of a share of Common Stock on the Award Date.
2.13 DEFERRAL PERIOD - a period of time (expressed in whole years) not less
than three years beginning on an Award Date as specified by the
Participant in his or her Subscription Agreement with respect to RSUs
awarded on that Award Date; provided, however, that the Committee may
establish, in its sole discretion, a fixed date as the end of the Deferral
Period or fixed period specified with respect to RSUs awarded on that
Award Date.
2.14 DISABILITY - complete and permanent inability by reason of illness or
accident to perform the duties of the occupation at which the Participant
was employed when such disability commenced, as determined by the
Committee based on medical evidence available to it.
2.15 EXCHANGE ACT - the Securities Exchange Act of 1934, as amended.
2.16 FAIR MARKET VALUE - unless otherwise required by any applicable provision
of the Code or any regulations issued thereunder, as of any date, the last
sales price reported for the
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Common Stock on the applicable date: (i) as reported on the principal
national securities exchange on which it is then traded or the NASDAQ
Stock Market, Inc. or (ii) if not traded on any such national securities
exchange or the NASDAQ Stock Market, Inc. as quoted on an automated
quotation system sponsored by the National Association of Securities
Dealers, Inc. If the Common Stock is not readily tradable on a national
securities exchange, the NASDAQ Stock Market, Inc. or any automated
quotation system sponsored by the National Association of Securities
Dealers, Inc., its Fair Market Value shall be set in good faith by the
Committee.
2.17 FISCAL YEAR - the fiscal year of the Company.
2.18 FOREIGN JURISDICTION - any jurisdiction outside of the United States
including, without limitation, countries, states, provinces and
localities.
2.19 PARTICIPANT - a management employee of the Company or any Affiliate who
satisfies the eligibility requirements under Article 5 of the Plan and
elects to participate in the Plan in accordance with its terms.
2.20 PLAN - the Scholastic Corporation Management Stock Purchase Plan, as
amended from time to time.
2.21 PLAN YEAR - the Fiscal Year, except that the first Plan Year shall be the
short year beginning on the effective date of the Plan and ending on May
31, 1999.
2.22 RETIREMENT - termination of employment with the Company and all Affiliates
on or after age fifty-five (55).
2.23 RULE 16B-3 - means Rule 16b-3 promulgated under Section 16(b) of the
Exchange Act or any successor provision.
2.24 RSU - a unit of measurement equivalent to one share of Common Stock but
with none of the attendant rights of a stockholder of a share of Common
Stock, including the right to vote (if any); except that an RSU shall have
the dividend right described in Article 8. The fair market value of an RSU
on any date shall be deemed to be the Fair Market Value of a share of
Common Stock on that date.
2.25 SUBSCRIPTION AGREEMENT - an agreement executed by a Participant setting
forth his or her election to defer receipt of a portion or all of his or
her Bonus for the Deferral Period and to authorize the Company to credit
such amount to the Plan in order to purchase an award of RSU. A
Subscription Agreement shall contain such provisions, consistent with the
provisions of the Plan, as may be established from time to time by the
Company or Committee.
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ARTICLE 3 - SHARES RESERVED
The aggregate number of shares of Common Stock reserved for issuance
pursuant to the Plan or with respect to which RSUs may be granted shall be
150,000, subject to adjustment as provided in Article 10 hereof.
Such number of shares may be set aside out of the authorized but unissued
shares of Common Stock not reserved for any other purpose, or out of issued
shares of Common Stock acquired for and held in the treasury of the Company. If
any RSU awarded under the Plan is forfeited, terminated or canceled for any
reason, the share of Common Stock relating to such RSU shall again be available
under the Plan. If Common Stock has been exchanged by a Participant as full or
partial payment to the Company for withholding taxes or otherwise or if the
number of shares of Common Stock otherwise deliverable has been reduced for
withholding, the number of shares exchanged or reduced shall again be available
under the Plan.
ARTICLE 4 - ADMINISTRATION
4.1 The Plan shall be administered by the Committee. The Committee may select
an administrator or any other person to whom its duties and
responsibilities hereunder may be delegated. The Committee shall have full
power and authority, subject to the provisions of the Plan, to promulgate
such rules and regulations as it deems necessary for the proper
administration of the Plan, to interpret the provisions and supervise the
administration of the Plan, and to take all actions in connection
therewith or in relation thereto as it deems necessary or advisable. The
Committee may adopt special guidelines and provisions for persons who are
residing in, or subject to the laws of, Foreign Jurisdictions to comply
with applicable tax and securities laws. All interpretations and
determinations of the Committee shall be made in its sole and absolute
discretion based on the Plan document and shall be final, conclusive and
binding on all parties with respect to all matters relating to the Plan.
4.2 The Committee may employ such legal counsel, consultants, brokers and
agents as it may deem desirable for the administration of the Plan and may
rely upon any opinion received from any such counsel or consultant and any
computation received from any such consultant, broker or agent. The
Committee may, in its sole discretion, designate an agent to administer
the Plan, keep records, send statements of account to Participants and to
perform other duties relating to the Plan, as the Committee may request
from time to time. The Committee may adopt, amend or repeal any guidelines
or requirements necessary for the delivery of the Common Stock.
4.3 The Company shall, to the fullest extent permitted by law and the
Certificate of Incorporation and By-laws of the Company and, to the extent
not covered by insurance, indemnify each director, officer or employee of
the Company and its Affiliates (including the heirs, executors,
administrators and other personal representatives of such person) and each
member of the Committee against all expenses, costs, liabilities and losses
(including attorneys' fees, judgments, fines, excise taxes or penalties,
and amounts paid or to be paid in settlement) actually and reasonably
incurred by such person in connection with any
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threatened, pending or actual suit, action or proceeding (whether civil,
criminal, administrative or investigative in nature or otherwise) in which
such person may be involved by reason of the fact that he or she is or was
serving this Plan in any capacity at the request of the Company, except in
instances where any such person engages in willful neglect or fraud. Such
right of indemnification shall include the right to be paid by the Company
for expenses incurred or reasonably anticipated to be incurred in
defending any such suit, action or proceeding in advance of its
disposition; provided, however, that the payment of expenses in advance of
the settlement or final disposition of a suit, action or proceeding shall
be made only upon delivery to the Company of an undertaking by or on
behalf of such person to repay all amounts so advanced if it is ultimately
determined that such person is not entitled to be indemnified hereunder.
Such indemnification shall be in addition to any rights of indemnification
the person may have as a director, officer or employee or under the
Certificate of Incorporation of the Company or the By-Laws of the Company.
Expenses incurred by the Committee or the Board in the engagement of any
such counsel, consultant or agent shall be paid by the Company.
ARTICLE 5 - ELIGIBILITY
Management employees of the Company and its Affiliates as designated by
the Committee shall be eligible to participate in the Plan. Eligibility for
participation in the Plan shall be determined by the Committee in its sole
discretion. The Committee may, in its sole discretion, designate, on a
prospective basis, any Participant in the Plan as ineligible to receive awards
of RSUs pursuant to Article 6 of the Plan.
ARTICLE 6 - PURCHASES
6.1 GENERAL.
Each Participant shall be entitled to elect to receive up to one hundred
(100%) percent of his or her Bonus as an award of RSU. As of the
applicable Award Date, RSUs shall be awarded to Participants and credited
to accounts held under the Plan on behalf of Participants on a book entry
basis calculated in the manner provided under Section 6.3.
6.2 VOLUNTARY PURCHASES.
No later than the last day of the first quarter of each Fiscal Year, each
Participant may elect to receive up to one hundred (100%) percent of his
or her Bonus for that Fiscal Year as an award of RSUs by completing a
Subscription Agreement. Notwithstanding the foregoing, for the first Plan
Year, a Participant may elect to participate in the Plan for that Plan
Year no later than the date set by the Committee in its sole discretion
pursuant to procedures set by the Committee. If an employee of the Company
or an Affiliate first becomes eligible to participate hereunder during a
Plan Year, such employee may elect to participate in the Plan for that
Plan Year pursuant to procedures established by the Committee (solely with
respect to the PRO RATA portion of the Bonus earned after the Subscription
Agreement is executed and delivered to the Company). The Subscription
Agreement shall provide that the Participant elects to receive RSUs in
lieu of a specified portion of his or her Bonus. Such portion may be
expressed as:
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(a) a specified percentage of up to one hundred (100%) percent (in whole
percentages) of the Participant's actual Bonus amount;
(b) a specified dollar amount, up to one hundred (100%) percent of the
Participant's actual Bonus amount; or
(c) the lesser of the amount specified in Section 6.2(a) or (b).
Amounts specified pursuant to any of the methods set forth herein
are entirely contingent on, and are limited to, the amount of Bonus
actually awarded. Each Subscription Agreement, in addition, shall specify
a Deferral Period with respect to the RSUs to which it pertains. The
Committee may, in its sole discretion, permit the Deferral Period with
respect to the RSUs to which it pertains to be changed upon one year's
notice to the Committee. Other than with respect to the first Plan Year or
with respect to an employee of the Company or an Affiliate who first
becomes eligible to participate hereunder during a Plan Year, Subscription
Agreements must be received by the Company no later than the last day of
the first quarter of the Fiscal Year for which such Bonus amount will be
determined. With respect to any Plan Year, an election to receive RSUs in
lieu of a portion or all of a Bonus hereunder pursuant to a Subscription
Agreement is irrevocable on and after the date the Subscription Agreement
must be submitted to the Company and is valid solely for the Plan Year to
which the election relates. If no new Subscription Agreement is timely
made with respect to any subsequent Plan Year, the Bonus earned in such
Plan Year shall not be deferred under the Plan.
6.3 AWARDS OF RSUS.
The Company shall award RSUs to each Participant's account under the Plan
on the Award Date. Each Participant's account shall be credited with a
number of RSUs (in whole and fractional RSUS) determined by dividing (a)
the amount of the Participant's Bonus to be received as an award of RSUs
in accordance with the Participant's Subscription Agreement and the
methodology under Section 6.2 by (b) the Cost of a share of Common Stock
on the Award Date.
ARTICLE 7 - VESTING AND PAYMENT OF RSUS
7.1 VESTING.
A Participant shall be fully vested in each RSU three years after the
Award Date pertaining to that RSU (provided that the Participant is
continuously employed (including any period during which the Participant
is on a leave of absence, either paid or unpaid, which is approved by the
Committee, or any other break in employment which is approved by the
Committee) by the Company or any Affiliate for such years) or, if earlier,
upon death while employed, Disability while employed or Retirement. The
Committee may, in its sole discretion, accelerate (in whole or part) the
time at which any such RSUs may be vested, based on such factors, if any,
as the Committee shall determine in its sole discretion.
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7.2 PAYMENT ON OR AFTER VESTING.
With respect to each vested RSU, the Company shall issue to the
Participant one share of Common Stock and/or cash in lieu of any
fractional RSU as soon as practicable after the end of the Deferral Period
specified in the Participant's Subscription Agreement pertaining to such
RSU, or, if earlier, the Participant's termination of employment with the
Company and its Affiliates or the termination of the Plan.
7.3 PAYMENT PRIOR TO VESTING.
(a) VOLUNTARY TERMINATION; TERMINATION FOR CAUSE. If a Participant
voluntarily terminates his or her employment with the Company and
its Affiliates for reasons other than death, Disability or is
involuntarily terminated by the Company or an Affiliate for Cause,
the Participant's nonvested RSUs shall be canceled, and he or she
shall receive as soon as practicable after his or her termination of
employment with the Company and its Affiliates a cash payment equal
to the lesser of:
i) an amount equal to the number of those nonvested RSUs
awarded on each Award Date multiplied by the respective
Cost of those RSUs; or
ii) an amount equal to the number of those nonvested RSUs
awarded on each Award Date multiplied by the Fair Market
Value of a share of Common Stock on the date of the
Participant's termination of employment with the Company
and its Affiliates.
(b) INVOLUNTARY TERMINATION. If a Participant's employment is terminated
by the Company or an Affiliate for any reason other than Cause, the
Participant's nonvested RSUs shall be canceled and he or she shall
receive payment as soon as practicable following his or her
termination of employment with the Company and its Affiliates as
described below:
i) The number of nonvested RSUs awarded on each Award Date
shall be multiplied by a fraction, the numerator of
which is the number of full years that the Participant
was employed by the Company or any Affiliate after that
Award Date and the denominator of which is three; and
the Participant shall receive the resulting number of
such RSUs in shares of Common Stock, with any fractional
RSU paid in cash.
ii) With respect to the Participant's remaining nonvested
RSUs, the Participant shall receive cash in an amount
equal to the lesser of: (A) the number of such nonvested
RSUs awarded on each Award Date multiplied by the
respective Cost of those RSUs; or (B) the number of
those nonvested RSUs awarded on each Award Date
multiplied by the Fair Market Value of a share of Common
Stock on the date of the Participant's termination of
employment with the Company and its Affiliates.
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(c) COMMITTEE'S DISCRETION. The Committee shall have complete discretion
to determine the circumstances of a Participant's termination of
employment with the Company and its Affiliates, including whether
the same results from voluntary termination, Disability, Retirement,
death or termination by the Company for or not for Cause, and the
Committee's determination shall be final and binding on all parties
and not subject to review or challenge by any Participant or other
person.
ARTICLE 8 - DIVIDEND EQUIVALENT AMOUNTS
Whenever dividends (other than dividends payable only in shares of Common
Stock) are paid with respect to shares of Common Stock, each Participant shall
be paid an amount in cash equal to the number of his or her vested RSUs
multiplied by the dividend value per share. Dividends (other than dividends
payable only in shares of Common Stock) shall not be credited or paid with
respect to each Participant's nonvested RSUs.
ARTICLE 9 - DESIGNATION OF BENEFICIARY
A Participant may designate one or more Beneficiaries to receive payments
or shares of Common Stock in the event of his or her death. A designation of
Beneficiary shall apply to a specified percentage of a Participant's entire
interest in the Plan. Such designation, or any change therein, must be in
writing in a form acceptable to the Company and shall be effective upon receipt
by the Company. If there is no effective designation of Beneficiary, or if no
Beneficiary survives the Participant, the Participant's estate shall be deemed
to be the Beneficiary.
ARTICLE 10 - ADJUSTMENTS
In the event of a stock dividend, stock split, reverse stock split,
combination or reclassification of shares, recapitalization, merger,
consolidation, exchange, spin-off or otherwise which affects Common Stock, the
Committee shall make appropriate equitable adjustments in:
(a) the number or kind of shares of Common Stock or securities with
respect to which RSUs shall thereafter be granted;
(b) the number and kind of shares of Common Stock remaining subject to
outstanding RSUs;
(c) the number of RSUs credited to each Participant; and
(d) the method of determining the value of RSUs.
ARTICLE 11 - AMENDMENT OR TERMINATION OF PLAN
The Company reserves the right to amend, terminate or freeze the Plan at
any time, by action of its Board of Directors (or a duly authorized committee
thereof) or the Committee,
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provided that no such action shall adversely affect a Participant's rights under
the Plan with respect to RSUs awarded and vested before the date of such action.
No amendment shall be effective unless approved by the stockholders of the
Company if stockholder approval of such amendment is required to comply with any
applicable law, regulation or stock exchange rule. Upon termination of the Plan,
any vested RSU shall be paid in accordance with Section 7.2 of the Plan and any
nonvested RSU shall be canceled and paid in accordance with Section 7.3(b) of
the Plan except that such amount shall be paid as soon as administratively
practicable following the Plan termination. Upon freezing of the Plan, all
vested RSUs awarded prior to freezing shall continue to be held under the Plan
until the Deferral Period expires and all nonvested RSUs awarded prior to
freezing shall vest or become canceled in accordance with the terms of the Plan.
ARTICLE 12 - MISCELLANEOUS PROVISIONS
12.1 NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS.
The Committee may require each person acquiring shares of Common Stock
under the Plan to represent to and agree with the Company in writing that
such person is acquiring the shares without a view to distribution
thereof. No shares of Common Stock shall be issued until all applicable
securities law and other legal and stock exchange requirements have been
satisfied. The Committee may require the placing of such stop-orders and
restrictive legends on certificates for Common Stock as it deems
appropriate.
12.2 WITHHOLDING.
Participation in the Plan is subject to any required tax withholding on
wages or other income of the Participant in connection with the Plan. Each
Participant agrees, by entering the Plan, that the Company or the
Affiliate employing the Participant shall have the right to deduct any
federal, state or local income taxes or other taxes, in its sole
discretion, from any amount payable to the Participant under the Plan or
from any payment of any kind otherwise due to the Participant. Upon the
vesting of the RSU, prior to the issuance or delivery of shares of Common
Stock or the payment of any cash hereunder, a Participant shall pay all
required withholding to the Company and, if applicable, an Affiliate.
Without limiting the generality of the foregoing, any withholding
obligation with regard to any Participant may be satisfied by: (i)
reducing the number of shares of Common Stock otherwise deliverable to the
Participant; (ii) subject to the Committee's prior consent, any method
approved by the Committee which may include the Participant delivering
shares of Common Stock already owned for at least six months (or such
other period to avoid an accounting charge against the Company's earnings)
and held free and clear of all encumbrances to the Company; or (iii) by
the Participant paying cash directly to the Company.
12.3 NOTICES; DELIVERY OF STOCK CERTIFICATES.
Any notice required or permitted to be given by the Company or the
Committee pursuant to the Plan shall be deemed given when personally
delivered or deposited in the United States mail, registered or certified,
postage prepaid, addressed to the Participant at the last address shown
for the Participant on the records of the Company. Delivery of stock
certificates to persons entitled to receive them under the Plan shall be
deemed effected for all purposes when the Company or a share transfer
agent of the Company shall have
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deposited such certificates in the United States mail, addressed to such
person at his/her last known address on file with the Company.
12.4 NONTRANSFERABILITY OF RIGHTS
During a Participant's lifetime, any payment or issuance of shares under
the Plan shall be made to him or her otherwise than by will or the laws of
descent and distribution. No RSU or other interest under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, garnishment, execution, levy or charge,
and any attempt by a Participant or any Beneficiary under the Plan to do
so shall be void. No interest under the Plan shall in any manner be liable
for or subject to the debts, contracts, liabilities, engagements or torts
or a Participant or Beneficiary entitled thereto.
12.5 OBLIGATIONS UNFUNDED AND UNSECURED.
The Plan shall at all times be entirely unfunded, and no provision shall
at any time be made with respect to segregating assets of the Company
(including Common Stock) for payment of any amounts or issuance of any
shares of Common Stock hereunder. No Participant or other person shall own
any interest in any particular assets of the Company or any Affiliate
(including Common Stock) by reason of the right to receive payment under
the Plan, and any Participant or other person shall have only the rights
of a general unsecured creditor of the Company with respect to any rights
under the Plan. Nothing contained in this Plan and no action taken
pursuant to the provisions of this Plan shall create or be construed to
create a trust of any kind, or a fiduciary relationship amongst the
Company, any Affiliate, the Committee, and the Participants, their
designated Beneficiaries or any other person. Any funds which may be
invested under the provisions of this Plan shall continue for all purposes
to be part of the general funds of the Company and no person other than
the Company shall by virtue of the provisions of this Plan have any
interest in such funds. If the Company decides to establish any accrued
reserve on its books against the future expense of benefits payable
hereunder, or if the Company establishes a rabbi trust under this Plan,
such reserve or trust shall not under any circumstances be deemed to be an
asset of the Plan.
12.6 GOVERNING LAW.
The Plan is established in order to provide deferred compensation to a
select group of management and highly compensated employees within the
meanings of Sections 201(2) and 301(a)(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). To the extent legally
required, the Code and ERISA shall govern the Plan and, if any provision
hereof is in violation of any applicable requirement thereof, the Company
reserves the right to retroactively amend the Plan to comply therewith. To
the extent not governed by the Code and ERISA, the terms of the Plan shall
be governed, construed, administered and regulated in accordance with the
laws of Delaware. In the event any provision of this Plan shall be
determined to be illegal or invalid for any reason, the other provisions
shall continue in full force and effect as if such illegal or invalid
provision had never been included herein.
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12.7 CLAIMS PROCEDURE
A Participant or Beneficiary shall make any claim (and, in the case of the
denial of such claim, any appeal) in writing to the Committee or such
other person designated by the Committee in accordance with the claims
procedure established by the Committee, which is intended to comply with
the claims procedure provided under ERISA and U.S. Department of Labor
Regulation ss. 2560.503- 1.
12.8 RULE 16B-3
To the extent required, the Plan is intended to comply with Rule 16b-3 and
the Committee shall interpret and administer the provisions of the Plan in
a manner consistent therewith. If a management employee is designated by
the Committee to participate hereunder, any election to receive an award
of RSUs shall be deemed approved by such Committee and shall be deemed an
exempt purchase under Rule 16b-3. Any provisions inconsistent with Rule
16b-3 shall be inoperative and shall not affect the validity of the Plan.
12.9 NO EMPLOYMENT RIGHTS.
The establishment and operation of this Plan shall not confer any legal
rights upon any Participant or other person for a continuation of
employment, nor shall it interfere with the rights of the Company or
Affiliate to discharge any employee and to treat him or her without regard
to the effect which that treatment might have upon him or her as a
Participant or potential Participant under the Plan.
12.10 SEVERABILITY OF PROVISIONS.
If any provision of the Plan shall be held invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provisions
hereof, and the Plan shall be construed and enforced as if such provisions
had not been included.
12.11 CONSTRUCTION.
The use of a masculine pronoun shall include the feminine, and the
singular form shall include the plural form, unless the context clearly
indicates otherwise. The headings and captions herein are provided for
reference and convenience only, shall not be considered part of the Plan,
and shall not be employed in the construction of the Plan.
12.12 EFFECTIVE DATE OF PLAN.
The Plan is adopted, effective upon January 1, 1999, subject to approval
of the stockholders of the Company as provided under applicable law,
regulation or stock exchange rule.
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Exhibit 10.16
Second Amendment to the Scholastic Inc. 401(k) Savings and Retirement Plan
<PAGE>
SECOND AMENDMENT TO THE
SCHOLASTIC INC. 401(K) SAVINGS AND RETIREMENT PLAN
In accordance with Section 12.1 of the Scholastic Inc. 401(k) Savings and
Retirement Plan (the "Plan"), the Plan is hereby amended in the following
particulars, effective January 1, 1999:
1. The first three paragraphs of the Plan (the three immediately preceding
Article I) are revised to read as follows:
The Plan was originally established effective January 1, 1986, as the
Scholastic Inc. Employee Stock Ownership Plan (the "Prior Plan") by Scholastic
Inc. for the exclusive benefit of its eligible employees and their
beneficiaries. On July 16, 1987, SI Acquisition Inc. merged with Scholastic Inc.
and, as a result of such merger, Scholastic Inc. became a wholly-owned
subsidiary of Scholastic Corporation (formerly known as SI Holdings Inc.), a
Delaware corporation. In addition, effective on the same date, the Prior Plan
was renamed the Scholastic Inc. 401(k) Savings and Retirement Plan and converted
into a profit-sharing plan with a cash or deferred arrangement and a savings
feature (the "Plan").
The Plan is intended to provide employees of Scholastic Inc. and its
affiliates that have adopted the Plan with the opportunity to accumulate savings
on a pre-tax and after-tax basis. Participation in the Plan by employees is
entirely voluntary.
Scholastic Inc. amended and restated the Plan, effective as of June 1,
1992 (except as otherwise specifically provided herein) to comply with the Tax
Reform Act of 1986, subsequent legislation and governmental regulations and
certain administrative and conforming amendments. The Plan has thereafter been
amended from time to time. Scholastic Inc. and Scholastic Corporation have now
determined it desirable to amend Section 1.11 of the Plan effective January 1,
1999, to designate Scholastic Corporation as the "Company" with all of the
powers, authority and responsibilities of the Company as outlined under the
Plan.
2. Section 1.3 is hereby revised to read as follows:
Section 1.3 "AFFILIATE" shall mean, except as otherwise provided in
Article XI, the Employer and each of (a) any corporation of which at least 80%
of the total combined voting power of all classes of stock entitled to vote is
owned at the time of reference, either directly or indirectly, by the Employer,
(b) any other trade or business whether or not incorporated, which, at the time
of reference, is controlled by or under common control with the Employer, within
the meaning of Section 414(c) of the Code, (c) any member, at the time of
reference, of an affiliated service group within the meaning of Section 414(m)
of the Code, which includes the Employer, and (d) any other entity required to
be aggregated with the Employer pursuant to regulations under Section 414(o) of
the Code.
<PAGE>
3. Section 1.11 of the Plan is hereby revised to read as follows:
Section 1.11 "COMPANY" shall mean Scholastic Corporation, a Delaware
corporation and its successors and assigns.
4. Section 1.18 is hereby revised to read as follows:
Section 1.18 "EMPLOYER" shall mean the Company and each of its direct and
indirect subsidiaries, except those expressly excluded at Appendix B, which may
be modified from time to time by Scholastic Inc.
5. Section 1.34 is revised to read as follows:
Section 1.34 "STOCK" shall mean the common stock of the Company.
6. Section 3.1 is hereby revised to read as follows:
Section 3.1 PARTICIPATION. An Eligible Employee who is employed by the
Employer shall become a Participant in the Plan as of the first day following
either: (a) the date the Employee authorizes the Employer to reduce his or her
Compensation for each pay period by an amount determined in accordance with
Section 4.1 and/or Section 4.6, provided that the election is made in advance of
the first day for which the election is effective at the time and in the manner
required by the Committee pursuant to such uniform rules and regulations as the
Committee shall establish; or (b) the date if any, that the Company, in its sole
discretion, determines to make Employer Contributions pursuant to Section 4.9 on
behalf of such Eligible Employees. An Employee who was a Participant in the
Prior Plan on the day before July 16, 1987 shall become a Participant in the
Plan on July 16, 1987. An Employee who was employed by an entity set forth in
Appendix A on the "date of acquisition" set forth in Appendix A and who became
an Employee as of such date of acquisition shall become a Participant on the
"participation date" set forth in Appendix A or, if later, the date on which he
becomes an Eligible Employee and the requirements of (a) or (b) above are met
with respect to such Employee. An Eligible Employee shall cease to be a
Participant in the Plan upon the complete distribution of his or her Account.
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IN WITNESS WHEREOF, the undersigned have executed this amendment this 10th
day of December, 1998.
SCHOLASTIC INC.
By: /s/ RICHARD SPAULDING
------------------------------------
Richard Spaulding
Chairman - Fiduciary Committee &
Executive Vice President
Agreed to by Scholastic Corporation
By: /s/ RICHARD SPAULDING
----------------------------------
Richard Spaulding
Chairman - Fiduciary Committee
& Executive Vice President
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Exhibit 10.17
Fourth Amendment to the Retirement Income Plan for Employees of Scholastic Inc.
<PAGE>
FOURTH AMENDMENT TO THE RETIREMENT INCOME PLAN FOR
EMPLOYEES OF SCHOLASTIC INC.
In accordance with Section 9.1 of the Retirement Income Plan for Employees
of Scholastic Inc. (the "Plan"), the Plan is hereby amended in the following
particulars, effective January 1, 1999:
1. The paragraph titled "PREFACE" is hereby revised to read as follows:
Effective as of February 1, 1985, the Retirement Income Plan for
Employees of Scholastic Inc. was established for eligible employees of
Scholastic Inc. and its participating affiliates, which Plan has from time to
time been amended. Scholastic Inc. amended and restated the Plan, effective as
of July 1, 1989 (except as otherwise specifically provided herein), to comply
with the Tax Reform Act of 1986, and subsequent legislation and governmental
regulations and certain administrative and conforming amendments. Members who
retired or otherwise terminated employment prior to such effective date are
governed by the terms of the Plan in effect at the time of their retirement or
termination.
Scholastic Inc. and Scholastic Corporation have determined it to be
desirable to amend Section 1.10 of the Plan, effective January 1, 1999, to
designate Scholastic Corporation as the "Company", with all of the powers,
authority and responsibility of the Company as outlined under the Plan.
2. Section 1.10 is hereby amended to read as follows:
1.10 "COMPANY"
Scholastic Corporation and its successors or assigns.
3. Section 1.18 is hereby amended to read as follows:
Section 1.18. "EMPLOYER" shall mean the Company and each of its
direct and indirect subsidiaries, except those expressly excluded at
Appendix D, which may be modified from time to time by Scholastic
Inc.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this amendment this
10th day of December, 1998.
SCHOLASTIC INC.
By: /s/ RICHARD SPAULDING
------------------------------------
Richard Spaulding
Chairman - Fiduciary Committee &
Executive Vice President
Agreed to by:
SCHOLASTIC CORPORATION
By: /s/ RICHARD SPAULDING
------------------------------------
Richard Spaulding
Chairman - Fiduciary Committee &
Executive Vice President
2
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