SCHOLASTIC
FISCAL 1999
FORM 10-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1999 Commission File No. 0-19860
SCHOLASTIC CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3385513
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation 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
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
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TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $.01 par value The NASDAQ Stock Market
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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. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the Common Stock, par value $0.01, held by
non-affiliates as of August 5, 1999, was approximately $555,225,000. As of such
date, non-affiliates held no shares of the Class A Stock, par value $0.01. There
is no active market for the Class A Stock.
The number of shares outstanding of each class of the Registrant's voting stock
as of August 5, 1999 was as follows: 15,669,892 shares of Common Stock and
828,100 shares of Class A Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the Registrant's
definitive proxy statement for the Annual Meeting of Stockholders to be held
September 15, 1999.
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PART I
ITEM 1 BUSINESS
OVERVIEW
Scholastic Corporation (together with its subsidiaries, "Scholastic" or the
"Company") is a global children's publishing and media company which creates and
distributes innovative, quality educational materials for use in schools and
homes, including children's books, textbooks, magazines, technology, teacher
materials, television programming, videos and toys. The Company is the world
leader in children's school book clubs and school book fairs and is among the
largest publishers and distributors of children's books worldwide.
Internationally, Scholastic operates wholly-owned companies in 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. The Company develops successful children's
books and then builds these brands into multimedia assets.
The Company's operations are categorized in four segments: Children's Book
Publishing and Distribution; Educational Publishing; Media, Licensing and
Advertising; (which together represent the Company's domestic operations); and
International.
The Company's Children's Book Publishing and Distribution segment includes the
publication and distribution in the United States of children's books through
its school-based book clubs (including home continuity programs), school-based
book fairs and trade channels. The Company believes that it operates the largest
school book club program and the largest school book fair business in the United
States. In fiscal 1999, Scholastic distributed in excess of 250 million
children's books in the United States.
The Company's Educational Publishing segment includes the publication and
distribution of K-12 textbooks, supplementary materials, classroom magazines and
instructional technology for core and supplemental use in United States schools
and libraries. In fiscal 1999, the United States circulation of the Company's
classroom magazines was approximately 7.8 million. The Company believes it has
one of the leading core curriculum reading programs - Scholastic Literacy
Place(R) in the United States.
The Company's Media, Licensing and Advertising segment includes the production
and the distribution by the Company's United States-based operations of
entertainment products (including television programming, videos and motion
pictures), Internet services and CD-ROM-based products and Scholastic-branded
licensed properties, as well as advertising and promotional activities.
The International segment includes the distribution of products and services
outside the United States by the Company's operations located in the United
Kingdom, Canada, Australia, New Zealand, Mexico, Hong Kong and India. For the
year ended May 31, 1999, approximately 80% of the Company's International
revenues were derived from the sale of children's books. The Company believes
that it operates the largest school book club program and the largest school
book fair business in the United Kingdom, Canada, Australia and New Zealand.
Most of the Company's revenues are generated by targeted direct mail programs to
schools and through telemarketing representatives. Additionally, the Company has
a sales force of full-time and part-time representatives calling on schools to
sell its core curriculum materials, supplementary texts, educational software,
magazines and library book programs. For trade distribution, the Company has a
retail sales force calling on bookstores and other retail outlets that include
the sale of children's books.
The following table sets forth revenues by operating segment for the three
fiscal years ended May 31:
(Amounts in millions)
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1999 1998 1997
Children's Book Publishing
and Distribution $ 657.9 $ 560.9 $511.6
Educational Publishing 190.6 196.1 163.4
Media, Licensing
and Advertising 115.6 105.3 112.2
International 190.6 196.1 179.1
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TOTAL $ 1,154.7 $ 1,058.4 $ 966.3
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Scholastic's revenues have grown at an average annual compounded rate of
approximately 9.3% from fiscal 1997 through fiscal 1999.
Scholastic Corporation was incorporated under the laws of Delaware in 1986 and
through its subsidiaries and predecessor entities has been in business since
1920.
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CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION
(57.0% of fiscal 1999 revenues)
GENERAL
The Company's Children's Book Publishing and Distribution segment includes the
publication and distribution of children's books in the United States through
its school-based book clubs (including home continuity programs), school-based
book fairs and the trade channel.
The Company has published books since 1948 and is one of the largest United
States publishers of children's books. The Company believes it is the largest
operator of school-based book clubs and book fairs in the United States and is
also one of the leading sellers of children's books through the trade channel.
The Company offers a broad range of quality children's literature. Many of the
books offered by the Company have received awards for excellence in children's
literature, including the Caldecott and the Newbery awards.
The Company obtains titles for sale in its distribution channels from three
principal sources. First, the Company publishes paperback and/or hardcover
editions of books written by outside authors under exclusive publication
agreements with the Company or written by the Company's editorial staff.
Scholastic generally owns rights to sell these original titles in all channels
of distribution, including school and trade. The second source consists of
reprints of books originally published by other publishers for which the Company
acquires rights under license agreements to sell exclusively in the school
market. The third source for titles is the Company's purchase of finished books
from other publishers to be sold in the school market. The Company currently
maintains a backlist (a list of titles published as new titles in prior years)
of over 5,000 titles.
All of the Company's books are manufactured by outside printers. The printers
are generally selected on the basis of competitive bidding, and the Company,
when it deems it to be appropriate, enters into multi-year agreements which
guarantee printers a certain percentage of Scholastic volume in exchange for
favorable pricing terms. Scholastic purchases its paper from paper
manufacturers, wholesalers, distributors and printers.
BOOK CLUBS
The Company operates ten school-based book clubs: Firefly(R), serving
pre-kindergarten and kindergarten students; Seesaw(R), serving kindergarten and
first grade students; two Carnival(R) clubs, one serving students in
kindergarten through second grade and the other serving third through sixth
grade students; Lucky Book Club(R), serving second and third grade students;
Arrow Book Club(R), serving fourth through sixth grade students; TAB Book
Club(R), serving sixth, seventh and eighth grade students; and three Trumpet(R)
clubs, which together serve pre-K through sixth grade students. In addition, the
Company creates special theme-based offers targeted to the different grade
levels during the year, such as holiday offers, science offers, curriculum
offers, Spanish offers, etc. The Company also operates various book club
continuity programs, including All About You, Animorphs(R) Alliance, The
Baby-Sitters Collector Club, Clifford's Clubhouse, Scholastic At Home Phonics
Reading Program, The Magic School Bus(R), Arthur's Adventure, Star Wars Missions
and Goosebumps Collectors Club. These programs are promoted primarily through
book clubs and deliver the products to children at home and bill parents at
home.
From fiscal 1997 through fiscal 1999, domestic book club revenues grew primarily
as a result of volume increases, increases in the number of special book club
offers, price increases, the expansion of book club continuity programs and the
selection by children of higher priced items.
The Company founded its first book club in 1948. The Company estimates that over
80% of all elementary school teachers in the United States participate in book
clubs, with approximately 80% of these teachers using Scholastic book clubs at
least once during the year.
The Company believes that teachers participate in school book clubs because it
is their opinion that quality books at affordable prices will be of interest to
students and improve students' reading skills. The Company also believes
teachers are attracted because the book clubs offer easy access to a broad range
of books. The Company mails promotional pieces containing order forms to
teachers in the vast majority of the pre-K through eighth grade classrooms in
the United States on a monthly basis throughout the school year. Participation
in any month does not create an obligation to participate in any subsequent
month, nor does it preclude participation in a competitor's book club.
Teachers who wish to participate in a book club distribute the order forms to
their students, who may choose from generally fifty or more selections at
substantial reductions from retail prices. The teacher consolidates the
students' orders and payments, and mails or phones the orders to the Company,
which then delivers the books to the teacher for distribution to the students.
Teachers who participate
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in the book clubs receive bonus points for use by their school, which may be
redeemed for the purchase of additional books and other items for their
classrooms.
The Company processes and fulfills orders for its book clubs from its primary
warehouse and distribution facility in Jefferson City, Missouri. Continuity
orders are fulfilled from its Des Plaines, Illinois warehouse and distribution
center. Orders for the book clubs are generally shipped to customers within two
to four days from receipt of the teacher's order.
In its book club business, the Company competes on the basis of book selection,
price, promotion and customer service. The Company believes that its broad
selection of titles, many of which are distributed in this channel exclusively
by Scholastic, combined with low costs and its large number of promotion
mailings, enable the Company to compete effectively.
BOOK FAIRS
The Company entered the book fair business in 1981. Since that time, the
Company's book fair business has grown primarily through geographic expansion,
selected acquisitions, increased penetration of its existing markets, increased
frequency of multiple fairs for the same school and growth in revenue on a per
fair basis. In June 1998, the Company acquired certain assets of Pages Book
Fairs Inc. for $10.5 million, including inventory, book fair cases and customer
lists.
Book fairs are generally weeklong events conducted on school premises and
sponsored by school librarians and/or parent-teacher organizations. Book fair
events expose children to hundreds of new books and allow them the opportunity
to purchase books and other select products of their choice. Although the
Company provides the school with the books and book display cases, the school
itself conducts the book fair. The Company believes that the primary motivation
of the schools in sponsoring fairs is to make quality books available to their
students at reasonable prices in order to help them become more interested in
reading. In addition, the school retains a portion of the book fair revenues
that can be used to purchase books, supplies and equipment for the school.
The Company operates book fairs in all fifty states under the name Scholastic
Book Fairs(R). The Company markets fairs branded as Showcase Book Fairs(TM),
Explorastory Bookfairs(TM), Read Street(R) and Discovery Fairs(TM), which
feature non-fiction, science, technology, arts, crafts and interactive products.
The Company also offers premium fairs under the names Scholastic Literacy
Festival(R) and Scholastic Books on Tour(R), which feature an expanded list of
titles supported by exciting merchandise displays and book character costumes
designed to create a dynamic book fair event open to the entire family.
The Company operates its book fairs in the United States on a regional basis
through over 20 sales offices and over 80 warehouse locations. The marketing of
book fairs is performed from the sales offices by telephone sales and field
representatives. The Company's books and display cases are delivered to schools
from the Company's warehouses by a fleet of leased vehicles. The Company's
customer service function is performed from the sales offices, supported by
field representatives. The sources of books for the Company's book fairs are
original Scholastic publications, reprints licensed from other publishers for
school distribution and finished books purchased from other publishers.
The Company believes that its competitive advantages in the book fair business
include the strength of the relationship between its sales representatives and
schools, broad geographic coverage, a high level of customer service and its
breadth of product selection. Over 90% of the schools that sponsored a
Scholastic book fair in fiscal 1998 sponsored a Scholastic book fair again in
fiscal 1999.
TRADE
The Company distributes its original, and some licensed publications, through
the trade distribution channel. Almost all of the titles distributed to the
trade market are also offered in the Company's school book clubs and book fairs.
In the Company's publishing program, over 2,500 titles are maintained for trade
distribution, including the branded series Harry Potter(TM), Animorphs(R), Dear
America(R), Goosebumps(R), The Baby-Sitters Club(R), The Magic School Bus(R) and
Clifford the Big Red Dog(R). Recent licensed properties published by the Company
include TeleTubbies(R) and Star Wars(R).
The Company has a trade field sales organization which focuses on selling the
broad range of Scholastic books to book store accounts. The Company outsources
certain services including invoicing, billing, returns processing and collection
services in connection with trade distribution.
The Company's sales in the trade market have been led by Animorphs, which was
first published in 1996 and as of July 1999 had forty-four titles and thirty-one
million copies in print; the Goosebumps series, with 169 titles and 216 million
copies in print; and The Baby-Sitters Club series, with 340 titles and 173
million copies in print. Two other Scholastic-developed properties that also
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generate significant sales are The Magic School Bus series with ninety-one
titles and forty-three million copies in print and the new Dear America
hardcover series with twenty titles and six million copies in print. The
Scholastic Children's Dictionary(R), published in 1996 and with approximately
1.9 million copies in print, has greatly enhanced the Company's reference line.
During fiscal 1999, several of Scholastic's titles were included on the
bestseller lists of USA Today and The New York Times, including books from the
Harry Potter, Animorphs, and Star Wars series.
Scholastic's export department oversees the licensing of foreign-language rights
in eligible Scholastic titles to other publishing companies around the world and
the sales of books to countries where the Company does not operate. Scholastic
titles have been licensed in over twenty-five languages and the Company's books
are sold in most countries in the world.
EDUCATIONAL PUBLISHING
(16.5% of fiscal 1999 revenues)
GENERAL
The Company's Educational Publishing segment includes the publication and
distribution of K-12 textbooks, supplemental materials, classroom magazines and
instructional technology for core and supplemental use in United States schools
and libraries. Scholastic has been providing quality innovative educational
materials to schools and libraries since it began publishing classroom magazines
in the 1920's. The Company added supplementary books and texts to its product
line in the 1940's, professional books for teachers in the 1980's, early
childhood products and core curriculum materials in the 1990's and in 1996,
strengthened its Spanish language offerings through the acquisition of Lectorum,
the largest Spanish language book distributor to schools and libraries in the
United States.
CLASSROOM MAGAZINES
Scholastic has been for many years a leading publisher of classroom magazines.
These magazines are used as supplementary educational materials by the teachers
in grades K-12. The Company's classroom magazines carry the Scholastic name,
which reinforces the Company's widely recognized educational reputation with
students, teachers and school administrators. The Company's reputation for
publishing quality magazines, maintaining an extensive magazine mailing list and
having a large customer base of teachers helps generate customers for its book
clubs and other Scholastic products as well as its magazines. At the same time,
the Company uses its book club mailings to help secure additional circulation
for its classroom magazines.
The Company's thirty-four classroom magazines are designed to encourage students
to read and to supplement the formal learning program by bringing subjects of
current interest into the classroom. The subjects covered include English,
reading, literature, math, science, current events, social studies and foreign
languages. The most well known of the Company's domestic magazines are
Scholastic News(R) and Junior Scholastic(R).
The Company's classroom magazine circulation in the United States in each of
fiscal years 1999 and 1998 was approximately 7.8 million. Approximately
two-thirds of the circulation is in grades K-6, with the balance in grades seven
through twelve. In fiscal 1999, teachers in approximately 60% of the elementary
schools and 70% of the high schools in the United States used the Company's
classroom magazines.
The various classroom magazines are distributed on a weekly, bi-weekly and
monthly basis during the school year. The majority of the cost of the magazines
is paid for by the schools and the remainder is paid by the students.
Circulation revenue accounted for substantially all of the Company's classroom
magazine revenues in fiscal 1999.
CORE, SUPPLEMENTAL, EARLY CHILDHOOD AND PROFESSIONAL PUBLISHING
The Company's core and supplemental publishing operations develop and distribute
instructional materials (both core and supplemental curriculum programs)
directly to schools in the United States, purchased through school budgets.
The Company's strategy is to publish and distribute a full array of products in
reading and language arts, concentrating on grades K-8, to meet the spectrum of
schools' needs in these disciplines. As described below, the Company's offerings
range from core textbooks to supplemental materials, including print products
(broad selections of paperback books and specialized products such as phonics
readers), to technology-based products that help teach reading (Wiggleworks),
help manage school reading incentive programs (Scholastic Reading Counts!) and
help fourth through eighth grade students who are reading below grade level
(Read 180).
The Company's largest programs are Scholastic Literacy Place, its K-5 market
core curriculum reading program, and Scholastic Solares(TM), its Spanish
elementary reading program. During fiscal 1999, Scholastic Literacy Place was
cited as the second most purchased reading program in the
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United States by Educational Marketer magazine. Scholastic Literacy Place was
also adopted by the Department of Defense Education Activity for use in 119
schools around the world. The Company is in the process of updating these
programs for sales in open territory and adoption states, including the upcoming
Texas adoption.
The professional publishing division publishes professional books designed for
and generally purchased by teachers. The Company also distributes a successful
line of supplemental phonics products. The Company is publishing additional
books and Spanish phonics materials to meet growing demand.
MEDIA, LICENSING AND ADVERTISING
(10.0% of fiscal 1999 revenues)
GENERAL
The Company's Media, Licensing and Advertising segment includes the production
and the distribution of entertainment products (including television
programming, videos and motion pictures), Internet services and CD-ROM-based
products and Scholastic-branded licensed properties, as well as advertising and
promotional activities.
TV/MOVIE PRODUCTIONS AND LICENSING
Scholastic Entertainment Inc. ("SEI"), formerly Scholastic Productions, Inc., a
wholly-owned subsidiary of the Company, extends the Company's franchises by
creating and managing global brands based on Scholastic's strong publishing
properties. SEI's multimedia programming also provides support for branding and
consumer products activities worldwide.
FILMED ENTERTAINMENT
SEI has built a media library of over 150 half-hour and six one-hour television
episodes including:
Scholastic's the Magic School Bus(r)
The popular animated children's television series, Scholastic's The Magic School
Bus(R), first aired for four seasons on PBS through the spring of 1998. In the
fall of 1998, Scholastic's The Magic School Bus moved from PBS and began airing
on Fox Kid's Network ("FKN") where it continues to receive high ratings. A total
of fifty-two half-hour episodes of the show have been produced. The show has won
numerous awards, including an Emmy for Lily Tomlin, and was the most popular
series for school-aged children on PBS. In addition, the series has been
licensed for television in over forty international territories. The series is
also available worldwide on home video.
Goosebumps(r)
Goosebumps, which debuted in 1995 on FKN, was one of the top-rated children's
series on television with a total of sixty-two half-hour episodes and six
one-hour specials. Additionally, Goosebumps has been licensed in over 100
countries worldwide and is currently airing in many major international
territories. The series has been especially popular in the United Kingdom where
it has been the number one rated children's series. Goosebumps has been released
on video in several major international territories.
Animorphs(r)
SEI has produced twenty half-hour live action episodes of Animorphs, based on
Scholastic's bestselling book series, which were first aired on Nickelodeon in
fiscal 1999. Animorphs also aired in Canada on both YTV (a basic cable channel)
and the Global Television Network (broadcast market). Nickelodeon is
distributing the series in television markets outside of North America. SEI is
producing six additional half-hour episodes of Animorphs for Nickelodeon, which
are scheduled to be aired in the fall of 1999.
Dear America(TM)
During fiscal 1999, SEI produced six half-hour episodes for Home Box Office
("HBO") based on Scholastic's popular and critically acclaimed book series, Dear
America. HBO has contracted for six additional specials to be produced for
airing in fiscal 2000.
Other Development
Another major Scholastic franchise in development is an animated television
series based on the beloved book series, Scholastic's Clifford the Big Red
Dog(TM). SEI also has other original children's and family oriented projects in
various stages of development.
LICENSING
SEI develops branding campaigns with high profile licensing and promotional
programs, primarily for brands produced in other media. In June 1997, SEI was
awarded the LIMA (Licensing Industry Merchandiser's Association) award for
"Licensing Agency of the Year." Examples of SEI's licensing and promotional
activities include:
Scholastic's The Magic School Bus
o The award-winning series of CD-ROMs, co-produced with Microsoft. All seven of
the Scholastic's The Magic School Bus CD-ROMs have been in the all-time top
twenty bestselling educational titles for children.
o Scholastic's Traveling Magic School Bus is an actual thirty-five foot long
yellow school bus that travels throughout North America. Over 1.5 million
fans have boarded the bus at schools, libraries, book fairs, events and book
stores since its launch in 1995.
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o Consumer promotion partnerships with Howard Johnson, Kids Cuisine and Colgate
Palmolive.
o A live stage show tours the United States and Canada along with an exhibit
featured at children's museums.
Goosebumps
o The 1997 LIMA award "License of the Year" for Goosebumps.
o Two CD-ROMs, co-produced with Dreamworks SKG, the first of which reached
number one on the children's best seller list.
o The 1996 Reggie Award-winning Goosebumps Halloween Promotion with Pepsi,
Frito-Lay, Hershey, Taco Bell and Target retail stores.
Animorphs
o A targeted licensing and marketing campaign for Animorphs developed in
conjunction with the television series launch in fall 1998.
o Licensing partnerships with fifteen industry leaders, including Hallmark,
Antioch, Giant and Hasbro Toys.
o A multiyear consumer promotion agreement with Tricon (corporate parent of
Taco Bell, KFC and Pizza Hut) for a consumer promotion which commenced in the
fourth calendar quarter of 1998.
SPECIAL MARKETS
In addition, SEI creates, manufactures and distributes high-quality consumer
products primarily based on Scholastic's literary properties. In fiscal 1997,
the first product line of upscale plush toys, Sidekicks(TM), was launched with
items based on Clifford the Big Red Dog and Clifford the Small Red Puppy(R).
During fiscal 1998, additional products were introduced to the marketplace based
on The Magic School Bus character, Liz. The products are available through
independent toy/gift stores, specialty chains, department stores, mail order
catalogs and bookstores, as well as through Scholastic's proprietary channels
(i.e. book clubs and book fairs). A second product line of stationery items,
Paper Scissors Rock(TM), was launched in Spring 1999.
WESTON WOODS
The Company produces and markets videos to the school market through Weston
Woods, a producer of videos based on high quality children's books, which was
acquired in 1996.
NEW MEDIA
The Company sells consumer software through its book clubs and book fairs, and
through three classroom software clubs modeled on its classroom book clubs,
reaching children from kindergarten to eighth grade. The Company acquires
software for distribution in all of these channels through a combination of
licensing, purchases of product from software publishers and internal
development. In fiscal 1998, the Company also initiated sales of its internally
developed CD-ROM titles, including the award-winning I SPY CD-ROM, in the retail
channel through a third party distribution arrangement.
In fiscal 1994, the Company launched the Scholastic Network, the first online
service developed especially for educators and students. By offering teachers
supporting material and compelling in-class experiences for the kindergarten
through eighth grade market, it became the largest teacher-oriented subscription
service on the Internet. In addition, the Company has operated its home page on
the World Wide Web since 1994. This site, Scholastic.com, provides an overview
of the Company's activities, resource libraries for educators and special
programming tied to the Scholastic Network's content.
In fiscal 2000, the Company plans to significantly expand the Scholastic Network
and change the service from paid to free to increase teacher utilization. In the
later part of fiscal 2000, the Company intends to add e-commerce capabilities to
www.scholastic.com in two ways. First, the Company expects to enable teachers to
order book club and software club selections, as well as other Scholastic
paperbacks and professional resources, through the Internet; and second, the
Company expects to provide a direct-to-home service for parents to buy materials
to support their child's learning. Shortly thereafter, the Company expects to
offer a home learning subscription service which would be recommended by
teachers, purchased by parents and used by students.
Scholastic Network and Scholastic.com have generated a loss since inception. The
Company anticipates that the loss will increase in fiscal 2000 as a result of
this planned expansion.
ADVERTISING
The Company publishes three magazines directed at teachers and education
professionals: Instructor, Scholastic Early Childhood Today(TM) and Coach and
Athletic Director(TM). In fiscal 1999, advertising revenue represented the
majority of these magazines' revenue. Total circulation for these magazines in
fiscal 1999 was approximately 300,000. The magazines are distributed throughout
the
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academic year. Subscriptions are solicited by direct mail and are
cross-marketed to teachers through the book clubs. The Company also publishes
Scholastic Parent and Child(R) magazine, which is directed at parents and
distributed through schools and day care programs. The circulation for
Scholastic Parent and Child is approximately 1.3 million. The magazines carry
outside advertising, advertising for the Company's other products and
advertising for clients that sponsor customized programs.
The Company's Scholastic Marketing Partners group develops and distributes
customized programs sponsored by corporations.
INTERNATIONAL
(16.5% of fiscal 1999 revenues)
GENERAL
The International segment includes the distribution of products and services
outside the United States by the Company's operations in the United Kingdom,
Canada, Australia, New Zealand, Mexico, Hong Kong and India. The businesses in
the United Kingdom, Canada, Australia and New Zealand generally mirror the
Company's Children's Book Publishing and Distribution and Educational Publishing
segments in the United States and include publishing and/or distributing
children's books, magazines, school text materials and educational software. The
Company's businesses in Mexico, Hong Kong and India principally distribute
through schools books published by Scholastic and other publishers. Products
from the United States appropriate to each specific market are distributed where
rights are available.
United Kingdom
Scholastic UK, founded in 1964, is Scholastic's largest international
subsidiary. It is the United Kingdom's largest book club and book fair operator,
based in part on the Company's acquisition of Red House Books Ltd. in 1997 and
of School Book Fairs, Ltd. in 1996. Scholastic UK also publishes five monthly
magazines for teachers and a substantial list of children's and educational
books. Scholastic UK's trade books appear frequently in the UK children's
bestseller lists.
Canada
Scholastic Canada, founded in 1957, distributes both English and French language
products used in more than 80% of Canadian schools. It also is Canada's leading
operator of book clubs and book fairs and publishes original works for
distribution in Canada.
Australia
Scholastic Australia, founded in 1968, is the leading publisher and distributor
of children's educational materials in Australia. Its book clubs and book fairs
reach 90% of the country's primary schools. Local imprints include Omnibus Books
and Margaret Hamilton Books.
New Zealand
Scholastic New Zealand, founded in 1964, is the leading book distributor to
schools and the largest children's book publisher in New Zealand. It publishes
about thirty new titles each year and has won annual picture book and junior
fiction awards, including the Aim Children's Book Awards and the New Zealand
Library and Information Association Awards.
Emerging Countries
The Company has operations in emerging marketplaces within Mexico, Hong Kong and
India. The Mexican and Indian businesses distribute books in both English and
local languages, principally through school book fairs and/or school book clubs.
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 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 the highest in the first quarter. See Supplementary Financial
Information in Item 8.
For the June through October 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, seasonal 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.
COMPETITION
The market for children's educational and entertainment materials is highly
competitive. Competition is based on the quality and range of educational
materials made available, price, promotion and customer service. In the United
States, competitors include one other national school book club operator and one
other national school book fair operator as well as smaller regional operators,
including local bookstores. Competitors in the entertainment market include
well-established companies, networks and cable operators. Domestically and
internationally, competitors include numerous other paperback book, textbook and
supplementary text
annual report/fiscal 1999 7
<PAGE>
publishers, distributors and other resellers (including over the Internet) of
children's books and other educational materials, national publishers of
classroom and professional magazines with substantial circulation, numerous
producers of television, video and film programming (many of which are
substantially larger than the Company), publishers of computer software and
distributors of products and services on the Internet. Competition may increase
further to the extent that other entities enter the market and to the extent
that current competitors or new competitors develop and introduce new materials
that compete directly with the products distributed by the Company or develop or
expand competitive sales channels.
EMPLOYEES
As of May 31, 1999, Scholastic employed approximately 5,100 persons in full-time
jobs and 470 in hourly or part-time jobs in the United States and approximately
1,970 persons in its international subsidiaries. The number of part-time
employees fluctuates during the year because the Company's business is closely
correlated with the school year. The Company believes that its relations with
employees are good.
COPYRIGHT AND TRADEMARKS
SCHOLASTIC is a registered trademark in the United States and in a number of
countries where the Company conducts business. Scholastic Inc., the Company's
principal US operating subsidiary, has registered and/or has pending
applications to register its trademarks in the United States for the names of
each of its domestic book clubs, the titles of its magazines and the names of
all its core curriculum programs. The Company's international subsidiaries have
also registered trademarks in the name of Scholastic Inc. for the names of their
respective book clubs and magazines. Although individual book titles are not
subject to trademark protection, Scholastic Inc. has registered and/or has
pending applications to register its trademarks in the United States and in a
number of countries for the names of certain series of books and consumer
products, such as The Baby-Sitters Club, The Magic School Bus and Animorphs.
All of the Company's publications, including books, magazines and software, are
subject to copyright protection. The Company consistently copyrights its
magazines, books and software in the name of the Company. Copyrights and
trademarks are vigorously defended by the Company and, as necessary, outside
counsel may be retained to assist in such protection.
ITEM 2 / PROPERTIES
The Company maintains its headquarters in the metropolitan New York area, where
it leases approximately 434,000 square feet of space for executive offices and
certain of its operating divisions. The Company intends to expand its New York
facilities by constructing a 120,000 square-foot facility adjoining its current
headquarters. The Company also owns or leases approximately 1.5 million square
feet of office and warehouse space for its National Service Operation located in
the Jefferson City, Missouri area.
In addition, the Company owns or leases approximately 1.6 million square feet of
office and warehouse space in over eighty facilities in the United States for
Scholastic Book Fairs.
Additionally, the Company owns or leases approximately 800,000 square feet of
office and warehouse space in twenty facilities in Canada, the United Kingdom,
Australia, New Zealand and elsewhere around the world for its international
businesses.
With respect to the Company's leased properties, no difficulties are anticipated
in negotiating renewals as leases expire or in finding other satisfactory space,
if current premises become unavailable. For further information concerning the
Company's obligations under its leases, see Note 4 of the Notes to Consolidated
Financial Statements. The Company considers its properties adequate for its
present needs.
ITEM 3 / 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 purportedly materially false and
misleading statements to
8 scholastic corporation
<PAGE>
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 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 the plaintiffs had failed to state
a claim upon which relief could be granted and granted plaintiffs leave to amend
and refile 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 will continue to vigorously defend against it.
As previously reported, 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 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 issues in 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 Civ. 8510 (JFK), in which two subsidiaries of the Company
are defendants and counterclaim plaintiffs, was commenced in a 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), 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 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 the total of approximately $36.1
million of advances over the term of the contract, of which approximately $15.3
million had been paid at the time the first Parachute litigation began and
payment of royalties set-off by Scholastic against amounts claimed by the
Company. 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
million advance already paid. The Company intends to vigorously pursue its
claims against Parachute and the other named defendants and to vigorously defend
against the lawsuit and appeal. The Company does not believe that this dispute
will have a material adverse effect on its financial condition.
A number of lawsuits and administrative proceedings which have arisen in the
ordinary course of business are pending or threatened against the Company. The
Company believes there are meritorious defenses to substantially all such
claims.
ITEM 4 / SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no matter
was submitted to a vote of security holders, through the solicitation of proxies
or otherwise.
annual report/fiscal 1999 9
<PAGE>
Part II
ITEM 5 / MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the NASDAQ National Market system under
the symbol SCHL. The Class A Stock is convertible into Common Stock on a
share-for-share basis. There is no active market for the Class A Stock. The
following table sets forth, for the periods indicated, the quarterly and
one-year high and low selling prices on the NASDAQ National Market system for
the Company's Common Stock.
(Years ended May 31,)
- --------------------------------------------------------------------------------
1999 1998
HIGH LOW HIGH LOW
- --------------------------------------------------------------------------------
First Quarter 45 3/4 35 3/4 36 3/8 29
Second Quarter 52 3/4 35 1/2 45 19/32 33 7/8
Third Quarter 59 1/2 46 5/8 42 1/2 28 7/8
Fourth Quarter 56 1/4 44 43 7/8 35 9/16
Year 59 1/2 35 1/2 45 19/32 28 7/8
- --------------------------------------------------------------------------------
The Company has not paid any dividends since its initial public offering in
February 1992 and has no current plans to pay any dividends on its Common Stock
and Class A Stock. In addition, certain of the Company's credit facilities
restrict the payment of dividends. See Note 3 of the Notes to Consolidated
Financial Statements.
The number of holders of record of Class A and Common Stock as of August 5, 1999
were three and approximately 5,000, respectively.
ITEM 6 / SELECTED FINANCIAL DATA
For fiscal years ended May 31,
(Amounts in millions, except per share data)
<TABLE>
<CAPTION>
====================================================================================================================================
1999 1998 1997 1996 1995
====================================================================================================================================
STATEMENT OF INCOME DATA:
<S> <C> <C> <C> <C> <C>
Total revenues $ 1,154.7 $ 1,058.4 $ 966.3 $ 928.6 $ 749.9
Cost of goods sold 561.1 536.8 530.7 466.0 356.0
Selling, general and administrative expenses 493.3 440.3 399.6 367.4 316.2
Other operating costs
Goodwill and trademark amortization
and depreciation 22.4 21.7 18.3 13.1 10.0
Impairment of assets -- 11.4 --. 24.3 --
Operating income 77.9 48.2 17.7 57.8 67.7
Gain on sale of the SOHO Group -- 10.0 --. -- --
Interest expense, net (19.0) (20.1) (16.7) (11.2) (5.4)
Net income 36.8 23.6 0.4 31.9 38.6
Net income per share-basic $ 2.25 $ 1.46 $ 0.02 $ 2.02 $ 2.48
Net income per share- diluted $ 2.20 $ 1.45 $ 0.02 $ 1.97 $ 2.38
Weighted average shares outstanding-basic 16.4 16.2 16.0 15.8 15.6
Weighted average shares outstanding-diluted 16.7 16.4 16.3 16.2 16.2
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (END OF YEAR):
Working capital $ 222.4 $ 201.0 $ 215.7 $ 177.1 $ 136.8
Total assets 842.3 763.6 784.4 673.2 505.9
Long-term debt 248.0 243.5 287.9 186.8 91.5
Stockholders' equity 361.4 318.1 297.5 288.6 250.2
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10 scholastic corporation
<PAGE>
ITEM 7 / MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Scholastic is a global children's publishing and media company. The Company has
four operating segments: Children's Book Publishing and Distribution;
Educational Publishing; Media, Licensing and Advertising (which together
comprise the Company's domestic operations); and International. Such segment
classification reflects the nature of the Company' s products and services
consistent with how senior management assesses operating performance and
allocates resources. Prior year comparisons have been restated to conform with
current year segment presentation. The following discussion and analysis of the
Company's financial position should be read in conjunction with the Company's
Consolidated Financial Statements and related Notes and Selected Financial Data
included in this report.
OVERVIEW
During the three-year period ended May 31, 1999, the Company reported steady
revenue growth with significant improvement in net income, operating margins and
earnings per share. This improved performance reflects the Company's focused
development of its core businesses, careful management of capital expenditures
and cost controls as part of a turnaround plan established following the
breakeven fiscal 1997.
During fiscal 2000, the Company plans to maintain its overall strategic
objective of strengthening and developing its core businesses through planned
investments while continuing to improve overall profitability through growth and
cost containment. Over the next years, the Company will seek to build
shareholder value through continued revenue growth coupled with improved
margins, while funding strategic initiatives such as developing Internet
opportunities.
SCHOLASTIC
RESULTS OF OPERATIONS
For fiscal years ended May 31,
(Amounts in millions, except per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
$ % (1) $ % (1) $ % (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue:
<S> <C> <C> <C> <C> <C> <C>
Children's Book Publishing and Distribution 657.9 57.0 560.9 53.0 511.6 53.0
Educational Publishing 190.6 16.5 196.1 18.5 163.4 16.9
Media, Licensing and Advertising 115.6 10.0 105.3 10.0 112.2 11.6
International 190.6 16.5 196.1 18.5 179.1 18.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenue 1,154.7 100.0 1,058.4 100.0 966.3 100.0
Cost of goods sold 561.1 48.6 536.8 50.7 530.7 54.9
Gross profit 593.6 51.4 521.6 49.3 435.6 45.1
Selling, general and administrative costs 493.3 42.7 440.3 41.6 399.6 41.4
Operating income 77.9 6.8 48.2 (2) 4.6 17.7 1.8
Income before taxes 58.9 5.1 38.1 (3) 3.6 1.0 0.1
Net income 36.8 3.2 23.6 2.2 0.4 0.0
Earnings per share:
Basic 2.25 1.46 0.02
Diluted 2.20 1.45 0.02
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Represents percentage of revenue
(2) Includes a non-cash charge of $11.4 million related to the impairment of
certain assets including unamortized prepublication costs and inventory
(3) Includes a gain of approximately $10.0 million resulting from the sale of
the SOHO Group
</TABLE>
annual report/fiscal 1999 11
<PAGE>
RESULTS OF OPERATIONS - CONSOLIDATED
Revenue in fiscal 1999 continued to grow, increasing approximately $96.3
million, or 9%, from fiscal 1998. Revenue growth in fiscal 1998 was
approximately $92.1 million, or 10%, when compared to fiscal 1997. This steady
increase in revenues was driven primarily by the Company's Children's Book
Publishing and Distribution segment, which accounted for 57% of the Company's
revenues in fiscal 1999, and 53% in both fiscal 1998 and 1997.
Gross profit margin improved to 51% for fiscal 1999, up two percentage points
from fiscal 1998, and up six percentage points from fiscal 1997. This trend
reflects the Company's continued focus on cost containment in the manufacturing
and distribution process and favorable paper prices, combined with improved
sales mix in the Company's Children's Book Publishing and Distribution segment.
Operating income increased approximately $30.0 million in both fiscal 1999 and
1998 reflecting improved operating margins of 6.8% and 4.6%, respectively, as
compared to 1.8% in fiscal 1997. In the third quarter of fiscal 1998, the
Company incurred a non-cash charge of $11.4 million related to the impairment of
certain assets including unamortized prepublication costs and inventory.
Excluding this non-cash charge, fiscal 1998 had an operating margin of 5.6% of
sales. Savings generated through cost containment and improved manufacturing
costs were the primary cause of the improved margins. Selling, general and
administrative costs increased as a percentage of sales to 42.7% in fiscal 1999
from 41.6% in fiscal 1998 due primarily to increased information technology
costs which were in part related to the Company's Year 2000 initiatives. In
fiscal 1998, selling, general and administrative costs as a percentage of
revenues were flat to the prior fiscal year.
Results for fiscal 1998 include a non-operating pre-tax gain of approximately
$10.0 million resulting from the January 1998 sale of the Company's Small Office
Home Office Group ("SOHO Group"), for approximately $19.2 million.
Net interest expense decreased slightly to $19.0 million in fiscal 1999 from
$20.1 million in fiscal 1998 reflecting lower average debt levels and the
capitalization of interest related to the construction of additional office
space in New York during fiscal 1999. Fiscal 1998 interest expense was $3.4
million greater than in fiscal 1997 ($16.7 million), reflecting higher average
debt levels in fiscal 1998 partially due to the January 1997 acquisition of Red
House Books Ltd. and a higher weighted-average interest rate due to the issuance
in December 1996 of the Company's 7% Notes due 2003.
The Company's effective tax rates were 37.5%, 38.0% and 64.6% of earnings before
taxes, for fiscal years 1999, 1998 and 1997, respectively. The decreases from
fiscal 1997 reflect the impact of lower relative state and local tax burdens,
which are computed on an unconsolidated basis.
Net income was $36.8 million in fiscal 1999, $23.6 million in fiscal 1998 and
$0.4 million in fiscal 1997. The basic and diluted net income per Class A and
Common Share were $2.25 and $2.20, respectively, in fiscal 1999, $1.46 and
$1.45, respectively, in fiscal 1998 and $0.02 for both basic and diluted net
income per share in fiscal 1997.
RESULTS OF OPERATIONS - SEGMENTS
CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION
The Company's Children's Book Publishing and Distribution segment includes the
publication and distribution in the United States of children's books through
its school-based book clubs (including home continuity programs), book fairs and
trade channels.
(Amounts in millions)
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Revenue $ 657.9 $ 560.9 $ 511.6
Operating profit 109.3 84.6 65.0
- --------------------------------------------------------------------------------
Operating margin 16.6% 15.1% 12.7%
Children's Book Publishing and Distribution revenues accounted for 57% of the
Company's revenues in fiscal 1999, and 53% in fiscal 1998 and fiscal 1997. These
revenues increased 17% to $657.9 million in fiscal 1999 from $560.9 million in
fiscal 1998. Book club revenues, inclusive of continuity programs, accounted for
slightly more than half of Children's Book Publishing and Distribution sales in
fiscal 1999, down slightly from the prior fiscal year. Revenues from the club
and continuity programs increased approximately 14% in fiscal 1999 and
approximately 15% in fiscal 1998 reflecting growth in order volume as well as
increased revenue per order. Revenues from book fairs accounted for
approximately 30% of Children's Book Publishing and Distribution sales in fiscal
1999, up slightly from fiscal years 1998 and 1997. Sales growth for book fairs
of approximately 20% in fiscal 1999 and approximately 15% in fiscal 1998 was due
in part to an increased number of fairs and in part an increase in revenue per
fair from fairs offering a broader product selection. In fiscal 1999, growth in
the number of
12 scholastic corporation
<PAGE>
fairs is primarily due to the impact of the June 1998 acquisition of the assets
of Pages Book Fairs Inc. The Company's trade distribution channel accounted for
approximately 16% of Children's Book Publishing sales in fiscal 1999, 15% in
fiscal 1998 and 19% in fiscal 1997. Net trade sales increased by approximately
25% in fiscal 1999 due to the continued success of Scholastic branded properties
such as Harry Potter, Animorphs, Dear America, I Spy, Clifford the Big Red Dog
and Scholastic Reference books. Trade sales also benefited from titles based on
licensed properties such as Star Wars and TeleTubbies. In fiscal 1998, net Trade
sales decreased by more than 14% due to the continued decline in the sales of
the Goosebumps series. Trade sales of properties other than Goosebumps increased
approximately 24% in fiscal 1998 when compared to fiscal 1997.
Operating income for Children's Book Publishing and Distribution increased $44.3
million during the three fiscal years ended May 31,1999 to $109.3 million or
16.6% of sales. Operating income was $84.6 million or 15.1% of sales and $65.0
million or 12.7% of sales for fiscal 1998 and 1997, respectively. Operating
margins improved largely as a result of the benefit of cost reductions in
manufacturing and fulfillment activities and changes in product mix in both
fiscal 1999 and fiscal 1998. In fiscal 1998, the segment also benefited from a
lower return rate in the Trade channel. Selling, general and administrative
costs as a percentage of revenue were approximately equal to the prior year at
34%. During fiscal 1998, marketing and promotion costs for the Children's Book
Publishing and Distribution segment increased as a result of increased volume in
the book clubs and book fairs.
EDUCATIONAL PUBLISHING
The Company's Educational Publishing segment includes the publication and
distribution of K-12 textbooks, supplemental materials (including professional
books), classroom magazines and instructional technology for core and
supplemental use in United States schools and libraries. In fiscal 1999, the
United States circulation of the Company's classroom magazines was approximately
7.8 million.
(Amounts in millions)
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Revenue $ 190.6 $ 196.1 $ 163.4
Operating profit/(loss) 2.3 0.5 (21.1)
- --------------------------------------------------------------------------------
Operating margin 1.2% 0.3% *
* not meaningful
Educational Publishing revenues accounted for approximately 17% of the Company's
revenues in fiscal 1999, approximately 19% in fiscal 1998 and approximately 17%
in fiscal 1997. In fiscal 1999, Educational Publishing revenues declined
approximately 3% to $190.6 million from $196.1 million in fiscal 1998 and
revenues related to sales of core and supplemental instructional materials to
schools decreased to 75% of Educational Publishing revenues from 77% in fiscal
1998. These decreases were primarily due to the impact of the anticipated
wind-down of the California adoption of the Company's reading program Scholastic
Literacy Place, partially offset by an increase in sales of the Company's
supplemental materials and classroom magazines. In fiscal 1998, Educational
Publishing revenues increased approximately 20% from $163.4 million in fiscal
1997. Revenues related to sales of core and supplemental instructional materials
to schools increased 30% over fiscal 1997 primarily due to the impact of strong
sales of Scholastic Literacy Place in the first year of the California reading
adoption.
Educational Publishing operating income increased $1.8 million from $0.5 million
in fiscal 1998, to $2.3 million in fiscal 1999. Excluding the effect of the $8.3
million portion of the non-cash charge related to the impairment of certain
Educational Publishing assets incurred in the third quarter of fiscal 1998,
operating income decreased $6.5 million from $8.8 million in fiscal 1998 (4.5%
of sales) to $2.3 million in fiscal 1999 (1.2% of sales). Gross margins remained
relatively constant as a percentage of revenue to the prior year at
approximately 52%. In fiscal 1999, promotion and other selling and general
administrative costs associated with the launch of the Company's new Scholastic
Reading Counts! program were primarily responsible for the decline in margins.
Excluding the effect of the non-cash charge, fiscal 1998 operating income of
$8.8 million (4.5% of sales) represented an improvement of $29.8 million from an
operating loss of $21.1 million in fiscal 1997. During fiscal 1998, the segment
benefited from the high margin of incremental Scholastic Literacy Place sales as
well as the effect of planned cost reductions within the core and supplemental
instructional materials groups.
MEDIA, LICENSING AND ADVERTISING
The Company's Media, Licensing and Advertising segment includes the production
and the distribution by the Company's United States-based operations of
entertainment products (including television programming, videos and motion
pictures), Internet services and CD-ROM-based products and Scholastic-branded
licensed properties, as well as advertising and promotional activities.
annual report/fiscal 1999 13
<PAGE>
(Amounts in millions)
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Revenue $ 115.6 $ 105.3 $ 112.2
Operating profit/(loss) 0.0 (9.5) (6.5)
- --------------------------------------------------------------------------------
Operating margin 0.0% * *
* not meaningful
Media, Licensing and Advertising revenues accounted for approximately 10% of the
Company's revenues in both fiscal 1999 and 1998 and approximately 12.0% in
fiscal 1997. In fiscal 1999, revenues increased approximately 10% to $115.6
million from $105.3 million in fiscal 1998. Increased software and multimedia
product sales and merchandise licensing sales were partially offset by the
absence of revenues of $11.8 million due to the sale of the Company's SOHO
Group, effective January 1, 1998. In fiscal 1998, revenues reflected a decline
of 6% from the fiscal 1997 level of $112.2 million as increased software and
multimedia product sales of $10.4 million were more than offset by the impact of
decreased licensing revenue related to Goosebumps products and the absence of
SOHO Group revenues for five months of fiscal 1998.
Operating income for the Media, Licensing and Advertising segment reached
breakeven in fiscal 1999 from an operating loss of $9.5 million in fiscal 1998.
This includes the effect of the $3.1 million of the non-cash charge related to
the impairment of certain assets incurred in the third quarter of fiscal 1998.
The improvement was largely the result of strong software product sales in the
club and fair selling channels combined with improved product cost efficiencies.
Media, Licensing and Advertising had an operating loss of approximately $6.5
million in both fiscal 1998 (exclusive of the $3.1 million non-cash charge) and
fiscal 1997. The adverse impact of the decline of the high margin Goosebumps
licensing revenue in fiscal 1998 was offset by stronger CD-ROM sales.
INTERNATIONAL
The International segment consists of the distribution of products and services
outside the United States by the Company's operations located in the United
Kingdom, Canada, Australia, New Zealand, Mexico, Hong Kong and India. For the
year ended May 31, 1999, approximately 80% of the Company's International
revenues were derived from the sale of children's books.
(Amounts in millions)
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Revenue $ 190.6 $ 196.1 $ 179.1
Operating profit 4.9 9.7 11.6
- --------------------------------------------------------------------------------
Operating margin 2.6% 5.0% 6.5%
International sales accounted for approximately 17% of the Company's revenues in
fiscal 1999 and approximately 19% in both fiscal 1998 and fiscal 1997.
International revenues decreased approximately 3% from $196.1 million in fiscal
1998 to $190.6 million in fiscal 1999. This reflects a decline in the United
Kingdom sales, principally in the book club, trade and book fair channels.
Revenues from the Company's Canadian operation increased, despite disruptions
from a move to a new warehouse, with growth in the supplementary text, book
clubs and book fairs channels. In fiscal 1998, International revenues increased
approximately 9% from $179.1 million in fiscal 1997, principally attributable to
an increase in revenues from the Company's United Kingdom operation in fiscal
1998, which improved approximately 33%, reflecting the full year benefit of the
January 1997 acquisition of Red House Books Ltd. along with continued strength
in the trade distribution channel. In both fiscal 1999 and fiscal 1998, revenues
in Canada, Australia and New Zealand were adversely impacted by weakness in
their respective currencies relative to the stronger US dollar.
International operating income decreased $4.8 million to $4.9 million (2.6% of
sales) in fiscal 1999 from $9.7 million in fiscal 1998 (5.0% of sales). During
fiscal 1999, the Company's Australian subsidiary was impacted by increased cost
of product as a result of changes in product mix and higher product costs for US
dollar denominated purchases. The Canadian subsidiary incurred additional costs
related to the opening of its new distribution facility. Additionally, the
Canadian and Australian subsidiaries incurred increased promotion costs
primarily as a result of higher book club kit and bonus point costs. During
fiscal 1998, increased spending by the United Kingdom subsidiary for customer
service to support the acquisition of Red House Books Ltd. was the primary cause
of the decrease in operating income.
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 experiences a substantial loss from operations in the first quarter.
Typically, book clubs and book fairs experience the largest revenues in the
second quarter of the fiscal year, while revenues from the sale of instructional
materials are highest in the first quarter. See Supplementary Financial
Information in Item 8. For the June through October time period, the Company
experiences negative cash flow due to the seasonality of its
14 scholastic corporation
<PAGE>
business. Historically, as a result of the Company's business cycle, seasonal
borrowings have increased during June, July and August and have generally 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 remained virtually unchanged for fiscal
years 1999, 1998 and 1997.
Cash outflows for investing activities were $136.8 million for fiscal 1999,
primarily related to royalty advances, business and trademark
acquisition-related payments, capital expenditures and prepublication and
production cost expenditures.
Payments for royalty advances totaled $27.8 million for fiscal 1999. Business
and trademark acquisition-related payments were $14.9 million for the year,
including the June 1998 acquisition of certain book fair assets of Pages Book
Fairs, Inc. and the January 1999 acquisition of certain assets of Quality
Education Data. The Company's capital expenditures totaled $29.6 million in
fiscal 1999. Capital expenditures, including capitalized interest, increased
$9.3 million to from fiscal 1998 primarily due to commencement of the expansion
of the Company's corporate headquarters. Prepublication cost expenditures
totaled $46.8 million, increasing $21.4 million from fiscal 1998, largely due to
higher investments in core publishing and technology-based products, primarily
in the planned revision to Scholastic Literacy Place and the development of Read
180. The Company expects significant increases in its capital expenditures and
prepublication spending in fiscal 2000 over fiscal 1999. The expected increase
in capital expenditures is primarily due to the expansion of the Company's
headquarters and Information Systems and Internet development. The expected
increase in prepublication costs is primarily due to costs associated with
completion of the Scholastic Literacy Place revision.
The Company believes its existing cash position, combined with funds generated
from operations and increased funds available under the amended Loan Agreement
and the Revolver will be sufficient to finance its ongoing working capital
requirements for the next fiscal year.
FINANCING
The Company maintains two unsecured credit facilities, the Loan Agreement and
the Revolver, which provide for aggregate borrowings of up to $205.0 million
(with a right, in certain circumstances, to increase to $235.0 million),
including the issuance of up to $10.0 million in letters of credit. The Company
uses these facilities to fund seasonal cash flow needs and other working capital
requirements. At May 31, 1999, the Company had $10.0 million in borrowings
outstanding under these facilities at a weighted average interest rate of
5.3075%.
The foregoing information reflects amendments effected on August 11, 1999 to one
of the credit facilities which extended the expiration date of the facility to
August 11, 2004 and expanded the facility from $135.0 million to $170.0 million
(with a right, in certain circumstances, to increased to $200.0 million). The
Company anticipates amending and restating the Revolver in the second quarter of
fiscal 2000 to increase the amount available thereunder to $40.0 million and
extend its expiration to 2004. The Company does not anticipate any difficulty in
negotiating satisfactory credit arrangements.
In addition, unsecured lines of credit available to the Company's United
Kingdom, Canadian and Australian operations totaled $37.9 million at May 31,
1999. These lines are used primarily to fund local working capital needs. At May
31, 1999, $18.0 million in borrowings were outstanding under these lines at a
weighted average interest rate of 7.15%.
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 assets of Pages Book Fairs,
Inc. for approximately $10.5 million, and in January 1999, the acquisition of a
leading USeducational information company, certain assets of Quality Education
Data.
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
annual report/fiscal 1999 15
<PAGE>
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 the
actions related thereto and (iii) third party suppliers and customers with which
the Company has material relationships and which could adversely affect 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 include: 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 substantially completed the Assessment, Remediation
and Testing phases with respect to its principal IT systems and applications. In
addition, the Company anticipates that the Contingency Planning phase should be
substantially completed by the end of August 1999. A test plan is in place.
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 $11.8 million through fiscal 2000, of which $8.0 million
has been incurred through May 31, 1999.
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 and the Remediation phases of its
principal non-IT software and applications related to these principal systems.
The Testing, Contingency Planning and Implementation phases should be
substantially completed by the end of August 1999. In addition to the foregoing,
the Company expects to implement the remainder of Year 2000 remediated non-IT
systems and applications prior to September 30, 1999. The Company estimates the
total costs for modifying or replacing new systems and equipment in this area
will be approximately $0.2 million through fiscal 2000, of which $0.1 million
has been incurred through May 31, 1999.
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 are 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 October 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 vendor or group of vendors 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 $12.0 million, of
which total program costs through May 31, 1999 have been $8.1 million. These
costs include costs
16 scholastic corporation
<PAGE>
related to the matters described above, which include consulting and other
expenses related to infrastructure and facilities enhancements necessary to
prepare the Company for the Year 2000. The costs also include expenses related
to internal staff incurred in connection with the implementation of the program.
The Year 2000 costs for fiscal 1999 comprised approximately 25% 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 continue to be handled in a timely manner. The cost of the Company's Year
2000 program and the remaining 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. However,
due to the general uncertainty inherent in the Year 2000 problem 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 Company's expectations
are based on the assumption that there will be no general failure of external
local, national or international systems (including financial, 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 respond to such
scenarios. However, there can be no assurance that successful contingency plans
can, in fact, be developed or implemented.
All statements regarding Year 2000 Readiness are "Year 2000 Readiness
Disclosures" as defined by the Year 2000 Information and Readiness Disclosure
Act of October 19, 1998.
NEW ACCOUNTING PRONOUNCEMENTS
Effective August 31, 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
presentation of comprehensive income is included in the Statement of Changes in
Stockholders' Equity and Comprehensive Income.
Effective May 31, 1999, the Company adopted Statement of Financial Accounting
Standards No. 131 (SFAS 131), "Disclosures About Segments of an Enterprise and
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 required
disclosures are presented in Note 2 to the Consolidated Financial Statements.
Effective May 31, 1999, the Company adopted 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 required disclosures are
presented in Note 7 included to the Consolidated Financial Statements.
The Financial Accounting Standards Board issued in June 1998, Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires all derivatives to be
recorded on the balance sheet at fair value and establishes special accounting
for the following three different types of hedges: hedges of changes in the fair
value of assets, liabilities, or firm commitments (fair value hedges); hedges of
the variable cash flows of forecasted transactions (cash flow hedges); and
hedges of foreign currency exposures of net investments in foreign operations.
Though the accounting treatment and criteria for each of the three types of
hedges is unique, they all result in offsetting changes in fair values or cash
flows of
annual report/fiscal 1999 17
<PAGE>
both the hedge and the hedged item recognized in earnings or in accumulated
comprehensive income in the same period. Changes in the fair value of
derivatives that do not meet the criteria of one of these three categories of
hedges are included in income. The Company is required to adopt the provisions
of SFAS 133 in the first quarter of fiscal 2002.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
This Annual Report on Form 10-K contains forward-looking statements. Additional
written and oral forward-looking statements may be made by the Company from time
to time in Securities and Exchange Commission ("SEC") filings and otherwise. The
Company cautions readers that results predicted by forward-looking statements,
including, without limitation, those relating to the Company's future business
prospects, revenues, working capital, liquidity, capital needs, interest costs,
and income are subject to certain risks and uncertainties that could cause
actual results to differ materially from those indicated in the forward-looking
statements, due to factors including the following and other risks and factors
identified from time to time in the Company's filings with the SEC:
o The Company's ability to produce successful educational, trade,
entertainment, software products and Internet;
o The Company's ability to maintain relationships with its creative talent;
o Changes in purchasing patterns in and the strength of educational, trade,
entertainment, software markets and Internet;
o Competition from other educational and trade publishers and media,
entertainment companies and Internet;
o Significant changes in the publishing industry, especially relating to the
distribution and sale of books;
o The effect on the Company of volatility in the price of paper and
periodic increases in postage rates; and
o The Company's ability to effectively use the Internet to support its existing
businesses and to launch successful new Internet initiatives;
o The Company's ability to manage seasonality;
o The general risks attendant to the conduct of business in foreign countries;
o The effects of the Year 2000 problems as more fully described herein; and
The foregoing list of factors should not be construed as exhaustive or as any
admission regarding the adequacy of disclosures made by the Company prior to the
date hereof. The Company disclaims any intention or obligation to update or
revise forward-looking statements, whether as a result of new information,
future events or otherwise.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has operations in various foreign countries. In the normal course of
business, these operations are exposed to fluctuations in currency values.
Management does not consider the impact of currency fluctuations to represent a
significant risk. The Company does not generally enter into derivative financial
instruments in the normal course of business, nor are such instruments used for
speculative purposes.
Market risks relating to the Company's operations result primarily from changes
in interest rates. The majority of the Company's long-term debt bears interest
at a fixed rate. However, the fair market value of the fixed rate debt is
sensitive to changes in interest rates. The Company is subject to the risk that
market interest rates will decline and the interest rates under the fixed rate
debt will exceed the then prevailing market rates. Under its current policies,
the Company does not utilize any interest rate derivative instruments to manage
its exposure to interest rate changes.
As of May 31, 1999, the balance outstanding under the facilities which have
variable rates, was $10.0, at an average interest rate of 5.31%. A 15% increase
or decrease in the average cost of the Company's variable rate debt under the
facility would not have a significant impact on the Company's results of
operations.
Additional information relating to the Company's outstanding financial
instruments is included in Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.
18 scholastic corporation
<PAGE>
ITEM 8 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Financial
Statement Schedule
PAGE(S)
Consolidated Statement of Income for the three years ended
May 31, 1999, 1998 and 1997 21
Consolidated Balance Sheet at May 31, 1999 and 1998 22-23
Consolidated Statement of Changes in Stockholders' Equity
and Comprehensive Income for the three years ended
May 31, 1999, 1998 and 1997 24
Consolidated Statement of Cash Flows for the three years
ended May 31, 1999, 1998 and 1997 25
Notes to Consolidated Financial Statements 26-36
Report of Independent Auditors 37
Supplementary Financial Information - Summary of Quarterly
Results of Operations (unaudited) 38
The following consolidated financial statement schedule of
the Company is included in Item 14(d):
PAGE
Schedule II-- Valuation and Qualifying Accounts and Reserves 48
All other schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the Consolidated
Financial Statements or the Notes thereto.
annual report/fiscal 1999 19
<PAGE>
page intentionally left blank
20 scholastic corporation
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
Years ended May 31,
(Amounts in millions, except per share data) 1999 1998 1997
<S> <C> <C> <C>
Revenues $ 1,154.7 $ 1,058.4 $ 966.3
Operating costs and expenses:
Cost of goods sold 561.1 536.8 530.7
Selling, general and administrative expenses 493.3 440.3 399.6
Other operating costs:
Depreciation 16.9 15.0 12.8
Goodwill and trademark amortization 5.5 6.7 5.5
Impairment of assets -- 11.4 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 1,076.8 1,010.2 948.6
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 77.9 48.2 17.7
Sale of SOHO Group -- 10.0 --
Interest expense, net (19.0) (20.1) (16.7)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 58.9 38.1 1.0
Provision for income taxes 22.1 14.5 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 36.8 $ 23.6 $ 0.4
====================================================================================================================================
Net income per Class A and Common Share:
Basic $ 2.25 $ 1.46 $ 0.02
Diluted $ 2.20 $ 1.45 $ 0.02
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
annual report/fiscal 1999 21
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
Balances at May 31,
(Amounts in millions except share and per share data)
Assets 1999 1998
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 5.9 $ 5.1
Accounts receivable (less allowance for doubtful accounts
of $12.3 in 1999 and $10.1 in 1998) 136.4 116.7
Inventories 227.4 200.3
Deferred taxes 41.8 41.8
Prepaid and other deferred expenses 22.7 18.8
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 434.2 382.7
- ------------------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 6.7 6.4
Buildings 40.1 41.1
Furniture, fixtures and equipment 97.6 79.8
Leasehold improvements 70.1 63.8
- ------------------------------------------------------------------------------------------------------------------------------------
214.5 191.1
Less accumulated depreciation and amortization (65.4) (54.3)
- ------------------------------------------------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 149.1 136.8
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND DEFERRED CHARGES:
Prepublication costs 95.3 86.3
Goodwill and trademarks 71.1 66.7
Royalty advances 54.4 45.6
Other 38.2 45.5
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS AND DEFERRED CHARGES 259.0 244.1
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 842.3 $ 763.6
====================================================================================================================================
</TABLE>
22 scholastic corporation
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
<S> <C> <C>
Lines of credit $ 18.0 $ 9.8
Current portion of long-term debt 0.2 0.3
Accounts payable 97.0 76.9
Accrued royalties 23.7 19.4
Deferred revenue 6.7 10.5
Other accrued expenses 66.2 64.8
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 211.8 181.7
- ------------------------------------------------------------------------------------------------------------------------------------
NONCURRENT LIABILITIES:
Long-term debt 248.0 243.5
Other noncurrent liabilities 21.1 20.3
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT LIABILITIES 269.1 263.8
- ------------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Preferred Stock, $1.00 par value
Authorized-1,000,000 shares; Issued-None -- --
Class A Stock, $.01 par value
Authorized-2,500,000 shares; Issued-828,100 shares 0.0 0.0
Common Stock, $.01 par value
Authorized-25,000,000 shares
Issued-16,946,803 shares (16,741,190 shares at 5/31/98) 0.2 0.2
Additional paid-in capital 212.3 205.1
Accumulated other comprehensive income:
Foreign currency translation adjustment (5.7) (5.0)
Retained earnings 191.4 154.6
Less 1,301,658 shares of Common Stock in treasury, at cost (36.8) (36.8)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 361.4 318.1
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 842.3 $ 763.6
====================================================================================================================================
</TABLE>
See accompanying notes
annual report/fiscal 1999 23
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
Years ended May 31, 1999, 1998 and 1997
(Amounts in millions)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
CLASS A COMMON PAID-IN COMPREHENSIVE RETAINED TREASURY STOCKHOLDERS'
STOCK STOCK CAPITAL INCOME EARNINGS STOCK EQUITY
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 1, 1996 $ 0.0 $ 0.2 $ 194.8 $ (0.2) $ 130.6 $ (36.8) $ 288.6
Comprehensive income:
Net income 0.4 0.4
Other comprehensive income:
Foreign currency translation
adjustment (0.5) (0.5)
----
Total comprehensive income (0.1)
Stock options exercised 0.0 4.7 4.7
Tax benefit realized from stock
option transactions 4.2 4.2
Stock granted 0.1 0.1
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1997 0.0 0.2 203.8 (0.7) 131.0 (36.8) 297.5
Comprehensive income:
Net income 23.6 23.6
Other comprehensive income:
Foreign currency translation
adjustment (4.3) (4.3)
----
Total comprehensive income 19.3
Stock options exercised 0.0 0.7 0.7
Tax benefit realized from stock
option transactions 0.6 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1998 0.0 0.2 205.1 (5.0) 154.6 (36.8) 318.1
Comprehensive income:
Net income 36.8 36.8
Other comprehensive income:
Foreign currency translation
adjustment (0.7) (0.7)
----
Total comprehensive income 36.1
Stock options exercised 0.0 5.8 5.8
Tax benefit realized from stock
option transactions 1.4 1.4
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1999 $ 0.0 $ 0.2 $ 212.3 $ (5.7) $ 191.4 $ (36.8) $ 361.4
====================================================================================================================================
</TABLE>
See accompanying notes
24 scholastic corporation
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended May 31,
(Amounts in millions)
<TABLE>
<CAPTION>
====================================================================================================================================
1999 1998 1997
====================================================================================================================================
Cash flows provided by operating activities:
<S> <C> <C> <C>
Net income $ 36.8 $ 23.6 $ 0.4
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 22.4 21.7 18.3
Amortization of prepublication and production costs 51.2 43.2 40.1
Royalty advances expensed 21.8 17.7 15.2
Provision for losses on accounts receivable 17.0 14.6 11.7
Deferred income taxes (2.1) (8.4) (7.0)
Impairment of assets -- 11.4 --
Gain on the sale of the SOHO Group -- (10.0) --
Changes in assets and liabilities (net of effects from business
acquisitions and dispositions):
Accounts receivable (35.5) (38.9) 7.6
Inventory (23.3) 13.8 (29.3)
Prepaid expenses (4.0) 18.6 (19.8)
Accounts payable and other accrued expenses 26.5 (0.5) 17.3
Accrued royalties 6.8 9.3 (6.9)
Deferred revenues (3.7) 3.1 (0.2)
Other, net 3.7 (1.5) (0.7)
- ------------------------------------------------------------------------------------------------------------------------------------
Total adjustments 80.8 94.1 46.3
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 117.6 117.7 46.7
Cash flows used in investing activities:
Proceeds received from the sale of the SOHO Group -- 19.2 --
Royalty advances (27.8) (31.7) (34.2)
Business and trademark acquisition-related payments (14.9) (6.0) (32.1)
Additions to property, plant and equipment (29.6) (20.3) (29.5)
Prepublication costs (46.8) (25.4) (26.9)
Production costs (13.8) (13.0) (12.5)
Other (3.9) (2.0) (2.3)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (136.8) (79.2) (137.5)
Cash flows provided by (used in) financing activities:
Borrowings under Loan Agreement and Revolver 269.2 243.9 301.5
Repayments of Loan Agreement and Revolver (264.7) (288.3) (326.2)
Proceeds from issuance of 7% Notes due 2003 -- -- 123.9
Borrowings under lines of credit 66.9 68.6 39.3
Repayments of lines of credit (58.7) (63.6) (55.6)
Proceeds from exercise of stock options 5.8 0.7 4.7
Tax benefit realized from stock option transactions 1.4 0.6 4.2
Other -- (0.3) (0.4)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 19.9 (38.4) 91.4
Effect of exchange rate changes on cash 0.1 0.1 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 0.8 0.2 0.6
Cash and cash equivalents at beginning of year 5.1 4.9 4.3
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 5.9 $ 5.1 $ 4.9
====================================================================================================================================
Supplemental information:
Income taxes paid $ 23.0 $ 17.1 $ 24.7
Interest paid 20.1 21.5 13.1
</TABLE>
See accompanying notes
annual/fiscal 1999 25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions, except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of Scholastic
Corporation and all wholly-owned subsidiaries (the "Company"). All intercompany
transactions are eliminated. Certain prior year amounts have been reclassified
to conform to the current year presentation.
Use of estimates
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, recoverability of
prepublication and film production costs and recoverability of other long-lived
assets.
Cash equivalents
Cash equivalents consist of short-term investments with original maturities of
less than three months.
Inventories
Inventories are stated at the lower of cost using the first-in, first-out method
or market.
Property, plant and equipment
Property, plant and equipment are carried at cost. Depreciation and amortization
are provided on the straight-line basis. Buildings have an estimated useful
life, for purposes of depreciation, of forty years. Furniture, fixtures and
equipment are depreciated over periods not exceeding ten years. Leasehold
improvements are amortized over the life of the lease or the life of the assets,
whichever is shorter. Interest is capitalized on major construction projects
based on the outstanding construction in progress balance for the period and the
average borrowing rate during the period.
Other assets and deferred charges
Prepublication costs are amortized on the straight-line basis over a two to five
year period commencing with publication.
Goodwill and trademarks acquired by the Company are amortized on the
straight-line basis over the estimated future periods, which are generally
between fifteen and twenty-five years.
Royalty advances are expensed as related revenues are earned or when future
recovery appears doubtful.
Production costs are stated at the lower of cost less amortization or net
realizable value. Production costs are amortized using the film forecast in the
proportion that current revenues bear to estimated remaining total lifetime
revenues.
The Company regularly evaluates the remaining lives and recoverability of the
above costs.
Income tax
The Company provides for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using enacted tax rates and laws that will be in effect when
the differences are expected to enter into the determination of taxable income.
Revenue recognition
Sales of books and software are recognized upon the shipment of product. Sales
made on a returnable basis are recorded net of provisions for estimated returns
and allowances. A reserve for estimated book returns is established at the time
of sale. Actual returns are charged against the reserve as received.
Revenue from magazine subscriptions is deferred at the time of sale. As
magazines are delivered to subscribers, proportionate amounts of revenue and
related acquisition expenses are recognized.
Revenue from the sale of film rights, principally for the home video and
domestic and foreign syndicated television markets, is recognized when the film
is available for showing or exploitation. Income from licensing is recorded, in
accordance with royalty agreements, at the time characters are available to the
licensee and collections are reasonably assured.
Stock-based compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB No. 25) in accounting for its
employee stock options. Under APB No. 25, compensation expense is recognized
only when the exercise price of options is below the market price of the
underlying stock on the date of grant where the exercise price and number of
shares subject to grant are fixed.
26 scholastic corporation
<PAGE>
Earnings per share
Earnings per share are based on the combined weighted-average number of Class A
and Common Shares outstanding using the treasury stock method, in accordance
with the Statement of Financial Accounting Standards No. 128 (SFAS 128),
"Earnings per Share." Potentially dilutive securities are excluded from the
computation of diluted earnings per share for the periods in which they have an
anti-dilutive effect.
Recent accounting principles
Effective August 31, 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
presentation of comprehensive income is included in the Consolidated Statement
of Changes in Stockholders' Equity and Comprehensive Income.
Effective May 31, 1999, the Company adopted Statement of Financial Accounting
Standards No. 131 (SFAS 131), "Disclosures About Segments of an Enterprise and
Related Information." This statement requires that public business enterprises
report certain information about operating segments in financial statements of
the enterprise issued to shareholders. 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 required
disclosures are presented in Note 2 included herein.
Effective May 31, 1999, the Company adopted 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 value of
plan assets that will facilitate financial analysis, and eliminates certain
disclosures required under prior standards. The required disclosures are
presented in Note 7 included herein.
The Financial Accounting Standards Board issued in June 1998, Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires all derivatives to be
recorded on the balance sheet at fair value and establishes special accounting
for the following three different types of hedges: hedges of changes in the fair
value of assets, liabilities, or firm commitments (fair value hedges); hedges of
the variable cash flows of forecasted transactions (cash flow hedges); and
hedges of foreign currency exposures of net investments in foreign operations.
Though the accounting treatment and criteria for each of the three types of
hedges is unique, they all result in offsetting changes in fair values or cash
flows of both the hedge and the hedged item recognized in earnings or in
accumulated comprehensive income in the same period. Changes in the fair value
of derivatives that do not meet the criteria of one of these three categories of
hedges are included in income. The Company is required to adopt the provisions
of SFAS 133 in the first quarter of fiscal 2002.
2. SEGMENT INFORMATION
The Company is a global children's publishing and media company with operations
in the United States, the United Kingdom, Canada, Australia, New Zealand,
Mexico, Hong Kong and India and distributes its products and services through a
variety of channels, including book clubs, book fairs and trade.
The Company's operations are categorized in the four segments identified below.
Such segment classification reflects the nature of products and services
consistent with how the chief operating decision maker assesses operating
performance and allocates resources.
The Company's segments are:
o Children's Book Publishing and Distribution includes the publication and
distribution of children's books in the United States to children, parents
and teachers through school-based book clubs (including home continuity
programs), school-based book fairs and trade channels.
o Educational Publishing includes the publication and distribution of K-12
textbooks, supplementary materials, classroom magazines and instructional
technology for core and supplemental use in United States schools and
libraries.
o Media, Licensing and Advertising includes the production and distribution
by the Company's United States-based operations of entertainment products
(including television programming, video and motion pictures), Internet
services and CD-ROM-based products and Scholastic-branded licensed
properties, as well as advertising and promotional activities.
o International includes the distribution of products and services outside
the United States by the Company's operations located in the United
Kingdom, Canada, Australia, New Zealand, Mexico, Hong Kong and India.
annual report/fiscal 1999 27
<PAGE>
The following table sets forth information for the fiscal years ended May 31,
1999, 1998 and 1997 about the Company's segments:
<TABLE>
<CAPTION>
CHILDREN'S
BOOK MEDIA,
PUBLISHING LICENSING
AND EDUCATIONAL AND TOTAL
DISTRIBUTION PUBLISHING ADVERTISING DOMESTIC INTERNATIONAL OVERHEAD(1) CONSOLIDATED
====================================================================================================================================
1999
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 657.9 $ 190.6 $ 115.6 $ 964.1 $ 190.6 $-- $ 1,154.7
Depreciation 3.1 0.8 0.8 4.7 3.5 8.7 16.9
Amortization (2) 13.2 24.5 15.1 52.8 3.2 0.7 56.7
Royalty advance expense 15.0 1.6 3.7 20.3 1.5 -- 21.8
Segment profit/(loss) (3) 109.3 2.3 0.0 111.6 4.9 (38.6) 77.9
Segment assets 303.0 173.8 58.6 535.4 142.4 164.5 842.3
Long-lived assets (4) 84.3 103.6 29.0 216.9 57.5 104.5 378.9
Expenditures for
long-lived assets (5) 37.5 34.5 19.1 91.1 10.7 16.2 118.0
====================================================================================================================================
1998
====================================================================================================================================
Revenues 560.9 196.1 105.3 862.3 196.1 -- 1,058.4
Depreciation 2.4 0.9 0.7 4.0 3.5 7.5 15.0
Amortization (2) 12.8 23.7 9.9 46.4 2.6 0.9 49.9
Royalty advance expense 13.8 0.8 1.9 16.5 1.2 -- 17.7
Segment profit/(loss) (3) 84.6 0.5 (9.5) 75.6 9.7 (37.1) 48.2
Segment assets 241.2 185.6 47.1 473.9 134.1 155.6 763.6
Long-lived assets (4) 71.0 96.1 24.1 191.2 56.8 97.2 345.2
Expenditures for
long-lived assets (5) 43.2 12.4 18.2 73.8 7.4 9.2 90.4
====================================================================================================================================
1997
====================================================================================================================================
Revenues 511.6 163.4 112.2 787.2 179.1 -- 966.3
Depreciation 2.0 0.9 0.4 3.3 3.6 5.9 12.8
Amortization (2) 12.1 20.0 11.0 43.1 2.1 0.4 45.6
Royalty advance expense 12.9 0.5 1.1 14.5 0.7 -- 15.2
Segment profit/(loss) (3) 65.0 (21.1) (6.5) 37.4 11.6 (31.3) 17.7
Segment assets 223.6 220.1 44.5 488.2 134.5 161.7 784.4
Long-lived assets (4) 67.0 109.6 24.4 201.0 61.1 95.5 357.6
Expenditures for
long-lived assets (5) 46.7 15.5 17.6 79.8 5.1 18.2 103.1
</TABLE>
(1) Overhead includes unallocated corporate-related items, certain
non-recurring items and as it relates to the segment profit/(loss),
expenses not allocated to reportable segments including costs related to
the management of corporate assets, net interest expense and provision for
income taxes. Unallocated assets are principally comprised of deferred
income taxes and property, plant and equipment as it relates to the
Company's headquarters in the metropolitan New York area and its National
Service Operation located in the Jefferson City, Missouri area
(2) Includes amortization of goodwill, intangible assets, and prepublication
and production costs
(3) Segment profit/(loss) represents earnings before interest and taxes
(4) Includes property, plant and equipment, prepublication costs, goodwill and
trademarks, royalty advances and production costs
(5) Includes purchase of property, plant and equipment, investment in
prepublication and production costs, and royalty advances
<TABLE>
<CAPTION>
3. DEBT
Long-term debt consisted of the following at May 31,
====================================================================================================================================
1999 1998
====================================================================================================================================
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loan Agreement and Revolver $ 10.0 $ 10.0 $ 5.3 $ 5.3
7% Notes due 2003, net of discount 124.8 126.1 124.8 127.3
Convertible Subordinated Debentures 110.0 106.7 110.0 101.4
Other debt 3.4 3.4 3.7 3.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total debt 248.2 246.2 243.8 237.7
Less current portion (0.2) (0.2) (0.3) (0.3)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $ 248.0 $ 246.0 $ 243.5 $ 237.4
====================================================================================================================================
</TABLE>
Short-term debt is carried at cost which approximates fair value. Fair values
were estimated based on market quotes, where available, or dealer quotes.
28 scholastic corporation
<PAGE>
Loan Agreement
The Company and Scholastic Inc. (a wholly-owned subsidiary) 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 up to
$135.0, with a right, in certain circumstances, to increase it to $160.0.
Interest charged under this facility was either at the Prime Rate or .325% to
.90% over LIBOR (as defined). There was a commitment fee charged which ranges
from .10% to .3625% on the unused portion. The amounts charged varied based upon
the Company's credit ratings. The Loan Agreement contains certain financial
covenants related to debt and interest coverage ratios (as defined) and limits
dividends and other distributions. The Loan Agreement was to expire on May 31,
2000. The Company has amended and restated its Loan Agreement, effective August
11, 1999, under which amendment the term is extended until August 11, 2004 (see
Note 12 - Subsequent Event).
Revolver
On June 19, 1995, the Company and Scholastic Inc. 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 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.
7% Notes Due 2003
On December 23, 1996, the Company issued $125.0 million of 7% Notes due 2003
(the "Notes"). The Notes are unsecured and unsubordinated obligations of the
Company and will 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.
Convertible Subordinated Debentures
On August 18, 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.
The Debentures are subordinated to the Loan Agreement, the Revolver and the
Notes, which are pari persue.
Other lines of credit -- short term
The Company's international subsidiaries had lines of credit available of $37.9
at May 31, 1999. There were $18.0 outstanding under these credit lines at May
31, 1999. The weighted-average interest rates on the outstanding amounts were
7.15% at May 31, 1999.
4. COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases warehouse space, office space and equipment under various
operating leases. Certain of these leases provide for rent increases based on
price-level factors. In most cases, management expects that in the normal course
of business, leases will be renewed or replaced by other leases. The Company has
no significant capitalized leases. Total rent expense relating to the Company's
operating leases was $32.2, $26.2 and $24.4 for the fiscal years ended May 31,
1999, 1998 and 1997, respectively. These rentals include payments under the
terms of the escalation provisions and are net of sublease income.
The aggregate minimum future annual rental commitments at May 31, 1999, under
all non-cancelable operating leases, totaling $162.3, are as follows: 2000 -
$30.6; 2001 - $25.5; 2002 - $21.8; 2003 - $17.8; 2004 - $12.9; later years -
$53.7.
The Company had certain contractual commitments at May 31, 1999 totaling $22.4.
The aggregate annual commitments were as follows: 2000 - $17.1; 2001 - $3.3;
2002 - $1.7; 2003 - $0.3; 2004 - none; later years - none.
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
annual report/fiscal 1999 29
<PAGE>
claims against the Company and one of its officers. The Company filed a motion
to dismiss the complaint on April 16, 1999. 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(R) 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 issues in the case are 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 first Parachute action, 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 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 publishing advances
over the term of the contract (of which approximately $15.3 had been paid at the
time the first Parachute litigation began) and payments of royalties set off by
Scholastic against amounts claimed by the Company. 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.
Discovery, which has been consolidated for the litigations, has commenced. The
Company intends to vigorously pursue its claims against Parachute and the other
named defendants and to vigorously defend against Parachute's lawsuit and
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.
5. INCOME TAX EXPENSE
Consolidated income tax expense for the indicated fiscal years ended May 31 was
based on earnings before taxes as follows:
================================================================================
1999 1998 1997
================================================================================
Domestic $ 63.0 $ 36.6 $ (3.3)
International wholly-owned
subsidiaries (4.1) 1.5 4.3
- --------------------------------------------------------------------------------
$ 58.9 $ 38.1 $ 1.0
================================================================================
Income tax expense/(benefit) for the indicated fiscal years ended May 31
consists of the following components:
================================================================================
1999 1998 1997
================================================================================
FEDERAL
Current $ 21.3 $ 18.4 $ 1.9
Deferred (2.6) (8.6) (7.6)
- --------------------------------------------------------------------------------
$ 18.7 $ 9.8 $ (5.7)
================================================================================
STATE AND LOCAL
Current $ 2.7 $ 3.0 $ 2.9
Deferred 0.2 0.1 0.6
- --------------------------------------------------------------------------------
$ 2.9 $ 3.1 $ 3.5
================================================================================
INTERNATIONAL
Current $ 0.2 $ 1.5 $ 2.8
Deferred 0.3 0.1 0.0
- --------------------------------------------------------------------------------
$ 0.5 $ 1.6 $ 2.8
================================================================================
TOTAL
Current $ 24.2 $ 22.9 $ 7.6
Deferred (2.1) (8.4) (7.0)
- --------------------------------------------------------------------------------
$ 22.1 $ 14.5 $ 0.6
================================================================================
30 scholastic corporation
<PAGE>
The provisions for income taxes attributable to continuing operations differ
from the amount of tax determined by applying the federal statutory rate as
follows:
================================================================================
1999 1998 1997
================================================================================
Computed federal
statutory provision $ 20.6 $ 13.3 $ 0.4
State income tax provision net of
federal income tax benefit 1.9 2.0 2.2
Difference in effective tax rates on
earnings of foreign subsidiaries (0.1) (0.9) (0.2)
Charitable contributions (0.5) 0.0 (1.8)
Other - net 0.2 0.1 0.0
- --------------------------------------------------------------------------------
TOTAL PROVISION FOR INCOME TAXES$ 22.1 $ 14.5 $ 0.6
================================================================================
EFFECTIVE TAX RATES 37.5% 38.0% 64.6%
================================================================================
The undistributed earnings of foreign subsidiaries at May 31, 1999 are $23.7.
Any remittance of foreign earnings would not result in significant additional
tax.
Deferred income taxes reflect tax carryforwards and the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting and the amounts used for income tax purposes as determined
under enacted tax laws and rates. The tax effects of these items that give rise
to deferred tax assets and liabilities at May 31 for the indicated fiscal years
are as follows:
================================================================================
1999 1998
================================================================================
NET DEFERRED TAX ASSETS:
Tax uniform capitalization $ 23.6 $ 16.8
Inventory reserves 11.7 11.4
Other accounting reserves 3.6 7.3
Tax carryforwards 1.3 2.5
Post-retirement, post-employment
and pension obligations 7.0 6.3
Theatrical motion picture accounting 2.4 2.4
Depreciation (3.6) (2.8)
Other - net (4.3) (0.7)
- --------------------------------------------------------------------------------
Net deferred tax assets $ 41.7 $ 43.2
================================================================================
Net deferred tax assets of $41.7 at May 31, 1999 and $43.2 at May 31, 1998
include $1.2 and $4.0 in Other assets, and $(1.3) and $(2.6) in Other noncurrent
liabilities at May 31, 1999 and 1998, respectively.
6. CAPITAL STOCK AND STOCK OPTIONS
The Company has authorized capital stock of 25,000,000 shares of Common Stock,
$.01 par value (the "Common Stock"), 2,500,000 shares of Class A Stock, $.01 par
value (the "Class A Stock"), and 1,000,000 shares of Preferred Stock, $1.00 par
value (the "Preferred Stock"). At May 31, 1999, 15,645,145 shares of Common
Stock, 828,100 shares of Class A Stock and no shares of the Preferred Stock were
issued and outstanding and 1,301,658 shares of common stock were designated as
treasury stock. At May 31, 1999, the Company had reserved 2,425,546 shares of
Common Stock for issuance under its stock option plans, 828,100 shares were
reserved for issuance upon conversion of the Class A Stock, and 1,431,174 shares
were reserved for issuance upon conversion of the Convertible Debentures.
The only voting rights vested in the holders of Common Stock, except as required
by law, are the election of such number of directors as shall equal at least
one-fifth of the members of the Board of Directors. The holders of Class A Stock
are entitled to elect all other directors and to vote on all other matters.
Holders of Class A Stock and Common Stock are entitled to one vote per share on
matters on which they are entitled to vote. The holders of Class A Stock have
the right, at their option, to convert shares of Class A Stock into shares of
Common Stock on a share-for-share basis.
With the exception of voting rights and conversion rights, and as to the rights
of holders of Preferred Stock if issued, the Class A Stock and the Common Stock
are equal in rank and are entitled to dividends and distributions, when and if
declared by the Board of Directors. The Company has not paid any dividends since
its public offering in 1992 and has no current plans to pay any dividends on its
Common Stock or Class A Stock.
PREFERRED STOCK
The Company's authorized Preferred Stock may be issued in one or more series
with full or limited voting rights, with the rights of each series to be
determined by the Board of Directors before each issuance. No shares of
Preferred Stock have been issued.
annual report/fiscal 1999 31
<PAGE>
WARRANTS
During fiscal 1999, the Company granted a warrant to purchase 45,000 shares of
Common Stock at a price of $39.12 to a third party. These warrants vest based on
meeting certain performance criteria and expire on August 6, 2003. At such time
as these criteria are met, the fair value of the warrants at that date will be
recorded as expense.
Stock Options
In fiscal 1996, the Company adopted the 1995 Stock Option Plan (the "1995
Plan"), which provides for the grant of non-qualified stock options and
incentive stock options. Two million shares of Common Stock were initially
reserved for issuance upon the exercise of options granted under this plan. In
September 1998, the holders of the Class A Stock authorized the issuance of an
additional 1.5 million shares of Common Stock under the 1995 Option Plan. The
1995 Plan supplemented the 1992 Stock Option Plan (the "1992 Plan"). At May 31,
1999, options to purchase 1,959,272 and 671,725 shares of Common Stock were
outstanding under the 1995 Plan and the 1992 Plan, respectively; 1,454,434
shares and no shares of Common Stock were available for additional awards under
the 1995 Plan and 1992 Plan, respectively.
In fiscal 1998, the Company adopted the stockholder approved 1997 Outside
Directors' Stock Option Plan (the "Director Option Plan"), which provides for
the grant of non-qualified options to purchase Common Stock, with 180,000 shares
reserved for issuance. This plan provides for the automatic grant to
non-employee directors each January of options to purchase 3,000 shares of
Common Stock. At May 31, 1999, options to purchase 63,000 shares of Common Stock
were outstanding and options on 114,000 shares of Common Stock were available
for additional awards under this plan. In January 1999 and 1998, options were
awarded under this plan at exercise prices of $56.94 and $35.75, respectively.
In fiscal 1997, the Company issued an aggregate of 1,683 shares of Common Stock
under a Non-Employee Director Stock-for-Retainer Plan, which was terminated in
fiscal 1998 concurrently with the adoption of the Director Option Plan. Under a
prior director stock option plan, options to purchase 24,000 shares of Common
Stock are outstanding.
Generally, options granted under the various plans may not be exercised for a
minimum of one year after grant and expire ten years and one day after grant.
Activity under the various stock option plans for the indicated fiscal years
ended May 31 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
==== ==== ====
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning
of year 2,617,659 $ 38.42 900,850 $ 41.94 1,075,400 $ 29.32
Granted 333,400 43.64 1,870,560 35.43 218,500 64.23
Exercised (205,613) 28.15 (69,500) 9.93 (338,175) 13.88
Cancelled (27,449) 35.40 (84,251) 44.12 (54,875) 56.30
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding - end of year 2,717,997 $ 39.87 2,617,659 $ 38.42 900,850 $ 41.94
====================================================================================================================================
Exercisable - end of year 1,663,721 $ 38.46 539,651 $ 36.49 436,363 $ 25.33
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At May 31, 1999, for each of the following classes of options as determined by
range of exercise price, the information regarding weighted-average exercise
prices and weighted-average remaining contractual lives of each said class is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
WEIGHTED-AVERAGE
OPTIONS WEIGHTED-AVERAGE REMAINING NUMBER WEIGHTED-AVERAGE
PRICE RANGE NUMBER EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 9.03-- $ 14.78 97,500 $ 9.74 1.0 years 97,500 $ 9.74
$ 27.75-- $ 39.94 2,055,947 $ 36.26 8.1 years 1,270,147 $ 36.21
$ 46.47-- $ 68.81 564,550 $ 58.22 7.1 years 296,074 $ 57.57
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
32 scholastic corporation
<PAGE>
Under the provisions of SFAS 123, the Company applies APB 25 and related
interpretations in accounting for its stock option plans. In accordance with APB
25, no compensation expense was recognized because the exercise price of the
Company's stock options was equal to the market price of the underlying stock on
the date of grant when the exercise price and number of shares subject to grant
were fixed.
If the Company had elected to recognize compensation cost based on the fair
value of the options granted at grant date as prescribed by SFAS 123, net income
and earnings per share would have been reduced to the pro forma amounts
indicated in the table below:
================================================================================
1999 1998 1997
================================================================================
Net income - as reported $ 36.8 $ 23.6 $ 0.4
Net income/(loss) - pro forma 27.7 14.5 (0.8)
Diluted earnings per share -
as reported $ 2.20 $ 1.45 $ 0.02
Diluted earnings/(loss) per -
share pro forma 1.67 0.89 (0.05)
- --------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
================================================================================
1999 1998 1997
================================================================================
Expected dividend yield 0.00% 0.00% 0.00%
Expected stock price volatility 0.409 0.346 0.184
Risk-free interest rate 5.24% 6.02% 6.63%
Expected life of options 5 years 5 years 5 years
- --------------------------------------------------------------------------------
The weighted-average fair value of options granted during fiscal 1999, 1998 and
1997 were $18.89, $14.64 and $20.39 per share, respectively. For purposes of pro
forma disclosure, the estimated fair value of the options is amortized over the
options' vesting period. The pro forma information above is not likely to be
representative of the effects on reported net income for future years as options
are generally granted each year and vest over several years and only include
grants subsequent to June 1, 1995.
7. EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan (the "US Pension Plan") which
covers the majority of the US employees who meet certain eligibility
requirements. Benefits are based on years of service and on career average
compensation. The US Pension Plan is funded by contributions from participants
and the Company. It is the Company's policy to fund the minimum amount required
by the Employee Retirement Income Security Act of 1974, as amended.
The international subsidiary in the United Kingdom has a defined benefit pension
plan (the "UK Pension Plan") covering those employees meeting minimum length of
service requirements. Benefits are based on years of service and on a percentage
of compensation near retirement. The UK Pension Plan is funded by contributions
from the subsidiary and its employees.
Other benefits consist of certain healthcare and life insurance benefits that
the Company provides for retired employees. A majority of the Company's domestic
employees may become eligible for these benefits if they reach normal retirement
age while working for the Company.
- --------------------------------------------------------------------------------
space intentionally left blank
annual report/fiscal 1999 33
<PAGE>
Total defined benefit pension plan costs under the US and UK Pension Plans for
the indicated fiscal years ended May 31 are summarized as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
====================================================================================================================================
1999 1998 1999 1998
====================================================================================================================================
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 26.9 $ 20.9 $ 11.0 $ 11.4
Service cost 2.5 1.7 0.5 0.4
Interest cost 1.9 1.6 0.8 0.8
Plan participants' contributions 0.6 0.6 0.1 0.1
Amendments -- -- (0.2) --
Actuarial (gains)/losses 1.4 3.4 0.1 (1.1)
Benefits paid (1.3) (1.3) (0.8) (0.6)
- ------------------------------------------------------------------------------------------------------------------------------------
BENEFIT OBLIGATION AT END OF YEAR 32.0 26.9 11.5 11.0
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 24.1 20.7 -- --
Actual return on plan assets 1.3 2.8 -- --
Company contributions 2.2 1.9 -- --
Plan particpants' contributions -- -- -- --
Benefits paid (1.3) (1.3) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR 26.3 24.1 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Underfunded status of the plan (5.7) (2.8) (11.5) (11.0)
Unrecognized net actuarial gain (2.8) (1.2) (2.8) (3.1)
Unrecognized prior service cost 0.8 1.1 (0.2) 0.0
Unrecognized net asset obligation 0.8 1.0 0.0 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
ACCRUED BENEFIT COST (6.9) (1.9) (14.5) (14.1)
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate 7.1% 7.0% 7.3% 7.0%
Compensation increase factor 4.3% 5.0% -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Plan assets consist primarily of stocks, bonds, money market funds and US
government obligations. The assumed weighted-average long-term rate of return on
plan assets for plans with accumulated benefits obligations that exceed their
assets was 9.3% for fiscal 1999 and 1998.
The components of the net periodic post-retirement benefit costs for the
indicated fiscal years ended May 31 are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
====================================================================================================================================
1999 1998 1997 1999 1998 1997
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Components of Net Periodic Benefit Cost
Service cost $ 2.5 $ 1.7 $ 1.5 $ 0.5 $ 0.4 $ 0.3
Interest cost 1.9 1.6 1.4 0.8 0.8 0.8
Expected return on assets (0.9) (2.9) (3.2) -- -- --
Net amortization and deferrals 0.3 0.3 0.3 (0.1) -- --
Recognized net actuarial gain (1.4) 1.0 1.7 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 2.4 $ 1.7 $ 1.7 $ 1.2 $ 1.2 $ 1.1
====================================================================================================================================
</TABLE>
34 scholastic corporation
<PAGE>
The accumulated post-retirement benefit obligation was determined using a
discount rate of 7.25%. Service cost and interest components were determined
using a discount rate of 7.0%. The health care cost trend rate assumed was 9.0%
with an annual decline of 1% until the rate reaches 5.0% in the year 2003. A
decrease of 1% in the health care cost trend rate would result in decreases of
approximately $1.4 in the accumulated benefit obligation and $0.2 in the annual
net periodic post-retirement benefit cost. An increase of 1.0% in the health
care cost trend rate would result in increases of approximately $1.7 in the
accumulated benefit obligation and $0.3 in the annual net periodic
post-retirement benefit cost.
The Company also provides other benefit plans including the 401(k) Plan and the
Employee Stock Purchase Plan.
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
========================================================================================================
1999 1998 1997
========================================================================================================
<S> <C> <C> <C>
Net Income $ 36.8 $ 23.6 $ 0.4
Weighted average Class A and Common Shares
outstanding for basic earnings per share 16.4 16.2 16.0
Dilutive effect of employee stock options 0.3 0.2 0.3
Dilutive effect of warrants 0.0 -- --
- --------------------------------------------------------------------------------------------------------
Adjusted weighted average Class A and Common
Shares for diluted earnings per share outstanding 16.7 16.4 16.3
========================================================================================================
Net Income per Class A and Common Shares
Basic $ 2.25 $ 1.46 $ 0.02
Diluted $ 2.20 $ 1.45 $ 0.02
- --------------------------------------------------------------------------------------------------------
</TABLE>
For all periods presented, the effect of the 5.0% Convertible Subordinated
Debentures of 1.5 million shares on the adjusted weighted-average Class A and
Common Shares for diluted earnings per share is anti-dilutive and is not
included in the calculation.
9. IMPAIRMENT OF ASSETS
Fiscal year 1998 includes non-cash charges relating to the impairment of certain
assets of $11.4. Approximately $8.3 and $3.1 of the charges relate to the
Company's Educational Publishing segment and the Media, Licensing and
Advertising segment, respectively. A significant portion of these charges was
determined in accordance with SFAS 121 and was based on the Company's assessment
of the recoverability of the investments and ongoing cash flows. These charges
consist primarily of unamortized prepublication of $6.9 and related inventory
costs of $4.5.
10. DISPOSITION
Effective January 1, 1998, the Company sold its SOHO Group, including Home
Office Computing(R) magazine, for approximately $19.2 and the assumption of
certain liabilities, resulting in a pre-tax gain of approximately $10.0.
11. OTHER FINANCIAL DATA
Prepaid and other deferred expenses include deferred magazine acquisition
expenses of $5.7 and $4.6 at May 31, 1999 and 1998, respectively. The Company
expensed $8.1, $7.3 and $0.0 of magazine acquisition expenses in fiscal years
1999, 1998 and 1997, respectively.
Property, plant and equipment include capitalized interest of $0.6 and $0.0 and
construction in progress of $13.1 and $5.1 at May 31, 1999 and 1998,
respectively, related to the expansion of the Company's headquarters.
Goodwill and Trademarks are net of accumulated amortization of $16.6 and $12.0
at May 31, 1999 and 1998, respectively.
Other assets and deferred charges are net of accumulated amortization of
prepublication costs of $68.1 and $49.8 at May 31, 1999 and 1998, respectively.
Other accrued expenses include a reserve for unredeemed credits issued in
conjunction with the Company's book club and book fair operations of $11.6 and
$11.8, and accrued taxes of $7.9 and $10.2 at May 31, 1999 and 1998,
respectively.
annual report/fiscal 1999 35
<PAGE>
12. SUBSEQUENT EVENT
As indicated in Note 3, effective August 11, 1999, the Company, Scholastic Inc.
and the banks party thereto have amended and restated the Loan Agreement. The
amended Loan Agreement expires August 11, 2004, provides for aggregate
borrowings of up to $170.0 (with a right in certain circumstances to increase it
to $200.0) including the issuance of up to $10.0 in letters of credit. Interest
under this facility is either at the prime rate or 0.325% to 0.90% over LIBOR
(as defined). There is a commitment fee ranging from 0.10% to 0.30% on the
facility and a utilization fee ranging from 0.05% to 0.15% if borrowings exceed
33% of the total facility. The amounts charged vary based upon the Company's
credit ratings. At the Company's current credit ratings, the spread over LIBOR,
commitment fee and utilization fee are 0.475%, 0.150% and 0.075%, respectively.
The Loan Agreement contains certain financial covenants related to debt and
interest coverage ratios (as defined) and limits dividends and other
distributions.
- --------------------------------------------------------------------------------
space intentionally left blank
36 scholastic corporation
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Scholastic Corporation
We have audited the accompanying consolidated balance sheet of Scholastic
Corporation (the "Company") as of May 31, 1999 and 1998, and the related
consolidated statement of income, changes in stockholders' equity and
comprehensive income, and cash flows for each of the three years in the period
ended May 31, 1999. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at May 31, 1999 and 1998 and the consolidated results of its operations,
and its cash flows for each of the three years in the period ended May 31, 1999
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ERNST & YOUNG LLP
New York, New York
July 8, 1999,
except for Note 12, as to which the date is
August 11, 1999
annual report/fiscal 1999 37
<PAGE>
SUPPLEMENTARY FINANCIAL INFORMATION
Summary of Quarterly Results of Operations for the fiscal years ended May 31,
1999 and 1998 (Unaudited, amounts in millions except per share data)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
===================================================================================================================================
1999
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Revenues $ 150.2 $ 403.2 $ 267.3 $ 334.0 $ 1,154.7
Cost of goods sold 85.2 187.3 133.5 155.1 561.1
Net income/(loss) (17.5) 31.7 0.2 22.4 36.8
Net income/(loss) per share:
Basic (1.08) 1.94 0.01 1.36 2.25
Diluted (1.08) 1.81 0.01 1.27 2.20
===================================================================================================================================
1998
===================================================================================================================================
Revenues $ 166.6 $ 354.8 $ 239.0 $ 298.0 $ 1,058.4
Cost of goods sold 96.1 176.6 121.8 142.3 536.8
Net income/(loss) (13.2) 26.0 (3.1) 13.9 23.6
Net income/(loss) per share:
Basic (0.81) 1.61 (0.19) 0.86 1.46
Diluted (0.81) 1.51 (0.19) 0.83 1.45
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
</TABLE>
None.
- --------------------------------------------------------------------------------
space intentionally left blank
38 scholastic corporation
<PAGE>
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is incorporated herein by reference from the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934.
<TABLE>
<CAPTION>
Executive Officers (as of July 15, 1999)
====================================================================================================================================
NAME AGE EMPLOYED BY REGISTRANT SINCE POSITION(S) FOR PAST FIVE YEARS
====================================================================================================================================
<S> <C> <C> <C>
Richard Robinson 62 1962 Chairman of the Board (since 1982), President (since
1974) and Chief Executive Officer (since 1975).
Kevin J. McEnery 51 1993 Executive Vice President and Chief Financial
Officer (since 1995), Vice President of Strategic Planning
and Operations, Magazine and Technology Groups
(1993-1995).
Deborah A. Forte 45 1984 Executive Vice President (since 1996), Senior Vice
President (1995) and Division Head, Scholastic Entertainment
Inc. ("SEI") (since 1995); Executive Vice President of SEI
(1994) and Vice President of SEI (1984-1994).
Barbara A. Marcus 48 1983 Executive Vice President, Children's Book
Publishing (since 1991).
Margery W. Mayer 47 1990 Executive Vice President (since 1990)--Learning
Ventures (since 1998), Instructional Publishing and
Scholastic School Group (1990-1997).
Ruth L. Otte 50 1996 Executive Vice President (since 1996)--Internet and
Software (since 1999), Education Group (1998-1999) and
New Media Division (1996-1998); and prior to joining
the Registrant, President (1994-1995),Knowledge Adventure.
Hugh Roome 47 1991 Executive Vice President (since 1996), Senior Vice
President (1993-1996)--Magazine Group (since 1993).
Richard M. Spaulding 62 1960 Director (since 1974) and Executive Vice President
(since 1974).
Judith A. Corman 61 1999 Senior Vice President, Corporate Communications and
Media Relations (since 1999); and prior to joining the
Registrant, Senior Vice President, Lerer & Montgomery
(1994-1999).
Charles B. Deull 39 1995 Senior Vice President, Legal and Business Affairs
(since 1995); Secretary (since 1996); and prior to
joining the Registrant, Associate, law firm of Cleary,
Gottlieb, Steen and Hamilton (1986-1995).
Jean L. Feiwel 46 1983 Senior Vice President, Publisher, Children's Book
Publishing (since 1993).
</TABLE>
annual report/fiscal 1999 39
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
NAME AGE EMPLOYED BY REGISTRANT SINCE POSITION(S) FOR PAST FIVE YEARS
====================================================================================================================================
<S> <C> <C>
Ernest B. Fleishman 62 1989 Senior Vice President, Education and Corporate
Relations (since 1989).
Maurice Greenfield 56 1999 Senior Vice President and Chief Information Officer
(since 1999); and prior to joining the Registrant, Vice
President, MIS, National Broadcasting Company (1985-1999).
Frank Grohowski 58 1985 Senior Vice President, Operations (since 1995) and
Vice President, Operations (1985-1995).
Larry V. Holland 40 1994 Senior Vice President, Corporate Human Resources
and Employee Services (since 1997) and Vice President,
Human Resources (1994-1997).
Linda S. Koons 44 1990 Senior Vice President (since 1998), Vice President
(1995-1998); Publisher (since 1994), Group Head, Education
Group (since 1999), Education Group (1998-1999);
Supplementary Publishing (1997-1998), Early
Childhood Division (1995-1997); and from 1994 to 1995,
Director of School Product Development, Disney Interactive.
David J. Walsh 63 1983 Senior Vice President, International Operations
(since 1983).
Helen V. Benham 49 1974 Director (since 1992), Corporate Vice President,
Early Childhood Advisor (since 1996); Vice President and
Publisher, Early Childhood Division (1990-1996).
Claudia H. Cohl 59 1975 Vice President (since 1978)--Internal Communications
(since 1999), Editorial Planning and Development, Scholastic
Education Group (1993-1999).
Raymond Marchuk 48 1983 Vice President (since 1983), Finance & Investor
Relations.
Karen A. Maloney 42 1997 Vice President and Corporate Controller (since
1998), Director of Accounting and Financial Operations
(1997-1998); and prior to joining the Registrant, Vice
President and Corporate Controller, Calvin Klein, Inc.
(1996-1997); Vice President and Corporate Controller, Bernard
Chaus, Inc.(1995-1996).
Vincent M. Marzano 36 1987 Treasurer (since 1993).
David D. Yun 51 1988 President, Scholastic Book Fairs (since 1992).
</TABLE>
40 scholastic corporation
<PAGE>
ITEM 11 EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's definitive proxy statement
to be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's definitive proxy statement
to be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's definitive proxy statement
to be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(3) Exhibits:
Exhibit Number
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to the Company's Registration Statement on Form
S-8 (Registration No. 33-46338) as filed with the Commission on March 12,
1992).
3.2 By-Laws of the Company (incorporated by reference to the Company's
Registration Statement on Form S-1 (Registration No. 33-45022) as filed
with the Commission on January 10, 1992 (the "1992 Registration
Statement")).
4.1 Amended and Restated Credit Agreement dated August 11, 1999 among the
Company and Scholastic Inc., as borrowers, the Initial lenders named
therein, Citibank, N.A., as administrative agent, Salomon Solomon Smith
Barney Inc., as arranger, and Chase Manhattan Bank, N.A., and Fleet Bank,
N.A., as syndication agents, replacing in its entirety the Amended and
Restated Loan Agreement dated April 11, 1995 between the Company and
Citibank, N.A., as agent, Marine Midland Bank, Chase Manhattan Bank, N.A.,
The First National Bank of Boston and United Jersey Bank (incorporated by
reference to the Company's Form 10-Q for the quarter ended February 28,
1995 as filed with the Commission on April 13, 1995), together with
Amendment No. 1 to the Loan Agreement dated May 1, 1996 (incorporated by
reference to the Company's Annual Report on Form 10-K as filed with the
Commission on August 28, 1996); Amendment No. 2 to the Loan Agreement dated
May 28, 1997 (incorporated by reference to the Company's Form 10-Q for the
quarter ended August 31, 1997 as filed with the Commission on October 15,
1997); and Amendment No. 3 to the Loan Agreement dated November 28, 1997
(incorporated by reference to the Company's Form 10-Q for the quarter ended
November 30, 1997 as filed with the Commission on January 14, 1998).
4.2* Revolving Loan Agreement dated June 19, 1995 among the Company, Scholastic
Inc. and Sun Bank, National Association, as amended August 14, 1996, May
30, 1997, and November 28, 1997.
4.3* Credit Agreement Facility dated June 1, 1992, as amended on October 30,
1995, between Scholastic Canada Ltd. and CIBC.
4.4* Credit Agreement Facility dated June 24, 1993 between Scholastic Ltd.
(formerly known as Scholastic Publications Ltd.) and Citibank, N.A.
4.5* Overdraft Facility dated May 14, 1992, as amended on June 30, 1995, between
Scholastic Ltd. (formerly known as Scholastic Publications Ltd.) and
Midland Bank.
4.6* Credit Agreement, dated February 12, 1993, as amended on January 31, 1995,
between Scholastic Australia Pty. Ltd. (formerly known as Ashton Scholastic
Pty. Ltd.) and National Australia Bank Ltd.
annual report/fiscal 1999 41
<PAGE>
4.7* Credit Agreement, dated April 20, 1993 between Scholastic New Zealand
Ltd. (Formerly Ashton Scholastic Ltd.) and ANZ Banking Group Ltd.
4.8* Credit Agreement, dated May 28, 1998 between Scholastic Australia Pty.
Ltd. and Hong Kong Bank of Australia Ltd.
4.9 Indenture dated August 15, 1995 for 5% Convertible Subordinated
Debentures due August 15, 2005 issued by the Company (incorporated by
reference to the Company's Annual Report on Form 10-K as filed with the
Commission on August 28, 1995).
4.10 Indenture dated December 15, 1996 for 7% Notes due December 15, 2003
issued by the Company (incorporated by reference to the Company's
Registration Statement on Form S-3 (Registration No. 333-17365) as filed
with the Commission on December 11, 1996).
10.2** Scholastic Corporation 1992 Stock Option Plan (incorporated by reference
to the Company's Annual Report on Form 10-K as filed with the Commission
on August 27, 1992).
10.4** Scholastic Corporation 1995 Stock Option Plan (incorporated by reference
to the Company's Registration Statement Form S-8 (Registration No.
33-98186) as filed with the Commission on October 16, 1995), together
with Amendment No. 1 to the Scholastic Corporation 1995 Stock Option
Plan (incorporated by reference to the Company's Quarterly Report on
Form 10-Q as filed with the Commission on October 15, 1998).
10.5** Form of Stock Option Agreement for Scholastic Corporation 1995 Stock
Option Plan (incorporated by reference to the Company's Annual Report on
Form 10-K as filed with the Commission on August 26, 1998).
10.6** Scholastic Corporation 1998 Employee Stock Purchase Plan, effective as
of January 1, 1999 (incorporated by reference to the Company's Quarterly
Report on Form 10-Q as filed with the Commission on April 14, 1999).
10.7** Scholastic Corporation 1998 Management Stock Purchase Plan, effective as
of January 1, 1999 (incorporated by reference to the Company's Quarterly
Report on Form 10-Q as filed with the Commission on April 14, 1999).
10.8** Scholastic Corporation 1992 Outside Directors' Stock Option Plan
(incorporated by reference to the Company's Annual Report on Form 10-K
as filed with the Commission on August 27, 1992).
10.9** Scholastic Corporation 1997 Outside Director Stock Option Plan, amended
and restated as of May 25, 1999.
10.10** Form of Stock Option Agreement for Scholastic Corporation 1997 Outside
Director Plan (incorporated by reference to the Company's Annual Report
on Form 10-K as filed with the Commission on August 26, 1998).
10.11** Scholastic Corporation 1995 Director's Deferred Compensation Plan,
amended and restated as of May 25, 1999.
10.12** Employment Agreement between Jean L. Feiwel and Scholastic Inc., dated
April 6, 1998 (incorporated by reference to the Company's Annual Report
on Form 10-K as filed with the Commission on August 26, 1998).
10.13** Description of contingent long-term incentive arrangement between David
D. Yun and Scholastic Inc., effective September 16, 1998.
10.14** Scholastic Corporation Non-Employee Director Stock-For-Retainer Plan
(incorporated by reference to the Company's Registration Statement on
Form S-8 (Registration No. 33-74064) as filed with the Commission on
January 11, 1994).
10.15 Amended and Restated Lease, effective as of August 1, 1999, between ISE
555 Broadway, LLC, landlord, and Scholastic Inc., tenant, for the
building known as 555 Broadway, NY, NY.
10.16 Amended and Restated Sublease, effective as of October 9, 1996, between
Kalodop Corp., as sublandlord, and Scholastic Inc., as subtenant, for
the premises known as 557 Broadway, NY, NY.
10.17 Agreements with Industrial Development Agency of the City of New York
including (i)Lease Agreement dated
42 scholastic corporation
<PAGE>
December 1, 1993; (ii) Indenture of Trust agreement dated December 1, 1993;
(iii) Project Agreement dated December 1, 1993; (iv) Sales Tax letter dated
December 3, 1993 (each of the foregoing are incorporated by reference to
the Company's Annual Report on Form 10-K as filed with the Commission on
August 26, 1994).
21 Subsidiaries of the Company.
23 Consent of Independent Auditors.
27.1 Financial Data Schedule for the year ended May 31, 1999.
27.2 Financial Data Schedule restated for the year ended May 31, 1998.
(b) Reports on Form 8-K.
No current Report on Form 8-K was filed during the fourth quarter ended May
31, 1999.
* Such long-term debt does not individually amount to more than 10% of the
total assets of the Company and its subsidiaries on a consolidated basis.
Accordingly, pursuant to Item 601(b)(4)(iii) of Regulation S-K, such
instrument is not filed herewith. The Company hereby agrees to furnish a
copy of any such instrument to the Securities and Exchange Commission upon
request.
** The referenced exhibit is a management contract or compensation plan or
arrangement described in Item 601(b) (10) (iii) of Regulation S-K.
- --------------------------------------------------------------------------------
space intentionally left blank
annual report/fiscal 1999 43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: August 20, 1999 SCHOLASTIC CORPORATION
By: /s/ Richard Robinson
------------------------
Richard Robinson, Chairman of the
Board, President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Richard Robinson his or her true and lawful
attorney-in-fact and agent, with power of substitution and resubstitution, for
him or her and in his or her name, place and stead, in any and all capacities,
to sign any and all amendments to this Annual Report on Form 10-K, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing necessary and requisite to be done, as fully and to all the
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
/s/ Richard Robinson Chairman of the Board, President, August 20, 1999
- ------------------------------- Chief Executive Officer and
Richard Robinson Director (Principal Executive Officer)
/s/ Richard M. Spaulding Executive Vice President and Director August 20, 1999
- -------------------------------
Richard M. Spaulding
/s/ Kevin J. McEnery Executive Vice President and Chief August 20, 1999
- ------------------------------- Financial Officer (Principal
Kevin J. McEnery Financial Officer)
/s/ Karen A Maloney Vice President and Corporate August 20, 1999
- ------------------------------- Controller (Principal Accounting Officer)
Karen A. Maloney
/s/ Rebeca M. Barrera Director August 20, 1999
- -------------------------------
Rebeca M. Barrera
/s/ Helen V. Benham Director August 20, 1999
- -------------------------------
Helen V. Benham
/s/ Frederic J. Bischoff Director August 20, 1999
- -------------------------------
Frederic J. Bischoff
/s/ John Brademas Director August 20, 1999
- -------------------------------
John Brademas
44 scholastic corporation
<PAGE>
SIGNATURE TITLE DATE
/s/ Ramon C. Cortines Director August 20, 1999
- -------------------------------
Ramon C. Cortines
/s/ Alonzo A. Crim Director August 20, 1999
- -------------------------------
Alonzo A. Crim
/s/ Charles T. Harris, III Director August 20, 1999
- -------------------------------
Charles T. Harris, III
/s/ Andrew S. Hedden Director August 20, 1999
- -------------------------------
Andrew S. Hedden
/s/ Mae C. Jemison Director August 20, 1999
- -------------------------------
Mae C. Jemison
/s/ Richard A. Krinsley Director August 20, 1999
- -------------------------------
Richard A. Krinsley
/s/ John G. McDonald Director August 20, 1999
- -------------------------------
John G. McDonald
/s/ Peter M. Mayer Director August 20, 1999
- -------------------------------
Peter M. Mayer
/s/ Augustus K. Oliver Director August 20, 1999
- -------------------------------
Augustus K. Oliver
- --------------------------------------------------------------------------------
space intentionally left blank
</TABLE>
annual report/fiscal 1999 45
<PAGE>
page intentionally left blank
46 scholastic corporation
<PAGE>
SCHOLASTIC CORPORATION
ANNUAL REPORT ON FORM 10-K
YEAR ENDED MAY 31, 1999
ITEM 14(D)
FINANCIAL STATEMENT SCHEDULE
annual report/fiscal 1999 47
<PAGE>
SCHEDULE II
SCHOLASTIC CORPORATION
Valuation And Qualifying Accounts And Reserves
Years Ended May 31, 1999, 1998 and 1997
(Amounts in millions)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO WRITE-OFF'S BALANCE AT
DESCRIPTION BEGINNING OF YEAR INCOME AND OTHER END OF YEAR
====================================================================================================================================
MAY 31, 1999
====================================================================================================================================
<S> <C> <C> <C> <C>
Reserve for royalty advances $ 29.7 $ 2.3 $ 0.1 $ 31.9
====================================================================================================================================
Reserve for obsolescence $ 30.7 $ 18.8 $ 13.4 $ 36.1
====================================================================================================================================
Reserve for returns $ 20.5 $ 45.9 $ 42.1 (1) $ 24.3
====================================================================================================================================
Allowance for doubtful accounts $ 10.1 $ 17.0 $ 14.8 $ 12.3
====================================================================================================================================
MAY 31, 1998
====================================================================================================================================
Reserve for royalty advances $ 25.1 $ 4.6 $-- $ 29.7
====================================================================================================================================
Reserve for obsolescence $ 34.0 $ 15.7 $ 19.0 $ 30.7
====================================================================================================================================
Reserve for returns $ 30.2 $ 41.8 $ 51.5 (1) $ 20.5
====================================================================================================================================
Allowance for doubtful accounts $ 7.8 $ 14.6 $ 12.3 $ 10.1
====================================================================================================================================
May 31, 1997
====================================================================================================================================
Reserve for royalty advances $ 24.9 $ 2.3 $ 2.1 $ 25.1
====================================================================================================================================
Reserve for obsolescence $ 27.1 $ 21.1 $ 14.2 $ 34.0
====================================================================================================================================
Reserve for returns $ 27.6 $ 68.7 $ 66.1 (1) $ 30.2
====================================================================================================================================
Allowance for doubtful accounts $ 9.2 $ 11.7 $ 13.1 $ 7.8
====================================================================================================================================
</TABLE>
(1) Represents actual returns charged to reserve
48 scholastic corporation
<PAGE>
SCHOLASTIC CORPORATION
EXHIBITS
TO THE ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED MAY 31, 1999
<PAGE>
EXHIBIT INDEX
Regulation S-K
Exhibit Number Description of Document
4.1 Amended and Restated Credit Agreement dated August 11, 1999 among
the Company and Scholastic Inc., as borrowers, the Initial lenders
named therein, Citibank, N.A., as administrative agent, Salomon
Solomon Smith Barney Inc., as arranger, and Chase Manhattan Bank,
N.A., and Fleet Bank, N.A., as syndication agents, replacing in its
entirety the Amended and Restated Loan Agreement dated April 11,
1995 between the Company and Citibank, N.A., as agent, Marine
Midland Bank, Chase Manhattan Bank, N.A., The First National Bank of
Boston and United Jersey Bank (incorporated by reference to the
Company's Form 10-Q for the quarter ended February 28, 1995 as filed
with the Commission on April 13, 1995), together with Amendment No.
1 to the Loan Agreement dated May 1, 1996 (incorporated by reference
to the Company's Annual Report on Form 10-K as filed with the
Commission on August 28, 1996); Amendment No. 2 to the Loan
Agreement dated May 28, 1997 (incorporated by reference to the
Company's Form 10-Q for the quarter ended August 31, 1997 as filed
with the Commission on October 15, 1997); and Amendment No. 3 to the
Loan Agreement dated November 28, 1997 (incorporated by reference to
the Company's Form 10-Q for the quarter ended November 30, 1997 as
filed with the Commission on January 14, 1998).
10.9 Scholastic Corporation 1997 Outside Directors' Stock Option Plan,
amended and restated as of May 25, 1999.
10.11 Scholastic Corporation Director's Deferred Compensation Plan,
amended and restated as of May 25, 1999.
10.13 Description of contingent long-term incentive arrangement between
David D. Yun and Scholastic Inc., effective as of September 16,
1998.
10.14 Amended and Restated Lease, effective as of August 1, 1999, between
ISE 555Broadway, LLC, landlord, and Scholastic Inc., tenant, for the
building known as 555 Broadway, NY, NY.
10.15 Amended and Restated Sublease, effective as of October 9, 1996,
between Kalodop Corp., as sublandlord, and Scholastic Inc., as
subtenant, for the premises known as 557 Broadway, NY, NY.
<PAGE>
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27.1 Financial Data Schedule for the year ended May 31, 1999.
27.2 Financial Data Schedule restated for the year ended May 31, 1998.
EXHIBIT 4.1
COPY AS EXECUTED, WITH EXHIBIT D
AND SHEARMAN & STERLING OPINION
AS SEPARATELY EXECUTED
U.S. $170,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of August 11, 1999
Among
SCHOLASTIC CORPORATION
and
SCHOLASTIC INC.
as Borrowers
and
THE INITIAL LENDERS NAMED HEREIN
as Initial Lenders
and
CITIBANK, N.A.
as Administrative Agent
and
SALOMON SMITH BARNEY INC.
as Arranger
and
THE CHASE MANHATTAN BANK
and
FLEET BANK, N.A.
as Syndication Agents
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms 1
SECTION 1.02. Computation of Time Periods 16
SECTION 1.03. Accounting Terms 16
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Revolving Credit Advances 16
SECTION 2.02. Making the Revolving Credit Advances 16
SECTION 2.03. The Competitive Bid Advances 18
SECTION 2.04. Fees 21
SECTION 2.05. Optional Termination or Reduction of the Commitments 21
SECTION 2.06. Repayment of Revolving Credit Advances
and Letter or Credit Advances 21
SECTION 2.07. Interest on Revolving Credit Advances and
Letter of Credit Advances 22
SECTION 2.08. Interest Rate Determination 22
SECTION 2.09. Optional Conversion of Revolving Credit Advances 23
SECTION 2.10. Prepayments of Revolving Credit Advances 24
SECTION 2.11. Increased Costs 24
SECTION 2.12. Illegality 25
SECTION 2.13. Payments and Computations 26
SECTION 2.14. Taxes 27
SECTION 2.15. Sharing of Payments, Etc. 28
SECTION 2.16. Letters of Credit 29
SECTION 2.17. Use of Proceeds 32
SECTION 2.18. Increase in the Aggregate Commitments 32
SECTION 2.19. Obligations and Communications of the Borrowers 34
SECTION 2.20. Subrogation and Contribution 34
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of
Sections 2.01, 2.03 and 2.16 35
SECTION 3.02. Conditions Precedent to Each Revolving Credit
Borrowing, each Issuance and Renewal of
Letters of Credit and each Increase Date 36
SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing 37
SECTION 3.04. Determinations Under Section 3.01 37
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrowers 38
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<PAGE>
ARTICLE V
COVENANTS OF THE BORROWERS
SECTION 5.01. Affirmative Covenants 40
SECTION 5.02. Negative Covenants 43
SECTION 5.03. Financial Covenants 45
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default 45
SECTION 6.02. Actions in Respect of the Letters of
Credit upon Event of Default 48
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action 48
SECTION 7.02. Agent's Reliance, Etc. 49
SECTION 7.03. Citibank and Affiliates 49
SECTION 7.04. Lender Credit Decision 49
SECTION 7.05. Indemnification 49
SECTION 7.06. Successor Agent 50
SECTION 7.07. Other Agents 51
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. 51
SECTION 8.02. Notices, Etc. 51
SECTION 8.03. No Waiver; Remedies 52
SECTION 8.04. Costs and Expenses 52
SECTION 8.05. Right of Set-off 53
SECTION 8.06. Binding Effect 53
SECTION 8.07. Assignments and Participations 53
SECTION 8.08. Confidentiality 56
SECTION 8.09. No Liability of the Issuing Banks 56
SECTION 8.10. Governing Law 56
SECTION 8.11. Execution in Counterparts 57
SECTION 8.12. Waiver of Jury Trial 57
ii
<PAGE>
Schedules
Schedule I - List of Applicable Lending Offices
Schedule 4.01(i) - Subsidiaries
Schedule 5.02(a) - Existing Liens
Exhibits
Exhibit A-1 - Form of Revolving Credit Note
Exhibit A-2 - Form of Competitive Bid Note
Exhibit B-1 - Form of Notice of Revolving Credit Borrowing
Exhibit B-2 - Form of Notice of Competitive Bid Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Opinion of Counsel for the Borrowers
Exhibit E - Form of Financial Covenants Compliance Certificate
iii
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of August 11, 1999
This AMENDED AND RESTATED CREDIT AGREEMENT is by and among
SCHOLASTIC CORPORATION, a Delaware corporation (the "Holding Company"), and
SCHOLASTIC INC., a New York corporation (the "Operating Company"; the Holding
Company and the Operating Company are, collectively, the "Borrowers" and,
individually, each a "Borrower"), the banks, financial institutions and other
institutional lenders (the "Initial Lenders") listed on the signature pages
hereof, SALOMON SMITH BARNEY INC., as arranger, THE CHASE MANHATTAN BANK and
FLEET BANK, N.A., as syndication agents, and CITIBANK, N.A. ("Citibank"), as
administrative agent (the "Agent") for the Lenders (as hereinafter defined):
PRELIMINARY STATEMENTS:
(1) The Borrowers entered into an Amended and Restated Loan
Agreement dated as of April 11, 1995 (as amended to date, the "Original Loan
Agreement"), with the banks referred to therein and their respective assignees
(the "Original Banks") and the Agent. The Borrowers have requested that the
Original Banks enter into this Agreement to amend and restate the Original Loan
Agreement. The Original Banks have indicated their willingness to amend and
restate the Original Loan Agreement on the terms and conditions set forth in
this Agreement.
(2) The Borrowers have requested that the Lenders (as hereinafter
defined) make advances to them from time to time on the terms and conditions set
forth in this Agreement in an aggregate principal amount outstanding at any one
time not to exceed $170,000,000 (subject to increase pursuant to Section 2.18
hereof), the proceeds of which may be used for the general corporate purposes of
the Borrowers and to backstop letters of credit and commercial paper of the
Borrowers. The obligations of the Borrowers under the facility are to be joint
and several.
(3) Accordingly, the Borrowers, the Lenders and the Agent have
entered into this Agreement in order to provide for (among other things) the
making and repayment of the Advances and the documentation of the various
representations of and agreements with the Borrowers, all upon the terms and
provisions and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree to
amend and restate the Original Loan Agreement as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
1
<PAGE>
"Advance" means a Revolving Credit Advance, a Competitive Bid
Advance or a Letter of Credit Advance.
"Affiliate" means, as to any Person, any other Person that, directly
or indirectly, controls, is controlled by or is under common control with
such Person or is a director or officer of such Person. For purposes of
this definition, the term "control" (including the terms "controlling",
"controlled by" and "under common control with") of a Person means the
possession, direct or indirect, of the power to vote 5% or more of the
Voting Stock of such Person or to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
Voting Stock, by contract or otherwise.
"Agent's Account" means the account of the Agent maintained by the
Agent at Citibank at its office at 399 Park Avenue, New York, New York
10043, Account No. 36852248, Attention: Bank Loan Syndications.
"Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of a Base Rate Advance and
such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate
Advance and, in the case of a Competitive Bid Advance, the office of such
Lender notified by such Lender to the Agent as its Applicable Lending
Office with respect to such Competitive Bid Advance.
"Applicable Margin" means (a) for Base Rate Advances, 0% per annum
and (b) for Eurodollar Rate Advances, a percentage per annum determined by
reference to the Public Debt Rating in effect on such date as set forth
below:
=========================================================================
Public Debt Rating Applicable Margin for
S&P/Moody's Eurodollar Rate Advances
=========================================================================
Level 1
A-/A3 or above 0.325%
=========================================================================
Level 2
Lower than Level 1 but at least BBB+/Baa1 0.375%
=========================================================================
Level 3
Lower than Level 2 but at least BBB/Baa2 0.475%
=========================================================================
Level 4
Lower than Level 3 but at least BBB-/Baa3 0.675%
=========================================================================
Level 5
Lower than Level 4 0.900%
=========================================================================
"Applicable Percentage" means, as of any date a percentage per annum
determined by reference to the Public Debt Rating in effect on such date
as set forth below:
2
<PAGE>
=========================================================================
Public Debt Rating Applicable
S&P/Moody's Percentage
=========================================================================
Level 1
A-/A3 or above 0.100%
=========================================================================
Level 2
Lower than Level 1 but at least BBB+/Baa1 0.125%
=========================================================================
Level 3
Lower than Level 2 but at least BBB/Baa2 0.150%
=========================================================================
Level 4
Lower than Level 3 but at least BBB-/Baa3 0.200%
=========================================================================
Level 5
Lower than Level 4 0.300%
=========================================================================
"Applicable Utilization Fee" means, as of any date on which the
aggregate principal amount of the Advances exceeds 33% of the Revolving
Credit Facility, a percentage per annum determined by reference to the
Public Debt Rating in effect on such date as set forth below:
=========================================================================
Public Debt Rating Applicable
S&P/Moody's Utilization Fee
=========================================================================
Level 1
A-/A3 or above 0.050%
=========================================================================
Level 2
Lower than Level 1 but at least BBB+/Baa1 0.075%
=========================================================================
Level 3
Lower than Level 2 but at least BBB/Baa2 0.075%
=========================================================================
Level 4
Lower than Level 3 but at least BBB-/Baa3 0.125%
=========================================================================
Level 5
Lower than Level 4 0.150%
=========================================================================
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the
Agent, in substantially the form of Exhibit C hereto.
<PAGE>
"Assuming Lender" has the meaning specified in Section 2.18(d).
"Assumption Agreement" has the meaning specified in Section
2.18(d)(ii).
"Available Amount" of any Letter of Credit means, at any time, the
maximum amount available to be drawn under such Letter of Credit at such
time (assuming compliance at such time with all conditions to drawing).
"Base Rate" means a fluctuating interest rate per annum in effect
from time to time, which rate per annum shall at all times be equal to the
highest of:
(a) the rate of interest announced publicly by Citibank in New
York, New York, from time to time, as Citibank's base rate;
(b) the sum (adjusted to the nearest 1/4 of 1% or, if there is
no nearest 1/4 of 1%, to the next higher 1/4 of 1%) of (i) 1/2 of 1%
per annum, plus (ii) the rate obtained by dividing (A) the latest
three-week moving average of secondary market morning offering rates
in the United States for three-month certificates of deposit of
major United States money market banks, such three-week moving
average (adjusted to the basis of a year of 360 days) being
determined weekly on each Monday (or, if such day is not a Business
Day, on the next succeeding Business Day) for the three-week period
ending on the previous Friday by Citibank on the basis of such rates
reported by certificate of deposit dealers to and published by the
Federal Reserve Bank of New York or, if such publication shall be
suspended or terminated, on the basis of quotations for such rates
received by Citibank from three New York certificate of deposit
dealers of recognized standing selected by Citibank, by (B) a
percentage equal to 100% minus the average of the daily percentages
specified during such three-week period by the Board of Governors of
the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including, but not limited to, any
emergency, supplemental or other marginal reserve requirement) for
Citibank with respect to liabilities consisting of or including
(among other liabilities) three-month U.S. dollar non-personal time
deposits in the United States, plus (iii) the average during such
three-week period of the annual assessment rates estimated by
Citibank for determining the then current annual assessment payable
by Citibank to the Federal Deposit Insurance Corporation (or any
successor) for insuring U.S. dollar deposits of Citibank in the
United States; and
(c) 1/2 of one percent per annum above the Federal Funds Rate.
"Base Rate Advance" means a Revolving Credit Advance that bears
interest as provided in Section 2.07(a)(i).
"Borrowing" means a Revolving Credit Borrowing or a Competitive Bid
Borrowing.
"Business Day" means a day of the year on which banks are not
required or authorized by law to close in New York City and, if the
applicable Business Day relates to any Eurodollar Rate Advances or LIBO
Rate Advances, on which dealings are carried on in the London interbank
market.
"Commitment" means a Revolving Credit Commitment or a Letter of
Credit Commitment.
3
<PAGE>
"Commitment Date" has the meaning specified in Section 2.18(b).
"Commitment Increase" has the meaning specified in Section 2.18(a).
"Competitive Bid Advance" means an advance by a Lender to a Borrower
as part of a Competitive Bid Borrowing resulting from the competitive
bidding procedure described in Section 2.03 and refers to a Fixed Rate
Advance or a LIBO Rate Advance.
"Competitive Bid Borrowing" means a borrowing consisting of
simultaneous Competitive Bid Advances from each of the Lenders whose offer
to make one or more Competitive Bid Advances as part of such borrowing has
been accepted under the competitive bidding procedure described in Section
2.03.
"Competitive Bid Note" means a promissory note of a Borrower payable
to the order of any Lender, in substantially the form of Exhibit A-2
hereto, evidencing the indebtedness of such Borrower to such Lender
resulting from a Competitive Bid Advance made by such Lender.
"Confidential Information" means information that the Borrowers
furnish to the Agent or any Lender in a writing or orally designated as
confidential, but does not include any such information that is or becomes
generally available to the public or that is or becomes available to the
Agent or such Lender from a source other than a Borrower not known to such
Lender to be bound by a confidentiality obligation.
"Consolidated" refers to the consolidation of accounts in accordance
with GAAP.
"Consolidated Debt Ratio" shall mean, at any time, the ratio of (a)
Total Consolidated Debt to (b) the sum of: (i) consolidated short-term
debt for borrowed money of the Borrowers, (ii) consolidated long-term debt
of the Borrowers, (iii) the aggregate value of stockholders' equity (as
set forth in the most current consolidated balance sheet of the Holding
Company), and (iv) the aggregate value of all preferred stock (as set
forth in the most current consolidated balance sheet of the Holding
Company).
"Consolidated Interest Coverage Ratio" shall mean, for any period of
the most recent four consecutive fiscal quarters of the Borrowers and
their Subsidiaries ending on or before any date of determination, the
ratio of (a) the sum of (i) net income (or net loss), (ii) any
extraordinary non-cash losses, (iii) income tax expense, (iv) depreciation
expense, (v) amortization expense (but excluding any amortization of
prepublication costs and expenses) and (vi) gross interest expense, less
(vii) any extraordinary non-cash gains, to (b) gross interest expense, all
as recorded for such period.
"Convert", "Conversion" and "Converted" each refers to a conversion
of Revolving Credit Advances of one Type into Revolving Credit Advances of
the other Type pursuant to Section 2.08 or 2.09.
"Debt" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all obligations of
such Person for the deferred purchase price of property or services (other
than trade payables incurred in the ordinary course of such Person's
business), (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all obligations of such
Person as lessee under leases that have been or should be, in accordance
with GAAP, recorded as capital leases, (e) all obligations, contingent or
otherwise, of such Person in respect of acceptances, letters of credit or
similar extensions of credit (other than
4
<PAGE>
obligations in respect of letters of credit issued to provide for the
payment of goods or services, to backstop worker's compensation
obligations or as rental security deposits, in each case incurred in the
ordinary course of business), (f) all Debt of others referred to in
clauses (a) through (e) above or clause (g) below guaranteed directly or
indirectly in any manner by such Person, or in effect guaranteed directly
or indirectly by such Person through an agreement (1) to pay or purchase
such Debt or to advance or supply funds for the payment or purchase of
such Debt, (2) to purchase, sell or lease (as lessee or lessor) property,
or to purchase or sell services, primarily for the purpose of enabling the
debtor to make payment of such Debt or to assure the holder of such Debt
against loss, (3) to supply funds to or in any other manner invest in the
debtor (including any agreement to pay for property or services
irrespective of whether such property is received or such services are
rendered) or (4) otherwise to assure a creditor against loss, and (h) all
Debt referred to in clauses (a) through (f) above secured by (or for which
the holder of such Debt has an existing right, contingent or otherwise, to
be secured by) any Lien on property (including, without limitation,
accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Debt.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
"Default Termination Notice" has the meaning specified in Section
2.16(a).
"Documentary Letter of Credit" means any Letter of Credit that is
issued under the Letter of Credit Facility for the benefit of a supplier
of inventory to any Borrower or any of its Subsidiaries to effect payment
for such inventory, the conditions to drawing under which include the
presentation to the Issuing Bank that issued such Letter of Credit of
negotiable bills of lading, invoices and related documents sufficient, in
the judgment of such Issuing Bank, to create a valid and perfected lien on
or security interest in such inventory, bills of lading, invoices and
related documents in favor of such Issuing Bank.
"Domestic Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Domestic Lending Office" opposite
its name on Schedule I hereto or in the Assumption Agreement or the
Assignment and Acceptance pursuant to which it became a Lender, or such
other office of such Lender as such Lender may from time to time specify
to the Borrowers and the Agent.
"Effective Date" has the meaning specified in Section 3.01.
"Eligible Assignee" means (a) with respect to the Revolving Credit
Facility, (i) a Lender; (ii) a United States Affiliate of a Lender; (iii)
a commercial bank organized under the laws of the United States, or any
State thereof, and having total assets in excess of $1,000,000,000; (iv) a
savings and loan association or savings bank organized under the laws of
the United States, or any State thereof, and having total assets in excess
of $1,000,000,000; (v) a commercial bank organized under the laws of any
other country that is a member of the Organization for Economic
Cooperation and Development or has concluded special lending arrangements
with the International Monetary Fund associated with its General
Arrangements to Borrow or of the Cayman Islands, or a political
subdivision of any such country, and having total assets in excess of
$1,000,000,000, so long as such bank is acting through a branch or agency
located in the United States, in the country in which it is organized or
another country that is described in this clause (v); (vi) the central
bank of any country that is a member of the Organization for Economic
Cooperation and Development; and (vii) a finance company, insurance
company or other financial institution or fund (whether a corporation,
partnership, trust or other entity) that is engaged in making, purchasing
or otherwise investing in commercial loans in the ordinary course of its
business and having total assets in excess of $500,000,000; and (b) with
respect to the
5
<PAGE>
Letter of Credit Facility, any Person approved by the Agent and the
Borrowers, such approval not to be unreasonably withheld or delayed;
provided, however, that neither Borrower nor an Affiliate of a Borrower
shall qualify as an Eligible Assignee.
"Environmental Claim" means (a) any unfulfilled responsibility or
liability or unlawful act or omission under any Environmental Law; (b) any
tortious act or omission or breach of contract pertaining to any
Environmental Substance; or (c) any other violation or claim under any
Environmental Law or in respect of any Environmental Substance.
"Environmental Law" and "Environmental Laws" respectively mean any
one or more of the applicable laws pertaining to: (a) any emission,
discharge, release, runoff, disposal or presence in the environment of any
Environmental Substance; (b) any cleanup, containment, manufacturing,
treatment, handling, transportation, storage or sale of or other activity
pertaining to any Environmental Substance; or (c) any other peril to
public or occupational health or safety or to the environment that may be
posed by an Environmental Substance.
"Environmental Substance" means any toxic substance, hazardous
material, contaminant, waste, pollutant or other similar product or
substance that may pose a threat to public or occupational health or
safety or to the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title IV of
ERISA is a member of the Borrowers' controlled group, or under common
control with the Borrowers, within the meaning of Section 414 of the
Internal Revenue Code.
"ERISA Event" means (a) (i) the occurrence of a reportable event,
within the meaning of Section 4043 of ERISA, with respect to any Plan
unless the 30-day notice requirement with respect to such event has been
waived by the PBGC, or (ii) the requirements of subsection (1) of Section
4043(b) of ERISA (without regard to subsection (2) of such Section) are
met with a contributing sponsor, as defined in Section 4001(a)(13) of
ERISA, of a Plan, and an event described in paragraph (9), (10), (11),
(12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur
with respect to such Plan within the following 30 days; (b) the
application for a minimum funding waiver with respect to a Plan; (c) the
provision by the administrator of any Plan of a notice of intent to
terminate such Plan pursuant to Section 4041(a)(2) of ERISA (including any
such notice with respect to a plan amendment referred to in Section
4041(e) of ERISA); (d) the cessation of operations at a facility of either
Borrower or any ERISA Affiliate in the circumstances described in Section
4062(e) of ERISA; (e) the withdrawal by either or either Borrower or any
ERISA Affiliate from a Multiple Employer Plan during a plan year for which
it was a substantial employer, as defined in Section 4001(a)(2) of ERISA;
(f) the conditions for the imposition of a lien under Section 302(f) of
ERISA shall have been met with respect to any Plan; (g) the adoption of an
amendment to a Plan requiring the provision of security to such Plan
pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of
proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the
occurrence of any event or condition described in Section 4042 of ERISA
that constitutes grounds for the termination of, or the appointment of a
trustee to administer, a Plan.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as
in effect from time to time.
6
<PAGE>
"Eurodollar Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Eurodollar Lending Office"
opposite its name on Schedule I hereto or in the Assumption Agreement or
the Assignment and Acceptance pursuant to which it became a Lender (or, if
no such office is specified, its Domestic Lending Office), or such other
office of such Lender as such Lender may from time to time specify to the
Borrowers and the Agent.
"Eurodollar Rate" means, for any Interest Period for each Eurodollar
Rate Advance comprising part of the same Revolving Credit Borrowing, an
interest rate per annum equal to the rate per annum obtained by dividing
(a) the rate per annum (rounded upward to the nearest whole multiple of
1/100 of 1% per annum) appearing on Dow Jones Markets Telerate Page 3750
(or any successor page) as the London interbank offered rate for deposits
in U.S. dollars at approximately 11:00 A.M. (London time) two Business
Days prior to the first day of such Interest Period for a term comparable
to such Interest Period or, if for any reason such rate is not available,
the rate per annum at which deposits in U.S. dollars are offered by the
principal office of Citibank in London, England to prime banks in the
London interbank market at 11:00 A.M. (London time) two Business Days
before the first day of such Interest Period in an amount substantially
equal to Citibank's Eurodollar Rate Advance comprising part of such
Revolving Credit Borrowing to be outstanding during such Interest Period
and for a period equal to such Interest Period by (b) a percentage equal
to 100% minus the Eurodollar Rate Reserve Percentage for such Interest
Period. If the Dow Jones Markets Page 3750 (or any successor page) is
unavailable, the Eurodollar Rate for any Interest Period for each
Eurodollar Rate Advance comprising part of the same Revolving Credit
Borrowing shall be determined by the Agent on the basis of the applicable
rate furnished to and received by the Agent from Citibank two Business
Days before the first day of such Interest Period, subject, however, to
the provisions of Section 2.08.
"Eurodollar Rate Advance" means a Revolving Credit Advance that
bears interest as provided in Section 2.07(a)(ii).
"Eurodollar Rate Reserve Percentage" for any Interest Period for all
Eurodollar Rate Advances or LIBO Rate Advances comprising part of the same
Borrowing means the reserve percentage applicable two Business Days before
the first day of such Interest Period under regulations issued from time
to time by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal reserve
requirement) for a member bank of the Federal Reserve System in New York
City with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities (or with respect to any other category of
liabilities that includes deposits by reference to which the interest rate
on Eurodollar Rate Advances or LIBO Rate Advances is determined) having a
term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Facility" means the Revolving Credit Facility or the Letter of
Credit Facility.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the
next preceding Business Day) by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day that is a Business Day, the
average of the quotations for such day on such transactions received by
the Agent from three Federal funds brokers of recognized standing selected
by it.
"Fixed Rate Advances" has the meaning specified in Section
2.03(a)(i).
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"GAAP" has the meaning specified in Section 1.03.
"Increase Date" has the meaning specified in Section 2.18(a).
"Increasing Lender" has the meaning specified in Section 2.18(b).
"Information Memorandum" means the information memorandum dated July
16, 1999 used by the Agent in connection with the syndication of the
Commitments.
"Interest Period" means, for each Eurodollar Rate Advance comprising
part of the same Revolving Credit Borrowing and each LIBO Rate Advance
comprising part of the same Competitive Bid Borrowing, the period
commencing on the date of such Eurodollar Rate Advance or LIBO Rate
Advance or the date of the Conversion of any Base Rate Advance into such
Eurodollar Rate Advance and ending on the last day of the period selected
by the applicable Borrower pursuant to the provisions below and,
thereafter, with respect to Eurodollar Rate Advances, each subsequent
period commencing on the last day of the immediately preceding Interest
Period and ending on the last day of the period selected by such Borrower
pursuant to the provisions below. The duration of each such Interest
Period shall be one, two, three or six months, as the applicable Borrower
may, upon notice received by the Agent not later than 11:00 A.M. (New York
City time) on the second Business Day prior to the first day of such
Interest Period, select; provided, however, that:
(i) the Borrowers may not select any Interest Period that ends
after the Termination Date;
(ii) Interest Periods commencing on the same date for
Eurodollar Rate Advances comprising part of the same Revolving
Credit Borrowing or for LIBO Rate Advances comprising part of the
same Competitive Bid Borrowing shall be of the same duration;
(iii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next
succeeding Business Day, provided, however, that, if such extension
would cause the last day of such Interest Period to occur in the
next following calendar month, the last day of such Interest Period
shall occur on the next preceding Business Day; and
(iv) whenever the first day of any Interest Period occurs on a
day of an initial calendar month for which there is no numerically
corresponding day in the calendar month that succeeds such initial
calendar month by the number of months equal to the number of months
in such Interest Period, such Interest Period shall end on the last
Business Day of such succeeding calendar month.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Issuing Bank" means any Lender that has a Letter of Credit
Commitment set forth opposite its name on Schedule I hereto, any other
Lender approved as an Issuing Bank by the Agent and the Borrowers (such
approval not to be unreasonably withheld or delayed) and each Eligible
Assignee to which a Letter of Credit Commitment hereunder has been
assigned pursuant to Section 8.07 so long as each such Lender or Eligible
Assignee expressly agrees to perform in
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accordance with their terms all of the obligations that by the terms of
this Agreement are required to be performed by it as an Issuing Bank and
notifies the Agent of its Applicable Lending Office and the amount of its
Letter of Credit Commitment (which information shall be recorded by the
Agent in the Register).
"L/C Related Documents" has the meaning specified in Section
2.16(e).
"Lenders" means the Initial Lenders, each Assuming Lender that shall
become a party hereto pursuant to Section 2.18 and each Person that shall
become a party hereto pursuant to Section 8.07.
"Letter of Credit" has the meaning specified in Section 2.16(a).
"Letter of Credit Advance" means an advance made by any Issuing Bank
or any Lender pursuant to Section 2.16(c).
"Letter of Credit Agreement" has the meaning specified in Section
2.16(b)(i).
"Letter of Credit Collateral" has the meaning specified in Section
6.02(b).
"Letter of Credit Collateral Account" means a non-interest bearing
cash collateral account to be established and maintained by the Agent,
over which the Agent shall have sole dominion and control, upon terms as
may be satisfactory to the Agent.
"Letter of Credit Commitment" means, with respect to any Issuing
Bank at any time, the amount set forth opposite such Issuing Bank's name
on Schedule I hereto under the caption "Letter of Credit Commitment" or,
if such Issuing Bank has entered into one or more Assignments and
Acceptances or if a Lender has otherwise become an Issuing Bank, set forth
for such Issuing Bank in the Register maintained by the Agent pursuant to
Section 8.07(f) as such Issuing Bank's "Letter of Credit Commitment", as
such amount may be reduced at or prior to such time pursuant to Section
2.05.
"Letter of Credit Facility" means, at any time, an amount equal to
the lesser of (a) the aggregate amount of the Issuing Banks' Letter of
Credit Commitments and (b) $10,000,000, as such amount may be reduced at
or prior to such time pursuant to Section 2.05.
"Letter of Credit Obligations" means, at any time, the sum of (a)
the maximum aggregate amount then available to be drawn under the Letters
of Credit outstanding at such time (the determination of such maximum
amount to assume the occurrence of, and compliance with, all conditions
for drawing referred to therein) plus (b) the aggregate amount of the
Borrowers' Obligations then outstanding under the Loan Documents in
respect of the Letters of Credit, including all Advances resulting from
drawings under Letters of Credit and all fees and expenses in respect of
the Letters of Credit payable pursuant to Section 2.16(f).
"LIBO Rate" means, for any Interest Period for all LIBO Rate
Advances comprising part of the same Competitive Bid Borrowing, an
interest rate per annum equal to the rate per annum obtained by dividing
(a) the rate per annum (rounded upward to the nearest whole multiple of
1/100 of 1% per annum) appearing on Dow Jones Markets Telerate Page 3750
(or any successor page) as the London interbank offered rate for deposits
in U.S. dollars at approximately 11:00 A.M. (London time) two Business
Days prior to the first day of such Interest Period for a term comparable
to such Interest Period or, if for any reason such rate is not available,
the rate per
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annum at which deposits in U.S. dollars offered by the principal office of
Citibank in London, England to prime banks in the London interbank market
at 11:00 A.M. (London time) two Business Days before the first day of such
Interest Period in an amount substantially equal to the amount that would
be Citibank's ratable share of such Borrowing if such Borrowing were to be
a Revolving Credit Borrowing to be outstanding during such Interest Period
and for a period equal to such Interest Period by (b) a percentage equal
to 100% minus the Eurodollar Rate Reserve Percentage for such Interest
Period. If the Dow Jones Markets Telerate Page 3750 (or any successor
page) is unavailable, the LIBO Rate for any Interest Period for each LIBO
Rate Advance comprising part of the same Competitive Bid Borrowing shall
be determined by the Agent on the basis of the applicable rate furnished
to and received by the Agent from Citibank two Business Days before the
first day of such Interest Period, subject, however, to the provisions of
Section 2.08.
"LIBO Rate Advances" means a Competitive Bid Advance bearing
interest based on the LIBO Rate.
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on
title to real property.
"Loan Documents" means this Agreement, the Notes and each Letter of
Credit Agreement, as each may be amended, supplemented or otherwise
modified from time to time.
"Material Adverse Change" means any material adverse change in the
assets, business, operations, property or condition (financial or
otherwise) of the Borrowers and their Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a) the
assets, business, operations, property or condition (financial or
otherwise) of the Borrowers and their Subsidiaries taken as a whole or (b)
the ability of the Borrowers to perform their obligations under the Loan
Documents.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which a Borrower or any ERISA Affiliate is
making or accruing an obligation to make contributions, or has within any
of the preceding five plan years made or accrued an obligation to make
contributions.
"Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of a
Borrower or any ERISA Affiliate and at least one Person other than such
Borrower and the ERISA Affiliates or (b) was so maintained and in respect
of which such Borrower or any ERISA Affiliate could have liability under
Section 4064 or 4069 of ERISA in the event such plan has been or were to
be terminated.
"Note" means a Revolving Credit Note or a Competitive Bid Note.
"Notice of Competitive Bid Borrowing" has the meaning specified in
Section 2.03(a).
"Notice of Revolving Credit Borrowing" has the meaning specified in
Section 2.02(a).
"Notice of Issuance" has the meaning specified in Section
2.16(b)(i).
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"Notice of Renewal" has the meaning specified in Section 2.16(a).
"Notice of Termination" has the meaning specified in Section
2.16(a).
"Original Banks" has the meaning specified in the Preliminary
Statements.
"Original Loan Agreement" has the meaning specified in the
Preliminary Statements.
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor).
"Permitted Liens" means each of the following: (a) Liens for taxes,
assessments and governmental charges or levies to the extent not required
to be paid under Section 5.01(e) hereof; (b) Liens imposed by law, such as
materialmen's, mechanics', carriers', workmen's and repairmen's Liens and
other similar Liens arising in the ordinary course of business securing
obligations that are not overdue for a period of more than 30 days or are
being contested by good faith by appropriate proceedings and as to which
appropriate reserves are being maintained; (c) pledges or deposits to
secure obligations under workers' compensation laws or similar legislation
or to secure public or statutory obligations; and (d) easements, rights of
way and other encumbrances on title to real property that do not render
title to the property encumbered thereby unmarketable or materially
adversely affect the use of such property for its present purposes.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association,
joint venture, limited liability company or other entity, or a government
or any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Pro Rata Share" of any amount means, with respect to any Lender at
any time, the product of such amount times a fraction the numerator of
which is the amount of such Lender's Revolving Credit Commitment at such
time and the denominator of which is the Revolving Credit Facility at such
time.
"Public Debt Rating" means, as of any date, the lowest rating that
has been most recently announced by either S&P or Moody's, as the case may
be, for any class of non-credit enhanced long-term senior unsecured debt
issued by the Holding Company. For purposes of the foregoing, (a) if only
one of S&P and Moody's shall have in effect a Public Debt Rating, the
Applicable Margin, the Applicable Percentage and Applicable Utilization
Fee shall be determined by reference to the available rating; (b) if
neither S&P nor Moody's shall have in effect a Public Debt Rating, the
Applicable Margin, the Applicable Percentage and Applicable Utilization
Fee will be set in accordance with Level 5 under the definition of
"Applicable Margin", "Applicable Percentage" or "Applicable Utilization
Fee", as the case may be; (c) if the ratings established by S&P and
Moody's shall fall within different levels, the Applicable Margin, the
Applicable Percentage and Applicable Utilization Fee shall be based upon
the higher rating, unless the lower of such ratings is more than one level
below the higher of such ratings, in which case the applicable level shall
be one level higher than the lower of such ratings; (d) if any rating
established by S&P or Moody's shall be changed, such change shall be
effective as of the date on which such change is first announced publicly
by the rating agency making such change; and (e) if S&P or Moody's shall
change the basis on which ratings are established, each reference to the
Public Debt Rating announced by S&P or Moody's, as the case may be, shall
refer to the then equivalent rating by S&P or Moody's, as the case may be.
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<PAGE>
"Register" has the meaning specified in Section 8.07(f).
"Required Lenders" means at any time Lenders owed or holding at
least a majority in interest of the sum of (a) the then aggregate unpaid
principal amount of the Revolving Credit Advances and Letter of Credit
Advances owing to Lenders at such time, (b) the aggregate Available Amount
of all Letters of Credit outstanding at such time and (c) the aggregate
Unused Revolving Credit Commitments at such time.
"Revolving Credit Advance" means an advance by a Lender to a
Borrower as part of a Revolving Credit Borrowing and refers to a Base Rate
Advance or a Eurodollar Rate Advance (each of which shall be a "Type" of
Revolving Credit Advance).
"Revolving Credit Borrowing" means a borrowing consisting of
simultaneous Revolving Credit Advances of the same Type made by each of
the Lenders pursuant to Section 2.01.
"Revolving Credit Commitment" means, with respect to any Lender at
any time (a) the amount set forth opposite such Lender's name on Schedule
I hereto under the caption "Revolving Credit Commitment" (b) if such
Lender has become a Lender hereunder pursuant to an Assumption Agreement,
the amount set forth in such Assumption Agreement or (c) if such Lender
has entered into any Assignment and Acceptance, the amount set forth for
such Lender in the Register maintained by the Agent pursuant to Section
8.07(f), as such amount may be reduced pursuant to Section 2.05 or
increased pursuant to Section 2.18.
"Revolving Credit Facility" means, at any time, the aggregate amount
of the Lenders' Revolving Credit Commitments at such time.
"Revolving Credit Note" means a promissory note of a Borrower
payable to the order of any Lender, delivered pursuant to a request made
under Section 2.19 in substantially the form of Exhibit A-1 hereto,
evidencing the aggregate indebtedness of such Borrower to such Lender
resulting from the Revolving Credit Advances made by such Lender.
"Robinson Family" means Richard Robinson, Barbara Robinson Buckland,
Florence R Ford, Mary Sue Robinson Morrill and William W. Robinson, the
spouses and descendants of any of them, and any trust or estate whose
legal representatives (or in the case of a Person with more than one legal
representative, at least half of whose legal representatives) consist of
one or more of the foregoing individuals, spouses and descendants; and the
trusts respectively created under the will of Maurice R. Robinson and the
will of Florence L. Robinson so long as at least half of their respective
trustees continue to consist of one or more of the foregoing individuals,
spouses and descendants.
"S&P" means Standard & Poor's, a division of The McGraw-Hill
Companies, Inc.
"Significant Subsidiary" shall mean any Subsidiary that owns 10% or
more of the total consolidated assets of the Holding Company and its
subsidiaries or contributes 10% or more of their total consolidated
revenue from operations; and in any event shall include Scholastic Canada
Ltd. and Scholastic Australia Pty. Ltd. Each direct and indirect parent
(other than the Holding Company or the Operating Company) of a Significant
Subsidiary also shall be deemed a Significant Subsidiary.
"Single Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of a
Borrower or any ERISA Affiliate and no Person other than the Borrowers and
the ERISA Affiliates or (b) was so maintained and in respect
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<PAGE>
of which a Borrower or any ERISA Affiliate could have liability under
Section 4069 of ERISA in the event such plan has been or were to be
terminated.
"Standby Letter of Credit" means any Letter of Credit issued under
the Letter of Credit Facility, other than a Documentary Letter of Credit.
"Subsidiary" of any Person means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in which)
more than 50% of (a) the issued and outstanding capital stock having
ordinary voting power to elect a majority of the Board of Directors of
such corporation (irrespective of whether at the time capital stock of any
other class or classes of such corporation shall or might have voting
power upon the occurrence of any contingency), (b) the interest in the
capital or profits of such limited liability company, partnership or joint
venture or (c) the beneficial interest in such trust or estate is at the
time directly or indirectly owned or controlled by such Person, by such
Person and one or more of its other Subsidiaries or by one or more of such
Person's other Subsidiaries.
"Termination Date" means the earlier of August 11, 2004 and the date
of termination in whole of the Revolving Credit Commitments and the Letter
of Credit Commitments pursuant to Section 2.05 or 6.01.
"Total Consolidated Debt" shall mean the consolidated Debt of the
Borrowers and their Subsidiaries.
"Unused Revolving Credit Commitment" means, with respect to any
Lender at any time, (a) such Lender's Revolving Credit Commitment at such
time minus (b) the sum of (i) the aggregate principal amount of all
Revolving Credit Advances and Letter of Credit Advances made by such
Lender, in each case in its capacity as a Lender, and outstanding at such
time, and (ii) such Lender's Pro Rata Share of (A) the aggregate Available
Amount of all Letters of Credit outstanding at such time, (B) the
aggregate amount of the Competitive Bid Advances outstanding at such time,
and (C) to the extent not included in clause (b)(i) of this definition,
the aggregate principal amount of all Letter of Credit Advances made by
the Issuing Banks pursuant to Section 2.16(c) and outstanding at such
time.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of a majority of the directors (or persons performing similar
functions) of such Person, even if the right so to vote has been suspended
by the happening of such a contingency.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of the financial statements referred to in Section 4.01(f) ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
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SECTION 2.01. The Revolving Credit Advances. Each Lender severally
agrees, on the terms and conditions hereinafter set forth, to make Revolving
Credit Advances to any Borrower from time to time on any Business Day during the
period from the Effective Date until the Termination Date in an amount for each
such Advance not to exceed such Lender's Unused Revolving Credit Commitment at
such time. Each Revolving Credit Borrowing shall be in an aggregate amount of
$1,000,000 or an integral multiple of $500,000 in excess thereof in the case of
Base Rate Advances, or shall be in an aggregate amount of $5,000,000 or an
integral multiple of $1,000,000 in excess thereof in the case of Eurodollar Rate
Advances, and shall consist of Revolving Credit Advances of the same Type made
on the same day by the Lenders ratably according to their respective
Commitments. Within the limits of each Lender's Commitment, the Borrowers may
borrow under this Section 2.01, prepay pursuant to Section 2.10 and reborrow
under this Section 2.01.
SECTION 2.02. Making the Revolving Credit Advances. (a) Each
Revolving Credit Borrowing shall be made on notice, given not later than (x)
11:00 A.M. (New York City time) on the second Business Day prior to the date of
the proposed Revolving Credit Borrowing in the case of a Revolving Credit
Borrowing consisting of Eurodollar Rate Advances or (y) 11:00 A.M. (New York
City time) on the date of the proposed Revolving Credit Borrowing in the case of
a Revolving Credit Borrowing consisting of Base Rate Advances, by the applicable
Borrower to the Agent, which shall give to each Lender prompt notice thereof by
telecopier or telex. Each such notice of a Revolving Credit Borrowing (a "Notice
of Revolving Credit Borrowing") shall be by telephone, confirmed immediately in
writing, or telecopier or telex in substantially the form of Exhibit B-1 hereto,
specifying therein the requested (i) date of such Revolving Credit Borrowing,
(ii) Type of Advances comprising such Revolving Credit Borrowing, (iii)
aggregate amount of such Revolving Credit Borrowing, and (iv) in the case of a
Revolving Credit Borrowing consisting of Eurodollar Rate Advances, initial
Interest Period for each such Revolving Credit Advance. Each Lender shall,
before 2:00 P.M. (New York City time) on the date of such Revolving Credit
Borrowing make available for the account of its Applicable Lending Office to the
Agent at the Agent's Account, in same day funds, such Lender's ratable portion
of such Revolving Credit Borrowing. After the Agent's receipt of such funds and
upon fulfillment of the applicable conditions set forth in Article III, the
Agent will make such funds available to the applicable Borrower at the Agent's
address referred to in Section 8.02; provided, however, that, in the case of any
such Borrowing, the Agent shall first make a portion of such funds equal to the
aggregate principal amount of any Letter of Credit Advances made by any Issuing
Bank and by any other Lender and outstanding on the date of such Revolving
Credit Borrowing, plus interest accrued and unpaid thereon to and as of such
date, available to such Issuing Bank and such other Lenders for repayment of
such Letter of Credit Advances.
(b) Anything in subsection (a) above to the contrary
notwithstanding, (i) the Borrowers may not select Eurodollar Rate Advances for
any Revolving Credit Borrowing if the aggregate amount of such Revolving Credit
Borrowing is less than $5,000,000 or if the obligation of the Lenders to make
Eurodollar Rate Advances shall then be suspended pursuant to Section 2.08 or
2.12 and (ii) the Eurodollar Rate Advances may not be outstanding as part of
more than twelve separate Revolving Credit Borrowings.
(c) Each Notice of Revolving Credit Borrowing shall be irrevocable
and binding on the applicable Borrower. In the case of any Revolving Credit
Borrowing that the related Notice of Revolving Credit Borrowing specifies is to
be comprised of Eurodollar Rate Advances, the applicable Borrower shall
indemnify each Lender against any loss, cost or expense incurred by such Lender
as a result of any failure to fulfill on or before the date specified in such
Notice of Revolving Credit Borrowing for such Revolving Credit Borrowing the
applicable conditions set forth in Article III, including, without limitation,
any loss (including loss of anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such Lender to fund the Revolving Credit Advance to be made by such Lender as
part of such Revolving Credit Borrowing when such Revolving Credit Advance, as a
result of such failure, is not made on such date.
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(d) Unless the Agent shall have received notice from a Lender prior
to the date of any Revolving Credit Borrowing that such Lender will not make
available to the Agent such Lender's ratable portion of such Revolving Credit
Borrowing, the Agent may assume that such Lender has made such portion available
to the Agent on the date of such Revolving Credit Borrowing in accordance with
subsection (a) of this Section 2.02 and the Agent may, in reliance upon such
assumption, make available to the applicable Borrower on such date a
corresponding amount. If and to the extent that such Lender shall not have so
made such ratable portion available to the Agent, such Lender and the applicable
Borrower severally agree to repay to the Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to such Borrower until the date such amount is
repaid to the Agent, at (i) in the case of such Borrower, the interest rate
applicable at the time to Revolving Credit Advances comprising such Revolving
Credit Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If
such Lender shall repay to the Agent such corresponding amount, such amount so
repaid shall constitute such Lender's Revolving Credit Advance as part of such
Revolving Credit Borrowing for purposes of this Agreement.
(e) The failure of any Lender to make the Revolving Credit Advance
to be made by it as part of any Revolving Credit Borrowing shall not relieve any
other Lender of its obligation, if any, hereunder to make its Revolving Credit
Advance on the date of such Revolving Credit Borrowing, but no Lender shall be
responsible for the failure of any other Lender to make the Revolving Credit
Advance to be made by such other Lender on the date of any Revolving Credit
Borrowing.
SECTION 2.03. The Competitive Bid Advances. (a) Each Lender
severally agrees that either Borrower may make Competitive Bid Borrowings under
this Section 2.03 from time to time on any Business Day during the period from
the date hereof until the date occurring 30 days prior to the Termination Date
in the manner set forth below; provided that such Competitive Bid Borrowing
shall not exceed the aggregate Unused Revolving Credit Commitments of the
Lenders in effect immediately prior to giving effect to such Competitive Bid
Borrowing.
(i) Either Borrower may request a Competitive Bid Borrowing under
this Section 2.03 by delivering to the Agent, by telecopier or telex, a
notice of a Competitive Bid Borrowing (a "Notice of Competitive Bid
Borrowing"), in substantially the form of Exhibit B-2 hereto, specifying
therein the requested (v) date of such proposed Competitive Bid Borrowing,
(w) aggregate amount of such proposed Competitive Bid Borrowing, (x) in
the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances,
Interest Period, or in the case of a Competitive Bid Borrowing consisting
of Fixed Rate Advances, maturity date for repayment of each Fixed Rate
Advance to be made as part of such Competitive Bid Borrowing (which
maturity date may not be earlier than the date occurring 7 days after the
date of such Competitive Bid Borrowing or later than Termination Date),
(y) interest payment date or dates relating thereto, and (z) other terms
(if any) to be applicable to such Competitive Bid Borrowing, not later
than 10:00 A.M. (New York City time) (A) at least one Business Day prior
to the date of the proposed Competitive Bid Borrowing, if such Borrower
shall specify in the Notice of Competitive Bid Borrowing that the rates of
interest to be offered by the Lenders shall be fixed rates per annum (the
Advances comprising any such Competitive Bid Borrowing being referred to
herein as "Fixed Rate Advances") and (B) at least four Business Days prior
to the date of the proposed Competitive Bid Borrowing, if such Borrower
shall instead specify in the Notice of Competitive Bid Borrowing that the
Advances comprising such Competitive Bid Borrowing shall be LIBO Rate
Advances. Each Notice of Competitive Bid Borrowing shall be irrevocable
and binding on such Borrower. The Agent shall in turn promptly notify each
Lender of each request for a Competitive Bid Borrowing received by it from
such Borrower by sending such Lender a copy of the related Notice of
Competitive Bid Borrowing.
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(ii) Each Lender may, if, in its sole discretion, it elects to do
so, irrevocably offer to make one or more Competitive Bid Advances to such
Borrower as part of such proposed Competitive Bid Borrowing at a rate or
rates of interest specified by such Lender in its sole discretion, by
notifying the Agent (which shall give prompt notice thereof to such
Borrower), (A) before 9:30 A.M. (New York City time) on the date of such
proposed Competitive Bid Borrowing, in the case of a Competitive Bid
Borrowing consisting of Fixed Rate Advances and (B) before 10:00 A.M. (New
York City time) three Business Days before the date of such proposed
Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing
consisting of LIBO Rate Advances of the minimum amount and maximum amount
of each Competitive Bid Advance which such Lender would be willing to make
as part of such proposed Competitive Bid Borrowing (which amounts of such
proposed Competitive Bid may, subject to the proviso to the first sentence
of this Section 2.03(a), exceed such Lender's Commitment, if any), the
rate or rates of interest therefor and such Lender's Applicable Lending
Office with respect to such Competitive Bid Advance; provided that if the
Agent in its capacity as a Lender shall, in its sole discretion, elect to
make any such offer, it shall notify such Borrower of such offer at least
30 minutes before the time and on the date on which notice of such
election is to be given to the Agent, by the other Lenders. If any Lender
shall elect not to make such an offer, such Lender shall so notify the
Agent before 10:00 A.M. (New York City time), and such Lender shall not be
obligated to, and shall not, make any Competitive Bid Advance as part of
such Competitive Bid Borrowing; provided that the failure by any Lender to
give such notice shall not cause such Lender to be obligated to make any
Competitive Bid Advance as part of such proposed Competitive Bid
Borrowing.
(iii) Such Borrower shall, in turn, (A) before 10:30 A.M. (New York
City time) on the date of such proposed Competitive Bid Borrowing, in the
case of a Competitive Bid Borrowing consisting of Fixed Rate Advances and
(B) before 11:00 A.M. (New York City time) three Business Days before the
date of such proposed Competitive Bid Borrowing, in the case of a
Competitive Bid Borrowing consisting of LIBO Rate Advances, either:
(x) cancel such Competitive Bid Borrowing by giving the Agent
notice to that effect, or
(y) accept one or more of the offers made by any Lender or
Lenders pursuant to paragraph (ii) above, in its sole discretion, by
giving notice to the Agent of the amount of each Competitive Bid
Advance (which amount shall be equal to or greater than the minimum
amount, and equal to or less than the maximum amount, notified to
such Borrower by the Agent on behalf of such Lender for such
Competitive Bid Advance pursuant to paragraph (ii) above) to be made
by each Lender as part of such Competitive Bid Borrowing, and reject
any remaining offers made by Lenders pursuant to paragraph (ii)
above by giving the Agent notice to that effect. Such Borrower shall
accept the offers made by any Lender or Lenders to make Competitive
Bid Advances in order of the lowest to the highest rates of interest
offered by such Lenders. If two or more Lenders have offered the
same interest rate, the amount to be borrowed at such interest rate
will be allocated among such Lenders in proportion to the amount
that each such Lender offered at such interest rate.
(iv) If such Borrower notifies the Agent that such Competitive Bid
Borrowing is cancelled pursuant to paragraph (iii)(x) above, the Agent
shall give prompt notice thereof to the Lenders and such Competitive Bid
Borrowing shall not be made.
(v) If such Borrower accepts one or more of the offers made by any
Lender or Lenders pursuant to paragraph (iii)(y) above, the Agent shall in
turn promptly notify (A) each
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Lender that has made an offer as described in paragraph (ii) above, of the
date and aggregate amount of such Competitive Bid Borrowing and whether or
not any offer or offers made by such Lender pursuant to paragraph (ii)
above have been accepted by such Borrower, (B) each Lender that is to make
a Competitive Bid Advance as part of such Competitive Bid Borrowing, of
the amount of each Competitive Bid Advance to be made by such Lender as
part of such Competitive Bid Borrowing, and (C) each Lender that is to
make a Competitive Bid Advance as part of such Competitive Bid Borrowing,
upon receipt, that the Agent has received forms of documents appearing to
fulfill the applicable conditions set forth in Article III. Each Lender
that is to make a Competitive Bid Advance as part of such Competitive Bid
Borrowing shall, before 11:00 A.M. (New York City time) on the date of
such Competitive Bid Borrowing specified in the notice received from the
Agent pursuant to clause (A) of the preceding sentence or any later time
when such Lender shall have received notice from the Agent pursuant to
clause (C) of the preceding sentence, make available for the account of
its Applicable Lending Office to the Agent at its address referred to in
Section 8.02, in same day funds, such Lender's portion of such Competitive
Bid Borrowing. Upon fulfillment of the applicable conditions set forth in
Article III and after receipt by the Agent of such funds, the Agent will
make such funds available to such Borrower at the location specified by
such Borrower in its Notice of Competitive Bid Borrowing. Promptly after
each Competitive Bid Borrowing the Agent will notify each Lender of the
amount of the Competitive Bid Borrowing and the dates upon which such
Competitive Bid Borrowing commenced and will terminate.
(vi) If such Borrower notifies the Agent that it accepts one or more
of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y)
above, such notice of acceptance shall be irrevocable and binding on such
Borrower. Such Borrower shall indemnify each Lender against any loss, cost
or expense incurred by such Lender as a result of any failure to fulfill
on or before the date specified in the related Notice of Competitive Bid
Borrowing for such Competitive Bid Borrowing the applicable conditions set
forth in Article III, including, without limitation, any loss (including
loss of anticipated profits), cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such
Lender to fund the Competitive Bid Advance to be made by such Lender as
part of such Competitive Bid Borrowing when such Competitive Bid Advance,
as a result of such failure, is not made on such date.
(b) Each Competitive Bid Borrowing shall be in an aggregate amount
of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and,
following the making of each Competitive Bid Borrowing, the Borrower making such
Competitive Bid Borrowing shall be in compliance with the limitation set forth
in the proviso to the first sentence of subsection (a) above.
(c) Within the limits and on the conditions set forth in this
Section 2.03, any Borrower may from time to time borrow under this Section 2.03,
repay or prepay pursuant to subsection (d) below, and reborrow under this
Section 2.03, provided that a Competitive Bid Borrowing shall not be made on
more than one day within any period of three Business Days.
(d) Any Borrower making a Competitive Bid Borrowing shall repay to
the Agent for the account of each Lender that has made a Competitive Bid
Advance, on the maturity date of each Competitive Bid Advance (such maturity
date being that specified by such Borrower for repayment of such Competitive Bid
Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to
subsection (a)(i) above and provided in the Competitive Bid Note evidencing such
Competitive Bid Advance), the then unpaid principal amount of such Competitive
Bid Advance. No Borrower shall have any right to prepay any principal amount of
any Competitive Bid Advance unless, and then only on the terms, specified by
such Borrower for such Competitive Bid Advance in the related Notice of
Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above and set
forth in the Competitive Bid Note evidencing such Competitive Bid Advance.
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(e) Each Borrower making a Competitive Bid Borrowing shall pay
interest on the unpaid principal amount of each Competitive Bid Advance from the
date of such Competitive Bid Advance to the date the principal amount of such
Competitive Bid Advance is repaid in full, at the rate of interest for such
Competitive Bid Advance specified by the Lender making such Competitive Bid
Advance in its notice with respect thereto delivered pursuant to subsection
(a)(ii) above, payable on the interest payment date or dates specified by such
Borrower for such Competitive Bid Advance in the related Notice of Competitive
Bid Borrowing delivered pursuant to subsection (a)(i) above, as provided in the
Competitive Bid Note evidencing such Competitive Bid Advance. Upon the
occurrence and during the continuance of an Event of Default, such Borrower
shall pay interest on the amount of unpaid principal of each Competitive Bid
Advance owing to a Lender, payable in arrears on the date or dates interest is
payable thereon, at a rate per annum equal at all times to 2% per annum above
the rate per annum required to be paid on such Competitive Bid Advance under the
terms of the Competitive Bid Note evidencing such Competitive Bid Advance unless
otherwise agreed in such Competitive Bid Note.
(f) The indebtedness of any Borrower resulting from each Competitive
Bid Advance made to such Borrower as part of a Competitive Bid Borrowing shall
be evidenced by a separate Competitive Bid Note of such Borrower payable to the
order of the Lender making such Competitive Bid Advance.
SECTION 2.04. Fees. (a) Facility Fee. The Borrowers, jointly and
severally, agree to pay to the Agent for the account of each Lender a facility
fee on the aggregate amount of such Lender's Commitment from the date hereof in
the case of each Initial Lender and from the effective date specified in the
Assumption Agreement or in the Assignment and Acceptance pursuant to which it
became a Lender in the case of each other Lender until the Termination Date at a
rate per annum equal to the Applicable Percentage in effect from time to time,
payable in arrears quarterly on the last day of each February, May, August and
November, commencing August 31, 1999, and on the Termination Date.
(b) Agent's Fees. The Borrowers, jointly and severally, shall pay to
the Agent for its own account such fees as may from time to time be agreed
between the Borrowers and the Agent.
SECTION 2.05. Optional Termination or Reduction of the Commitments.
The Borrowers shall have the right, upon at least five Business Days' notice to
the Agent, to terminate in whole or reduce ratably in part the unused portions
of the Letter of Credit Facility and the Unused Revolving Credit Commitments,
provided that each partial reduction shall be in the aggregate amount of
$5,000,000 or an integral multiple of $1,000,000 in excess thereof. The Letter
of Credit Facility shall be permanently reduced from time to time on the date of
each reduction in the Revolving Credit Facility by the amount, if any, by which
the Letter of Credit Facility exceeds the Revolving Credit Facility after giving
effect to such reduction of the Revolving Credit Facility.
SECTION 2.06. Repayment of Revolving Credit Advances and Letter or
Credit Advances. (a) Revolving Credit Advances. The Borrowers shall repay to the
Agent for the ratable account of the Lenders on the Termination Date the
aggregate principal amount of the Revolving Credit Advances then outstanding.
(b) Letter of Credit Advances. The Borrowers shall repay to the
Agent for the account of each Issuing Bank and each other Lender that has made a
Letter of Credit Advance the outstanding principal amount of each Letter of
Credit Advance made by each of them on demand.
SECTION 2.07. Interest on Revolving Credit Advances and Letter of
Credit Advances. (a) Scheduled Interest. The Borrowers shall pay interest on the
unpaid principal amount of each
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Revolving Credit Advance and each Letter of Credit Advance owing to each Lender
from the date of such Advance until such principal amount shall be paid in full,
at the following rates per annum:
(i) Base Rate Advances. During such periods as such Advance is a
Base Rate Advance, a rate per annum equal at all times to the sum of (x)
the Base Rate in effect from time to time plus (y) the Applicable Margin
in effect from time to time plus (z) the Applicable Utilization Fee in
effect from time to time, payable in arrears quarterly on the last day of
each February, May, August and November during such periods and on the
date all Base Rate Advances shall be Converted or paid in full.
(ii) Eurodollar Rate Advances. During such periods as such Advance
is a Eurodollar Rate Advance, a rate per annum equal at all times during
each Interest Period for such Advance to the sum of (x) the Eurodollar
Rate for such Interest Period for such Advance plus (y) the Applicable
Margin in effect from time to time plus (z) the Applicable Utilization Fee
in effect from time to time, payable in arrears on the last day of such
Interest Period and, if such Interest Period has a duration of more than
three months, on each day that occurs during such Interest Period every
three months from the first day of such Interest Period and on the date
such Eurodollar Rate Advance shall be Converted or paid in full.
(b) Default Interest. Upon the occurrence and during the continuance
of an Event of Default and after notice from the Agent, the Borrowers shall pay
interest on the unpaid principal amount of each Revolving Credit Advance and
each Letter of Credit Advance owing to each Lender, payable in arrears on the
dates referred to in clause (a)(i) or (a)(ii) above, at a rate per annum equal
at all times to 2% per annum above the rate per annum required to be paid on
such Advance pursuant to clause (a)(i) or (a)(ii) above.
SECTION 2.08. Interest Rate Determination. (a) The Agent shall give
prompt notice to the Borrowers and the Lenders of the applicable interest rate
determined by the Agent for purposes of Section 2.07(a)(i) or (ii).
(b) If, with respect to any Eurodollar Rate Advances, the Required
Lenders reasonably determine and notify the Agent that the Eurodollar Rate for
any Interest Period for such Advances will not adequately reflect the cost to
such Required Lenders of making, funding or maintaining their respective
Eurodollar Rate Advances for such Interest Period, the Agent shall forthwith so
notify the Borrowers and the Lenders, whereupon (i) each Eurodollar Rate Advance
will automatically, on the last day of the then existing Interest Period
therefor, Convert into a Base Rate Advance, and (ii) the obligation of the
Lenders to make, or to Convert Revolving Credit Advances into, Eurodollar Rate
Advances shall be suspended until the Agent shall notify the Borrowers and the
Lenders that the circumstances causing such suspension no longer exist. Each
Lender that provides a notice as described in this Section 2.08(b) agrees to
provide to the Borrowers a certificate in reasonable detail summarizing the
basis for such notice.
(c) If the Borrowers shall fail to select the duration of any
Interest Period for any Eurodollar Rate Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 1.01, the
Agent will forthwith so notify the Borrowers and the Lenders and such Advances
will automatically, on the last day of the then existing Interest Period
therefor, be Converted into Base Rate Advances.
(d) On the date on which the aggregate unpaid principal amount of
Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment
or prepayment or otherwise, to less than $5,000,000, such Advances shall
automatically Convert into Base Rate Advances.
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(e) Upon the occurrence and during the continuance of any Event of
Default, (i) each Eurodollar Rate Advance will automatically, on the last day of
the then existing Interest Period therefor, Convert into a Base Rate Advance and
(ii) the obligation of the Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended.
(f) If Dow Jones Markets Telerate Page 3750 is unavailable and
Citibank is unable to furnish timely information to the Agent for determining
the Eurodollar Rate or LIBO Rate for any Eurodollar Rate Advances or LIBO Rate
Advances, as the case may be,
(i) the Agent shall forthwith notify the Borrowers and the Lenders
that the interest rate cannot be determined for such Eurodollar Rate
Advances or LIBO Rate Advances, as the case may be,
(ii) with respect to Eurodollar Rate Advances, each such Advance
will automatically, on the last day of the then existing Interest Period
therefor, be prepaid by the Borrowers or be automatically Converted into a
Base Rate Advance (or if such Advance is then a Base Rate Advance, will
continue as a Base Rate Advance), and
(iii) the obligation of the Lenders to make Eurodollar Rate Advances
or LIBO Rate Advances or to Convert Revolving Credit Advances into
Eurodollar Rate Advances shall be suspended until the Agent shall notify
the Borrowers and the Lenders that the circumstances causing such
suspension no longer exist.
SECTION 2.09. Optional Conversion of Revolving Credit Advances. Each
Borrower may on any Business Day, upon notice given to the Agent not later than
11:00 A.M. (New York City time) on the second Business Day prior to the date of
the proposed Conversion and subject to the provisions of Sections 2.08 and 2.12,
Convert Revolving Credit Advances of one Type comprising the same Borrowing made
to such Borrower into Revolving Credit Advances of the other Type; provided,
however, that any Conversion of Eurodollar Rate Advances into Base Rate Advances
shall be made only on the last day of an Interest Period for such Eurodollar
Rate Advances, any Conversion of Base Rate Advances into Eurodollar Rate
Advances shall be in an amount not less than the minimum amount specified in
Section 2.02(b) and no Conversion of any Revolving Credit Advances shall result
in more separate Revolving Credit Borrowings than permitted under Section
2.02(b). Each such notice of a Conversion shall, within the restrictions
specified above, specify (i) the date of such Conversion, (ii) the Revolving
Credit Advances to be Converted, and (iii) if such Conversion is into Eurodollar
Rate Advances, the duration of the initial Interest Period for each such
Advance. Each notice of Conversion shall be irrevocable and binding on the
applicable Borrower.
SECTION 2.10. Prepayments of Revolving Credit Advances. (a)
Optional. Each Borrower may, upon notice at least one Business Day prior to the
date of such prepayment to the Agent stating the proposed date and aggregate
principal amount of the prepayment, and if such notice is given such Borrower
shall, prepay the outstanding principal amount of the Revolving Credit Advances
comprising part of the same Revolving Credit Borrowing made to such Borrower in
whole or ratably in part, together with accrued interest to the date of such
prepayment on the principal amount prepaid; provided, however, that (x) each
partial prepayment shall be in an aggregate principal amount of $1,000,000 or an
integral multiple of $500,000 in excess thereof in the case of Base Rate
Advances and in an aggregate principal amount of $5,000,000 or an integral
multiple of $1,000,000 in excess thereof in the case of Eurodollar Rate Advances
and (y) in the event of any such prepayment of a Eurodollar Rate Advance, such
Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant
to Section 8.04(c).
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(b) Mandatory. (i) (A) The Borrowers shall, on each Business Day,
prepay an aggregate principal amount of the Revolving Credit Advances comprising
part of the same Borrowings or the Letter of Credit Advances equal to the amount
by which (1) the sum of the aggregate principal amount of (x) the Revolving
Credit Advances, (y) the Letter of Credit Advances and (z) the Competitive Bid
Advances then outstanding plus the aggregate Available Amount of all Letters of
Credit then outstanding exceeds (2) the Revolving Credit Facility on such
Business Day. Such prepayments of the Revolving Credit Facility shall be first
applied to prepay Letter of Credit Advances then outstanding until such Advances
are paid in full, and second applied to prepay Revolving Credit Advances then
outstanding comprising part of the same Borrowings until such Advances are paid
in full.
(B) The Borrowers shall, on each Business Day and on the Termination
Date, pay to the Agent for deposit in the Letter of Credit Collateral Account an
amount sufficient to cause the aggregate amount on deposit in such account to
equal the amount by which the aggregate Available Amount of all Letters of
Credit then outstanding exceeds the Letter of Credit Facility on such Business
Day or the Termination Date, as the case may be.
(ii) All prepayments under this subsection (b) shall be made
together with accrued interest to the date of such prepayment on the principal
amount prepaid.
SECTION 2.11. Increased Costs. (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation after the date hereof or (ii) the compliance with any guideline or
request from any central bank or other governmental authority made after the
date hereof (whether or not having the force of law), there shall be any
increase in the cost to any Lender of agreeing to make or making, funding or
maintaining Eurodollar Rate Advances or LIBO Rate Advances or of agreeing to
issue or of issuing or maintaining Letters of Credit (excluding for purposes of
this Section 2.11 any such increased costs resulting from (i) Taxes or Other
Taxes (as to which Section 2.14 shall govern) and (ii) changes in the basis of
taxation of overall net income or overall gross income by the United States or
by the foreign jurisdiction or state under the laws of which such Lender is
organized or has its Applicable Lending Office or any political subdivision
thereof), then the Borrowers shall from time to time, upon demand by such Lender
(with a copy of such demand to the Agent), pay to the Agent for the account of
such Lender additional amounts sufficient to compensate such Lender for such
increased cost; provided, however, that before making any such demand, each
Lender agrees to use reasonable efforts (consistent with its internal policy and
legal and regulatory restrictions) to designate a different Applicable Lending
Office if the making of such a designation would avoid the need for, or reduce
the amount of, such increased cost and would not, in the reasonable judgment of
such Lender, be otherwise disadvantageous to such Lender. A certificate in
reasonable detail summarizing the basis for and calculating the amount of such
increased cost, submitted to the Borrowers and the Agent by such Lender shall be
prima facie evidence of the amount claimed so long as any underlying
determinations and allocations are made on a reasonable basis; provided,
however, that no Lender shall be required to disclose in any such certificate
any confidential proprietary information.
(b) If any Lender determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or would
affect the amount of capital required or expected to be maintained by such
Lender or any corporation controlling such Lender and that the amount of such
capital is increased by or based upon the existence of such Lender's commitment
to lend or to issued Letters of Credit hereunder and other commitments of this
type or the issuance or maintenance of the Letters of Credit, then, upon demand
by such Lender (with a copy of such demand to the Agent), the Borrowers shall
pay to the Agent for the account of such Lender, from time to time as specified
by such Lender, additional amounts sufficient to compensate such Lender or such
corporation in the light of such circumstances, to the extent that such Lender
reasonably determines such increase in capital to be allocable to the existence
of such Lender's commitment to lend or to issue Letters of Credit hereunder or
the issuance or maintenance of the
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Letters of Credit (or other similar contingent obligations). A certificate in
reasonable detail summarizing the basis for and calculating such amounts
submitted to the Borrowers and the Agent by such Lender shall be prima facie
evidence of the amount claimed so long as any underlying determinations and
allocations are made on a reasonable basis; provided, however, that no Lender
shall be required to disclose in any such certificate any confidential
proprietary information.
SECTION 2.12. Illegality. Notwithstanding any other provision of
this Agreement, if any Lender shall notify the Agent that the introduction of or
any change in or in the interpretation of any law or regulation makes it
unlawful, or any central bank or other governmental authority asserts that it is
unlawful, for any Lender or its Eurodollar Lending Office to perform its
obligations hereunder to make Eurodollar Rate Advances or to fund or maintain
Eurodollar Rate Advances hereunder, (a) each Eurodollar Rate Advance will
automatically, upon such demand, Convert into a Base Rate Advance and (b) the
obligation of the Lenders to make Eurodollar Rate Advances or LIBO Rate Advances
or to Convert Revolving Credit Advances into Eurodollar Rate Advances shall be
suspended until the Agent shall notify the Borrowers and the Lenders that the
circumstances causing such suspension no longer exist; provided, however, that
before making any such demand, each Lender agrees to use reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions) to
designate a different Eurodollar Lending Office if the making of such a
designation would allow such Lender or its Eurodollar Lending Office to continue
to perform its obligations to make Eurodollar Rate Advances or to continue to
fund or maintain Eurodollar Rate Advances and would not, in the judgment of such
Lender, be otherwise disadvantageous to such Lender.
SECTION 2.13. Payments and Computations. (a) The Borrowers shall
make each payment hereunder not later than 11:00 A.M. (New York City time) on
the day when due to the Agent at the Agent's Account in same day funds. The
Agent will promptly thereafter cause to be distributed like funds relating to
the payment of principal or interest or facility fees ratably (other than
amounts payable pursuant to Section 2.03, 2.11, 2.14 or 8.04(c)) to the Lenders
for the account of their respective Applicable Lending Offices, and like funds
relating to the payment of any other amount payable to any Lender to such Lender
for the account of its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement. Upon any Assuming Lender becoming a
Lender hereunder as a result of a Commitment Increase pursuant to Section 2.18,
and upon the Agent's receipt of such Lender's Assumption Agreement and recording
of the information contained therein in the Register, from and after the
applicable Increase Date, the Agent shall make all payments hereunder and under
any Notes issued in connection therewith in respect of the interest assumed
thereby to the Assuming Lender. Upon its acceptance of an Assignment and
Acceptance and recording of the information contained therein in the Register
pursuant to Section 8.07(c), from and after the effective date specified in such
Assignment and Acceptance, the Agent shall make all payments hereunder and under
the Notes in respect of the interest assigned thereby to the Lender assignee
thereunder, and the parties to such Assignment and Acceptance shall make all
appropriate adjustments in such payments for periods prior to such effective
date directly between themselves.
(b) Each Borrower hereby authorizes each Lender, if and to the
extent payment owed to such Lender is not made when due hereunder or under the
Note held by such Lender, to charge from time to time against any or all of such
Borrower's accounts with such Lender any amount so due.
(c) All computations of interest based on the Base Rate or in
respect of Fixed Rate Advances , facility fees and Letter of Credit commissions
shall be made by the Agent on the basis of a year of 365 or 366 days, as the
case may be, and all computations of interest based on the Eurodollar Rate, the
LIBO Rate or the Federal Funds Rate shall be made by the Agent on the basis of a
year of 360 days, in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest, fees or commissions are payable. Each determination by
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the Agent of an interest rate hereunder shall be conclusive and binding for all
purposes, absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or facility fee, as
the case may be; provided, however, that, if such extension would cause payment
of interest on or principal of Eurodollar Rate Advances or LIBO Rate Advances to
be made in the next following calendar month, such payment shall be made on the
next preceding Business Day.
(e) Unless the Agent shall have received notice from the applicable
Borrower prior to the date on which any payment is due to the Lenders hereunder
that such Borrower will not make such payment in full, the Agent may assume that
such Borrower has made such payment in full to the Agent on such date and the
Agent may, in reliance upon such assumption, cause to be distributed to each
Lender on such due date an amount equal to the amount then due such Lender. If
and to the extent the applicable Borrower shall not have so made such payment in
full to the Agent, each Lender shall repay to the Agent forthwith on demand such
amount distributed to such Lender together with interest thereon, for each day
from the date such amount is distributed to such Lender until the date such
Lender repays such amount to the Agent, at the Federal Funds Rate.
SECTION 2.14. Taxes. (a) Any and all payments by the Borrowers
hereunder or under the Notes shall be made, in accordance with Section 2.13,
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender and the Agent, taxes
imposed on its net income, and franchise taxes imposed on it in lieu of net
income taxes, by the jurisdiction under the laws of which such Lender or the
Agent (as the case may be) is organized or any political subdivision thereof
and, in the case of each Lender, taxes imposed on its net income, and franchise
taxes imposed on it in lieu of net income taxes, by the jurisdiction of such
Lender's Applicable Lending Office or any political subdivision thereof (all
such non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities in respect of payments hereunder or under the Notes being
hereinafter referred to as "Taxes"). If the Borrowers shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder or under any
Note to any Lender or the Agent, (i) the sum payable shall be increased as may
be necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.14) such Lender or
the Agent (as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrowers shall make such
deductions and (iii) the Borrowers shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
(b) In addition, the Borrowers shall pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or under the Notes or from the
execution, delivery or registration of, performing under, or otherwise with
respect to, this Agreement or the Notes (hereinafter referred to as "Other
Taxes").
(c) The Borrowers shall indemnify each Lender and the Agent for and
hold it harmless against the full amount of Taxes or Other Taxes (including,
without limitation, taxes of any kind imposed by any jurisdiction on amounts
payable under this Section 2.14) imposed on or paid by such Lender or the Agent
(as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. This indemnification shall
be made within 30 days from the date such Lender or the Agent (as the case may
be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Borrowers shall furnish to the Agent, at its address referred to in Section
8.02, the original or a certified copy of a receipt
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evidencing such payment. In the case of any payment hereunder or under the Notes
by or on behalf of the Borrowers through an account or branch outside the United
States or by or on behalf of the Borrowers by a payor that is not a United
States person, if the Borrowers determine that no Taxes are payable in respect
thereof, the Borrowers shall furnish, or shall cause such payor to furnish, to
the Agent, at such address, an opinion of counsel acceptable to the Agent
stating that such payment is exempt from Taxes. For purposes of this subsection
(d) and subsection (e), the terms "United States" and "United States person"
shall have the meanings specified in Section 7701 of the Internal Revenue Code.
(e) Each Lender organized under the laws of a jurisdiction outside
the United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Initial Lender and on the date of the Assumption
Agreement or the Assignment and Acceptance pursuant to which it becomes a Lender
in the case of each other Lender, and from time to time thereafter as requested
in writing by the Borrowers (but only so long as such Lender remains lawfully
able to do so), shall provide each of the Agent and the Borrowers with two
original Internal Revenue Service forms 1001 or 4224, as appropriate, or any
successor or other form prescribed by the Internal Revenue Service, certifying
that such Lender is exempt from or entitled to a reduced rate of United States
withholding tax on payments pursuant to this Agreement or the Notes. Each Lender
organized under the laws of a jurisdiction outside the United States, on or
prior to the date of execution and delivery of this Agreement, or at the time
such Lender first becomes a party to this Agreement, represents and warrants
that it is lawfully able to provide the Borrowers with a valid form 1001 or 4224
resulting in exemption form United States withholding tax on payments of
interest pursuant to this Agreement or the Notes. If any form or document
referred to in this subsection (e) requires the disclosure of information, other
than information necessary to compute the tax payable and information required
on the date hereof by Internal Revenue Service form 1001 or 4224, that the
Lender reasonably considers to be confidential, the Lender shall give notice
thereof to the Borrowers and shall not be obligated to include in such form or
document such confidential information.
(f) For any period with respect to which a Lender has failed to
provide the Borrowers with the appropriate form described in Section 2.14(e)
(other than if such failure is due to a change in law occurring subsequent to
the date on which a form originally was required to be provided, or if such form
otherwise is not required under subsection (e) above), such Lender shall not be
entitled to indemnification under Section 2.14(a) or (c) with respect to Taxes
imposed by the United States by reason of such failure; provided, however, that
should a Lender become subject to Taxes because of its failure to deliver a form
required hereunder, the Borrowers shall take such steps as the Lender shall
reasonably request to assist the Lender to recover such Taxes.
(g) Any Lender claiming any additional amounts payable pursuant to
this Section 2.14 agrees to use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
Eurodollar Lending Office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts that may thereafter
accrue and would not, in the reasonable judgment of such Lender, be otherwise
disadvantageous to such Lender.
SECTION 2.15. Sharing of Payments, Etc. If any Lender shall obtain
any payment (whether voluntary, involuntary, through the exercise of any right
of set-off, or otherwise) on account of the Revolving Credit Advances owing to
it (other than pursuant to Section 2.11, 2.14 or 8.04(c)) in excess of its
ratable share of payments on account of the Revolving Credit Advances obtained
by all the Lenders, such Lender shall forthwith purchase from the other Lenders
such participations in the Revolving Credit Advances owing to them as shall be
necessary to cause such purchasing Lender to share the excess payment ratably
with each of them; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Lender, such purchase from
each Lender shall be rescinded and such Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery together with an amount
equal to such Lender's ratable share (according to the proportion of (i) the
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amount of such Lender's required repayment to (ii) the total amount so recovered
from the purchasing Lender) of any interest or other amount paid or payable by
the purchasing Lender in respect of the total amount so recovered. The Borrowers
agree that any Lender so purchasing a participation from another Lender pursuant
to this Section 2.15 may, to the fullest extent permitted by law, exercise all
its rights of payment (including the right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of the
respective Borrowers in the amount of such participation.
SECTION 2.16. Letters of Credit. (a) The Letter of Credit Facility.
Each Issuing Bank severally agrees, on the terms and conditions hereinafter set
forth, to issue letters of credit (together with the Existing Letters of Credit,
the "Letters of Credit") for the account of any Borrower from time to time on
any Business Day during the period from the date hereof until 10 days before the
Termination Date (i) in an aggregate Available Amount for all Letters of Credit
issued by such Issuing Bank not to exceed at any time the lesser of (x) the
Letter of Credit Facility at such time and (y) such Issuing Bank's Letter of
Credit Commitment and (ii) in an Available Amount for each such Letter of Credit
not to exceed an amount equal to an amount equal to the Unused Revolving Credit
Commitments of the Lenders at such time. No Letter of Credit shall have an
expiration date (including all rights of the applicable Borrower or the
beneficiary to require renewal) later than the earlier of (A) 10 days before the
Termination Date and (B) (1) in the case of a Standby Letter of Credit, one year
after the date of issuance thereof (but such Standby Letter of Credit may by its
terms be automatically renewable annually upon notice (a "Notice of Renewal")
given to the Issuing Bank that issued such Standby Letter of Credit and the
Agent on or prior to any date for notice of renewal set forth in such Letter of
Credit but in any event at least three Business Days prior to the date of the
proposed renewal of such Standby Letter of Credit and upon fulfillment of the
applicable conditions set forth in Article III unless such Issuing Bank has
notified the Borrowers (with a copy to the Agent) on or prior to the date for
notice of termination set forth in such Letter of Credit but in any event at
least 30 Business Days prior to the date of automatic renewal of its election
not to renew such Standby Letter of Credit (a "Notice of Termination")) and (2)
in the case of a Documentary Letter of Credit, one year after the date of
issuance thereof; provided that the terms of each Standby Letter of Credit that
is automatically renewable annually shall (x) require the Issuing Bank that
issued such Standby Letter of Credit to give the beneficiary named in such
Standby Letter of Credit notice of any Notice of Termination, (y) permit such
beneficiary, upon receipt of such notice, to draw under such Standby Letter of
Credit prior to the date such Standby Letter of Credit otherwise would have been
automatically renewed and (z) not permit the expiration date (after giving
effect to any renewal) of such Standby Letter of Credit in any event to be
extended to a date after the dates referred to in clause (A) above. If either a
Notice of Renewal is not given by the applicable Borrower or a Notice of
Termination is given by the relevant Issuing Bank pursuant to the immediately
preceding sentence, such Standby Letter of Credit shall expire on the date on
which it otherwise would have been automatically renewed; provided, however,
that even in the absence of receipt of a Notice of Renewal the relevant Issuing
Bank may in its discretion, unless instructed to the contrary by the Agent or
the applicable Borrower, deem that a Notice of Renewal had been timely delivered
and in such case, a Notice of Renewal shall be deemed to have been so delivered
for all purposes under this Agreement. Each Standby Letter of Credit shall
contain a provision authorizing the Issuing Bank that issued such Letter of
Credit to deliver to the beneficiary of such Letter of Credit, upon the
occurrence and during the continuance of an Event of Default, a notice (a
"Default Termination Notice") terminating such Letter of Credit and giving such
beneficiary 15 days to draw such Letter of Credit. Within the limits of the
Letter of Credit Facility, and subject to the limits referred to above, the
Borrowers may request the issuance of Letters of Credit under this Section
2.16(a), repay any Letter of Credit Advances resulting from drawings thereunder
pursuant to Section 2.16(c) and request the issuance of additional Letters of
Credit under this Section 2.16(a).
(b) Request for Issuance. (i) Each Letter of Credit shall be issued
upon notice, given not later than 11:00 A.M. (New York City time) on the second
Business Day prior to the date of the proposed issuance of such Letter of
Credit, by any Borrower to any Issuing Bank, which shall give to the Agent and
each Lender prompt notice thereof by telex or telecopier). Each such notice of
issuance of a
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Letter of Credit (a "Notice of Issuance") shall be by telephone, confirmed
immediately in writing, or telex or telecopier, specifying therein the requested
(A) date of such issuance (which shall be a Business Day), (B) Available Amount
of such Letter of Credit, (C) expiration date of such Letter of Credit, (D) name
and address of the beneficiary of such Letter of Credit and (E) form of such
Letter of Credit, and shall be accompanied by such application and agreement for
letter of credit as such Issuing Bank may specify to such Borrower for use in
connection with such requested Letter of Credit (in each case, a "Letter of
Credit Agreement"). If (x) the requested form of such Letter of Credit is
reasonably acceptable to such Issuing Bank in its sole discretion and (y) it has
not received notice of objection to such issuance from the Required Lenders,
such Issuing Bank will, upon fulfillment of the applicable conditions set forth
in Article III, make such Letter of Credit available to the applicable Borrower
at its office referred to in Section 8.02 or as otherwise agreed with such
Borrower in connection with such issuance. In the event and to the extent that
the provisions of any Letter of Credit Agreement shall conflict with this
Agreement, the provisions of this Agreement shall govern.
(ii) Each Issuing Bank shall furnish (A) to the Agent on the first
Business Day of each week a written report summarizing issuance and expiration
dates of Letters of Credit issued by such Issuing Bank during the previous week
and drawings during such week under all Letters of Credit issued by such Issuing
Bank, (B) to each Lender on the first Business Day of each month a written
report summarizing issuance and expiration dates of Letters of Credit issued by
such Issuing Bank during the preceding month and drawings during such month
under all Letters of Credit issued by such Issuing Bank and (C) to the Agent and
each Lender on the first Business Day of each calendar quarter a written report
setting forth the average daily aggregate Available Amount during the preceding
calendar quarter of all Letters of Credit issued by such Issuing Bank.
(c) Drawing and Reimbursement. The payment by any Issuing Bank of a
draft drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by such Issuing Bank of a Letter of Credit Advance, which
shall be a Base Rate Advance, in the amount of such draft. Upon written demand
by any Issuing Bank with an outstanding Letter of Credit Advance, with a copy of
such demand to the Agent, each Lender shall purchase from such Issuing Bank, and
such Issuing Bank shall sell and assign to each such Lender, such Lender's Pro
Rata Share of such outstanding Letter of Credit Advance as of the date of such
purchase, by making available for the account of its Applicable Lending Office
to the Agent for the account of such Issuing Bank, by deposit to the Agent's
Account, in same day funds, an amount equal to the portion of the outstanding
principal amount of such Letter of Credit Advance to be purchased by such
Lender. Promptly after receipt thereof, the Agent shall transfer such funds to
such Issuing Bank. Each Borrower hereby agrees to each such sale and assignment.
Each Lender agrees to purchase its Pro Rata Share of an outstanding Letter of
Credit Advance on (i) the Business Day on which demand therefor is made by the
Issuing Bank which made such Advance, provided notice of such demand is given
not later than 11:00 A.M. (New York City time) on such Business Day or (ii) the
first Business Day next succeeding such demand if notice of such demand is given
after such time. Upon any such assignment by an Issuing Bank to any Lender of a
portion of a Letter of Credit Advance, such Issuing Bank represents and warrants
to such Lender that such Issuing Bank is the legal and beneficial owner of such
interest being assigned by it, free and clear of any liens, but makes no other
representation or warranty and assumes no responsibility with respect to such
Letter of Credit Advance, the Loan Documents or any Borrower. If and to the
extent that any Lender shall not have so made the amount of such Letter of
Credit Advance available to the Agent, such Lender agrees to pay to the Agent
forthwith on demand such amount together with interest thereon, for each day
from the date of demand by such Issuing Bank until the date such amount is paid
to the Agent, at the Federal Funds Rate for its account or the account of such
Issuing Bank, as applicable. If such Lender shall pay to the Agent such amount
for the account of such Issuing Bank on any Business Day, such amount so paid in
respect of principal shall constitute a Letter of Credit Advance made by such
Lender on such Business Day for purposes of this Agreement, and the outstanding
principal amount of the Letter of Credit Advance made by such Issuing Bank shall
be reduced by such amount on such Business Day.
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(d) Failure to Make Letter of Credit Advances. The failure of any
Lender to make the Letter of Credit Advance to be made by it on the date
specified in Section 2.16(c) shall not relieve any other Lender of its
obligation hereunder to make its Letter of Credit Advance on such date, but no
Lender shall be responsible for the failure of any other Lender to make the
Letter of Credit Advance to be made by such other Lender on such date.
(e) Obligations Absolute. The obligations of the Borrowers under
this Agreement, any Letter of Credit Agreement and any other agreement or
instrument relating to any Letter of Credit shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, such Letter of Credit Agreement and such other agreement or
instrument under all circumstances, including, without limitation, the following
circumstances:
(i) any lack of validity or enforceability of this Agreement, any
Note, any Letter of Credit Agreement, any Letter of Credit or any other
agreement or instrument relating thereto (all of the foregoing being,
collectively, the "L/C Related Documents");
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the obligations of any Borrower in
respect of any L/C Related Document or any other amendment or waiver of or
any consent to departure from all or any of the L/C Related Documents;
(iii) the existence of any claim, set-off, defense or other right
that any Borrower may have at any time against any beneficiary or any
transferee of a Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), any Issuing Bank or any
other Person, whether in connection with the transactions contemplated by
the L/C Related Documents or any unrelated transaction;
(iv) any statement or any other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any
respect;
(v) payment by any Issuing Bank under a Letter of Credit against
presentation of a draft or certificate that does not strictly comply with
the terms of such Letter of Credit, unless such draft or certificate is
substantially different from the applicable form specified by such Letter
of Credit;
(vi) any exchange, release or non-perfection of any Letter of Credit
Collateral or other collateral, or any release or amendment or waiver of
or consent to departure from any guarantee, for all or any of the
obligations of the applicable Borrower in respect of the L/C Related
Documents; or
(vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including, without limitation, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the applicable Borrower or a guarantor.
(f) Compensation. (i) The Borrowers shall pay to the Agent for the
account of each Lender a commission on such Lender's Pro Rata Share of the
average daily aggregate Available Amount of (A) all Standby Letters of Credit
outstanding from time to time at a rate equal to 0.475% per annum equal and (B)
all Documentary Letters of Credit outstanding from time to time at a rate equal
to 0.250% per annum, in each case, calculated and payable for the quarterly
period ending on the last Business Day of each February, May, August and
November, and on the Termination Date.
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(ii) The Borrower shall pay to each Issuing Bank, for its own
account, such commissions, issuance fees, fronting fees, transfer fees and
other fees and charges in connection with the issuance or administration
of each Letter of Credit as the Borrowers and such Issuing Bank shall
agree.
(g) Existing Letters of Credit. Effective as of the Effective Date
(i) the letters of credit issued for the account of the Borrowers prior to such
date under the Original Loan Agreement and set forth on Schedule 2.16(g) hereto
(such letters of credit being the "Existing Letters of Credit") in an aggregate
face amount not exceeding the total amount set forth on such Schedule will be
deemed to have been issued as, and be, Letters of Credit hereunder and (ii) the
Existing Letters of Credit and the reimbursement obligations in respect thereof
shall be obligations of the Borrowers hereunder.
SECTION 2.17. Use of Proceeds. The proceeds of the Advances shall be
available (and the Borrowers agree that they shall use such proceeds) for
general corporate purposes of the Borrowers and their Subsidiaries, excluding
nonconsensual acquisitions.
SECTION 2.18. Increase in the Aggregate Commitments. (a) The
Borrowers may, at any time but in any event not more than once in any calendar
year prior to the Termination Date, by notice to the Agent, request that the
aggregate amount of the Commitment be increased by an amount of $10,000,000 or
an integral multiple of $10,000,000 in excess thereof (each a "Commitment
Increase") to be effective as of a date that is at least 90 days prior to the
scheduled Termination Date then in effect (the "Increase Date") as specified in
the related notice to the Agent; provided, however that (i) in no event shall
the aggregate amount of the Commitments at any time exceed $200,000,000, (ii) on
the date of any request by the Borrowers for a Commitment Increase and on the
related Increase Date, the Public Debt Rating from Moody's and S&P shall be
better than or equal to Baa3 and BBB-, respectively, and (iii) on the date of
any request by the Borrowers for a Commitment Increase and on the related
Increase Date, no Default shall have occurred and be continuing.
(b) The Agent shall promptly notify the Lenders of a request by the
Borrowers for a Commitment Increase, which notice shall include (i) the proposed
amount of such requested Commitment Increase, (ii) the proposed Increase Date
and (iii) the date by which Lenders wishing to participate in the Commitment
Increase must commit to an increase in the amount of their respective
Commitments (the "Commitment Date"). Each Lender that is willing to participate
in such requested Commitment Increase (each an "Increasing Lender") shall, in
its sole discretion, give written notice to the Agent on or prior to the
Commitment Date of the amount by which it is willing to increase its Commitment.
If the Lenders notify the Agent that they are willing to increase the amount of
their respective Commitments by an aggregate amount that exceeds the amount of
the requested Commitment Increase, the requested Commitment Increase shall be
allocated among the Lenders willing to participate therein in such amounts as
are agreed between the Borrowers and the Agent.
(c) Promptly following each Commitment Date, the Agent shall notify
the Borrowers as to the amount, if any, by which the Lenders are willing to
participate in the requested Commitment Increase. If the aggregate amount by
which the Lenders are willing to participate in any requested Commitment
Increase on any such Commitment Date is less than the requested Commitment
Increase, then the Borrowers may extend offers to one or more Eligible Assignees
to participate in any portion of the requested Commitment Increase that has not
been committed to by the Lenders as of the applicable Commitment Date; provided,
however, that the Commitment of each such Eligible Assignee shall be in an
amount of $1,000,000 or an integral multiple thereof.
(d) On each Increase Date, each Eligible Assignee that accepts an
offer to participate in a requested Commitment Increase in accordance with
Section 2.18(c) (each such Eligible Assignee and each Eligible Assignee that
agrees to an extension of the Termination Date in accordance with Section
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2.18(c), an "Assuming Lender") shall become a Lender party to this Agreement as
of such Increase Date and the Commitment of each Increasing Lender for such
requested Commitment Increase shall be so increased by such amount (or by the
amount allocated to such Lender pursuant to the last sentence of Section
2.18(b)) as of such Increase Date; provided, however, that the Agent shall have
received on or before such Increase Date the following, each dated such date:
(i) (A) certified copies of resolutions of the Board of Directors of
each Borrower or the Executive Committee of such Board approving the
Commitment Increase and the corresponding modifications to this Agreement
and (B) an opinion of counsel for the Borrowers (which may be in-house
counsel), in substantially the form of Exhibit D hereto;
(ii) an assumption agreement from each Assuming Lender, if any, in
form and substance satisfactory to the Borrowers and the Agent (each an
"Assumption Agreement"), duly executed by such Eligible Assignee, the
Agent and the Borrowers; and
(iii) confirmation from each Increasing Lender of the increase in
the amount of its Commitment in a writing satisfactory to the Borrowers
and the Agent.
On each Increase Date, upon fulfillment of the conditions set forth in the
immediately preceding sentence of this Section 2.18(d), the Agent shall notify
the Lenders (including, without limitation, each Assuming Lender) and the
Borrowers, on or before 1:00 P.M. (New York City time), by telecopier or telex,
of the occurrence of the Commitment Increase to be effected on such Increase
Date and shall record in the Register the relevant information with respect to
each Increasing Lender and each Assuming Lender on such date.
SECTION 2.19. Obligations and Communications of the Borrowers. All
obligations, representations, warranties, covenants and other agreements of
either or both of the Borrowers under this Agreement, the Notes and the other
Loan Documents shall be joint and several liabilities of both of the Borrowers;
provided, however, that anything herein or in the other Loan Documents to the
contrary notwithstanding, the liability of the Operating Company with respect to
the obligations of the Holding Company shall in no event exceed the maximum
permissible amount for which the Operating Company may be obligated under ss.
548 of the United States Bankruptcy Code or applicable state fraudulent
conveyance law. Any notice given to, any knowledge held by or any knowledge
imputed to either Borrower shall be deemed to be within the knowledge of both of
the Borrowers. Any certificate, notice, request, statement or other document or
communication signed or made on behalf or in the name of either or both of the
Borrowers shall be deemed to have been signed or made by both of the Borrowers
unless expressly disclaimed in a particular document or communication. Reference
to a single specific Borrower, whether by name, officer's title, letterhead or
otherwise, shall not constitute an express disclaimer of any of the foregoing.
Any telephone notice permitted to be given by the Borrowers under this Article
II shall be sufficient if given by an appropriate officer of either Borrower,
and shall be deemed to have been given by both Borrowers.
SECTION 2.20. Subrogation and Contribution. Each Borrower covenants
and agrees that, until the obligations of the Borrowers under this Agreement and
the other Loan Documents have been fully paid and satisfied, any and all
subrogation, contribution and other similar rights of such Borrower against or
in respect of (A) the other Borrower, (B) any of the assets and properties of
the other Borrower, or (C) any other co-obligor or indemnitor of any of the
other Borrower's payments or obligations under any of the Loan Documents,
whether now existing or hereafter acquired or created, and whether resulting
from any payment made by such Borrower or otherwise, shall be subordinate and
inferior in dignity and deferred as to payment to the full payment and
satisfaction of all of such obligations. (However, such subordination of
subrogation, contribution and similar rights is not intended to include, and
this Section is not intended to affect, the intercompany advances and dividends
permitted
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under this Agreement.) Neither Borrower shall seek any payment or exercise or
enforce any right, power, privilege, remedy or interest that it may have with
respect to any such subrogation, contribution or other similar right except with
the prior written consent of the Agent (with the consent of the Required
Lenders, as and if required) and for the benefit of all of the Lenders. Any
payment, asset or property delivered to or for the benefit of any Borrower in
respect of any such subrogation, contribution or other similar right shall be
accepted in trust for the benefit of all of the Lenders and shall be promptly
paid or delivered to the Agent (for the benefit of all of the Lenders) to be
credited and applied to the payment and satisfaction of the obligations of the
Borrowers under this Agreement and the other Loan Documents, whether contingent,
matured or unmatured, or to be held by the Agent (for the benefit of all of the
Lenders) as additional collateral, as the Agent (with the consent of the
Required Lenders, as and if required) may elect in its sole and absolute
discretion.
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Sections
2.01, 2.03 and 2.16. Sections 2.01, 2.03 and 2.16 of this Agreement shall become
effective on and as of the first date (the "Effective Date") on which the
following conditions precedent have been satisfied:
(a) There shall have occurred no Material Adverse Change since May
31, 1998.
(b) There shall exist no action, suit, investigation, litigation or
proceeding affecting the Holding Company or any of its Subsidiaries
pending or threatened before any court, governmental agency or arbitrator
that (i) would be reasonably likely to have a Material Adverse Effect or
(ii) purports to affect the legality, validity or enforceability of this
Agreement or any Note or the consummation of the transactions contemplated
hereby.
(c) Nothing shall have come to the attention of the Lenders during
the course of their due diligence investigation to lead them to believe
that the Information Memorandum was or has become misleading, incorrect or
incomplete in any material respect; without limiting the generality of the
foregoing, the Lenders shall have been given such access to the
management, records, books of account, contracts and properties of the
Borrowers and their Subsidiaries as they shall have requested.
(d) All governmental and third party consents and approvals
necessary in connection with the transactions contemplated hereby shall
have been obtained (without the imposition of any conditions that are not
acceptable to the Lenders) and shall remain in effect, and no law or
regulation shall be applicable in the reasonable judgment of the Lenders
that restrains, prevents or imposes materially adverse conditions upon the
transactions contemplated hereby.
(e) The Borrowers shall have notified each Lender and the Agent in
writing as to the proposed Effective Date.
(f) The Borrowers shall have paid all accrued fees and expenses of
the Agent and the Lenders (including the accrued fees and expenses of
counsel to the Agent).
(g) On the Effective Date, the following statements shall be true
and the Agent shall have received for the account of each Lender a
certificate signed by a duly authorized officer of the Holding Company,
dated the Effective Date, stating that:
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(i) The representations and warranties contained in Section
4.01 are correct on and as of the Effective Date, and
(ii) No event has occurred and is continuing that constitutes
a Default.
(h) The Agent shall have received on or before the Effective Date
the following, each dated such day, in form and substance satisfactory to
the Agent and (except for the Revolving Credit Notes) in sufficient copies
for each Lender:
(i) The Revolving Credit Notes to the order of the Lenders.
(ii) a copy of the certificate of incorporation of each
Borrower, and all modifications, amendments and restatements
thereof, certified as of a recent date by the Secretary of State of
its state of incorporation;
(iii) a copy of the by-laws of each Borrower, together with
all modifications, amendments and restatements thereof, certified as
of a recent date by its Secretary;
(iv) a certificate of the Secretary of State of the state of
incorporation of each Borrower, dated as of a recent date, as to its
existence and good standing;
(v) Certified copies of the resolutions of the Board of
Directors of each Borrower approving this Agreement and the Notes,
and of all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to this Agreement and
the Notes.
(vi) A certificate of the Secretary or an Assistant Secretary
of each Borrower certifying the names and true signatures of the
officers of such Borrower authorized to sign this Agreement and the
Notes and the other documents to be delivered hereunder.
(vii) A favorable opinion of Charles Deull, Senior Vice
President, Legal and Business Affairs of the Borrowers,
substantially in the form of Exhibit D hereto and as to such other
matters as any Lender through the Agent may reasonably request.
(viii) A favorable opinion of Shearman & Sterling, counsel for
the Agent, in form and substance satisfactory to the Agent.
(i) The termination of the commitments of the Original Banks and the
payment in full of all Debt outstanding under the Original Loan Agreement.
SECTION 3.02. Conditions Precedent to Each Revolving Credit
Borrowing, each Issuance and Renewal of Letters of Credit and each Increase
Date. The obligation of each Lender to make a Revolving Credit Advance (other
than a Letter of Credit Advance made by an Issuing Bank or a Lender pursuant to
Section 2.16(c)) on the occasion of each Revolving Credit Borrowing (including
the initial Borrowing) the obligation of each Issuing Bank to issue Letters of
Credit (including the initial issuance) or renew a Standby Letter of Credit from
time to time and each Commitment Increase shall be subject to the conditions
precedent that the Effective Date shall have occurred and on the date of such
Borrowing, issuance or renewal or the applicable Increase Date (a) the following
statements shall be true (and each of the giving of the applicable Notice of
Revolving Credit Borrowing, Notice of Issuance,
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Notice of Renewal or request for Commitment Increase and the acceptance by the
Borrowers of the proceeds of such Borrowing or such Letter of Credit issuance or
the renewal of such Standby Letter of Credit shall constitute a representation
and warranty by the Borrowers that on the date of such Borrowing, issuance,
renewal or Increase Date such statements are true):
(i) the representations and warranties contained in Section 4.01 are
correct on and as of such date before and after giving effect to such
Borrowing, issuance or renewal or such Increase Date and to the
application of the proceeds therefrom, as though made on and as of such
date; and
(ii) no event has occurred and is continuing, or would result from
such Borrowing, issuance or renewal or Increase Date or from the
application of the proceeds therefrom, that constitutes a Default;
and (b) the Agent shall have received such other approvals, opinions or
documents as any Lender through the Agent may reasonably request.
SECTION 3.03. Conditions Precedent to Each Competitive Bid
Borrowing. The obligation of each Lender that is to make a Competitive Bid
Advance on the occasion of a Competitive Bid Borrowing to make such Competitive
Bid Advance as part of such Competitive Bid Borrowing is subject to the
conditions precedent that (i) the Agent shall have received the written
confirmatory Notice of Competitive Bid Borrowing with respect thereto, (ii) on
or before the date of such Competitive Bid Borrowing, but prior to such
Competitive Bid Borrowing, the Agent shall have received a Competitive Bid Note
payable to the order of such Lender for each of the one or more Competitive Bid
Advances to be made by such Lender as part of such Competitive Bid Borrowing, in
a principal amount equal to the principal amount of the Competitive Bid Advance
to be evidenced thereby and otherwise on such terms as were agreed to for such
Competitive Bid Advance in accordance with Section 2.03, and (iii) on the date
of such Competitive Bid Borrowing the following statements shall be true (and
each of the giving of the applicable Notice of Competitive Bid Borrowing and the
acceptance by the applicable Borrower of the proceeds of such Competitive Bid
Borrowing shall constitute a representation and warranty by the Borrowers that
on the date of such Competitive Bid Borrowing such statements are true):
(a) the representations and warranties contained in Section 4.01 are
correct on and as of the date of such Competitive Bid Borrowing, before
and after giving effect to such Competitive Bid Borrowing and to the
application of the proceeds therefrom, as though made on and as of such
date, and
(b) no event has occurred and is continuing, or would result from
such Competitive Bid Borrowing or from the application of the proceeds
therefrom, that constitutes a Default.
SECTION 3.04. Determinations Under Section 3.01. For purposes of
determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Agent responsible for the transactions contemplated by the Loan Documents
shall have received notice from such Lender prior to the date that the
Borrowers, by notice to the Lenders, designate as the proposed Effective Date,
specifying its objection thereto. The Agent shall promptly notify the Lenders of
the occurrence of the Effective Date.
ARTICLE IV
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REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrowers. The
Borrowers represent and warrant as follows:
(a) Each Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the State of its incorporation.
(b) The execution, delivery and performance by each Borrower of this
Agreement and the other Loan Documents to be delivered by it, and the
consummation of the transactions contemplated hereby, are within such
Borrower's corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (i) such Borrower's charter or
by-laws or (ii) law or any contractual restriction binding on or affecting
such Borrower.
(c) This Agreement has been, and each of the other Loan Documents to
be delivered by it when delivered hereunder will have been, duly executed
and delivered by each Borrower. This Agreement is, and each of the other
Loan Documents when delivered hereunder will be, the legal, valid and
binding obligation of each Borrower party thereto enforceable against such
Borrower in accordance with their respective terms.
(d) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body or any
other third party is required for the due execution, delivery and
performance by any Borrower of this Agreement or the other Loan Documents
to be delivered by it.
(e) There is no pending or threatened action, suit, investigation,
litigation or proceeding, including, without limitation, any Environmental
Claim, affecting the Holding Company or any of its Subsidiaries before any
court, governmental agency or arbitrator that (i) would be reasonably
likely to have a Material Adverse Effect or (ii) purports to affect the
legality, validity or enforceability of this Agreement or any Note or the
consummation of the transactions contemplated hereby.
(f) The Consolidated balance sheet of the Holding Company and its
Subsidiaries as at May 31, 1998, and the related Consolidated statements
of income and cash flows of the Holding Company and its Subsidiaries for
the fiscal year then ended, accompanied by an opinion of Ernst & Young
LLP, independent public accountants, the consolidating balance sheet of
the Holding Company and its Subsidiaries as at May 31, 1998, and the
related consolidating statements of income and cash flows of the Holding
Company and its Subsidiaries for the fiscal year then ended, duly
certified by the chief financial officer of the Holding Company, and the
Consolidated and consolidating balance sheet of the Holding Company and
its Subsidiaries as at February 28, 1999, and the related Consolidated and
consolidating statements of income and cash flows of the Holding Company
and its Subsidiaries for the nine months then ended, duly certified by the
chief financial officer of the Holding Company, copies of which have been
furnished to each Lender, fairly present, subject, in the case of said
balance sheet as at February 28, 1999, and said statements of income and
cash flows for the nine months then ended, to year-end audit adjustments,
the Consolidated financial condition of the Holding Company and its
Subsidiaries as at such dates and the Consolidated results of the
operations of the Holding Company and its Subsidiaries for the periods
ended on such dates, all in accordance with generally accepted accounting
principles consistently applied. Since May 31, 1998, there has been no
Material Adverse Change.
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(g) Each of the Borrowers and their Subsidiaries has good,
marketable fee or leasehold title (as applicable) or ownership interest to
all of the material assets and properties of the Borrowers and their
Subsidiaries, free and clear of all Liens, other than Liens permitted by
the Loan Documents.
(h) The operations and properties of each Borrower and each of its
Subsidiaries comply in all material respects with all applicable
Environmental Laws, all past non-compliance with such Environmental Laws
has been resolved without material ongoing obligations or costs, and no
circumstances exist that could reasonably be likely to (i) form the basis
of an Environmental Claim against either Borrower or any of its
Subsidiaries or any of their properties that could have a Material Adverse
Effect or (ii) cause any such property to be subject to any restrictions
on ownership, occupancy, use or transferability under any Environmental
Law that could have a Material Adverse Effect.
(i) Set forth on Schedule 4.01(i) hereto is a complete and accurate
list of all Subsidiaries of each Borrower as of the date hereof, showing
(as to each such Subsidiary) the jurisdiction of its incorporation. All of
the outstanding capital stock and other ownership interests (other than
directors qualifying shares) in each Borrower's Subsidiaries has been
validly issued, are fully paid and non-assessable and are owned by such
Borrower or one or more of its Subsidiaries free and clear of all Liens
and, as of the date hereof, free of any outstanding options, warrants,
rights of conversion or purchase or similar rights.
(j) Each of the outstanding securities issued by the Holding Company
was duly authorized and validly issued, is fully paid and non-assessable,
and is not and will not be subject to any preemptive or similar right or
restriction. Each of those outstanding securities was acquired from the
issuer in a transaction in compliance with the Securities Act of 1933, as
amended, and other applicable laws.
(k) No Borrower is engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve
System), and no proceeds of any Advance will be used to purchase or carry
any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
(l) No Borrower is an "investment company", or a company
"controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
(m) As of the date hereof and as of any date on or prior to December
31, 1999, the Borrowers have (i) initiated a review and assessment of
their respective and each of their Subsidiaries' business and operations
(including those affected by suppliers, vendors and customers) that could
be adversely affected by the risk that computer applications used by the
Borrowers or any of their Subsidiaries (or suppliers, vendors and
customers) may be unable to recognize and perform properly date sensitive
functions involving certain dates prior to and any date after December 31,
1999 (the "Year 2000 Problem"), (ii) developed a plan and timetable for
addressing the Year 2000 Problem on a timely basis and (iii) to date,
implemented that plan materially in accordance with such timetable (as
adjusted from time to time). Based on the foregoing, the Borrowers believe
that all computer applications (including those of their suppliers,
vendors and customers) that are material to its or any of its
Subsidiaries' business and operations are reasonably expected on a timely
basis to be able to perform properly date-sensitive functions for all
dates before, on and after January 1, 2000, except to the extent that a
failure to do so could not reasonably be expected to have a Material
Adverse Effect.
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ARTICLE V
COVENANTS OF THE BORROWERS
SECTION 5.01. Affirmative Covenants. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, each of the
Borrowers will:
(a) Reporting Requirements. Provide to the Lenders the following:
(i) promptly after the commencement thereof, notice of all
actions and proceedings before any court, governmental agency or
arbitrator affecting either Borrower or any of its Subsidiaries of
the type described in Section 4.01(e);
(ii) as soon as possible and in any event within five days
after the occurrence of each Default continuing on the date of such
statement, a statement of the chief financial officer of the Holding
Company setting forth details of such Default and the action that
the Borrowers have taken and proposes to take with respect thereto
and any other event that would be reasonably likely to have or has
had a Material Adverse Effect.
(iii) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal
year of the Holding Company, the Consolidated balance sheet of the
Holding Company and its Subsidiaries as of the end of such quarter
and Consolidated statements of income and cash flows of the Holding
Company and its Subsidiaries for the period commencing at the end of
the previous fiscal year and ending with the end of such quarter,
duly certified (subject to year-end audit adjustments) by the chief
executive officer, the chief financial officer, the vice-president
finance and investor relations or the vice-president controller of
the Holding Company as having been prepared in accordance with
generally accepted accounting principles and certificates of the
chief executive officer, the chief financial officer, the
vice-president finance and investor relations or the vice-president
controller of the Holding Company in substantially the form of
Exhibit E as to compliance with the terms of this Agreement and
setting forth in reasonable detail the calculations necessary to
demonstrate compliance with Sections 5.02(e) and 5.03, provided that
in the event of any change in GAAP used in the preparation of such
financial statements, the Holding Company shall also provide, if
necessary for the determination of compliance with Section 5.03, a
statement of reconciliation conforming such financial statements to
GAAP;
(iv) as soon as available and in any event within 90 days
after the end of each fiscal year of the Holding Company, (A) a copy
of the annual audit report for such year for the Holding Company and
its Subsidiaries, containing the Consolidated balance sheet of the
Holding Company and its Subsidiaries as of the end of such fiscal
year and Consolidated statements of income and cash flows of the
Holding Company and its Subsidiaries for such fiscal year, in each
case accompanied by an opinion by Ernst & Young LLP or other
independent public accountants of recognized standing regularly
retained by the Borrowers to audit their books and reasonably
acceptable to the Required Lenders, (B) the consolidating balance
sheet of the Holding Company and its Subsidiaries as of the end of
such fiscal year and consolidating statements of income and cash
flows of the Holding Company and its Subsidiaries for such fiscal
year and (C) certificates of the chief executive officer, the chief
financial
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officer, the vice-president finance and investor relations or the
vice-president controller of the Holding Company in substantially
the form of Exhibit E as to compliance with the terms of this
Agreement and setting forth in reasonable detail the calculations
necessary to demonstrate compliance with Sections 5.02(e) and 5.03,
provided that in the event of any change in GAAP used in the
preparation of such financial statements, the Holding Company shall
also provide, if necessary for the determination of compliance with
Section 5.03, a statement of reconciliation conforming such
financial statements to GAAP;
(v) promptly after the sending or filing thereof, copies of
all quarterly and annual reports and proxy solicitations that the
Holding Company sends to its public securityholders generally, and
copies of all reports on Form 8-K and registration statements for
the public offering of securities that the Holding Company or any
Subsidiary files with the Securities and Exchange Commission or any
national securities exchange; and
(vi) such other information respecting the Borrowers or any of
their Subsidiaries as any Lender through the Agent may from time to
time reasonably request.
(b) Visitation Rights. At any reasonable time and from time to time,
permit the Agent or any of the Lenders or any agents or representatives
thereof, to examine and make copies of and abstracts from the records and
books of account of, and visit the properties of, such Borrower and any of
its Subsidiaries, and to discuss the affairs, finances and accounts of
such Borrower and any of its Subsidiaries with any of their officers or
directors and with their independent certified public accountants.
(c) Preservation of Corporate Existence, Etc. Preserve and maintain,
and cause each of its Significant Subsidiaries to preserve and maintain,
its corporate existence, rights (charter and statutory) and franchises;
provided, however, that such Borrower and its Subsidiaries may consummate
any merger or consolidation permitted under Section 5.02(c) and provided
further that neither such Borrower nor any of its Significant Subsidiaries
shall be required to preserve any right or franchise if (x) the Board of
Directors of such Borrower or such Significant Subsidiary shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of such Borrower or such Significant Subsidiary, as the case may
be, and that the loss thereof is not disadvantageous in any material
respect to such Borrower or the Lenders or (y) in any jurisdiction the
failure to do so would not be reasonably likely to have a Material Adverse
Effect.
(d) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with all applicable
laws, rules, regulations and orders, such compliance to include, without
limitation, compliance with ERISA and Environmental Laws other than to the
extent the noncompliance therewith or violation thereof would not be
reasonably likely to have a Material Adverse Effect.
(e) Payment of Taxes, Etc. Pay and discharge, and cause each of its
Subsidiaries to pay and discharge, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges or levies
imposed upon it or upon its property unless such failure to pay or
discharge would not be reasonably likely to have a significant adverse
effect on the business of the Borrowers and the Subsidiaries taken as a
whole and (ii) all lawful claims that, if unpaid, might by law become a
Lien upon its property unless such failure to pay or discharge would not
be reasonably likely to have a Material Adverse Effect; provided, however,
that neither such
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Borrowers nor any of its Subsidiaries shall be required to pay or
discharge any such tax, assessment, charge or claim that is being
contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained, unless and until any Lien
resulting therefrom attaches to its property and becomes enforceable
against its other creditors.
(f) Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and covering such
risks (excluding publisher's liability insurance) as is usually carried by
companies engaged in similar businesses and owning similar properties in
the same general areas in which such Borrower or such Subsidiary operates.
(g) Keeping of Books. Maintain, and cause each of its Subsidiaries
to maintain, a standard system of accounting in accordance with generally
accepted accounting principles consistently applied.
(h) Maintenance of Properties, Etc. Maintain and preserve, and cause
each of its Subsidiaries to maintain and preserve, all of its properties
that are used or useful in the conduct of its business in good working
order and condition, ordinary wear and tear excepted, other than to the
extent any such failure to maintain and preserve would not be reasonably
likely to have a Material Adverse Effect.
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SECTION 5.02. Negative Covenants. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, neither
Borrower will:
(a) Liens, Etc. Create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Lien on or with respect to
any of its properties, whether now owned or hereafter acquired, or assign,
or permit any of its Subsidiaries to assign, any right to receive income,
other than:
(i) Permitted Liens,
(ii) purchase money Liens (including leases treated as
security interests) upon or in any real property or equipment
acquired or held by any Borrower or any Subsidiary in the ordinary
course of business to secure the purchase price of such property or
equipment or to secure Debt incurred solely for the purpose of
financing the acquisition of such property or equipment, or Liens
existing on such property or equipment at the time of its
acquisition (other than any such Liens created in contemplation of
such acquisition that were not incurred to finance the acquisition
of such property) or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount, provided, however,
that no such Lien shall extend to or cover any properties of any
character other than the real property or equipment being acquired,
and no such extension, renewal or replacement shall extend to or
cover any properties not theretofore subject to the Lien being
extended, renewed or replaced,
(iii) the Liens existing on the Effective Date and described
on Schedule 5.02(a) hereto,
(iv) Liens on property of a Person existing at the time such
Person is merged into or consolidated with any Borrower or any
Subsidiary of such Borrower or becomes a Subsidiary of such
Borrower; provided that such Liens were not created in contemplation
of such merger, consolidation or acquisition and do not extend to
any assets other than those of the Person so merged into or
consolidated with such Borrower or such Subsidiary or acquired by
such Borrower or such Subsidiary,
(v) other Liens securing Debt in an aggregate principal amount
not to exceed $10,000,000 at any time outstanding;
(vi) Liens incurred in respect of judgments and awards
discharged within 30 days from the making thereof or under review in
an appropriate forum so long as enforcement thereof is effectively
stayed;
(vii) Liens incurred in respect of rental or security
deposits; and
(viii) the replacement, extension or renewal of any Lien
permitted by clause (iii) or (iv) above upon or in the same property
theretofore subject thereto or the replacement, extension or renewal
(without increase in the amount or change in any direct or
contingent obligor) of the Debt secured thereby.
(b) Sales, Etc. of Assets. Sell, lease, transfer or otherwise
dispose of, or permit any of its Subsidiaries to sell, lease, transfer or
otherwise dispose of, any assets, or grant any option or other right to
purchase, lease or otherwise acquire any assets, except (i) sales of
inventory and equipment in the ordinary course of its business, (ii) in a
transaction authorized by subsection (b) of this Section, (iii) sales of
assets for fair value in an aggregate amount not to exceed $35,000,000 and
(iv) the sale of either (x) the real property located at 557 Broadway, New
York,
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New York or(y) the real property comprising the distribution center
located in Jefferson City, Missouri, in each case, for fair value in
connection with any sale-leaseback transaction.
(c) Mergers, Etc. Merge or consolidate with or into any Person, or
permit any of its Subsidiaries to do so, except that (i) any Subsidiary of
either Borrower may merge or consolidate with or into any other Subsidiary
of such Borrower, (ii) any Subsidiary of either Borrower may merge into
such Borrower and (iii) either Borrower may merge with any other Person so
long as such Borrower is the surviving corporation, provided, in each
case, that no Default shall have occurred and be continuing at the time of
such proposed transaction or would result therefrom.
(d) Change in Nature of Business. Make, or permit any of its
Subsidiaries to make, any material change in the nature of the business of
the Borrowers and their Subsidiaries, taken as a whole, as carried on at
the date hereof.
(e) Dividends, Etc. Declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or
securities on account of any shares of any class of capital stock of the
Holding Company, or purchase, redeem or otherwise acquire for value (other
than any redemption or repurchase of the Holding Company's outstanding 5%
convertible subordinated debentures due August 15, 2005, as in effect on
the date hereof, pursuant to the application of the change of control
provision contained therein, or any substantially identical provision
contained in any subsequent issuance of convertible Debt) (or permit any
of its Subsidiaries to do so) any shares of any class of capital stock of
the Holding Company or any warrants, rights or options to acquire any such
shares, now or hereafter outstanding, except that, so long as no Default
shall have occurred and be continuing at the time of any action described
below or would result therefrom, the Holding Company may (i) declare and
make any dividend payment or other distribution payable in common stock of
the Holding Company and (ii) declare or pay cash dividends to its
stockholders and purchase, redeem or otherwise acquire shares of its
common stock or warrants, rights or options to acquire any such shares in
an amount equal to the sum of (A) the cash proceeds received from the
substantially concurrent issue of new shares of its common stock, (B) the
aggregate amount of cash received and net tax benefit received from the
exercise by employees of the Borrowers and their Subsidiaries of stock
options or the purchase of shares of stock under the employee stock
purchase plan after May 31, 1998, (C) 25% of the reduction in Debt from
the conversion to equity of the Holding Company's outstanding 5%
convertible subordinated debentures due August 15, 2005 and (D) the lesser
of (x) 50% of net income of the Holding Company and its Subsidiaries
arising after May 31, 1998 and computed on a cumulative Consolidated basis
and (y) $75,000,000.
(f) Transactions with Affiliates. Conduct, and cause each of its
Subsidiaries to conduct, any transactions otherwise permitted under this
Agreement with any of their unconsolidated Affiliates other than on terms
that are fair and reasonable and no less favorable to such Borrower or
such Subsidiary than it would obtain in a comparable arm's-length
transaction with a Person not an Affiliate.
(g) Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting policies or
reporting practices, except as required or permitted by generally accepted
accounting principles.
SECTION 5.03. Financial Covenants. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, the Borrowers
will:
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(a) Consolidated Debt Ratio. Maintain at all times a Consolidated
Debt Ratio of not more than 0.60:1; provided that during the fiscal
quarters ending August 31, 2000 and November 30, 2000, the Borrowers shall
maintain a consolidated Debt Ratio of not more than 0.625:1.
(b) Consolidated Interest Coverage Ratio. Maintain as at the last
day of each of their fiscal quarters a Consolidated Interest Coverage
Ratio of not less than 3.50:1.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) any representation or warranty made in this Agreement or any
other Loan Document shall prove to have been false or misleading in any
material respect when made (or deemed made); or
(b) any report, statement, certificate, schedule or other document
or information furnished (whether prior to, on or after the Effective
Date) in connection with this Agreement or any of the other Loan Documents
shall prove to have been false or misleading in any material respect when
furnished (or deemed furnished); or
(c) any default, whether in whole or in part, shall occur in the
payment of the principal of the Revolving Credit Advances, or shall occur
and continue for more than three Business Days in the payment of any
interest on or any other amount respecting the Advances or any of the
other obligations of the Borrowers under the Loan Documents; or
(d) any default, whether in whole or in part, shall occur in the due
observance or performance of any covenant, term or provision to be
performed (i) under Sections 5.01(a)(ii), 5.02(e) or 5.03 of this
Agreement or (ii) under Sections 5.01(b) or 5.02 of this Agreement (other
than under Section 5.02(f) hereof) and such default described in this
clause (ii) shall continue for a period of five Business Days after the
earlier of notice thereof to or knowledge thereof by either Borrower; or
(e) any default, whether in whole or in part, shall occur in the due
observance or performance of any other covenant, term or provision to be
performed under this Agreement and the other Loan Documents by either
Borrower or any other party thereto (other than any Lender), which default
is not described in any other subsection of this Section, and such default
shall continue for a period of ten days after the earlier of notice
thereof to or knowledge thereof by either Borrower; provided, however,
that if such default is capable of being cured and if the Borrowers shall
have commenced to cure such default within such period and shall proceed
continuously in good faith and with due diligence to cure such default,
then such period instead shall be thirty days; or
(f) (i) any payment default of $1,000,000 or more shall occur under
any instrument or agreement (other than a Loan Document) respecting any
Debt of either Borrower or any of their Subsidiaries, unless payment shall
be made or action shall be taken within three Business Days after such
default in an amount or manner sufficient to cure it, provided that such
payment or action will not result in a breach of any term or provision of
this Agreement and the other Loan Documents, with the various financial
measurements and covenants set forth in Section 5.03 of
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this Agreement being recalculated on a pro forma basis (from the then most
recent quarterly or subsequent pro forma calculations) to include the
effect of any such payment or (ii) any Debt of either Borrower or of any
of their Subsidiaries of $5,000,000 or more in principal or notional
amount shall be accelerated or otherwise become due or be required to be
prepaid, repurchased or redeemed (other than pursuant to a regularly
scheduled mandatory prepayment, repurchase or redemption or the
application of the change of control provision contained in the Holding
Company's outstanding 5% convertible subordinated debentures due August
15, 2005, as in effect on the date hereof, or any substantially identical
provision contained in any subsequent issuance of debt) prior to its
scheduled maturity; or
(g) either Borrower or any of their Subsidiaries shall (i) fail or
be unable to pay its debts generally as they become due, (ii) make a
general assignment for the benefit of its creditors, (iii) apply for or
consent to the appointment of a receiver, trustee, assignee, custodian,
sequestrator, liquidator or similar official for itself or any of its
assets and properties, (iv) commence a voluntary case for relief as a
debtor under the United States Bankruptcy Code, (v) file with or otherwise
submit to any governmental authority any petition, answer or other
document seeking (A) reorganization, (B) an arrangement with creditors or
(C) to take advantage of any other present or future applicable law
respecting bankruptcy, reorganization, insolvency, readjustment of debts,
relief of debtors, dissolution or liquidation, (vi) file or otherwise
submit any answer or other document admitting or failing to contest the
material allegations of a petition or other document filed or otherwise
submitted against it in any proceeding under any such applicable law,
(vii) be adjudicated a bankrupt or insolvent, or (viii) take any action
for the purpose of effecting any of the foregoing; or
(h) any case, proceeding or other action shall be commenced against
either Borrower or any of their Subsidiaries for the purpose of effecting,
or an order, judgment or decree shall be entered by any court of competent
jurisdiction approving (in whole or in part), anything specified in
subsection (g) of this Section, or any receiver, trustee, assignee,
custodian, sequestrator, liquidator or other official shall be appointed
with respect to either Borrower or any of their Subsidiaries, or shall be
appointed to take or shall otherwise acquire possession or control of all
or a substantial part of the assets and properties of either Borrower or
any of their Subsidiaries, and any of the foregoing shall continue
unstayed and in effect for any period of sixty days; or
(i) one or more final judgments for the payment of money in excess
of an aggregate of $5,000,000 shall be rendered against either Borrower or
any of their Subsidiaries and the same shall remain undischarged for a
period of thirty days during which levy and execution shall not be
effectively stayed or contested in good faith; or
(j) either Borrower or any ERISA Affiliate shall, or shall be
reasonably expected to, incur liability as a result of one or more of the
following: (i) the occurrence of any ERISA Event; (ii) the partial or
complete withdrawal of either Borrower or any ERISA Affiliate from a
Multiemployer Plan; or (iii) the reorganization or termination of a
Multiemployer Plan; provided that any such event(s) (individually or in
the aggregate with any other such event(s)) would be reasonably likely to
have or has had (in the reasonable judgment of the Required Lenders) a
Material Adverse Effect; or
(k) the Holding Company shall own less than all of the outstanding
securities issued by the Operating Company, or any other Person shall
acquire any option, warrant or other right to acquire any of those
securities; or
(l) the Robinson Family shall cease to own (in the aggregate) at
least fifty-one percent (51.00%) of the issued and outstanding shares of
Class A Stock of the Holding Company;
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or any other Person shall acquire any option, warrant or other right to
acquire (from the Robinson Family, the Holding Company or otherwise) any
securities issued by the Holding Company that, if exercised, would result
in the Robinson Family holding less than 51% of such stock; or
(m) the Board of Directors of the Holding Company shall submit to
its shareholders for adoption, or the shareholders of the Holding Company
shall adopt, any supplement, modification or amendment to or restatement
of the certificate of incorporation or the by-laws of the Holding Company
that would in any way directly or indirectly (i) alter the relative voting
rights or powers of the classes of the capital stock of the Holding
Company, (ii) add any additional classes of capital stock with any voting
rights, or (iii) adversely affect the rights, powers, privileges, remedies
or interests of the Agent or the Lenders under this Agreement or any other
Loan Document, in any such case without the prior written consent of the
Required Lenders;
then, and in any such event, the Agent (i) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrowers, declare the
obligation of each Lender to make Advances (other than Letter of Credit Advances
by an Issuing Bank or a Lender pursuant to Section 2.16(c)) and of each Issuing
Bank to issue Letters of Credit to be terminated, whereupon the same shall
forthwith terminate, and (ii) shall at the request, or may with the consent, of
the Required Lenders, (A) by notice to the Borrowers, declare the Notes, all
interest thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Notes, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrowers , (B) by notice to each party required under the terms
of any agreement in support of which a Standby Letter of Credit is issued,
request that all obligations under such agreement be declared to be due and
payable and (C) by notice to each Issuing Bank, direct such Issuing Bank to
deliver a Default Termination Notice to the beneficiary of each Standby Letter
of Credit issued by it, and each Issuing Bank shall deliver such Default
Termination Notices; provided, however, that in the event of an actual or deemed
entry of an order for relief with respect to either Borrower under the United
States Bankruptcy Code, (1) the obligation of each Lender to make Advances
(other than Letter of Credit Advances by an Issuing Bank or a Lender pursuant to
Section 2.16(c)) and of each Issuing Bank to issue Letters of Credit shall
automatically be terminated and (2) the Notes, all such interest and all such
amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by each Borrower.
SECTION 6.02. Actions in Respect of the Letters of Credit upon Event
of Default. If any Event of Default shall have occurred and be continuing, the
Agent may, or shall at the request of the Required Lenders, irrespective of
whether it is taking any of the actions described in Section 6.01 or otherwise,
make demand upon the Borrowers to, and forthwith upon such demand the Borrowers
will, pay to the Agent on behalf of the Lenders in same day funds at the Agent's
office designated in such demand, for deposit in the Letter of Credit Collateral
Account, an amount equal to the aggregate Available Amount of all Letters of
Credit then outstanding. If at any time the Agent determines that any funds held
in the Letter of Credit Collateral Account are subject to any right or claim of
any Person other than the Agent and the Lenders or that the total amount of such
funds is less than the aggregate Available Amount of all Letters of Credit, the
Borrowers will, forthwith upon demand by the Agent, pay to the Collateral Agent,
as additional funds to be deposited and held in the Letter of Credit Collateral
Account, an amount equal to the excess of (a) such aggregate Available Amount
over (b) the total amount of funds, if any, then held in the Letter of Credit
Collateral Account that the Agent determines to be free and clear of any such
right and claim. Upon the drawing of any Letter of Credit for which funds are on
deposit in the Letter of Credit Collateral Account, such funds shall be applied
to reimburse the relevant Issuing Bank or Lenders, as applicable, to the extent
permitted by applicable law. If the Borrowers have not delivered the cash
collateral as specified above within five Business Days after it was due, at any
time and
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from time to time thereafter, the Lenders in their sole and absolute discretion
may (but shall not be obligated to) advance to the Borrowers all or any portion
of the required cash collateral, by credit to the Letter of Credit Collateral
Account or otherwise; and amounts advanced by the Lenders pursuant to this
option and outstanding from time to time shall be due and payable, together with
interest and additional interest thereon at the rates provided in Section 2.07
of this Agreement, on demand, and shall otherwise constitute "Letter of Credit
Advances" for all purposes under this Agreement and the other Loan Documents.
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action. Each Lender hereby appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers and discretion under this Agreement and the other Loan
Documents as are delegated to the Agent by the terms hereof, together with such
powers and discretion as are reasonably incidental thereto. As to any matters
not expressly provided for by the Loan Documents (including, without limitation,
enforcement or collection of the Notes), the Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding upon all Lenders and all holders of Notes;
provided, however, that the Agent shall not be required to take any action that
exposes the Agent to personal liability or that is contrary to this Agreement or
applicable law. The Agent agrees to give to each Lender prompt notice of each
notice given to it by any Borrower pursuant to the terms of this Agreement.
SECTION 7.02. Agent's Reliance, Etc. Neither the Agent nor any of
its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them under or in connection with Loan
Documents, except for its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, the Agent: (i) may treat
the Lender that made any Advance as the holder of the Debt resulting therefrom
until the Agent receives and accepts an Assumption Agreement entered into by an
Assuming Lender as provided in Section 2.18 or an Assignment and Acceptance
entered into by such Lender, as assignor, and an Eligible Assignee, as assignee,
as provided in Section 8.07; (ii) may consult with legal counsel (including
counsel for the Borrowers), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations (whether written or oral) made in or in connection with the Loan
Documents; (iv) shall not have any duty (fiduciary or otherwise) to ascertain or
to inquire as to the performance or observance of any of the terms, covenants or
conditions of the Loan Documents on the part of any Borrower or to inspect the
property (including the books and records) of the Borrowers; (v) shall not be
responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Loan Documents or any
other instrument or document furnished pursuant hereto; (vi) shall incur no
liability under or in respect of any Loan Document by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telecopier,
telegram or telex) believed by it to be genuine and signed or sent by the proper
party or parties; and (vii) shall be deemed not to have knowledge of any Default
unless and until written notice (including facsimile notice) thereof is given to
the Agent by either Borrower or a Lender.
SECTION 7.03. Citibank and Affiliates. With respect to its
Commitment, the Advances made by it and the Note issued to it, Citibank shall
have the same rights and powers under the Loan Documents as any other Lender and
may exercise the same as though it were not the Agent; and the term "Lender" or
"Lenders" shall, unless otherwise expressly indicated, include Citibank in its
individual
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capacity. Citibank and its Affiliates may accept deposits from, lend money to,
act as trustee under indentures of, accept investment banking engagements from
and generally engage in any kind of business with, any Borrower, any of its
Subsidiaries and any Person who may do business with or own securities of any
such Borrower or any such Subsidiary, all as if Citibank were not the Agent and
without any duty to account therefor to the Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that
it has, independently and without reliance upon the Agent or any other Lender
and based on the financial statements referred to in Section 4.01 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
SECTION 7.05. Indemnification. (a) The Lenders agree to indemnify
the Agent (to the extent not reimbursed by the Borrowers), from and against such
Lender Party's ratable share (determined as provided below) of any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever that may be
imposed on, incurred by, or asserted against the Agent in any way relating to or
arising out of the Loan Documents or any action taken or omitted by the Agent
under the Loan Documents (collectively, the "Indemnified Costs"), provided that
no Lender shall be liable for any portion of the Indemnified Costs resulting
from the Agent's gross negligence or willful misconduct. Without limitation of
the foregoing, each Lender agrees to reimburse the Agent promptly upon demand
for its ratable share of any out-of-pocket expenses (including reasonable
counsel fees) incurred by the Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement, to the
extent that the Agent is not reimbursed for such expenses by the Borrowers. In
the case of any investigation, litigation or proceeding giving rise to any
Indemnified Costs, this Section 7.05 applies whether any such investigation,
litigation or proceeding is brought by the Agent, any Lender or a third party.
(b) Each Lender severally agrees to indemnify each Issuing Bank (to
the extent not promptly reimbursed by the Borrowers) from and against such
Lender's ratable share (determined as provided below) of any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever that may be
imposed on, incurred by, or asserted against such Issuing Bank in any way
relating to or arising out of the Loan Documents or any action taken or omitted
by such Issuing Bank under the Loan Documents; provided, that no Lender shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from such Issuing Bank's gross negligence or willful misconduct. Without
limitation of the foregoing, each Lender agrees to reimburse such Issuing Bank
promptly upon demand for its ratable share of any costs and expenses (including,
without limitation, fees and expenses of counsel) payable by the Borrowers under
Section 8.04, to the extent that such Issuing Bank is not promptly reimbursed
for such costs and expenses by the Borrowers.
(c) For purposes of this Section 7.05, the Lenders' respective
ratable shares of any amount shall be determined, at any time, according to the
sum of (i) the aggregate principal amount of the Revolving Credit Advances and
Letter of Credit Advances outstanding at such time and owing to the respective
Lender, (ii) their respective Pro Rata Shares of the aggregate Available Amount
of all Letters of Credit outstanding at such time and (iii) their respective
Unused Revolving Credit Commitments at such time; provided that the aggregate
principal amount of Letter of Credit Advances owing to any Issuing Bank shall be
considered to be owed to the Lenders ratably in accordance with their respective
Revolving Credit Commitments. The failure of any Lender to reimburse any Agent
or any Issuing Bank,
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as the case may be, promptly upon demand for its ratable share of any amount
required to be paid by the Lenders to such Agent or such Issuing Bank, as the
case may be, as provided herein shall not relieve any other Lender of its
obligation hereunder to reimburse such Agent or such Issuing Bank, as the case
may be, for its ratable share of such amount, but no Lender shall be responsible
for the failure of any other Lender to reimburse such Agent or such Issuing
Bank, as the case may be, for such other Lender's ratable share of such amount.
Without prejudice to the survival of any other agreement of any Lender Party
hereunder, the agreement and obligations of each Lender Party contained in this
Section 7.05 shall survive the payment in full of principal, interest and all
other amounts payable hereunder and under the other Loan Documents.
SECTION 7.06. Successor Agent. The Agent may resign at any time by
giving written notice thereof to the Lenders and the Borrowers and may be
removed at any time with or without cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Required Lenders, and shall have accepted such appointment, within 30 days after
the retiring Agent's giving of notice of resignation
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or the Required Lenders' removal of the retiring Agent, then the retiring Agent
may, on behalf of the Lenders, appoint a successor Agent, which shall be a
commercial bank organized under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$500,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, discretion, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Article VII shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement.
SECTION 7.07. Other Agents. Each Lender hereby acknowledges that
neither syndication agent nor any other Lender designated as any "Agent" on the
signature pages hereof has any responsibility or liability hereunder other than
in its capacity as a Lender.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or the Revolving Credit Notes, nor consent to any
departure by any Borrower therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Required Lenders, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no amendment, waiver
or consent shall, unless in writing and signed by all the Lenders, do any of the
following: (a) waive any of the conditions specified in Section 3.01, (b)
increase the Commitments of the Lenders or subject the Lenders to any additional
obligations, (c) reduce the principal of, or interest on, the Revolving Credit
Advances or any fees or other amounts payable hereunder, (d) postpone any date
fixed for any payment of principal of, or interest on, the Revolving Credit
Advances or any fees or other amounts payable hereunder, (e) change the
percentage of the Commitments, the aggregate Available Amount of outstanding
Letters of Creditor of the aggregate unpaid principal amount of the Revolving
Credit Advances, or the number of Lenders, that shall be required for the
Lenders or any of them to take any action hereunder or (f) amend this Section
8.01; and provided further that no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Lenders required above to
take such action, affect the rights or duties of the Agent under this Agreement
or any Note.
SECTION 8.02. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier, telegraphic or
telex communication) and mailed, telecopied, telegraphed, telexed or delivered,
if to the Holding Company or to the Operating Company, at its address at 555
Broadway, New York, New York 10012, Attention: Kevin McEnery, Chief Financial
Officer, and Charles Deull, Senior Vice President Legal and Business Affairs; if
to any Initial Lender, at its Domestic Lending Office specified opposite its
name on Schedule I hereto; if to any other Lender, at its Domestic Lending
Office specified in the Assumption Agreement or the Assignment and Acceptance
pursuant to which it became a Lender; and if to the Agent, at its address at Two
Penns Way, New Castle, Delaware 19720, Attention: Bank Loan Syndications
Department; or, as to any Borrower or the Agent, at such other address as shall
be designated by such party in a written notice to the other parties and, as to
each other party, at such other address as shall be designated by such party in
a written notice to the Borrowers and the Agent. All such notices and
communications shall, when mailed, telecopied, telegraphed or telexed, be
effective when
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deposited in the mails, telecopied, delivered to the telegraph company or
confirmed by telex answerback, respectively, except that notices and
communications to the Agent pursuant to Article II, III or VII shall not be
effective until received by the Agent. Delivery by telecopier of an executed
counterpart of any amendment or waiver of any provision of this Agreement or the
Notes or of any Exhibit hereto to be executed and delivered hereunder shall be
effective as delivery of a manually executed counterpart thereof.
SECTION 8.03. No Waiver; Remedies. No failure on the part of any
Lender or the Agent to exercise, and no delay in exercising, any right hereunder
or under any Note shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. Costs and Expenses. (a) The Borrowers jointly and
severally agree to pay on demand all reasonable costs and expenses of the Agent
in connection with the preparation, execution, delivery, administration,
modification and amendment of the Loan Documents to be delivered hereunder,
including, without limitation, the reasonable fees and expenses of counsel for
the Agent with respect thereto and with respect to advising the Agent as to its
rights and responsibilities under the Loan Documents. The Borrowers further
jointly and severally agree to pay on demand all reasonable costs and expenses
of the Agent and the Lenders, if any (including, without limitation, reasonable
counsel fees and expenses), in connection with the enforcement (whether through
negotiations, legal proceedings or otherwise) of this Agreement, the Notes and
the other Loan Documents to be delivered hereunder, including, without
limitation, reasonable fees and expenses of counsel for the Agent and each
Lender in connection with the enforcement of rights under this Section 8.04(a).
(b) The Borrowers jointly and severally agree to indemnify and hold
harmless the Agent and each Lender and each of their Affiliates and their
officers, directors, employees, agents and advisors (each, an "Indemnified
Party") from and against any and all claims, damages, losses, liabilities and
expenses (including, without limitation, reasonable fees and expenses of
counsel) incurred by or asserted or awarded against any Indemnified Party, in
each case arising out of or in connection with or by reason of (including,
without limitation, in connection with any investigation, litigation or
proceeding or preparation of a defense in connection therewith) (i) the Loan
Documents, any of the transactions contemplated herein or the actual or proposed
use of the proceeds of the Advances or (ii) the actual or alleged presence of
Environmental Substances on any property of any Borrower or any of its
Subsidiaries or any Environmental Claim relating in any way to any Borrower or
any of its Subsidiaries, except to the extent such claim, damage, loss,
liability or expense is found in a final, non-appealable judgment by a court of
competent jurisdiction to have resulted from such Indemnified Party's gross
negligence or willful misconduct. In the case of an investigation, litigation or
other proceeding to which the indemnity in this Section 8.04(b) applies, such
indemnity shall be effective whether or not such investigation, litigation or
proceeding is brought by a Borrower, its directors, shareholders or creditors or
an Indemnified Party or any other Person or any Indemnified Party is otherwise a
party thereto and whether or not the transactions contemplated hereby are
consummated. The Borrowers also agree that no Indemnified Party shall have any
liability (whether direct or indirect, in contract, tort or otherwise) to the
Borrowers or any of their shareholders or creditors for or in connection with
the transactions contemplated hereby, except to the extent such liability is
found in a final nonappealable judgment by a court of competent jurisdiction to
have resulted from such Indemnified Party's gross negligence or willful
misconduct.
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(c) If any payment of principal of, or Conversion of, any Eurodollar
Rate Advance, LIBO Rate Advance is made by any Borrower to or for the account of
a Lender other than on the last day of the Interest Period for such Advance, as
a result of a payment or Conversion pursuant to Section 2.08(d) or (e), 2.10 or
2.12, acceleration of the maturity of the Notes pursuant to Section 6.01 or for
any other reason, or by an Eligible Assignee to a Lender other than on the last
day of the Interest Period for such Advance upon an assignment of rights and
obligations under this Agreement pursuant to Section 8.07 as a result of a
demand by the Borrowers pursuant to Section 8.07(a), such Borrower shall, upon
demand by such Lender (with a copy of such demand to the Agent), pay to the
Agent for the account of such Lender any amounts required to compensate such
Lender for any additional losses, costs or expenses that it may reasonably incur
as a result of such payment or Conversion, including, without limitation, any
loss (including loss of anticipated profits), cost or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by any
Lender to fund or maintain such Advance.
(d) Without prejudice to the survival of any other agreement of the
Borrowers hereunder, the agreements and obligations of the Borrowers contained
in Sections 2.11, 2.14 and 8.04 shall survive the payment in full of principal,
interest and all other amounts payable hereunder and under the other Loan
Documents.
SECTION 8.05. Right of Set-off. Upon (i) the occurrence and during
the continuance of any Event of Default and (ii) the making of the request or
the granting of the consent specified by Section 6.01 to authorize the Agent to
declare the Notes due and payable pursuant to the provisions of Section 6.01,
each Lender and each of its Affiliates is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Lender or such
Affiliate to or for the credit or the account of any Borrower against any and
all of the obligations of such Borrower now or hereafter existing under this
Agreement and the Note held by such Lender, whether or not such Lender shall
have made any demand under this Agreement or such Note and although such
obligations may be unmatured. Each Lender agrees promptly to notify such
Borrower after any such set-off and application, provided that the failure to
give such notice shall not affect the validity of such set-off and application.
The rights of each Lender and its Affiliates under this Section are in addition
to other rights and remedies (including, without limitation, other rights of
set-off) that such Lender and its Affiliates may have.
SECTION 8.06. Binding Effect. This Agreement shall become effective
(other than Sections 2.01 and 2.03, which shall only become effective upon
satisfaction of the conditions precedent set forth in Section 3.01) when it
shall have been executed by the Borrowers and the Agent and when the Agent shall
have been notified by each Initial Lender that such Initial Lender has executed
it and thereafter shall be binding upon and inure to the benefit of the
Borrowers, the Agent and each Lender and their respective successors and
assigns, except that no Borrower shall have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Lenders.
SECTION 8.07. Assignments and Participations. (a) Each Lender may
and, if demanded by the Borrowers (following a demand by such Lender pursuant to
Section 2.11 or 2.14) upon at least five Business Days' notice to such Lender
and the Agent, will assign to one or more Persons all or a portion of its rights
and obligations under this Agreement (including, without limitation, all or a
portion of its Commitment, the Revolving Credit Advances owing to it and the
Revolving Credit Note or Notes held by it) with the consent of the Borrowers,
which consent shall not be unreasonably withheld or delayed; provided,
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however, that (i) each such assignment shall be of a constant, and not a
varying, percentage of all rights and obligations under this Agreement (other
than any right to make Competitive Bid Advances, Competitive Bid Advances owing
to it and Competitive Bid Notes), (ii) except in the case of an assignment to a
Person that, immediately prior to such assignment, was a Lender or an assignment
of all of a Lender's rights and obligations under this Agreement, the amount of
the Commitment of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $5,000,000, (iii)
each such assignment shall be to an Eligible Assignee, (iv) each such assignment
made as a result of a demand by the Borrowers pursuant to this Section 8.07(a)
shall be arranged by the Borrowers after consultation with the Agent and shall
be either an assignment of all of the rights and obligations of the assigning
Lender under this Agreement or an assignment of a portion of such rights and
obligations made concurrently with another such assignment or other such
assignments that together cover all of the rights and obligations of the
assigning Lender under this Agreement, (v) no Lender shall be obligated to make
any such assignment as a result of a demand by the Borrowers pursuant to this
Section 8.07(a) unless and until such Lender shall have received one or more
payments from either the Borrowers or one or more Eligible Assignees in an
aggregate amount at least equal to the aggregate outstanding principal amount of
the Advances owing to such Lender, together with accrued interest thereon to the
date of payment of such principal amount and all other amounts payable to such
Lender under this Agreement, and (vi) the parties to each such assignment shall
execute and deliver to the Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with any Revolving Credit Note
subject to such assignment and a processing and recordation fee of $3,000.
(b) Each Issuing Bank may assign to one or more Eligible Assignees
all or a portion of its rights and obligations under the undrawn portion of its
Letter of Credit Commitment at any time; provided, however, that (i) except in
the case of an assignment to a Person that immediately prior to such assignment
was an Issuing Bank or an assignment of all of an Issuing Bank's rights and
obligations under this Agreement, the amount of the Letter of Credit Commitment
of the assigning Issuing Bank being assigned pursuant to each such assignment
(determined as of the date of the Assignment and Acceptance with respect to such
assignment) shall in no event be less than $5,000,000 and shall be in an
integral multiple of $1,000,000 in excess thereof, (ii) each such assignment
shall be to an Eligible Assignee, and (iii) the parties to each such assignment
shall execute and deliver to the Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with a processing and
recordation fee (unless paid pursuant to Section 8.07(a)) of $2,000 for each
Assignment and Acceptance between an Issuing Bank and its Affiliate or another
Issuing Bank or $3,000 for each other Assignment and Acceptance.
(c) Upon such execution, delivery, acceptance and recording, from
and after the effective date specified in each Assignment and Acceptance, (x)
the assignee thereunder shall be a party hereto and, to the extent that rights
and obligations hereunder have been assigned to it pursuant to such Assignment
and Acceptance, have the rights and obligations of a Lender or an Issuing Bank,
as the case may be, hereunder and (y) the Lender or Issuing Bank assignor
thereunder shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under this Agreement (and, in the case of
an Assignment and Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto).
(d) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as
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follows: (i) other than as provided in such Assignment and Acceptance, such
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Loan
Documents or any other instrument or document furnished pursuant hereto; (ii)
such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrowers or the
performance or observance by any Borrower of any of its obligations under the
Loan Documents or any other instrument or document furnished pursuant hereto;
(iii) such assignee confirms that it has received a copy of this Agreement,
together with copies of the financial statements referred to in Section 4.01 and
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and Acceptance;
(iv) such assignee will, independently and without reliance upon the Agent, such
assigning Lender or any other Lender and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement; (v) such assignee
confirms that it is an Eligible Assignee; (vi) such assignee appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers and discretion under this Agreement as are delegated to the Agent by
the terms hereof, together with such powers and discretion as are reasonably
incidental thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all of the obligations that by the terms of this
Agreement are required to be performed by it as a Lender.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together with any Revolving Credit Note or Notes subject to such assignment, the
Agent shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit C hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Borrowers.
(f) The Agent shall maintain at its address referred to in Section
8.02 a copy of each Assumption Agreement and each Assignment and Acceptance
delivered to and accepted by it and a register for the recordation of the names
and addresses of the Lenders and the Commitment of, and principal amount of the
Advances owing to, each Lender from time to time (the "Register"). The entries
in the Register shall be conclusive and binding for all purposes, absent
manifest error, and the Borrowers, the Agent and the Lenders may treat each
Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrowers or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(g) Each Lender may sell participations to one or more banks or
other entities (other than a Borrower or any of its Affiliates) in or to all or
a portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment, the Advances owing to it and any
Note or Notes held by it); provided, however, that (i) such Lender's obligations
under this Agreement (including, without limitation, its Commitment to the
Borrowers hereunder) shall remain unchanged and such Lender agrees that it will
not raise (and hereby expressly waives) any defense relating to any such
participation, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) such Lender shall
remain the holder of any such Note for all purposes of this Agreement, (iv) the
Borrowers, the Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, (v) no participant under any such
participation shall have any right to approve any amendment or waiver of any
provision of this Agreement or any Note, or any consent to any departure by any
Borrower therefrom, except to the extent that such amendment, waiver or consent
would reduce the principal of, or interest on, the Notes
50
<PAGE>
or any fees or other amounts payable hereunder, in each case to the extent
subject to such participation, or postpone any date fixed for any payment of
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, in each case to the extent subject to such participation and (vi)
such Lender shall not permit its direct or indirect participants to further
assign or participate its interest.
(h) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.07, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrowers furnished to such Lender
by or on behalf of the Borrowers; provided that, prior to any such disclosure,
the assignee or participant or proposed assignee or participant shall agree to
preserve the confidentiality of any Confidential Information relating to the
Borrowers received by it from such Lender.
(i) Notwithstanding any other provision set forth in this Agreement,
any Lender may at any time create a security interest in all or any portion of
its rights under this Agreement (including, without limitation, the Advances
owing to it and any Note or Notes held by it) in favor of any Federal Reserve
Bank in accordance with Regulation A of the Board of Governors of the Federal
Reserve System.
SECTION 8.08. Confidentiality. Neither the Agent nor any Lender
shall disclose any Confidential Information to any other Person without the
consent of the Borrowers, other than (a) to the Agent's or such Lender's
Affiliates and their officers, directors, employees, agents and advisors and, as
contemplated by Section 8.07(h), to actual or prospective assignees and
participants, and then only on a confidential basis, (b) as required by any law,
rule or regulation or judicial process and (c) as requested or required by any
state, federal or foreign authority or examiner regulating banks or banking.
SECTION 8.09. No Liability of the Issuing Banks. The Borrower
assumes all risks of the acts or omissions of any beneficiary or transferee of
any Letter of Credit with respect to its use of such Letter of Credit. Neither
any Issuing Bank nor any of its officers or directors shall be liable or
responsible for: (a) the use that may be made of any Letter of Credit or any
acts or omissions of any beneficiary or transferee in connection therewith; (b)
the validity, sufficiency or genuineness of documents, or of any endorsement
thereon, even if such documents should prove to be in any or all respects
invalid, insufficient, fraudulent or forged; (c) payment by such Issuing Bank
against presentation of documents that do not comply with the terms of a Letter
of Credit, including failure of any documents to bear any reference or adequate
reference to the Letter of Credit, unless such documents are substantially
different from the applicable form specified by such Letter of Credit; or (d)
any other circumstances whatsoever in making or failing to make payment under
any Letter of Credit, except that the applicable Borrower shall have a claim
against such Issuing Bank, and such Issuing Bank shall be liable to such
Borrower, to the extent of any direct, but not consequential, damages suffered
by such Borrower that such Borrower proves were caused by (i) such Issuing
Bank's willful misconduct or gross negligence in determining whether documents
presented under any Letter of Credit comply with the terms of the Letter of
Credit or (ii) such Issuing Bank's willful failure to make lawful payment under
a Letter of Credit after the presentation to it of a draft and certificates
strictly complying with the terms and conditions of the Letter of Credit. In
furtherance and not in limitation of the foregoing, such Issuing Bank may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary.
SECTION 8.10. Governing Law. This Agreement and the Notes shall be
governed by, and construed in accordance with, the laws of the State of New
York.
SECTION 8.11. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the
51
<PAGE>
same agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 8.12. Waiver of Jury Trial. Each of the Borrowers, the Agent
and the Lenders hereby irrevocably waives all right to trial by jury in any
action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this Agreement or the Notes or the
actions of the Agent or any Lender in the negotiation, administration,
performance or enforcement thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
SCHOLASTIC CORPORATION
By /s/ Ray Marchuk
-----------------------------------------
Title: VP Finance & Investor Relations
SCHOLASTIC INC.
By /s/ Ray Marchuk
-----------------------------------------
Title: VP Finance & Investor Relations
CITIBANK, N.A.,
as Agent
By /s/ Robert D. Wetrus
-----------------------------------------
Title: Managing Director & Vice President
Initial Lenders
CITIBANK, N.A.
By /s/ Diane L. Pockaj
-----------------------------------------
Title: Vice President
THE CHASE MANHATTAN BANK
By /s/ Leonard Noll
-----------------------------------------
Title: Vice President
FLEET BANK, N.A.
52
<PAGE>
By /s/ Greg Miller
-----------------------------------------
Title: Assistant Vice President
SUMMIT BANK
By /s/ Carter Evans
-----------------------------------------
Title: Vice President
UMB BANK, N.A.
By /s/ Kent Workman
-----------------------------------------
Title: Executive Vice President
HSBC BANK USA
By /s/ William M. Holland
-----------------------------------------
Title: Vice President
53
<PAGE>
SCHEDULE I
COMMITMENTS AND APPLICABLE LENDING OFFICES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Name of Initial Revolving Letter of Domestic Lending Office Eurodollar Lending Office
Lender Credit Credit
Commitment Commitment
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Citibank, N.A. $35,000,000 $10,000,000 399 Park Avenue 399 Park Avenue
New York, NY 10043 New York, NY 10043
Attn: Diane Pockaj Attn: Diane Pockaj
T: (212) 559-4649 T: (212) 559-4649
F: (212) 793-0289 F: (212) 793-0289
- ----------------------------------------------------------------------------------------------------------------------
The Chase Manhattan $35,000,000 E. 36 Midland Avenue E. 36 Midland Avenue
Bank Paramus, NJ 07652 Paramus, NJ 07652
Attn: Roseann Bernardone Attn: Roseann Bernardone
T: (201) 599-6681 T: (201) 599-6681
F: (201) 599-6672 F: (201) 599-6672
- ----------------------------------------------------------------------------------------------------------------------
Fleet Bank, N.A. $35,000,000 1185 Avenue of the Americas 1185 Avenue of the Americas
New York, NY 10036 New York, NY 10036
Attn: Robert Bloch Attn: Robert Bloch
T: (212) 819-5738 T: (212) 819-5738
F: (212) 819-4114 F: (212) 819-4114
- ----------------------------------------------------------------------------------------------------------------------
Summit Bank $35,000,000 750 Walnut Avenue 750 Walnut Avenue
Cranford, NJ 07016 Cranford, NJ 07016
Attn: Carter Evans Attn: Carter Evans
T: (908) 709-6421 T: (908) 709-6421
F: (908) 709-6433 F: (908) 709-6433
- ----------------------------------------------------------------------------------------------------------------------
UMB Bank, n.a. $20,000,000 1010 Grand Avenue 1010 Grand Avenue
Kansas City, MO Kansas City, MO
64141-6226 64141-6226
Attn: Kent Workman Attn: Kent Workman
T: (816) 860-7934 T: (816) 860-7934
F: (816) 860-4838 F: (816) 860-4838
- ----------------------------------------------------------------------------------------------------------------------
HSBC Bank USA $10,000,000 1 HSBC Center 1 HSBC Center
Buffalo, NY 14203 Buffalo, NY 14203
Attn: Marie Sax Attn: Marie Sax
T: (716) 841-5668 T: (716) 841-5668
F: (716) 841-0269 F: (716) 841-0269
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 4.01(i)
SCHOLASTIC CORPORATION
LIST OF SUBSIDIARIES
DOMESTIC SUBSIDIARIES STATE OF INCORPORATION
- --------------------- ----------------------
Scholastic Inc. New York
Scholastic Entertainment Inc. New York
(formerly Scholastic Productions Inc.)
Children's Music Library, Inc. New York
(a subsidiary of Weston Woods Studios, Inc.)
Lectorum Publications, Inc. New York
Scholastic Book Services, Inc. Delaware
SE Distribution Inc. Delaware
(a subsidiary of Scholastic Entertainment Inc.)
Scholastic UK Group Ltd. Delaware
(formerly Scholastic Publications (Magazines), Ltd.)
Weston Woods Studios, Inc. Delaware
Georgetown Studios, Inc. Connecticut
(a subsidiary of Weston Woods Studios, Inc.)
The Electronic Bookshelf, Inc. Indiana
Scholastic Book Clubs, Inc. Missouri
FOREIGN SUBSIDIARIES JURISDICTION
- -------------------- ------------
Scholastic Australia Pty. Ltd. Australia
Bookshelf Publishing Australia Pty. Ltd. Australia
Troll School Book Clubs and Fairs Australia Pty. Ltd. Australia
Scholastic Australia Superannuation Pty. Ltd. Australia
Scholastic Executive Superannuation Pty. Ltd. Australia
Oldmeadow Booksellers (Aust.) Pty. Ltd. Australia
Scholastic (Barbados), Inc. Barbados
Scholastic Canada Ltd. Canada
Scholastic Productions Canada Ltd. Canada
Scholastic Book Fairs Canada Inc. Canada
Scholastic Ltd. England
School Book Fairs Ltd. England
Scholastic Book Clubs Ltd. England
Red House Books Ltd. England
Scholastic Publication Ltd. England
Scholastic Educational Magazines Ltd. England
Red House Book Clubs Ltd. England
Scholastic Hong Kong Limited Hong Kong
Scholastic Book Fairs Ltd. Ireland
Scholastic India Private Limited India
Scholastic Mexico, S.A. de C.V. Mexico
Scholastic New Zealand Ltd. New Zealand
(formerly known as Ashton Scholastic Ltd.)
<PAGE>
SCHEDULE 5.02(a)
EXISTING LIENS AND ENCUMBRANCES
1) An Operating Overdraft Agreement was entered into on September 12, 1994
between Scholastic Canada Ltd. ("SCL") and Canadian Imperial Bank of
Commerce has a negative pledge that SCL cannot give security over any of
its assets to any other lender.
2) In 1983, the City of Jefferson, Missouri provided financing to Scholastic
Inc. through the issuance of Industrial Revenue bonds to complete a
substantial addition to its national distribution center in Jefferson
City, Missouri. These Bonds were renegotiated in March 1992. Scholastic
has issued to the Bond Trustee an unconditional guarantee of principal and
interest. Land acquired in Jefferson City, Missouri, during f/y 1982, a
building at Scholastic's national distribution center and certain
equipment are pledged as security.
3) In December 1993, Scholastic entered into an agreement pursuant to which
the IDA provides Scholastic with financial assistance through the issuance
of IDA Bonds in connection with the purchase of furniture, fixtures and
equipment for use at Scholastic's headquarters at 555 Broadway, New York,
New York. In connection with such financial assistance, Scholastic has
granted the IDA a security interest in such furniture, fixtures and
equipment.
<PAGE>
EXHIBIT A-1 - FORM OF
REVOLVING CREDIT
PROMISSORY NOTE
Dated: _______________, 199_
FOR VALUE RECEIVED, the undersigned, [NAME OF BORROWER], a
_________________________ corporation (the "Borrower"), HEREBY PROMISES TO PAY
to the order of _________________________ (the "Lender") for the account of its
Applicable Lending Office on the Termination Date (each as defined in the Credit
Agreement referred to below) the aggregate principal amount of the Revolving
Credit Advances made by the Lender to the Borrower pursuant to the Credit
Agreement dated as of August 11, 1999 among the Borrower, [Scholastic
Corporation][Scholastic Inc.], the Lender and certain other lenders parties
thereto, Salomon Smith Barney Inc., as arranger, The Chase Manhattan Bank and
Fleet Bank, N.A., as syndication agents, and Citibank, N.A. as Agent for the
Lender and such other lenders (as amended or modified from time to time, the
"Credit Agreement"; the terms defined therein being used herein as therein
defined) outstanding on the Termination Date.
The Borrower promises to pay interest on the unpaid principal amount
of each Revolving Credit Advance from the date of such Revolving Credit Advance
until such principal amount is paid in full, at such interest rates, and payable
at such times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America to Citibank, as Agent, at 399 Park Avenue, New York,
New York 10043, in same day funds. Each Revolving Credit Advance owing to the
Lender by the Borrower pursuant to the Credit Agreement, and all payments made
on account of principal thereof, shall be recorded by the Lender and, prior to
any transfer hereof, endorsed on the grid attached hereto which is part of this
Promissory Note.
This Promissory Note is one of the Revolving Credit Notes referred
to in, and is entitled to the benefits of, the Credit Agreement. The Credit
Agreement, among other things, (i) provides for the making of Revolving Credit
Advances by the Lender to the Borrower from time to time, the indebtedness of
the Borrower resulting from each such Revolving Credit Advance being evidenced
by this Promissory Note and (ii) contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
The Borrower hereby waives presentment, demand, protest and notice
of any kind. No failure to exercise, and no delay in exercising, any rights
hereunder on the part of the holder hereof shall operate as a waiver of such
rights.
[NAME OF BORROWER]
By____________________________
Title:
<PAGE>
ADVANCES AND PAYMENTS OF PRINCIPAL
================================================================================
Amount of
Amount of Principal Paid Unpaid Principal Notation
Date Advance or Prepaid Balance Made By
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<PAGE>
EXHIBIT A-2 - FORM OF
COMPETITIVE BID
PROMISSORY NOTE
U.S.$_______________ Dated: _______________, 199_
FOR VALUE RECEIVED, the undersigned, [NAME OF BORROWER], a
_________________________ corporation (the "Borrower"), HEREBY PROMISES TO PAY
to the order of _________________________ (the "Lender") for the account of its
Applicable Lending Office (as defined in the Credit Agreement dated as of August
11, 1999 among the Borrower, [Scholastic Corporation] [Scholastic Inc.], the
Lender and certain other lenders parties thereto, Salomon Smith Barney Inc., as
arranger, The Chase Manhattan Bank and Fleet Bank, N.A., as syndication agents,
and Citibank, N.A., as Agent for the Lender and such other lenders (as amended
or modified from time to time, the "Credit Agreement"; the terms defined therein
being used herein as therein defined)), on _______________, 199_, the principal
amount of U.S.$_______________].
The Borrower promises to pay interest on the unpaid principal amount
hereof from the date hereof until such principal amount is paid in full, at the
interest rate and payable on the interest payment date or dates provided below:
Interest Rate: _____% per annum (calculated on the basis of a year of
_____ days for the actual number of days elapsed).
Both principal and interest are payable in lawful money of
________________ to Citibank, as agent, for the account of the Lender at the
office of _________________________, at _________________________ in same day
funds.
This Promissory Note is one of the Competitive Bid Notes referred to
in, and is entitled to the benefits of, the Credit Agreement. The Credit
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events.
The Borrower hereby waives presentment, demand, protest and notice
of any kind. No failure to exercise, and no delay in exercising, any rights
hereunder on the part of the holder hereof shall operate as a waiver of such
rights.
This Promissory Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
[NAME OF BORROWER]
By_______________________________
Title:
<PAGE>
EXHIBIT B-1 - FORM OF NOTICE OF
REVOLVING CREDIT BORROWING
Citibank, N.A., as Agent
for the Lenders parties
to the Credit Agreement
referred to below
Two Penns Way
New Castle, Delaware 19720
[Date]
Attention: Bank Loan Syndications Department
Ladies and Gentlemen:
The undersigned, [Name of Borrower], refers to the Credit Agreement,
dated as of August 11, 1999 (as amended or modified from time to time, the
"Credit Agreement", the terms defined therein being used herein as therein
defined), among the undersigned,[Scholastic Corporation][Scholastic Inc.],
certain Lenders parties thereto, Salomon Smith Barney Inc., as arranger, The
Chase Manhattan Bank and Fleet Bank, N.A., as syndication agents, and Citibank,
N.A., as Agent for said Lenders, and hereby gives you notice, irrevocably,
pursuant to Section 2.02 of the Credit Agreement that the undersigned hereby
requests a Revolving Credit Borrowing under the Credit Agreement, and in that
connection sets forth below the information relating to such Revolving Credit
Borrowing (the "Proposed Revolving Credit Borrowing") as required by Section
2.02(a) of the Credit Agreement:
(i) The Business Day of the Proposed Revolving Credit Borrowing is
_______________, 199_.
(ii) The Type of Advances comprising the Proposed Revolving Credit
Borrowing is [Base Rate Advances] [Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed Revolving Credit
Borrowing is $_______________.
[(iv) The initial Interest Period for each Eurodollar Rate Advance
made as part of the Proposed Revolving Credit Borrowing is _____
month[s].]
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed Revolving
Credit Borrowing:
(A) the representations and warranties contained in Section 4.01 of
the Credit Agreement are correct, before and after giving effect to the
Proposed Revolving Credit Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date; and
<PAGE>
(B) no event has occurred and is continuing, or would result from
such Proposed Revolving Credit Borrowing or from the application of the
proceeds therefrom, that constitutes a Default.
Very truly yours,
[NAME OF BORROWER]
By________________________________
Title:
<PAGE>
EXHIBIT B-2 - FORM OF NOTICE OF
COMPETITIVE BID BORROWING
Citibank, N.A., as Agent
for the Lenders parties
to the Credit Agreement
referred to below
Two Penns Way
New Castle, Delaware 19720
[Date]
Attention: Bank Loan Syndications Department
Ladies and Gentlemen:
The undersigned, [Name of Borrower], refers to the Credit Agreement,
dated as of August 11, 1999 (as amended or modified from time to time, the
"Credit Agreement", the terms defined therein being used herein as therein
defined), among the undersigned,[Scholastic Corporation][Scholastic Inc.],
certain Lenders parties thereto, Salomon Smith Barney Inc., as arranger, The
Chase Manhattan Bank and Fleet Bank, N.A., as syndication agents, and Citibank,
N.A., as Agent for said Lenders, and hereby gives you notice, irrevocably,
pursuant to Section 2.03 of the Credit Agreement that the undersigned hereby
requests a Competitive Bid Borrowing under the Credit Agreement, and in that
connection sets forth the terms on which such Competitive Bid Borrowing (the
"Proposed Competitive Bid Borrowing") is requested to be made:
(A) Date of Competitive Bid Borrowing ________________________
(B) Amount of Competitive Bid Borrowing ________________________
(C) [Maturity Date] [Interest Period] ________________________
(D) Interest Rate Basis ________________________
(E) Interest Payment Date(s) ________________________
(F) ___________________ ________________________
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed
Competitive Bid Borrowing:
(a) the representations and warranties contained in Section 4.01 are
correct, before and after giving effect to the Proposed Competitive Bid
Borrowing and to the application of the proceeds therefrom, as though made
on and as of such date;
(b) no event has occurred and is continuing, or would result from
the Proposed Competitive Bid Borrowing or from the application of the
proceeds therefrom, that constitutes a Default; and
(c) the aggregate amount of the Proposed Competitive Bid Borrowing
and all other Borrowings to be made on the same day under the Credit
Agreement is within the aggregate amount of the unused Commitments of the
Lenders.
The undersigned hereby confirms that the Proposed Competitive Bid
Borrowing is to be made available to it in accordance with Section 2.03(a)(v) of
the Credit Agreement.
Very truly yours,
<PAGE>
[NAME OF BORROWER]
By______________________________
Title:
<PAGE>
EXHIBIT C - FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of August 11,
1999 (as amended or modified from time to time, the "Credit Agreement") among
Scholastic Corporation, a Delaware corporation, and Scholastic Inc.,, a New York
corporation (the "Borrowers"), the Lenders (as defined in the Credit Agreement),
Salomon Smith Barney Inc., as arranger, The Chase Manhattan Bank and Fleet Bank,
N.A., as syndication agents, and Citibank, N.A., as administrative agent for the
Lenders (the "Agent"). Terms defined in the Credit Agreement are used herein
with the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule I hereto
agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, an interest in and to
the Assignor's rights and obligations under the Credit Agreement as of the date
hereof (other than in respect of Competitive Bid Advances and Competitive Bid
Notes) equal to the percentage interest specified on Schedule 1 hereto of all
outstanding rights and obligations under the Credit Agreement (other than in
respect of Competitive Bid Advances and Competitive Bid Notes). After giving
effect to such sale and assignment, the Assignee's Commitment and the amount of
the Revolving Credit Advances owing to the Assignee will be as set forth on
Schedule 1 hereto.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Loan Documents or any other instrument or document furnished
pursuant thereto; (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrowers or the
performance or observance by any Borrower of any of its obligations under any
Loan Document or any other instrument or document furnished pursuant thereto;
and (iv) attaches the Revolving Credit Note, if any held by the Assignor [and
requests that the Agent exchange such Revolving Credit Note for a new Revolving
Credit Note payable to the order of [the Assignee in an amount equal to the
Commitment assumed by the Assignee pursuant hereto or new Revolving Credit Notes
payable to the order of the Assignee in an amount equal to the Commitment
assumed by the Assignee pursuant hereto and] the Assignor in an amount equal to
the Commitment retained by the Assignor under the Credit Agreement,
[respectively,] as specified on Schedule 1 hereto.
3. The Assignee (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 4.01 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment and Acceptance; (ii) agrees that it will, independently and
without reliance upon the Agent, the Assignor or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv)
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers and discretion under the Loan Documents as are delegated
to the Agent by the terms thereof, together with such powers and discretion as
are reasonably incidental thereto; (v) agrees that it will perform in accordance
with their terms all of the obligations that by the terms of the Credit
Agreement are required to be performed by it as a Lender; and (vi) attaches any
U.S. Internal Revenue Service forms required under Section 2.14 of the Credit
Agreement.
<PAGE>
4. Following the execution of this Assignment and Acceptance, it
will be delivered to the Agent for acceptance and recording by the Agent. The
effective date for this Assignment and Acceptance (the "Effective Date") shall
be the date of acceptance hereof by the Agent, unless otherwise specified on
Schedule 1 hereto.
5. Upon such acceptance and recording by the Agent, as of the
Effective Date, (i) the Assignee shall be a party to the Credit Agreement and,
to the extent provided in this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Agent, from and after
the Effective Date, the Agent shall make all payments under the Credit Agreement
and the Revolving Credit Notes in respect of the interest assigned hereby
(including, without limitation, all payments of principal, interest and facility
fees with respect thereto) to the Assignee. The Assignor and Assignee shall make
all appropriate adjustments in payments under the Credit Agreement and the
Revolving Credit Notes for periods prior to the Effective Date directly between
themselves.
7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of New York.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall
be effective as delivery of a manually executed counterpart of this Assignment
and Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused
Schedule 1 to this Assignment and Acceptance to be executed by their officers
thereunto duly authorized as of the date specified thereon.
<PAGE>
Schedule 1
to
Assignment and Acceptance
Percentage interest assigned: _____%
Assignee's Commitment: __________
Aggregate outstanding principal amount of Revolving
Credit Advances assigned: $__________
Principal amount of Revolving Credit Note payable
to Assignee: $__________
Principal amount of Revolving Credit Note payable
to Assignor: $__________
Effective Date*: _______________, 199_
[NAME OF ASSIGNOR], as Assignory
By__________________________________________
Title:
Dated: _______________, 199_
[NAME OF ASSIGNEE], as Assignee
By__________________________________________
Title:
Dated: _______________, 199_
Domestic Lending Office:
[Address]
Eurodollar Lending Office:
[Address]
- ----------
* This date should be no earlier than five Business Days after the delivery
of this Assignment and Acceptance to the Agent
<PAGE>
Accepted this
____ day of _______________, 199_
CITIBANK, N.A., as Agent
By__________________________________________
Title:
Approved this ___ day
of _______________, 199_
SCHOLASTIC CORPORATION
By__________________________________________
Title:
SCHOLASTIC INC.
By__________________________________________
Title:
<PAGE>
[Letterhead of
Charles B. Duell
of Scholastic, Inc.]
August 11, 1999
To each of the Lenders parties
to the Credit Agreement dated
as of August 11, 1999
among Scholastic Corporation, Scholastic Inc.,
said Lenders and Citibank, N.A.,
as Agent for said Lenders, and
to Citibank, N.A., as Agent
Scholastic Corporation and Scholastic Inc.
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 3.01(h)(iv) of
the Credit Agreement, dated as of August 11, 1999 (the "Credit Agreement"),
among Scholastic Corporation and Scholastic Inc.(the "Borrowers"), the Lenders
parties thereto, Salomon Smith Barney Inc., as arranger, The Chase Manhattan
Bank and Fleet Bank, N.A., as syndication agents, and Citibank, N.A., as Agent
for said Lenders. Terms defined in the Credit Agreement are used herein as
therein defined.
I have acted as counsel for the Borrowers in connection with the
preparation, execution and delivery of the Credit Agreement.
In that connection, I have examined:
(1) The Credit Agreement.
(2) The documents furnished by the Borrowers pursuant to Article III
of the Credit Agreement.
(3) The Certificate of Incorporation of each Borrower and all
amendments thereto (the "Charter").
(4) The by-laws of each Borrower and all amendments thereto (the
"By-laws").
(5) A certificate of the Secretary of State of Delaware, dated
August , 1999, attesting to the continued corporate existence and
good standing of the Holding Company in that State.
(5) A certificate of the Secretary of State of New York, dated
August , 1999 attesting to the continued corporate existence and
good standing of the Operating Company in that State.
<PAGE>
I have also examined the originals, or copies certified to our satisfaction, of
the documents listed in certificates of the chief financial officers of the
Borrowers, dated the date hereof (the "Certificates"), certifying that the
documents listed in such certificate are all of the indentures, loan or credit
agreements, leases, guarantees, mortgages, security agreements, bonds, notes and
other agreements or instruments, and all of the orders, writs, judgments,
awards, injunctions and decrees, that affect or purport to affect such
Borrower's right to borrow money or such Borrower's obligations under the Credit
Agreement or the Notes. In addition, I have examined the originals, or copies
certified to our satisfaction, of such other corporate records of the Borrowers,
certificates of public officials and of officers of the Borrowers, and
agreements, instruments and other documents, as I have deemed necessary as a
basis for the opinions expressed below. As to questions of fact material to such
opinions, I have, when relevant facts were not independently established by us,
relied upon certificates of the Borrowers or their officers or of public
officials. I have assumed the due execution and delivery, pursuant to due
authorization, of the Credit Agreement by the Initial Lenders and the Agent.
My opinions expressed below are limited to the law of the State of
New York, the General Corporation Law of the State of Delaware and the Federal
law of the United States.
Based upon the foregoing and upon such investigation as I have
deemed necessary, I am of the following opinion:
1. Each Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the State of its incorporation.
2. The execution, delivery and performance by each Borrower of the
Credit Agreement and the Notes to which it is a party, and the
consummation of the transactions contemplated thereby, are within such
Borrower's corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (i) the Charter or the By-laws of
such Borrower or (ii) any law, rule or regulation applicable to such
Borrower (including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System) or (iii) any contractual or legal
restriction contained in any indentures, loan or credit agreements,
leases, guarantees, mortgages, security agreements, bonds, notes and other
agreements or instruments, or any orders, writs, judgments, awards,
injunctions and decrees, that affect or purport to affect such Borrower's
right to borrow money or such Borrower's obligations under the Credit
Agreement or the Notes. The Credit Agreement and the Notes have been duly
executed and delivered on behalf of each Borrower.
3. No authorization, approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is required for the due execution, delivery and performance by
any Borrower of the Credit Agreement and the Notes to which it is a party.
4. The Credit Agreement is, and after giving effect to the initial
Borrowing, the Notes to which it is a party will be, legal, valid and
binding obligations of each Borrower enforceable against such Borrower in
accordance with their respective terms.
5. To the best of my knowledge, there are no pending or overtly
threatened actions or proceedings against any Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator that
purport to affect the legality, validity, binding effect or enforceability
of the Credit Agreement or any of the Notes or the consummation of the
transactions contemplated thereby or that are likely to have a Material
Adverse Effect.
The opinions set forth above are subject to the following
qualifications:
<PAGE>
(a) My opinion in paragraph 4 above as to enforceability is subject
to the effect of any applicable bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar law affecting creditors' rights generally.
(b) My opinion in paragraph 4 above as to enforceability is subject
to the effect of general principles of equity, including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing (regardless of whether considered in a proceeding in equity or at
law).
(c) I express no opinion as to (i) Section 2.14 of the Credit
Agreement insofar as it provides that any Lender purchasing a
participation from another Lender pursuant thereto may exercise set-off or
similar rights with respect to such participation and (ii) the effect of
the law of any jurisdiction other than the State of New York wherein any
Lender may be located or wherein enforcement of the Credit Agreement or
the Notes may be sought that limits the rates of interest legally
chargeable or collectible.
Very truly yours,
/s/ Charles Deull
<PAGE>
EXHIBIT E - FORM OF FINANCIAL
COVENANTS COMPLIANCE CERTIFICATE
FINANCIAL COVENANTS COMPLIANCE CERTIFICATE
respecting
SCHOLASTIC CORPORATION
and
SCHOLASTIC INC.
[MONTH and DATE], 19
Pursuant to the Amended and Restated Credit Agreement dated as of
August 11, 1999 (as the same may be supplemented, modified, amended or restated
from time to time in the manner provided therein, the "Credit Agreement"), the
undersigned, being respectively, the [PRINT TITLE] of Scholastic Corporation and
the [PRINT TITLE] of Scholastic Inc. (individually, a "Borrower" and,
collectively, the "Borrowers"), hereby certify to Citibank, N.A., as Agent (the
"Agent"), and to each of the Lenders, as of the date hereof that:
(a) the representations and warranties contained in Section 4.01 are
correct as though made on and as of the date hereof;
(b) no event has occurred and is continuing that constitutes a
Default; and
(c) attached hereto are the calculations of, and the confirmations
of the Borrowers' compliance with, the financial covenants set forth in
Sections 5.02(e) and 5.03 of the Credit Agreement.
Capitalized terms and non-capitalized words and phrases used and not
otherwise defined in this Certificate shall have the meanings respectively
assigned to them in the Lender and by counsel to the Agent in giving any opinion
or advice requested of such counsel.
____________________________________________
(SIGNATURE)
DATE SIGNED: ___________ ___, 19
____________________________________________
(SIGNATURE)
DATE SIGNED: ___________ ___, 19
<PAGE>
[SHEARMAN & STERLING LETTERHEAD]
August 11, 1999
To the Initial Lenders party to the
Credit Agreement referred
to below and to Citibank, N.A.,
as Agent
Ladies and Gentlemen:
We have acted as special New York counsel to Citibank, N.A., as
Agent, in connection with the preparation, execution and delivery of the Amended
and Restated Credit Agreement dated as of August 11, 1999 (the "Credit
Agreement") among Scholastic Corporation, a Delaware corporation (the "Holding
Company"), Scholastic Inc., a New York corporation (the "Operating Company" and,
together with the Holding Company, the "Borrowers") and each of you. Unless
otherwise defined herein, terms defined in the Credit Agreement are used herein
as therein defined.
In that connection, we have examined a counterpart of the Credit
Agreement executed by the Borrowers, the Notes executed by the respective
Borrowers and delivered on the date hereof (for purposes of this opinion letter,
the "Notes") and, to the extent relevant to our opinion expressed below, the
other documents delivered by the Borrowers pursuant to Section 3.01 of the
Credit Agreement.
In our examination of the Credit Agreement, the Notes and such other
documents, we have assumed, without independent investigation (a) the due
execution and delivery of the Credit Agreement by all parties thereto and of the
Notes by the respective Borrowers, (b) the genuineness of all signatures and (c)
the authenticity of the originals of the documents submitted to us.
In addition, we have assumed, without independent investigation,
that (i) each Borrower is duly organized and validly existing under the laws of
the jurisdiction of its organization and has full power and authority (corporate
and otherwise) to execute, deliver and perform the Credit Agreement and the
Notes to which it is a party and (ii) the execution, delivery and performance by
each Borrower of the Credit Agreement and the Notes to which it
<PAGE>
2
is a party have been duly authorized by all necessary action (corporate or
otherwise) and do not (A) contravene the certificate of incorporation, bylaws or
other constituent documents of any Borrower, (B) conflict with or result in the
breach of any document or instrument binding on any Borrower or (C) violate or
require any governmental or regulatory authorization or other action under any
law, rule or regulation applicable to any Borrower other than New York law or
United Sates Federal law applicable to borrowers generally or, assuming the
correctness of the Borrowers' statements made as representations and warranties
in Section 4.01(d) of the Credit Agreement, applicable to any Borrower. We have
also assumed that the Credit Agreement is the legal, valid and binding
obligation of each Lender, enforceable against such Lender in accordance with
its terms.
Based upon the foregoing examination and assumptions and upon such
other investigation as we have deemed necessary and subject to the
qualifications set forth below, we are of the opinion that the Credit Agreement
and each of the Notes are the legal, valid and binding obligations of each
Borrower party thereto, enforceable against such Borrower in accordance with
their respective terms.
Our opinion above is subject to the following qualifications:
(i) Our opinion above is subject to the effect of any
applicable bankruptcy, insolvency (including, without limitation,
all laws relating to fraudulent transfers), reorganization,
moratorium or similar law affecting creditors' rights generally.
(ii) Our opinion above is also subject to the effect of
general principles of equity, including (without limitation)
concepts of materiality, reasonableness, good faith and fair dealing
(regardless of whether considered in a proceeding in equity or at
law).
(iii) We express no opinion as to the enforceability of the
indemnification provisions set forth in Section 8.04 of the Credit
Agreement to the extent enforcement thereof is contrary to public
policy regarding the exculpation of criminal violations, intentional
harm and acts of gross negligence or recklessness.
(iv) Our opinion above is limited to the law of the State of
New York and the federal law of the Unites States of America and we
do not express any opinion herein concerning any other law. Without
limiting the generality of the foregoing, we express no opinion as
to the effect of the law of a jurisdiction other than the State of
New York wherein any Lender may be located or
<PAGE>
3
wherein enforcement of the Credit Agreement or any of the Notes may
be sought that limits the rates of interest legally chargeable or
collectible.
A copy of this opinion letter may be delivered by any of you to any
Person that becomes a Lender in accordance with the provisions of the Credit
Agreement. Any such Lender may rely on the opinion expressed above as if this
opinion letter were addressed and delivered to such Lender on the date hereof.
This opinion letter speaks only as of the date hereof. We expressly
disclaim any responsibility to advise you or any other Lender who is permitted
to rely on the opinion expressed herein as specified in the next preceding
paragraph of any development or circumstance of any kind including any change of
law or fact that may occur after the date of this opinion letter even though
such development, circumstance or change may affect the legal analysis, a legal
conclusion or any other matter set forth in or relating to this opinion letter.
Accordingly, any Lender relying on this opinion letter at any time should seek
advice of its counsel as to the proper application of this opinion letter at
such time.
Very truly yours,
/s/ Shearman & Sterling
WEH:SLH
EXHIBIT 10.9
SCHOLASTIC CORPORATION 1997 OUTSIDE DIRECTORS'
STOCK OPTION PLAN
(Amended and Restated as of May 25, 1999)
1. Name and General Purpose
The name of this plan is the Scholastic Corporation 1997 Outside
Directors' Stock Option Plan (the "Plan"). The Plan was originally adopted
effective September 16, 1997 and was subsequently amended and restated as of May
25, 1999. The purpose of the Plan is to attract and retain the services, for the
benefit of Scholastic Corporation, a Delaware corporation (the "Company"), of
experienced and knowledgeable directors who are not employees of the Company
("Outside Directors") and to provide an additional incentive for such Outside
Directors through continuing ownership of the common stock, par value $.0l per
share, of the Company (the "Common Stock").
2. Automatic Option Grants to Outside Directors
Subject to the provisions of Section 13 hereof, each individual
(other than any director electing not to participate hereunder) who is, as of
each January 7 (or, if such date is not a business day, as of the next
succeeding business day) occurring after the effective date of the Plan, an
incumbent Outside Director, excluding Directors Emereti, shall automatically be
granted, as of each such January 7 (or, if applicable, the next succeeding
business day), an option to purchase 3,000 shares of Common Stock at a price per
share equal to 100% of the Fair Market Value of the Common Stock on such date.
For purposes of this Section 2, "Fair Market Value" shall mean the
average of the high and low selling prices of the Common Stock on the date on
which the Common Stock is to be valued hereunder, or, if none, on the last
preceding date prior to such date on which such prices were quoted, as reported
by the Automated Quotation System of the National Association of Securities
Dealers, Inc. ("NASDAQ"). All options granted under the Plan shall be
non-qualified stock options.
3. Exercise of Options
Subject to the provisions of Section 5 hereof, an option granted
hereunder may not be exercised within twelve (12) months after the date of
grant.
Except as provided in Section 5 below, an option may be exercised,
in whole or in part at any time and from time to time during the period
beginning with the expiration of twelve months following the date of grant and
ending on the option expiration date, by giving written notice of exercise to
the Company specifying the number of shares of Common Stock to be purchased.
Such notice shall be accompanied by payment in full of the option price, either
in cash or by certified check or bank check or in shares of Common Stock of the
Company (valued at Fair Market Value on the date of exercise), actually or by
attestation, or in any combination thereof. The option price may also be paid by
delivery of an irrevocable
<PAGE>
notice of exercise to the Company and a broker-dealer acceptable to the Company
under such circumstances as the Board of Directors shall authorize.
No shares of Common Stock shall be issued until full payment
therefor has been made. An Outside Director shall have no rights as a
shareholder of the Company with respect to any shares of Common Stock subject to
an option until such time as the Outside Director has properly exercised his or
her option, paid in full for the shares subject to such option and executed any
representations required by the Company.
4. Expiration of Options
Each option granted hereunder shall expire on the tenth anniversary
of the date on which it was granted, if not sooner terminated as provided
herein.
5. Termination of Services of Outside Directors
(a) In the event that an Outside Director to whom an option has been
granted under the Plan shall cease to serve as a Director on the Board of
Directors of the Company, otherwise than by reason of death or disability, such
option may be exercised (to the extent that the Outside Director is entitled to
do so at the time of such option exercise) at any time and from time to time
within six (6) months after such cessation of service, but not thereafter, and
in no event after the date on which, except for such cessation of service, the
option would otherwise expire; provided, however, that, in the event an Outside
Director to whom an option has been granted under the Plan shall cease to serve
on the Board of Directors but shall have been designated as a Director Emeritus,
his or her option shall continue to be exercisable (to the extent his or her
options have become exercisable at the time of such exercise) until six (6)
months after termination of his or her Director Emeritus status or expiration of
the option, whichever occurs first.
(b) In the event that an Outside Director to whom an option has been
granted under the Plan shall cease to serve on the Board of Directors by reason
of disability (as determined by the Board of Directors on the basis of all the
facts and circumstances), such option may be exercised, in full or in part, by
the Outside Director or his or her legally appointed representative
(notwithstanding that the option may not yet otherwise have become exercisable
with respect to all or part of such shares as of the date of disability) at any
time and from time to time within twelve (12) months after such cessation of
service, but not thereafter, and in no event after the date on which, except for
such disability, the option would otherwise expire.
(c) If an Outside Director to whom an option has been granted under the
Plan dies (i) while he or she is serving on the Board of Directors, (ii) within
three (3) months after cessation of service on the Board of Directors other than
by reason of disability, or (iii) within twelve (12) months after cessation of
service on the Board of Directors by reason of disability, such option may be
exercised:
2
<PAGE>
1) in the case of death while serving on the Board of Directors, as
to all or any part of the remaining unexercised portion of the option,
notwithstanding that the option may not yet otherwise have become exercisable
with respect to all or part of such shares as of the date of death;
2) in the case of death after cessation of service on the Board of
Directors or death after termination of such service by reason of disability, to
the extent that the Outside Director was entitled to do so at the date of his or
her death, giving effect to the provisions of subsections (a) and (b) above of
this Section 5; and
3) in each case by the person who acquired the right to exercise
such option by bequest or inheritance or by reason of the death of the Outside
Director, at any time and from time to time within twelve (12) months after the
date of death of the Outside Director, but in no event after the date on which
the option would otherwise expire under Section 4 of the Plan.
4) Notwithstanding the provisions of subsections (b) and (c) above
of this Section 5, in no event shall any option granted under the Plan be
exercisable within six (6) months of the date of grant.
6. Transferability
No option granted under the Plan may be sold, transferred, pledged,
assigned, or otherwise alienated, other than by will or by the laws of descent
and distribution.
7. Shares Reserved
The aggregate number of shares reserved for issuance pursuant to the
Plan shall be 180,000 shares of Common Stock, or the number and kind of shares
of stock or other securities which shall be substituted for such shares or to
which such shares shall be adjusted as provided in Section 8.
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.
Shares subject to, but not sold or issued under, any option
terminating, expiring or cancelled for any reason prior to its exercise in full
will again be available for options thereafter granted during the balance of the
term of the Plan.
8. Adjustments Due to Stock Splits, Mergers, Consolidations, etc.
If, at any time, the Company shall take any action, whether by stock
dividend, stock split, combination of shares, or otherwise, which results in a
proportionate increase or decrease in the number of shares of Common Stock
theretofore issued and outstanding, (i) the
3
<PAGE>
number of shares which are reserved under the Plan shall be automatically
adjusted, and (ii) the number of shares which, at such time, are subject to
outstanding options shall be adjusted in the same proportion (with appropriate
adjustments in the option price); provided, however, that the Company shall not
be obligated to issue fractional shares.
In the event of any change in the outstanding shares of Common Stock
by reason of any recapitalization, merger, consolidation, combination, exchange
of shares, or other similar corporate change, equitable substitution or
adjustment shall be made in the number or kind of shares of Common Stock or
other securities issued or reserved for issuance pursuant to the Plan, including
pursuant to outstanding options granted under the Plan.
9. Withholding or Deduction of Taxes
If, at any time, the Company is required under applicable laws or
regulations to withhold, or to make any deduction for, any taxes or take any
other action in connection with the exercise of any option hereunder, the
Company shall have the right to deduct from all amounts payable in cash any
taxes required by law to be withheld therefrom, and, in the case of payments in
the form of Common Stock, the Outside Director to whom such payments are to be
made shall be required to pay to the Company the amount of any taxes required to
be withheld, or, in lieu thereof, the Company shall have the right to retain, or
sell without notice, a sufficient number of shares of Common Stock to cover the
amount required to be withheld.
10. Administration
The Plan shall be administered by the Board of Directors. Subject to
the provisions of the Plan, the Board of Directors shall have the discretionary
authority to:
(a) adopt, revise and repeal such administrative rules, guidelines and
practices governing the Plan as it shall from time to time deem advisable;
(b) interpret the terms of the Plan and any option issued under the Plan
(and any agreements relating thereto), and otherwise settle all claims and
disputes arising under the Plan;
(c) delegate responsibility and authority for the operation and
administration of the Plan, including to a committee of the Board of Directors,
and appoint employees and officers of the Company and its affiliates to act on
its behalf and employ persons to assist in fulfilling its responsibilities under
the Plan; and
(d) otherwise supervise the administration of the Plan;
provided, however, that the Board of Directors shall have no discretion with
respect to the selection of individuals eligible to receive options hereunder,
the number of shares of Common Stock covered by any such option or the price or
timing of any option granted hereunder (all of which determinations are
automatic under the terms of the Plan).
4
<PAGE>
The entire expense of administering the Plan shall be borne by the
Company.
11. Compliance with Applicable Law
Notwithstanding any other provision of the Plan, the Company shall
not be obligated to issue any shares of Common Stock, or grant any option with
respect thereto, unless it is advised by counsel of its selection that it may do
so without violation of the applicable federal and state laws pertaining to the
issuance of securities or the provisions of any national securities exchange or
NASDAQ, and the Company may require any securities so issued to bear a legend,
may give its transfer agent instructions, and may take such other steps as in
its judgment are reasonably required to prevent any such violation.
12 Amendment and Termination
The Board of Directors may amend or discontinue the Plan at any time
and from time to time; provided, however, that (a) unless otherwise required by
law, no amendment, alteration or discontinuation shall be made which would
impair the rights of an Outside Director with respect to any option which has
been granted under the Plan without such individual's consent and (b) no
amendment shall be effective without approval of stockholders of the Company if
stockholder approval of the amendment is then required pursuant to Rule 16b-3
under the Securities Exchange Act of 1934, as amended, the applicable rules of
any national securities exchange or NASDAQ, or the Delaware corporation law or
other applicable laws.
13. Effective Date
The effective date of this Plan is August 20, 1997, the date on
which it was adopted by the Board of Directors; provided, however, that this
Plan is subject to approval by the holders of Class A Stock. The Plan shall
terminate on August 19, 2007.
14. Governing Law
The Plan shall be governed by, and construed in accordance with, the
laws of the State of Delaware.
5
EXHIBIT 10.11
1995 Directors' Deferred Compensation Plan
Scholastic Corporation
Amended and Restated May 25, 1999
<PAGE>
Contents
- --------------------------------------------------------------------------------
Page
Article 1. Establishment And Purpose 1
Article 2. Definitions 1
Article 3. Administration 3
Article 4. Eligibility and Participation 4
Article 5. Deferral Opportunity 5
Article 6. Deferred Compensation Accounts 6
Article 7. Beneficiary Designation 7
Article 8. Rights of Participants 7
Article 9. Amendment and Termination 8
Article 10. Miscellaneous 8
<PAGE>
Scholastic Corporation
1995 Directors' Deferred Compensation Plan
Article 1. Establishment And Purpose
1.1 Establishment. Scholastic Corporation, a Delaware corporation (the
"Company"), hereby establishes, effective as of October 1, 1995 (the "Effective
Date") and amends and restates as of May 25, 1999, a deferred compensation plan
for directors as described herein, which shall be known as the "Scholastic
Corporation Directors' Deferred Compensation Plan" (the "Plan").
1.2 Purpose. The primary purpose of the Plan is to provide Directors of
the Company with the opportunity to voluntarily defer all or a portion of their
Compensation, subject to the terms of the Plan. By adopting the Plan, the
Company desires to enhance its ability to attract and retain Directors of
outstanding competence.
Article 2. Definitions
Whenever used herein, the following terms shall have the meanings set
forth below, and, when the defined meaning is intended, the term is capitalized:
(a) "Board" or "Board of Directors" means the Board of Directors of the
Company.
(b) "Change in Control" of the Company means, and shall be deemed to
have occurred upon, any of the following events:
(i) Any Person (defined, for this purpose, to include any
syndicate or group deemed to be a "person" under Section
13(d)(3) of the Securities Exchange Act of 1934), other than
the Company, any subsidiary of the Company or any employee
benefit plan of the Company and other than those Persons in
control of the Company as of the Effective Date or any person
in which any of the Persons in control of the Company as of
the Effective Date has a controlling interest, is or becomes
the Beneficial Owner, directly or indirectly, of securities of
the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding
securities entitled to vote generally in the election of
Director; or
(ii) There occurs any consolidation of the Company with, or merger
of the Company into, any other Person, any merger of another
Person into the Company, or any sale or transfer of all or
substantially all of the assets of the Company to another
Person, other than (a) any such transaction pursuant to which
the holders of the Company's common stock and Class A stock
immediately prior to such transaction have,
<PAGE>
directly or indirectly, at least a majority of the common
equity of the continuing or surviving corporation immediately
after such transaction and (b) any merger which does not
result in any reclassification, conversion, exchange or
cancellation of outstanding shares of the Company's common
stock or Class A stock or which is affected solely to change
the jurisdiction of incorporation of the Company and results
in the classification, conversion or exchange of the Company's
outstanding shares of common stock or Class A stock solely
into shares of the Company's common stock or Class A stock.
However, in no event shall a "Change in Control" be deemed to have
occurred, with respect to a Participant, if the Participant is part of a
purchasing group which consummates the Change in Control transaction. A
Participant shall be deemed "part of a purchasing group" for purposes of
the preceding sentence if the Participant is an equity participant in the
purchasing company or group (except for: (i) passive ownership of less
than one percent (1%) of the stock of the purchasing company; or (ii)
ownership of equity participation in the purchasing company or group which
is otherwise not significant, as determined prior to the Change in Control
by a majority of the nonemployee continuing Directors).
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Company" means Scholastic Corporation, a Delaware corporation.
(e) "Compensation" means the Retainer and Meeting Fees payable to a
Participant by the Company for services performed as a Director
during a Plan Year. In no event, however, shall amounts paid in the
form of Company stock or stock options qualify as Compensation
eligible for deferral under the Plan.
(f) "Director" means a member of the Board of Directors of the Company
on or following the Effective Date of the Plan who receives a
Retainer and Meeting Fees for service on the Board of Directors.
(g) "Disability" shall have the meaning ascribed to such term in the
Company's governing long-term disability plan or if no plan is then
in effect, shall mean the determination by the Board that the
physical or mental condition of a Participant renders such
Participant unable to carry out the duties and obligations as a
Director of the Company.
(h) "Effective Date" means the date the Plan becomes effective, as set
forth in Section 1.1 herein.
(i) "Meeting Fees" means fees paid by the Company to a Director, in
cash, for attendance at Board and various Board committee meetings
during the relevant Plan Year, and which is exclusive of any
Retainer earned during such Plan Year. For the purposes of the Plan,
"Meeting Fees" shall not include any fees paid or payable in Company
stock or stock options.
2
<PAGE>
(j) "Participant" means any Director who is actively participating in
the Plan.
(k) "Plan" means the Scholastic Corporation Directors' Deferred
Compensation Plan.
(l) "Plan Administrator" means the executive(s) appointed by the Board
pursuant to Section 3.1 hereof to administer certain provisions of
the Plan as set forth herein, who shall initially be the Vice
President of Human Resources of the Company.
(m) "Plan Year" means the fiscal year of the Company (June 1 to May 31).
The first plan year begins on October 1, 1995 and ends on May 31,
1996.
(n) "Retainer" means the annual cash retainer paid by the Company and
earned by a Director during the relevant Plan Year with respect to
the Director's service on the Board, and which is exclusive of
Meeting Fees earned during such Plan Year. For purposes of the Plan,
"Retainer" shall not include any retainer paid or payable in Company
stock or stock options.
Article 3. Administration
3.1 Administration of the Plan. The Plan shall be administered by, and in
the sole and absolute discretion of, the Board. Subject to the provisions set
forth herein, the Board shall take such actions as are required or permitted to
be taken by it hereunder and shall have full and complete discretionary
authority to interpret the plan, to determine the rights of each Director and
the eligibility of a Director to participate in the Plan the amount of benefits
payable to a Director and the terms and conditions of each Director's
participation in the Plan; to construe and interpret the Plan and any agreement
or instrument entered into under the Plan, including any unclear, uncertain or
disputed terms thereof; to establish, amend, waive or rescind rules and
regulations for the Plan's administration; to amend (subject to the provisions
of Article 9 herein) the terms and conditions of the Plan and any agreement or
instrument entered into under the Plan and to make all other determinations
which may be necessary or advisable for the administration or the Plan. The
Board may employ accountants and counsel and other persons to assist or render
advice to it, all at the expense of the Company.
Subject to the terms of the Plan, the Board may delegate any or all of its
authority granted under the Plan to an executive or executives of the Company.
3.2 Decisions Binding. All determinations and decisions of the Board as to
any disputed question or any other issue arising under the Plan, including
questions of construction and interpretation, shall be final, conclusive, and
binding on all parties.
3.3 Indemnification. Each person who is or shall have been a member of the
Board shall be indemnified and held harmless by the Company against and from any
loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by
3
<PAGE>
him or her in connection with or resulting from any claim, action, suit, or
proceeding to which he or she may be a party, or in which he or she may be
involved by reason of any action taken or failure to act under the Plan. The
Company shall, subject to the requirements and limitations of Delaware law, pay
such loss, cost, liability or expense imposed on or incurred by such person
promptly upon demand by him or her, whether or not he or she has actually
advanced such amount prior thereto.
The Company shall also indemnify each such person who is or shall have
been a member of the Board against and from any and all amounts paid by him or
her in settlement thereof, with the Company's approval, or paid by him against
him or her, provided he or she shall give the Company an opportunity, at its own
expense, to handle and defend the same before he or she undertakes to handle and
defend it on his or her own behalf.
The foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled under the
Company's Certificate of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
Article 4. Eligibility and Participation
4.1 Eligibility. Each Director of the Company on or following the
Effective Date shall be eligible to participate in the Plan. In the event a
Participant no longer meets the requirements for eligibility to participate in
the Plan, such Participant shall become an inactive Participant retaining all of
the rights described under the Plan, except the right to make any further
deferrals hereunder. In the event a Director shall cease to serve as a member of
the Board of Directors but shall be designated as a Director Emeritus, the
Director shall become an inactive Participant, shall not be eligible to make
further deferrals under the Plan but shall not be deemed to have terminated
service as a Director until such time as his or her Director Emeritus status
shall terminate.
4.2 Participation. When a Director first becomes eligible to participate
in the Plan, such Director shall, as soon as practicable thereafter, be notified
by the Board of his or her eligibility to participate. At such time, the board
shall provide such Director with an "Election to Defer Form" which shall be
submitted by the Director as provided in Sections 5.2 hereof.
Unless otherwise determined by the Board, once notified of eligibility to
participate, each eligible Director shall be entitled to make deferrals with
respect to each subsequent Plan Year by submitting an Election to Defer Form as
provided in Section 5.2.
4.3 Partial Plan Year Participation. In the event a Director first becomes
eligible to participate in the Plan after the beginning of a Plan Year, the
Committee may, in its
4
<PAGE>
discretion, allow such Director to complete an Election to Defer Form within
thirty (30) days of becoming eligible to participate; such election to be valid
and applicable for the Plan Year then in progress. An Election to Defer Form
submitted pursuant to this Section 4.3 shall apply only to Compensation earned
subsequent to the date on which a valid Election to Defer Form is received by
the Board from the Participant.
Article 5. Deferral Opportunity
5.1 Amount Which May be Deferred. A Participant may elect to defer fifty
percent (50%) or one hundred percent (100%) of his or her aggregate Compensation
in any Plan Year.
5.2 Deferral Election. Participants shall make their elections to defer
Compensation under the Plan prior to the beginning of each Plan Year, or not
later than thirty (30) calendar days following notification of initial
eligibility to participate for a partial Plan Year, as applicable. All deferral
elections shall be irrevocable and shall be made on an "Election to Defer Form,"
as described herein, which shall specify, with regard to the applicable Plan
Year, the percentage of Compensation which the Participant elects to defer.
If a Participant makes an initial election to defer Compensation under the
Plan, such election, including the designation of the percentage of Compensation
to be deferred, shall be valid with respect to the Participant's initial Plan
Year of participation, or part thereof, and with respect to each subsequent Plan
Year until such time as the Participant makes a subsequent valid election under
the Plan with regard to a subsequent Plan Year.
5.3 Length of Deferral. Except as otherwise provided herein, all deferrals
hereunder and earnings thereon shall be maintained in deferred status until the
expiration of the deferral period specified by the Director (not to exceed 15
years) or termination of service as a Director for any reason, whichever is
later.
5.4 Payments of Deferred Amounts. Participants shall receive payment of
deferred amounts, together with earnings accrued thereon pursuant to Section
6.2, at the end of the applicable deferral period. Such payment shall be made in
cash, in a single lump-sum payment within thirty (30) calendar days of the date
specified for payment, as determined under Section 5.3 herein.
Notwithstanding the foregoing, any unpaid deferred amounts and accumulated
earnings thereon shall be paid to the Participant in the event that, at any time
prior to full payment of such deferred amounts and earnings thereon, a Change in
Control of the Company occurs, as determined by the Board. In such event,
payment shall be made in a single lump sum, in cash, within thirty (30) calendar
days after the effective date of a Change in Control, as applicable.
5
<PAGE>
5.5 Financial Hardship. The Plan Administrator shall have the authority to
alter the timing or manner of payment of deferred amounts to a Participant in
the event that the Participant establishes severe financial hardship. In such
event, the Plan Administrator may, subject to Board approval:
(a) Authorize the cessation of deferrals by such Participant under
the Plan; or
(b) Provide that all, or a portion, of the amount previously
deferred by the Participant shall immediately be paid in a
lump-sum cash payment; or
(c) Provide for such other payment schedule as deemed appropriate
by the Plan Administrator, subject to Board approval, under
the circumstances.
For purposes of this Section 5.5, "severe financial hardship" shall mean a
financial hardship resulting from an extraordinary and unforeseeable emergency
arising as a result of one or more recent events beyond the control of the
Participant. The Plan Administrator shall have the sole discretion to determine
whether the facts of each case constitute a severe financial hardship arising
from an extraordinary and unforeseeable emergency, but, in any event, payment of
deferred amounts may not be made to the extent such emergency is or may be
relieved: (i) through the reimbursement or compensation by insurance or
otherwise; (ii) by liquidation of the Participant's assets, to the extent the
liquidation of such assets would not itself cause severe financial hardship; and
(iii) by cessation of deferrals under the Plan. Deferred amounts shall be paid
to the Participant in the case of a severe financial hardship only to the extent
reasonably necessary to satisfy the financial hardship.
The existence and severity of the financial hardship shall be judged by
the Plan Administrator. The Plan Administrator's decision with respect to the
severity of financial hardship and the manner in which, if at all, the
Participant's future deferral opportunities shall cease, and/or the manner in
which, if at all the payment of deferred amounts to the Participant shall be
altered or modified, shall be final, conclusive, and not subject to appeal,
except as otherwise determined by the Board.
Article 6. Deferred Compensation Accounts
6.1 Participants' Accounts. The Company shall establish and maintain an
individual bookkeeping account for deferrals made by each Participant, and
earnings thereon, under Article 5 herein. Each account shall be credited as of
the date the amount deferred otherwise would have become due and payable to the
Participant. The term "account" and other measures representing the value of a
Director's deferrals under the Plan are bookkeeping entries only and shall not
constitute property of any kind or any interest in the Company or specific
assets thereof.
6
<PAGE>
6.2 Earnings on Deferred Amounts. Compensation deferred under the Plan
shall accrue interest on a quarterly basis at a rate equal to the 30 year
Treasury Bill rate of interest in effect as of the first business day of each
calendar quarter. Each Participant's deferred compensation account shall be
credited on the last day of each calendar quarter, with interest computed on the
average balance in the account during such quarter. Interest earned on deferred
amounts shall be paid out to Participants at the same time and in the same
manner as the underlying deferred amounts.
6.3 Charges Against Accounts. There shall be charged against each
Participant's deferred compensation account any payments made to the Participant
or to his or her beneficiary.
Article 7. Beneficiary Designation
Each Participant shall designate a beneficiary or beneficiaries who, upon
the Participant's death, will receive the amounts that otherwise would have been
paid to the Participant under the Plan. All designations shall be signed by the
Participant, and shall be in such form as prescribed by the Board. Each
designation shall be effective as of the date delivered to a Company employee so
designated by the Board.
Participants may change their designations of beneficiary on such form as
prescribed by the Board. The payment of amounts deferred under the Plan shall be
in accordance with the last unrevoked written designation of beneficiary that
has been signed by the Participant and delivered by the Participant to the
designated employee prior to the Participant's death.
In the event that all the beneficiaries named by a Participant pursuant to
this Article 7 predecease the Participant, the deferred amounts that would have
been paid to the Participant or the Participant's beneficiaries under the Plan
shall be paid to the Participant's estate.
In the event a Participant does not designate a beneficiary, or for any
reason such designation is ineffective, in whole or in part, the amounts that
otherwise would have been paid to the Participant or the Participant's
beneficiaries under the Plan shall be paid to the Participant's estate.
Article 8. Rights of Participants
8.1 Contractual Obligation. The Plan shall create a contractual obligation
on the part of the Company to make payments from the Participants' accounts when
due. Payment of account balances shall be made out of the general funds of the
Company.
8.2 Unfunded Plan. The Plan constitutes an unfunded, unsecured promise of
the Company to make payments in the future of the amounts deferred under the
Plan and is
7
<PAGE>
intended to constitute a nonqualified deferred compensation plan which is
unfunded for tax purposes and for the purposes of Title I of the Employee
Retirement Income Security Act of 1974, as amended. Nothing contained in the
Plan and no action taken pursuant to the provisions of the Plan shall create, or
be construed to create, a trust of any kind, a fiduciary relationship between
the Company and any Director or any other person. No special or separate fund
shall be established or other segregation of assets made to assure payment of
deferred amounts hereunder. No Director or any other person shall have any
preferred claim on, or beneficial ownership interest in, any assets of the
Company prior to the time that deferred amounts are paid to the Director as
provided herein. The rights of a Director to receive benefits from the Company
shall be no greater than any general unsecured creditor of the Company.
8.3 Service as a Director. Neither the establishment of the Plan, nor any
action taken hereunder, shall in any way obligate (i) the Company to nominate a
Director for reelection or to continue to retain a Director; or (ii) a Director
to agree to be nominated for reelection or to continue to serve on the Board.
Article 9. Amendment and Termination
The Company hereby reserves the right to amend, modify, or terminate the
Plan at any time by action of the Board. No such amendment or termination shall
in any material manner adversely affect any Participant's rights to deferred
amounts or interest earned thereon, without the consent of the Participant.
Article 10. Miscellaneous
10.1 Notice. Any notice or filing required or permitted to be given to the
Company under the Plan shall be sufficient if in writing and hand delivered, or
sent by registered or certified mail to the Plan Administrator. Such notice, if
mailed, shall be addressed to the principal executive offices of the Company.
Notice mailed to a Participant shall be at such address as is given in the
records of the Company. Notices shall be deemed given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
10.2 Successors. All obligations of the Company under the Plan shall be
binding on any successor to the Company, whether the existence of such successor
is the result of a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all of the business and/or assets of the
Company.
10.3 Nontransferability. Participants' rights to deferred amounts,
contributions, and investment return earned thereon under the Plan may not be
sold, transferred, assigned, or otherwise alienated or hypothecated, other than
by will or by the laws of descent and distribution. In no event shall the
Company make any payment under the Plan to any assignee or creditor of a
Participant.
8
<PAGE>
10.4 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
10.5 Costs of the Plan. All costs of implementing and administering the
Plan shall be borne by the Company.
10.6 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular, and the singular shall include the plural.
10.7 Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the state of Delaware without giving effect to any
choice or conflict of law provision or rule.
9
EXHIBIT 10.13
Compensation Arrangement with David Yun
Scholastic Inc. ("Scholastic"), a wholly-owned subsidiary of Scholastic
Corporation, has an arrangement with David D. Yun, President of its Scholastic
Book Fairs Division, covering the three fiscal years ending May 31, 2001,
pursuant to which, in addition to Mr. Yun's annual base salary, currently at the
rate of $400,000 per year, he will be entitled to (i) a bonus potential equal to
40% of his annual compensation in accordance with Scholastic's regular bonus
program and (ii) additional bonus amounts of up to $300,000 in fiscals 1999 and
2000 and up to $600,000 in fiscal 2001 based on the achievement of specified
profit goals for the Scholastic Book Fairs Division during each of such fiscal
years, the aggregate amount of which will be payable at the end of the such
three year period, provided that Mr. Yun continues to be employed by Scholastic
and a specified cumulative annual growth rate in profit of the Scholastic Book
Fairs Division is achieved. In addition, at the termination of his employment,
Mr. Yun will be given a one-year consulting contract for compensation of
$50,000.
EXHIBIT 10.14
AMENDED AND RESTATED LEASE
ISE 555 BROADWAY, LLC, LANDLORD
to
SCHOLASTIC INC., TENANT
FOR THE BUILDING KNOWN AS
555 BROADWAY
NEW YORK, NEW YORK
<PAGE>
TABLE OF CONTENTS
Page
PREAMBLE.....................................................................1
ARTICLE ONE LEASE OF PREMISES................................1
Section 1.01. Lease of Premises......................................1
ARTICLE TWO TERM.............................................2
Section 2.01. Initial Term..........................................2
Section 2.02. Renewal Term...........................................2
Section 2.03. Right of First Offer...................................3
Section 2.04. 557 Property Right of First Offer......................7
Section 2.05. Term of this Lease.....................................8
ARTICLE THREE DELIVERY OF PREMISES.............................8
Section 3.01. Delivery of Premises...................................8
Section 3.02. Subtenancies...........................................8
Section 3.03. Capital Improvement Funds..............................8
ARTICLE FOUR RENTAL...........................................9
Section 4.01. Annual Rental..........................................9
Section 4.02. Net Lease.............................................10
Section 4.03. Real Estate Taxes.....................................10
Section 4.04. Renewal Rental.......................................12
Section 4.05. Certain Offset Rights.................................13
ARTICLE FIVE OPERATIONS AND MAINTENANCE......................13
Section 5.01. Standard of Operations................................13
Section 5.02. Cost of Operations and Maintenance....................14
Section 5.03. Consultative Period...................................15
Section 5.04. Tenant's Insurance....................................16
ARTICLE SIX LEASEHOLD MORTGAGES.............................18
Section 6.01. Mortgageable Lease....................................18
(i)
<PAGE>
ARTICLE SEVEN USE AND ACCESS..................................19
Section 7.01. Use...................................................19
Section 7.02. Access................................................22
ARTICLE EIGHT REPAIR AND MAINTENANCE.........................22
Section 8.01. Tenant's Obligation to Repair and Maintain............22
ARTICLE NINE FIRE AND OTHER CASUALTY.........................23
Section 9.01. Damage or Destruction.................................23
Section 9.02. Waiver of Subrogation Rights..........................23
ARTICLE TEN LIABILITY.......................................24
Section 10.01. Indemnification of the Parties........................24
Section 10.02. Landlord's Exculpation................................24
ARTICLE ELEVEN ALTERATIONS AND FIXTURES........................25
Section 11.01. Alterations by Tenant.................................25
Section 11.02. Requirements..........................................27
Section 11.03. Tenant's Property.....................................28
Section 11.04. Restoration Obligation................................28
Section 11.05. Landlord's Property...................................29
ARTICLE TWELVE CONDEMNATION....................................30
Section 12.01. Total Taking..........................................30
Section 12.01. Partial Taking........................................30
Section 12.03. Claims of Landlord and Tenant.........................30
Section 12.04. Distribution of the Award.............................30
Section 12.05. Temporary Taking of Premises.........................31
Section 12.06. Tenant's Obligation to Restore........................31
ARTICLE THIRTEEN REMEDIES AND DEFAULTS...........................31
Section 13.01. Default by Tenant.....................................31
Section 13.02. Landlord's Remedies...................................32
Section 13.03. Late Payments.........................................33
Section 13.04. Prevailing Party......................................33
ARTICLE FOURTEEN BANKRUPTCY......................................34
Section 14.01. Bankruptcy by Tenant..................................34
(ii)
<PAGE>
ARTICLE FIFTEEN COMPLIANCE WITH LAWS............................34
Section 15.01. Tenant's Compliance with Laws.........................34
ARTICLE SIXTEEN ASSIGNMENT AND SUBLETTING.......................35
Section 16.01. Assignment by Tenant.................................35
Section 16.02. Subletting by Tenant..................................37
Section 16.03. Partnership Tenant....................................40
Section 16.04. Acceptance of Rent....................................40
ARTICLE SEVENTEEN LANDLORD'S ACCESS...............................40
Section 17.01. Landlord's Access to Premises.........................40
Section 17.02. Limitations on Landlord's Right to Change the
Building...........................................40
ARTICLE EIGHTEEN NAME OF BUILDING; SIGNS.........................41
Section 18.01. Tenant's Right to Designate Building Name.............41
Section 18.02. Signs Identifying the Building........................41
Section 18.03. Landlord's Exterior Sign..............................41
ARTICLE NINETEEN QUIET ENJOYMENT.................................42
Section 19.01. Quiet Enjoyment......................................42
ARTICLE TWENTY NON-WAIVER......................................42
Section 20.01. Non-Waiver By Either Party............................42
ARTICLE TWENTY-ONE NOTICES; CONSENT TO JURISDICTIONS...............42
Section 21.01. Notices to Landlord or Tenant.........................42
Section 21.02. Consent to Jurisdiction...............................43
ARTICLE TWENTY-TWO PARTIAL INVALIDITY..............................45
Section 22.01. Severability Clause...................................45
ARTICLE TWENTY-THREE BROKERAGE.......................................45
Section 23.01. Brokerage.............................................45
ARTICLE TWENTY-FOUR SUBORDINATION; NON-DISTURBANCE..................45
Section 24.01. Subordination.........................................45
(iii)
<PAGE>
Section 24.02. Non-disturbance......................................47
ARTICLE TWENTY-FIVE [Intentionally Omitted].........................49
ARTICLE TWENTY-SIX ARBITRATION OF DISPUTES.........................49
Section 26.01. Arbitration...........................................49
Section 26.02. Payment of Expenses in Certain Circumstances..........51
ARTICLE TWENTY-SEVEN ENVIRONMENTAL MATTERS...........................51
Section 27.01. Tenant's Covenants....................................51
Section 27.02. Indemnity.............................................51
ARTICLE TWENTY-EIGHT REPRESENTATIONS AND WARRANTIES OF LANDLORD;
INDEMNITIES.....................................52
Section 28.01. Representations and Warranties of Landlord............52
Section 28.02. Negative Covenants....................................52
Section 28.03. Landlord's Indemnity..................................53
Section 28.04. Tenant's Indemnity...................................53
ARTICLE TWENTY-NINE LANDLORD'S LIABILITY............................53
Section 29.01. Landlord's Liability..................................53
ARTICLE THIRTY [Intentionally Omitted].........................54
ARTICLE THIRTY-ONE MISCELLANEOUS...................................54
Section 31.01. Certain Miscellaneous Provisions......................54
Section 31.02. Governing Law.........................................56
Section 31.03. Memoranda Agreements..................................56
Section 31.04. Additional Rent.......................................56
Section 31.05. Estoppel Certificates.................................57
Section 31.06. No Merger.............................................57
Section 31.07. Business Days.........................................57
Section 31.08. Hold-over.............................................57
Section 31.09. Financial Statements..................................58
Section 31.10. Ise Sublease..........................................58
Section 31.11. Transfer of Ownership.................................58
Section 31.12. Reduced FAR...........................................58
(iv)
<PAGE>
ARTICLE THIRTY-TWO SECURITY........................................58
Section 32.01. Security..............................................58
ARTICLE THIRTY-THREE IDA FINANCING...................................60
Section 33.01. IDA Financing.........................................60
EXHIBIT A DESCRIPTION OF LAND
EXHIBIT B DESCRIPTION OF 557 LAND
EXHIBIT C ELEVATOR LOCATION
EXHIBIT D BATHROOM LOCATION
EXHIBIT E LANDLORD'S SIGN
EXHIBIT F LANDLORD'S LETTER OF CREDIT
EXHIBIT G NON-DISTURBANCE, SUBORDINATION AND ATTORNMENT AGREEMENT
EXHIBIT H EXISTING ENCUMBRANCES, COVENANTS, AGREEMENTS AND EASEMENTS
EXHIBIT I TENANT'S LETTER OF CREDIT
SCHEDULE 1 SUBLEASES
SCHEDULE 2 ANNUAL RENT
(v)
<PAGE>
INDEX OF TERMS USED IN LEASE
Page
557 Building.................................................................7
557 Document.................................................................7
557 Land....................................................................7
557 Landlord.................................................................1
557 Property.................................................................7
557 Right of First Offer.....................................................7
AAA.........................................................................48
Acceptable Purchaser.........................................................5
additional out-of-pocket expense............................................20
Additional Rent.............................................................55
Affiliate...................................................................53
Alterations.................................................................24
Annual Rental................................................................9
Applicable Law..............................................................33
Atrium......................................................................27
Award......................................................................29
Building.....................................................................2
Building Applications.......................................................25
Building Structure...........................................................9
business days...............................................................55
children.....................................................................5
Commencement Date...........................................................1
Comparable Buildings........................................................17
consideration...............................................................52
Consultative Period.........................................................15
Date of the Taking..........................................................29
domestic institutional lender...............................................18
Easements Agreement..........................................................1
Event of Default...........................................................30
Excusable Delays............................................................53
Expedited Arbitration.......................................................49
Expiration Date..............................................................2
Failing Party...............................................................11
Fair Rental Value...........................................................12
Financial Test.............................................................15
First Mortgage..............................................................44
First Refusal Notice.........................................................4
First Refusal Right..........................................................4
first-class.................................................................13
Hazardous Materials.........................................................50
(vi)
<PAGE>
IDA........................................................................59
IDA Financing...............................................................59
Initial Capital Improvement Amount...........................................8
Initial Term.................................................................2
initially named Landlord herein..............................................7
initially named Tenant herein................................................3
Ise Sublease................................................................56
Land.........................................................................2
Land Owner...................................................................6
Landlord.....................................................................1
Landlord's Mortgagee........................................................45
Landlord's Offer.............................................................3
Lawrence....................................................................43
Lease.......................................................................1
Lease Expiration............................................................13
Lease Termination...........................................................13
Letter of Credit............................................................44
LLC..........................................................................5
LPC.........................................................................40
Luce.......................................................................43
McDonagh....................................................................43
Minimum Net Worth...........................................................36
Mortgage....................................................................45
mortgageable lease..........................................................18
NDA.........................................................................37
New Contract.................................................................4
Notices.....................................................................41
Option Exercise Date.........................................................2
person......................................................................53
Premises.....................................................................2
Prime Rate..................................................................53
Prior Lease..................................................................1
proceeds...................................................................52
Property.....................................................................3
Prospective Purchaser.....................................................4, 6
Purchase Contract............................................................4
purchase price...............................................................5
Purchaser Information........................................................5
Pursuing Party.............................................................11
Real Estate Taxes...........................................................10
Reimbursable Capital Improvements............................................8
Renewal Option...............................................................2
Renewal Term.................................................................2
(vii)
<PAGE>
rent........................................................................55
rental.....................................................................55
Restoration Standard........................................................13
sale.........................................................................5
Scholastic...................................................................6
Second Capital Improvement Amount............................................8
sell.........................................................................5
SNDA.......................................................................45
Structural Alterations......................................................24
Successor Corporation........................................................3
Successor Landlord..........................................................47
Tax Protest.................................................................11
Tax Year....................................................................12
Tenant.......................................................................1
Tenant's 557 Interest.......................................................7
Tenant's Letter of Credit...................................................57
Tenant's Renewal Notice......................................................2
Tenant's separate claim items...............................................29
term of this Lease...........................................................8
Threshold Rental............................................................38
Use and Character Criteria.................................................36
(viii)
<PAGE>
AMENDED AND RESTATED LEASE
THIS AMENDED AND RESTATED LEASE (hereinafter, the "Lease" or this
"Lease"), effective as of August 1, 1999 (the "Commencement Date"), amends and
restates in its entirety the existing lease, dated as of January 28, 1992,
amended by Amendment of Lease dated as of April 1, 1993 (which was clarified by
letter dated May 5, 1995, from Robin L. French of Scholastic Inc. to Mr. Kimio
Tabata of Ise Hiyoko, Inc.), Second Amendment of Lease dated as of August 24,
1995, and Memorandum of Agreement dated August 25, 1995 (the lease as so amended
prior to this amendment and restatement is referred to herein as the "Prior
Lease"), by and between ISE HIYOKO, INC., a Japanese corporation, predecessor in
interest to ISE 555 BROADWAY, LLC, a New York limited liability company, having
an office at 555 Broadway, New York, New York 10012 (hereinafter, "Landlord"),
and SCHOLASTIC INC., a New York corporation, with an office at 555 Broadway, New
York, New York 10012 ("Tenant").
PREAMBLE
The parties hereto acknowledge that, notwithstanding the amendment and
restatement hereby, the Prior Lease was effective in accordance with its terms
up to the Commencement Date of this Lease. The parties further acknowledge that,
as of the Commencement Date of this Lease, there are no outstanding notices of
default nor, respectively, to the best knowledge of each party, any act or
omission of either party which, with notice or lapse of time or both, would be a
default under the Prior Lease. Landlord (on behalf of Landlord and Landlord's
predecessor in interest) releases Tenant, and Tenant releases Landlord and
Landlord's predecessor in interest, from any and all claims, losses,
liabilities, damages and obligations arising prior to the Commencement Date of
this Lease under or in connection with the Prior Lease. The parties hereto also
acknowledge that the Property is encumbered by an Amended and Restated Easements
Agreement dated as of August 1, 1999, among Landlord, Tenant, and Carol
Blechman, Donald Blechman, Howard Blechman, Noma Joan Blechman, Stephen
Blechman, Norma Gastwirth (formerly known as Norma Blechman) and Nauma Blechman
Levin (formerly known as Nauma Blechman) (collectively, the "557 Landlord")
(such agreement, as it may be amended and/or restated from time to time, the
"Easements Agreement"), which Easements Agreement amends and restates in its
entirety the easements agreement dated as of July 10, 1998, recorded on August
26, 1998, in Reel 2689, Page 00792.
ARTICLE ONE
LEASE OF PREMISES
Section 1.01. Lease of Premises. Landlord hereby leases to Tenant, and
Tenant hereby leases from Landlord, upon and subject to the covenants,
agreements, terms, provisions and
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conditions of this Lease, for the term and at the rent hereinafter stated, the
entire building known as 555 Broadway, New York, New York, presently constructed
on the land (the "Land") described in Exhibit A attached hereto, together with
all fixtures, equipment, improvements, installations and appurtenances which at
the Commencement Date or during the term of this Lease are attached to or used
in connection with access to or the operation of the building (the building and
such fixtures, equipment, improvements, installations and appurtenances are
herein referred to as the "Building" or the "Premises").
ARTICLE TWO
TERM
Section 2.01. Initial Term. The initial term of this Lease (the "Initial
Term") shall commence on the Commencement Date, and shall consist of a period of
thirty (30) years, and expire on July 31, 2029 (the "Expiration Date"), or on
such earlier date on which the term of this Lease may expire or be terminated
pursuant to the provisions of this Lease or pursuant to law, or on such later
date on which the term of this Lease may expire pursuant to Subsection 2.02(a)
hereof.
Section 2.02. Renewal Term. (a) Provided that there shall not then exist
an uncured "Event of Default" (as such term is defined in Article 13 below) on
the date Tenant delivers Tenant's Renewal Notice (hereinafter defined) to
Landlord, Tenant shall have the option (the "Renewal Option") to renew the term
of this Lease for one renewal term (the "Renewal Term"), for ten (10) years. The
Renewal Option for the Renewal Term shall be exercised by written notice from
Tenant to Landlord (the "Tenant's Renewal Notice") to the effect that Tenant
desires to renew the term of this Lease, to be given not later than two years
prior to the Expiration Date of the Initial Term ("Option Exercise Date"). If
Tenant shall fail to give Tenant's Renewal Notice to Landlord on or before the
Option Exercise Date, then the Renewal Option shall not lapse and Landlord shall
not enter into a lease(s) for the Premises or any portion thereof for any period
after the expiration of the Initial Term, unless (i) Landlord shall have given
Tenant written notice that Tenant has not exercised Tenant's right to extend the
term of this Lease, and (ii) an additional period of fifteen (15) business days,
during which additional period Tenant may exercise such right to extend the term
of this Lease, has elapsed from receipt of such notice by Tenant. If Tenant
shall not have exercised the Renewal Option prior to the expiration of said
fifteenth (15th) business day, then Tenant's right to extend the Initial Term
shall be deemed to have been waived. The Renewal Term shall be on the same
covenants, agreements, terms, provisions and conditions as are contained herein,
except as expressly provided herein to the contrary. The rent payable during the
Renewal Term shall be as provided in Section 4.04. If Tenant fails to exercise
effectively its Renewal Option (and the Renewal Term does not become effective),
then the Lease shall terminate on the original Expiration Date as herein
provided.
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(b) At any time after the Renewal Term has become effective and the
rent payable during the Renewal Term determined, Landlord and Tenant, upon
request of either, shall execute an agreement supplementary hereto identifying
the Annual Rental payable during the Renewal Term.
(c) For all purposes under this Lease, the term "initially named
Tenant herein" shall be deemed to refer only to: (i) the corporate entity which
is Scholastic Inc. (whether or not known by or using such name), (ii) any
"Successor Corporation" (defined below), and (iii) any Affiliate of Scholastic
Inc. or of a Successor Corporation. The term "Successor Corporation" shall be
deemed to refer to and include any entity which (x) Scholastic Inc. is merged
into or consolidated with, or (y) acquires all or substantially all of the
assets or stock of Scholastic Inc. From and after the date on which an entity
qualifies hereunder as a Successor Corporation, such entity shall, as applicable
under this Lease, be deemed to be Scholastic Inc. Within sixty (60) days
following the occurrence of any transaction which Tenant believes results in the
existence of a Successor Corporation, Tenant shall give Landlord notice thereof.
If, within sixty (60) days following receipt of such notice, Landlord shall
request evidence to support Tenant's determination that such transaction has
resulted in the existence of a Successor Corporation, Tenant shall promptly
furnish Landlord with such evidence. Without limiting the nature of what
constitutes acceptable evidence, Landlord agrees that the opinion letter of an
independent attorney or the certified statement of an independent certified
public accountant to the effect that such transaction resulted in the existence
of a Successor Corporation shall be deemed presumptive evidence of the same.
Section 2.03. Right of First Offer. (a) Provided that: (i) Tenant is not
in default under this Lease after expiration of all applicable notice and cure
periods, and (ii) the initially named Tenant herein is then in occupancy of at
least 102,500 rentable square feet in the Building, the initially named Tenant
herein shall have and is hereby granted a right of first offer to purchase the
Building and the Land (the Land and Building being collectively referred to
herein as the "Property") from Landlord as hereinafter provided.
(b) Prior to making or accepting an offer to sell all or any portion
of the Property, including the creation and sale of all or any portion of a
ground leasehold interest in the Land, to any third party, Landlord shall submit
to Tenant a written statement ("Landlord's Offer") setting forth all of the
material terms and conditions (including the purchase price, terms of any
purchase money or other financing and all other material terms) pursuant to
which Landlord shall in good faith intend to offer to sell all or any portion of
the Property. Within sixty (60) days after Tenant shall have received Landlord's
Offer, Tenant shall give Landlord written notice of whether or not Tenant
desires to accept Landlord's Offer. If Tenant elects to accept Landlord's Offer,
Landlord and Tenant shall within thirty (30) days thereafter execute and deliver
a contract of sale which reflects the terms of Landlord's Offer and which is
otherwise consistent with contracts for the sale of like property in the Borough
of Manhattan in the City of New York. If Tenant elects not to accept Landlord's
Offer, or if Tenant shall not have responded to Landlord's Offer prior to the
expiration of said sixty (60) day period, then Landlord may thereafter proceed
to sell the Property
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(or the portion thereof specified in Landlord's Offer) in accordance with the
terms and conditions contained in the Landlord's Offer delivered to Tenant,
provided that: (i) if, within twelve (12) months after the date on which
Landlord shall have given Landlord's Offer to Tenant, Landlord shall not
consummate the sale of the Property (or the portion thereof described in
Landlord's Offer) to an "Acceptable Purchaser" (defined below) on such terms and
conditions as provided in Landlord's Offer (it being agreed for the purposes
hereof that, if the purchase price of the Property set forth in the Purchase
Contract (defined below) shall be equal to at least ninety-six (96%) percent of
the purchase price set forth in Landlord's Offer, then both purchase prices
shall be deemed the same), then Landlord shall again be required to comply with
the provisions of this Section 2.03 and offer to sell the Property (or the
relevant portion thereof) to Tenant on all of the same terms and conditions upon
which Landlord intends to sell the Property (or the relevant portion thereof) to
a third party; or (ii) if, within said twelve (12) month period, Landlord and a
prospective purchaser (the "Prospective Purchaser") have entered into a contract
of sale (the "Purchase Contract") and are prepared and (subject to the
provisions of this Section 2.03) ready, willing and able to consummate a sale of
the Property (or the portion thereof described in Landlord's Offer), and (x)
such Prospective Purchaser is not an Acceptable Purchaser or (y) the purchase
price of the Property (or the portion thereof described in Landlord's Offer) set
forth in the Purchase Contract is less than the purchase price set forth in
Landlord's Offer by an amount which is equal to four (4%) percent or more of the
purchase price set forth in Landlord's Offer, then Landlord shall promptly give
Tenant notice thereof (the "First Refusal Notice") together with a fully
executed original of the Purchase Contract and the "Purchaser Information"
(defined below), the "New Contract" (defined below) and Landlord's determination
as to whether the Prospective Purchaser is an Acceptable Purchaser, and Landlord
shall not have the right to consummate such sale to the Prospective Purchaser
unless and until Tenant shall fail to timely exercise the First Refusal Right
hereinafter set forth.
(c) Upon the occurrence of either of the events set forth in clause
(x) or clause (y) of the foregoing Subsection 2.03(b), Tenant shall have the
right (the "First Refusal Right") to purchase the Property (or the portion
thereof described in Landlord's Offer) on the same terms and conditions made
available to the Prospective Purchaser pursuant to the Purchase Contract.
Subject to the provisions of Subsection 2.02(g) below, the First Refusal Right
shall be exercisable only in the following manner. If Tenant shall elect to
exercise the First Refusal Right, then, within thirty (30) days following
delivery to Tenant of the First Refusal Notice, the Purchase Contract, the
Purchaser Information and the New Contract, Tenant shall notify Landlord that
Tenant wishes to exercise the First Refusal Right and execute and deliver to
Landlord the New Contract, along with any downpayment or monies payable pursuant
thereto upon the execution thereof by the Prospective Purchaser under the
Purchase Contract, and any documents or other items required to be delivered in
accordance therewith, time being of the essence with respect to the delivery
thereof, or be deemed to have waived the First Refusal Right. For purposes
hereof, the "New Contract" shall mean a contract of sale, executed by Landlord
(as seller) which is identical to the Purchase Contract, except for changes in
the name, address and reference to the purchaser (revised to reflect Tenant, as
purchaser), and any other changes which are necessary or appropriate to reflect
the fact that Tenant is the contract vendee, as opposed to
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the purchaser named in the Purchase Contract. Following full execution of the
New Contract, Landlord and Tenant shall consummate the transaction contemplated
thereby in accordance with the terms of the New Contract. In no event shall
Tenant be obligated to pay to Landlord any "break-up" or similar fee, or
reimburse Landlord for any costs (including brokerage fees) incurred by
Landlord, regardless of whether Landlord is obligated to pay any fee to, or
reimburse the expenses of, the Prospective Purchaser in connection with Tenant's
exercise of the First Refusal Right.
(d) The term "Acceptable Purchaser" shall be deemed to refer to any
person or any Affiliate of such person who owns at least one other rental office
building in any urban area of the United States, unless such person (or any
Affiliate of such person): (i) has ever been convicted of any felony, or (ii)
has been indicted on any felony charge during the five (5) years preceding the
execution of the Purchase Contract, or (iii) has been the subject of any
voluntary or involuntary bankruptcy, insolvency, reorganization or similar
proceedings of the type described in Section 14.01 below during the five (5)
years preceding the execution of the Purchase Contract (provided that, in the
case of an involuntary proceeding, the same shall not have been dismissed within
one hundred twenty (120) days after the commencement of such proceeding), or
(iv) is a publisher of any books, magazines, other reading matter or computer
software designed primarily for children or to educate children (it being
understood and agreed that, for the purpose hereof, the term "children" includes
all ages below adult, i.e., from infant through teenager), or (v) has at least
ten (10%) percent of its consolidated sales generated from publishing of any
kind, or (vi) has or operates under a name which is commonly associated with the
publishing industry. Within ten (10) days following the execution of any
Purchase Contract, and regardless of whether Landlord believes that the
Prospective Purchaser is an Acceptable Purchaser, Landlord shall furnish to
Tenant such information (the "Purchaser Information") as shall enable Tenant to
determine whether the Prospective Purchaser is an Acceptable Purchaser. If
Tenant shall, in good faith, dispute Landlord's determination that the
Prospective Purchaser is an Acceptable Purchaser, and Landlord and Tenant shall
be unable to resolve such dispute within ten (10) days after Tenant receives the
Purchaser Information, then the determination as to whether the Prospective
Purchaser is an Acceptable Purchaser shall be determined by arbitration in the
manner provided in Article 26 below. Pending resolution of such dispute,
Landlord shall not be permitted to consummate the sale contemplated by the
Purchase Contract and Tenant shall not be permitted to exercise the aforesaid
First Refusal Right.
(e) For the purposes of this Section 203: (i) all references to
"purchase price" shall be deemed to refer to the actual purchase price as
adjusted to reflect the economic value of all material business terms contained
in the Landlord's Offer and Purchase Contract, as the case may be; (ii) the
terms "sell" and "sale" shall include any and all leases (other than space
leases), or the creation of a ground leasehold estate in the property, or
conveyances of any fee, leasehold or lesser interest(s) in all or any part of
the Property, but shall not include one or more conveyances of stock of a
corporate Landlord or partnership interests of a partnership Landlord or
membership interest in a limited liability company ("LLC") Landlord which do
not, in the aggregate, (x) exceed forty-nine and ninety-nine one-hundredths of
one (49.99%) percent of such
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stock or (general or limited) partnership interests, or membership interests or
(y) yield control of said corporate, partnership or LLC Landlord to any person
other than Mr. Hikonobu Ise (provided, however, that, if said stock shall be
conveyed to a corporation or a "master limited partnership" which has its shares
traded on a public exchange, and Tenant shall have elected not to exercise the
First Refusal Right with respect thereto, then any subsequent conveyances of
such publicly traded stock or shares shall not be deemed a "sale" for the
purposes of this Section 2.03); and (iii) the term "Prospective Purchaser" shall
not be deemed to include any Affiliate of Landlord, provided that (x) such
Affiliate shall not have become an Affiliate of Landlord for the purpose of
circumventing Tenant's rights under this Section 2.03, and (y) such Affiliate
shall continue to be an Affiliate of Landlord for at least one (1) year
following consummation of the sale.
(f) Tenant's rights to purchase the Property as set forth in this
Section 2.03 shall be contained in the memorandum of this Lease described in
Section 31.03.
(g) Supplementing the provisions of Subsection 2.03(c) above, it is
the intention of the parties that, if Landlord shall create a ground leasehold
estate in the Property, and shall (then or thereafter) sell the Land (i.e., the
fee portion of the Property) to any third party (after Tenant shall have
declined to purchase the Land under the terms of Subsections 2.03(b) and (c)
above), then, if Landlord shall thereafter desire to sell the Building or ground
lease to such third party (or any successors, assigns or Affiliates of such
third party; collectively, the "Land Owner") and if Tenant shall exercise
Tenant's rights pursuant to this Section 2.03 to purchase the Building, then
Tenant shall thereafter have the option to purchase the Land from the Land Owner
at the then prevailing fair market value thereof (determined, in the event of a
dispute, in accordance with the provisions of Article 26 below). Such option
shall be exercisable in the following manner. Within thirty (30) days following
(i) Landlord having given notice to Tenant that Landlord intends to sell the
Building or ground lease to the Land Owner (and provided that such notice
correctly identifies the name and address of the Land Owner), and (ii) Tenant's
exercise of such option to purchase the Building under this Section 2.03, Tenant
shall notify Landlord and the Land Owner whether Tenant desires to exercise said
option to purchase the Land. Failure by Tenant to give such notice to Landlord
and the Land Owner within said time period shall be deemed a waiver by Tenant of
such option to purchase the Land. If Tenant shall elect to exercise such option,
then, within thirty (30) days following agreement or a determination of the fair
market value of the Land, Tenant and the Land Owner shall execute and exchange a
contract of sale which reflects the agreed upon or determined purchase price,
and which is otherwise consistent with contracts for the sale of like property
in Manhattan. In order to bind the Land Owner to the terms of the foregoing
option, Landlord agrees that Landlord shall include the following sentence in
any deed or other instrument which is required to be recorded in order to effect
a sale of the Land: "If the Grantor [i.e., Landlord], or its successors and
assigns, shall at any time hereafter (during the term of that certain lease (the
"Lease") dated as of August 1, 1999, as such term may be extended or renewed,
between Ise 555 Broadway, LLC, as landlord, and Scholastic Inc. ("Scholastic"),
as tenant, of the premises [i.e., 555 Broadway]) sell, be required to sell or
accept an offer to sell all or any portion of the Grantor's rights, title and
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interest to that certain building located on the premises, or any ground lease
of the premises, to the Grantee [i.e., said third party purchaser], or its
successors, assigns or affiliates, then the Grantee, or such successors, assigns
or affiliates, shall be required to sell the premises to Scholastic, or its
successors and assigns, for the then current fair market value thereof, subject
to, however, and in accordance with the applicable procedures set forth in
Section 2.03 of the Lease."
(h) In the event that Tenant exercises its right to purchase all or
any part of the Property as set forth in this Section 2.03 or Tenant otherwise
desires to purchase all or any part of the Property, in either case at any time
during which the Property is subject to a Mortgage and after the earlier of (i)
four (4) years after the date of the Mortgage, and (ii) two (2) years after the
date of securitization of the loan secured by the Mortgage, and Tenant does not
wish to purchase the Property subject to the Mortgage, then Landlord on behalf
of Tenant, at Tenant's request and at Tenant's cost, shall cause the release of
the Property from the lien of the Mortgage and other Loan Documents (as such
term is defined in the Mortgage) in the manner set forth in the Mortgage.
Section 2.04. 557 Property Right of First Offer. (a) If (x) the initially
named Landlord herein (as defined below) is then the owner of the Building, (y)
the 557 Building (as hereinafter defined) shall have been constructed, and (z)
the initially named Tenant herein shall have obtained permanent financing for
the 557 Building, then the initially named Landlord herein shall have and is
hereby granted a right of first offer (the "557 Right of First Offer") to
purchase such right, title and interest (whether leasehold or fee or options to
acquire any interest in the fee) of the initially named Tenant herein as the
initially named Tenant herein may then own ("Tenant's 557 Interest") in and to
the parcel of land described on Exhibit B attached hereto (the "557 Land") and
the building to be constructed on the 557 Land (the "557 Building"; the 557 Land
and the 557 Building being collectively referred to herein as the "557
Property") from the initially named Tenant herein as hereinafter provided.
(b) The procedure for granting and exercising the 557 Right of First
Offer shall be in accordance with the terms and provisions of Section 2.03
hereof, with the terms therein being used, mutatis mutandis, provided, however,
that (i) any sale of all or any portion of Tenant's fee interest in and to the
557 Property and any subsequent sale thereof shall be subject to the terms and
conditions of the Option Agreement dated as of October 9, 1996, by and between
each of the individuals comprising the 557 Landlord, as optionors, and Tenant,
as optionee, and (ii) the concept of "Acceptable Purchaser" as used in Section
2.03 hereof, and all rights of first refusal in connection with the concept of
"Acceptable Purchaser", shall not be applicable to the 557 Right of First Offer.
(c) For all purposes under this Lease, the term "initially named
Landlord herein" shall be deemed to refer only to: (i) the entity which is ISE
555 Broadway, LLC (whether or not known by or using such name), (ii) any
"Successor Corporation" (with such term being used,
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mutatis mutandis), and (iii) any Affiliate of ISE 555 Broadway, LLC or of a
Successor Corporation.
(d) Landlord's rights to purchase Tenant's 557 Interest as set forth
in this Section 2.04 shall be contained in a memorandum or other document (the
"557 Document") which, at Landlord's expense, may be filed and recorded of
record against the 557 Property.
(e) Landlord and Tenant shall instruct their respective counsel to
negotiate the 557 Document in good faith. If the parties are unable to agree
upon the form of the 557 Document by December 31, 1999, or such later date as
the parties shall agree upon, either party may submit the matter to
determination by arbitration pursuant to Article 26 hereof.
Section 2.05. Term of this Lease. The phrase "term of this Lease" shall
mean the Initial Term and (if applicable) the Renewal Term.
ARTICLE THREE
DELIVERY OF PREMISES
Section 3.01. Delivery of Premises. Tenant acknowledges that it has
possession of the Building on the Commencement Date and Tenant accepts such
possession in its present "as is" condition with whatever patent or latent
defects may exist. Tenant specifically acknowledges that, except as otherwise
provided in Section 3.03 hereof, Landlord has no obligations to Tenant arising
out of the present or prior condition of the Building, including, without
limitation, the possible existence of any asbestos in any part of the Building.
As between Landlord and Tenant, Tenant agrees that currently existing violations
of law, violations hereafter arising, or latent or patent defects in the
Building are Tenant's responsibility, whether or not any such condition is the
result of Landlord's neglect, negligence or failure to perform any obligation
that may have existed prior to the Commencement Date of this Lease.
Section 3.02. Subtenancies. Tenant represents that as of the Commencement
Date it is in physical occupancy of the entire Building except for space
subleased to its subtenants under written leases, counterparts of which have
been delivered to Landlord and are identified on Schedule 1 attached hereto.
Section 3.03. Capital Improvement Funds.
(a) Notwithstanding anything to the contrary in this Lease, Landlord
agrees to give Tenant, upon the commencement of this Lease, $1,601,134 (the
"Initial Capital Improvement Amount") which amount shall be used by Tenant only
to pay for the cost of capital improvements to the Building systems and/or the
Building Structure (as hereinafter defined) made after the date hereof and/or
the cost of any capital improvements or replacements made
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after the date hereof which are necessary or required to enable Tenant, upon the
expiration or earlier termination of the term of this Lease, to return the
Building to Landlord in compliance with the Restoration Standard, as set forth
in Section 5.01 hereof, and shall not be used by Tenant for any other purposes
(the foregoing uses are hereinafter referred to as "Reimbursable Capital
Improvements"). In addition, Landlord agrees to give to Tenant, on or before
July 1, 2014, $1,750,000 (the "Second Capital Improvement Amount") to pay for
Reimbursable Capital Improvements to the Building made either before or after
July 1, 2014. Tenant shall deliver to Landlord receipts and invoices for all
work paid for with the Initial Capital Improvement Amount and the Second Capital
Improvement Amount; it being agreed, however, that the foregoing requirement
shall not be a condition to Landlord's obligation to pay the aforesaid amounts
to Tenant. Such receipts and invoices shall describe the improvements completed
in sufficient detail to establish that such improvements qualified as
Reimbursable Capital Improvements. "Building Structure" means the foundation,
footings, roof, exterior walls and load-bearing walls and columns of the
Building, the floors and ceilings in the Building, and core stairs, elevators,
exterior windows, exterior plate glass, window sills and sashes in the Building.
(b) Without in any way limiting any remedies as Tenant may have at
law in equity, except that Tenant shall not be permitted to terminate this Lease
due to any violation by Landlord of this Subsection 3.03(b), if Landlord shall
fail to pay any portion of the Initial Capital Improvement Amount and the Second
Capital Improvement Amount when due hereunder, then thirty (30) days after
notice to Landlord, Tenant shall have the right to offset any such unpaid
amount(s), together with interest thereon, from the date when such amount(s)
first came due until the date that the same are fully offset by Tenant or paid
to Tenant, at an annual rate equal to the Prime Rate against first rentals then
due or thereafter coming due under this Lease.
ARTICLE FOUR
RENTAL
Section 4.01. Annual Rental. (a) Tenant shall pay to Landlord, as rent,
without any abatement, setoff or deduction for any reason whatsoever, except as
set forth herein, annual base rental (the "Annual Rental") by wire transfer of
immediately available federal funds, to the account of Landlord in accordance
with wire instructions delivered by Landlord to Tenant by separate letter or to
such other account as Landlord may, by notice, instruct, or, provided that
Landlord shall give Tenant not less than ten (10) business days written notice
thereof, by check payable to Landlord at Landlord's office in the New York City
metropolitan area, as set forth on Schedule 2.
From and after the Commencement Date, the Annual Rental shall be payable
in twelve (12) equal monthly installments, in advance, on the first business day
of each calendar month, the first such payment being due and payable on the
Commencement Date. A prorated monthly
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installment shall be paid if the Commencement Date is other than the first day
of a calendar month or if the term of this Lease terminates on a day other than
the last day of a calendar month.
(b) If any of the Annual Rental and/or Additional Rent shall be or
become uncollectible, reduced or required to be refunded because of any act or
law enacted by a governmental authority in the nature of "rent control" or
similar rent restriction, Tenant shall enter into such agreement(s) and take
such other steps (without additional expense to Tenant) as Landlord may
reasonably request and as may be legally permissible to permit Landlord to
collect the maximum rents which from time to time during the continuance of such
legal rent restriction may be legally permissible (but not in excess of the
amounts reserved therefor under this Lease). If such legal rent restriction
shall be terminated during the term of this Lease, (x) the Annual Rental and/or
Additional Rent shall become and thereafter be payable in accordance with the
amounts reserved herein for the periods following such termination, and (y)
Tenant shall pay to Landlord within thirty (30) days after being billed
therefor, to the maximum extent legally permissible, an amount equal to (i) the
Annual Rental and/or Additional Rent which would have been paid pursuant to this
Lease but for such legal rent restriction, less (ii) the rents paid by Tenant
during the period such legal rent restriction was in effect.
(c) All amounts payable by Tenant to Landlord pursuant to this
Lease, including, without limitation, Annual Rental and Additional Rent (as
hereinafter defined), shall be deemed to be rent, and Tenant's failure to pay
same shall be considered a failure to pay rent hereunder and Landlord shall be
entitled to all rights and remedies provided herein or by law in connection
therewith.
(d) Except as expressly set forth herein, Tenant shall be permitted
to make payments of Additional Rent, if to Landlord, by check, at the office of
Landlord first set forth above, or elsewhere in the New York City metropolitan
area as directed from time to time by Landlord's written notice to Tenant.
Section 4.02. Net Lease. This Lease shall be deemed and construed to be a
"net lease", and Tenant shall pay to Landlord the Annual Rental free of any
charges, assessments, impositions or deductions of any kind, and without
abatement, deduction or set-off (except as set forth herein), and Landlord shall
not be required to make any payment of any kind or be under any other obligation
hereunder, except as otherwise provided elsewhere in this Lease.
Section 4.03. Real Estate Taxes. (a) "Real Estate Taxes" shall mean (i)
any and all real estate taxes, assessments and any special assessments, sewer
rent and water charges, municipal taxes, county taxes, school taxes or any other
governmental charge, general or special, ordinary or extraordinary, of any
nature, that are or may be assessed, levied or imposed upon all or any part of
the Land and/or the Building, giving effect to any abatements, refunds,
reductions, credits and the like, and (ii) all taxes assessed or imposed with
respect to the rentals payable hereunder other than general income and gross
receipts taxes, but excluding any and all transfer, income, franchise,
corporate, estate, inheritance, succession, gifts, gains, capital stock or
recording taxes
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levied on Landlord or the holder of any mortgage affecting the Land or Building.
If at any time during the term of this Lease the methods of taxation prevailing
on the date hereof shall be altered so that in lieu of, or as a substitute for
or addition to, the whole or any part of such real estate taxes, assessments and
special assessments now imposed on real estate, there shall be levied, assessed
or imposed (x) a tax, assessment, levy, imposition, license fee or charge as a
capital levy or otherwise on the rents received therefrom, or (y) any other
substitute or additional tax, assessments, levies, impositions, fees or charges,
then the same shall be deemed to be included within the term "Real Estate Taxes"
for the purposes hereof, but only if, in any such cases, it shall then be
customary that office space of 75,000 or more rentable square feet leases in
first-class Manhattan office buildings shall include the same in Real Estate
Taxes (unless such inclusion shall be due to such leases having been executed at
times when market conditions favored landlords or owners of such buildings).
(b) Tenant shall pay all Real Estate Taxes levied or assessed
against the Property or any part thereof when due and payable and prior to the
time that any penalty or interest may be charged in respect of the nonpayment
thereof, and shall obtain receipted tax bills therefor.
(c) Tenant shall pay to the appropriate taxing authority all Real
Estate Taxes on or prior to their respective due dates. If the Commencement Date
or the Expiration Date shall be a day other than the first day or last day,
respectively, of a Tax Year, then Tenant's Real Estate Tax obligation with
respect to such Tax Year shall be pro-rated in accordance with the number of
days during such Tax Year which occur within the term of this Lease.
(d) (i) Landlord hereby grants and assigns to Tenant all rights
Landlord may have to apply for correction, or petition for reduction, of the
assessed valuation of the Building and the Land, to claim and obtain a refund of
Real Estate Taxes or otherwise challenge the validity or applicability of any
real estate tax, assessment or similar or related charge or law (any such
application, petition, claim of refund or challenge, a "Tax Protest"). Tenant
shall have the right (except as set forth in 4.03(d)(ii) below), to accept or
reject any proposed settlement or compromise of any such Tax Protest during any
phase or stage thereof, and to determine whether to appeal from, or in any
manner challenge, a denial of any such Tax Protest. Landlord shall fully and
timely cooperate with Tenant in the prosecution of any and all Tax Protests and,
in connection therewith, Landlord shall execute all such petitions,
applications, pleadings or other documentation prepared and/or filed in
connection with a Tax Protest as Tenant may reasonably require (including,
without limitation, a Real Property Income and Expense statement), and shall
make available to Tenant any material and information in Landlord's possession,
custody or control relating to the cost of the Building, and any improvements
made thereon, the income derived from the operation thereof, financing
arrangements and any other facts Tenant may reasonably require. Tenant agrees
that the provisions of the foregoing sentence shall not be construed so as to
require Landlord to execute any documents which are inaccurate, not in the
proper form, or not reasonably necessary (from a legal, practical or knowledge
standpoint) to prosecute such Tax Protest.
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(ii) During the last two (2) years of the Initial Term (if
Tenant has not exercised its Renewal Option) or of the Renewal Term, the grant
and assignment referred to in Subdivision 4.03(d)(i) above shall not be
applicable except as otherwise set forth in Subdivision 4.03(d)(iii) below. If
Landlord shall be the party prosecuting a Tax Protest, Landlord shall have all
the rights with respect to the Tax Protest which would have been provided to
Tenant pursuant to Subdivision 4.03(d)(i) had Tenant prosecuted the Tax Protest,
and Tenant shall fully and timely cooperate with Landlord in the prosecution of
the Tax Protest in the manner and to the extent set forth for Landlord in
Subdivision 4.03(d)(i) above.
(iii) Notwithstanding anything to the contrary contained in
this Subsection 4.03(d), if the party which has the initial control of the right
to apply for a Tax Protest pursuant to Subdivision 4.03(d)(ii) shall not have
done so prior to the thirtieth (30th) day before the last day for filing a
timely Tax Protest, and thereafter fails to do so within ten (10) days following
a written demand therefor (hereinafter the "Failing Party") by the other party,
then such other party (hereinafter the "Pursuing Party") shall have the right to
do so; provided, however, that if, as a result of a Tax Protest filed by the
Pursuing Party, there shall be an increase or a reduction or refund in Real
Estate Taxes, the Pursuing Party shall be solely responsible for the payment of
such increase and shall obtain the benefit of the reduction or refund. If the
Landlord is the Pursuing Party the Tenant shall pay to Landlord the amount of
such reduction or refund.
(e) "Tax Year" shall mean every twelve (12) consecutive month
period, all or any part of which occurs during the term of this Lease,
commencing each July 1 or such other date as shall be the first day of the
fiscal tax year of The City of New York.
Section 4.04. Renewal Rental. (a) (i) The Annual Rental for the Renewal
Term shall be the greater of ninety (90%) percent of the Fair Rental Value
(hereafter defined) or the Annual Rental in effect for the year preceding the
first year of the Renewal Term.
(ii) Additional Rent shall be payable for the Renewal Term on
the same basis as during the Initial Term.
(iii) Within fifteen (15) days after Tenant shall have given
Landlord Tenant's Renewal Notice (but not earlier than two years prior to the
end of the Initial Term), Landlord shall notify Tenant of Landlord's
determination of the Fair Rental Value for the Renewal Term. If Tenant shall
disagree with Landlord's determination of the Fair Rental Value, then Tenant,
within thirty (30) days after having received Landlord's notice, shall notify
Landlord (x) that Tenant disputes Landlord's determination and (y) of Tenant's
determination of the Fair Rental Value. If Landlord and Tenant shall be unable
to agree upon the Fair Rental Value within twenty (20) days after Tenant
notifies Landlord that Tenant disputes Landlord's determination, then either
party may immediately or at any time thereafter submit the dispute to determine
the Fair Rental Value to arbitration in the manner provided in Article 26.
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(b) The term "Fair Rental Value" shall mean the base annual rental
which a willing bona fide third party tenant would pay at the time in question
to a willing bona fide landlord for a lease for the Renewal Term in its then
condition and state of repair (except that any improvements installed at the
sole cost and expense of Tenant shall be considered only to the extent that such
improvements shall be deemed by the arbitrator to have economic value to a new
tenant), on the same terms, covenants and conditions as are contained in this
Lease, and considering, in particular, the facts that (i) no rent concessions or
work allowances are to be granted or paid by Landlord, (ii) Landlord shall not
incur any brokerage fees in connection with the leasing of the Premises to
Tenant for the Renewal Term, and (iii) Tenant pays directly for all taxes and
operating expenses from the first dollar.
(c) If for any reason the Fair Rental Value shall not have been
determined prior to the commencement of the Renewal Term, then, from the
commencement of the Renewal Term until the Fair Rental Value, and, accordingly,
the Annual Rental, shall have been finally determined, Tenant shall pay Annual
Rental at the rate of the average of the Landlord's and Tenant's proposed rent
per annum. Upon such final determination and within thirty (30) days after
demand therefor, Tenant shall pay to Landlord any deficiency from the
commencement date of the Renewal Term to the date of such final determination,
or, if Tenant shall have overpaid, Landlord shall refund to Tenant any
overpayment, with such deficiency or refund payments to bear interest computed
at the Prime Rate from the date of such deficiency or overpayment until the day
that the deficiency or refund payment is made by Landlord or Tenant (as the case
may be).
Section 4.05. Certain Offset Rights. In the event (i) Landlord fails to
pay Tenant any amount owed to Tenant pursuant to Subsections 4.03(d)(iii),
5.03(c) or 8.01(c) of this Lease, (ii) an arbitrator has decided in favor of
Tenant with respect to such disputed amount, and (iii) Landlord has failed to
pay such amount for fifteen (15) days after the date of the arbitrator's
determination, Tenant shall have the right to offset the amount owed Tenant
against the Annual Rental and Additional Rent then due or thereafter coming due
under this Lease. In addition, if the amount owed to Tenant pursuant to
Subsections 4.03(d)(iii), 5.03(c) or 8.01(c) of this Lease does not include
interest thereon at the Prime Rate, then Tenant shall also have the right to
offset interest on the declining balance of such amount at the Prime Rate from
the date such amount should have been paid to Tenant until such interest is
fully offset by Tenant or fully reimbursed to Tenant.
ARTICLE FIVE
OPERATIONS AND MAINTENANCE
Section 5.01. Standard of Operations. (a) Tenant covenants to operate and
maintain the Building so that upon the expiration of the Lease the Building will
be returned to Landlord in a condition meeting the "Restoration Standard" as
herein defined.
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(b) "Restoration Standard" means that at the expiration or earlier
termination of the term of this Lease ("Lease Expiration" or "Lease
Termination") the Building will be returned to Landlord in its then "as is"
condition provided that: (i) it is not in a state of disrepair, and (ii)
considering the nature of Tenant's use of the office space as its corporate
headquarters, it has been maintained in a "first-class" manner as hereinafter
defined.
(c) "first-class" means that: (i) no maintenance has been deferred;
(ii) maintenance has been performed on a regular basis in accordance with
industry standards in the operation and maintenance of buildings similar to the
Building in age, size and use in Soho; and (iii) to the extent that the
requirements of (i) and (ii) of this subdivision (c) imply a need for capital
improvement or replacement, Tenant shall have performed the capital improvement
or replacement regardless of the time remaining in the then term of this Lease.
(d) In the event Tenant fails to maintain the Building in accordance
with Subsection 5.01(c) above, such failure shall not be deemed a default
hereunder during the term of this Lease, but Tenant shall be required to meet
the Restoration Standard by restoring the Building upon Lease Expiration or
Lease Termination to the same condition it would have been in had Tenant
fulfilled its obligation to maintain the Building in accordance with Subsection
5.01(c).
Section 5.02. Cost of Operations and Maintenance. (a) Except as otherwise
provided in Section 3.03 hereof and to the extent hereinafter specifically
otherwise provided, all costs of operations and maintenance (including, without
limitation, capital costs and managing agent fees incurred whether or not
Landlord exercises its rights under Section 5.02(d) hereof) that are: (i)
necessary to meet legal requirements, (ii) necessary to achieve and maintain the
Restoration Standard, (iii) otherwise specifically required by this Lease, or
(iv) otherwise desired by Tenant, shall be paid for by Tenant.
(b) During the term of this Lease, Tenant shall enter into a
management agreement (or successive management agreements) with a professional
third party building management firm to operate the Building in a manner which
satisfies the operation standard set forth in Section 5.01 hereof.
Simultaneously with the execution and delivery of this Lease, Tenant has entered
into a management agreement with CB Richard Ellis, Inc., a copy of which has
been provided to Landlord. Upon the expiration or termination of the management
agreement, Tenant shall enter into a new or renewal agreement with CB Richard
Ellis, Inc. or Tenant may, instead, enter into a management agreement with
another recognized professional national property management firm with an office
in New York City or with a recognized professional New York City management firm
that already has under management at least (i) five (5) New York City office
buildings and (ii) 1,000,000 square feet of office space. Any management
agreement entered into by Tenant shall be terminable by or at the request of
Landlord in the event Landlord exercises its rights under Subdivision 5.02(d)
below. Tenant shall not self-manage the Building. On a quarterly basis, Tenant
shall provide or cause to be
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provided to Landlord, for informational purposes only, a copy of quarterly or
other periodic or special reports prepared or obtained by the management firm
for Tenant relating only to (i) the condition of the building (including the
status of capital improvements in progress and planned for the future), (ii)
incidents or problems that may have developed with the Premises, and (iii)
during the Consultative Period, current financial reports, and during any period
when Landlord is managing the Building, current financial reports and financial
reports for the preceding three (3) years, in each case, with respect to the
budget, income, expenses and operation of the Building. Landlord agrees that all
Landlord's requests and other communications regarding the foregoing reports
shall be directed to Tenant rather than said management firm.
(c) Upon the completion of construction of the 557 Building, Tenant
shall provide an adequate and appropriate space for the management of the
Building in the 557 Building.
(d) Landlord has the right to hire a management firm (CB Richard
Ellis, Inc. or another meeting the requirements of Subdivision 5.02(b) above) to
perform the management functions described above, but only if and for so long as
both of the following two conditions exist: (i) Tenant is not in physical
occupancy of at least 102,500 rentable square feet of office space in the
Building, and (ii) Tenant does not meet the Financial Test (as hereinafter set
forth). During the time the management firm has been hired by Landlord, except
in emergencies, Landlord shall obtain Tenant's approval (which approval shall
not be unreasonably withheld or unduly delayed), or shall cause the managing
agent to obtain Tenant's approval (which approval shall not be unreasonably
withheld or unduly delayed), prior to Landlord or such managing agent making a
decision which increases the cost of any line item in the operating expense
budget by $5,000 or more. Any management agreement entered into by Landlord
shall be terminable by or at the request of Tenant if and when either of the
above conditions no longer exists. If Landlord exercises its rights under this
Section 5.02(d), Landlord shall manage the Building in accordance with Sections
5.01(b) and (c). Landlord shall not self-manage the Building.
(e) As used in this Lease, "Financial Test" shall mean a credit
rating not lower than Standard & Poors Senior Long Term Debt rating of BB+
(i.e., as of the Commencement Date, one Standard & Poors rating level below
"investment grade" of BBB-). In the event Standard & Poors no longer exists or
no longer publishes credit ratings, the parties shall agree to a comparable
substitute credit rating agency. If the parties are unable to agree to a
substitute credit rating agency, the issue shall be resolved by arbitration in
accordance with Section 26.01.
Section 5.03. Consultative Period. The following provisions shall obtain
during the last two years (the "Consultative Period") of the Initial Term (if
Tenant has not exercised its right to renew) or of the Renewal Term:
(a) The parties will consult with one another with respect to any
significant management issues. The purpose of consultation shall be a good faith
effort by Landlord and
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Tenant to agree on appropriate management measures and capital and non-capital
expenditures to meet the Restoration Standard in a commercially reasonable
manner.
(b) Tenant shall be obligated to make and pay for capital
improvements only if (i) needed to meet the Restoration Standard or (ii) desired
by Tenant. Tenant shall elect whether to make such other capital improvements as
requested by Landlord or to permit Landlord to make them, in either event at
Landlord's cost, provided that the making of such capital improvements shall not
materially interfere with Tenant's use or occupancy of any portion of the
Property or access thereto.
(c) If Tenant shall be performing a capital improvement needed to
meet the Restoration Standard, Landlord may, on reasonable notice, require
Tenant to upgrade the same (but only if such incremental work shall not
materially interfere with Tenant's use or occupancy of any portion of the
Property or access thereto), in which event the additional cost attributable to
the upgrade shall be paid for by Landlord on a periodic basis that generally
corresponds to the progress of the work.
(d) If Landlord has exercised its rights under Section 5.02(d),
Landlord may not require Tenant to pay for non-capital expenditures other than
the same types of items and magnitudes included in Tenant's budgets or actual
expenditures in the three years preceding the Consultative Period.
(e) Disputes regarding (i) whether an issue is a significant
management issue, (ii) a failure to agree on whether a proposed capital
improvement is needed to meet the Restoration Standard or on the additional cost
attributable to an upgrade or (iii) the types and magnitudes of proposed
non-capital expenditures, shall be resolved by arbitration in the manner
provided by Article 26 below; provided that any arbitrator acting under Section
26.01 in connection with any of the foregoing matters shall be a specialist
(i.e., a building manager, engineer, architect, etc.) in the issue with which
the arbitration is concerned, and shall have been actively engaged in such
specialty for a period of at least ten (10) years before the date of his or her
appointment as an arbitrator hereunder.
Section 5.04. Tenant's Insurance. Tenant shall maintain in full force and
effect at all times during the term of this Lease:
(a) standard all-risk fire and casualty insurance (including,
without limitation and if commercially reasonable, flood and earthquake
coverages), with so-called "law and ordinance" coverage, covering the Building
and all leasehold improvements now or hereafter in the Premises in an amount at
least equal to replacement cost of the Building (excluding foundation and
excavation costs) and said leasehold improvements at the time in question, but
in no event less than such coverage as is required to avoid co-insurance
provisions; the policy shall contain a replacement cost and agreed amount
endorsement.
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(b) commercial general liability insurance, including a contractual
liability endorsement, which shall include bodily injury, personal injury,
death, independent contractors, completed operations and property damage
coverages, having a combined single limit amount of not less than $15,000,000
against all claims, demands or actions with respect to damage, injury or death
made by or on behalf of any person or entity, in respect of the Premises and the
roof of the Building, or arising from or related to the conduct and operation of
Tenant's business in the Premises.
(c) employer's liability insurance with a minimum limit of
$1,000,000 for bodily injury;
(d) worker's compensation, disability and other similar insurance in
statutory limits covering all persons employed by Tenant (and Tenant shall cause
Tenant's managing agent to maintain the same covering all persons employed by
Tenant's managing agent) or in connection with any work performed by or on
behalf of Tenant in the Building (or paying for comparable insurance taken out
by Landlord for persons employed by Landlord or Landlord's managing agent if
Landlord exercises its rights contained in Section 5.02(d) hereof);
(e) [intentionally omitted]
(f) rent or business interruption insurance in an amount sufficient
to pay the Annual Rental and estimated Real Estate Taxes during any period in
which 25% or more of the Building is rendered unuseable for Tenant's business
and Tenant is obligated hereunder to rebuild; and
(g) such other insurance coverage as is customarily carried by net
lessees in respect of buildings similar to the Building in Soho ("Comparable
Buildings").
Commencing with the fifth (5th) anniversary of the Commencement Date, Landlord
may from time to time during the term of this Lease (but not more frequently
than once during any period of five (5) years) require that the amount and type
of the insurance to be maintained by Tenant hereunder be increased, so that said
amount and type adequately protects Landlord's interest; provided, however, that
Landlord may not require Tenant to procure any insurance which (i) exceeds in
type or amount the insurance which is then being customarily required to be
maintained of net lessees of Comparable Buildings, or (ii) is not available at
commercially reasonable rates. Said policies of insurance may be written as
primary policy coverage or a combination of primary and excess coverage and
shall be issued by good and solvent companies, having a rating of not less than
"A:VIII" in Best's Key Rating Guide, licensed to do business in the State of New
York, or other companies approved by Landlord, which approval shall not be
unreasonably withheld or delayed. Landlord hereby approves the Atlantic Mutual
Insurance Co. and Centennial Insurance Company (or any of their affiliates or
subsidiaries) as Tenant's insurer. Said policies required under Subparagraphs
(b), (c) and (d) above shall name Landlord and Landlord's Mortgagee as
additional insureds as their interests may appear, and the policy
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required under Subparagraph (a) above shall name Landlord as an additional
insured and Landlord's Mortgagee as a mortgagee and loss payee as their
interests may appear and shall be payable and the proceeds made available to
Tenant as provided in Article 9 hereof. Said policies (if and to the extent that
the same shall be customary) shall provide that the insurer will give at least
thirty (30) days prior written notice of cancellation of said policy or of any
material modification thereof. Within twenty (20) days following the execution
of this Lease, and at least twenty (20) days prior to the expiration of any such
policy or renewals thereof, Tenant shall furnish to Landlord a certificate or
certificates of insurance (including appropriate endorsements showing Landlord
as an additional insured) certifying that the insurance coverage required hereby
is in force. Any insurance required by the terms of this Lease to be carried by
Tenant may be under a blanket policy (or policies) covering other properties or
locations of Tenant and/or its related or affiliated corporations. If such
insurance is maintained under a blanket policy, Tenant shall procure and deliver
to Landlord a statement from the insurer or authorized agent of the insurer
setting forth the coverage maintained and the amounts thereof allocated to the
risks at the Land and Building intended to be insured hereunder, which amounts
shall not be less than the limits set forth in clauses (a) through (g) of this
Section 5.04. Tenant shall promptly give Landlord a copy of any notice of
violation of insurance requirements received by Tenant from any insurance
carrier of Tenant.
ARTICLE SIX
LEASEHOLD MORTGAGES
Section 6.01. Mortgageable Lease. Notwithstanding anything to the contrary
contained in this Lease, Tenant shall, upon notice to Landlord, have the right
to mortgage this Lease and Tenant's rights hereunder without the consent of
Landlord (except that the consent of Landlord, not to be unreasonably withheld
or delayed, shall be required if the proposed mortgagee is not a domestic
institutional lender), and Landlord acknowledges that, in such event, it is the
intention of the parties that the rights of Tenant under this Lease shall be
mortgageable in accordance with institutional mortgage lending practices (i.e.,
this Lease shall be a "mortgageable lease"). Accordingly, Landlord shall
(subject to the limitations set forth below) consent to and make whatever
reasonable changes to this Lease as may be reasonably required, from time to
time, by a domestic institutional lender making a loan secured by an exculpated,
unguaranteed leasehold mortgage upon the interest of Tenant under this Lease,
including, but not limited to, payments to Tenant or mortgagee in condemnation
for the amount set forth in Section 12.04 hereof, rights to notice and
opportunity to cure, recording of notice of the mortgagee's rights, elimination
of any non-curable default obligations, estoppel certificates and the right to a
replacement lease in the event of a termination of this Lease if the leasehold
mortgagee cures monetary defaults prior to the expiration of the applicable
grace period(s). Tenant shall have the unrestricted right to collaterally assign
this Lease, provided that the assignee coming into possession of the Premises by
reason of such assignment satisfies the use and Minimum Net Worth requirements
set forth in Subsection 16.01(c) below. Tenant agrees that Landlord shall not be
required to make any
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changes to this Lease which shall (i) extend or shorten the term of this Lease,
(ii) increase any of Landlord's obligations or decrease any of Landlord's rights
under this Lease, except to a de minimis extent, or (iii) affect Tenant's
obligation to pay Annual Rental and Additional Rent. For the purposes of this
Lease, the term "domestic institutional lender" shall mean a savings bank, a
savings and loan association, a commercial bank, a trust company, which is
organized under the laws of the United States or Canada and subject to the
supervision of the Comptroller of the Currency, the Federal Reserve Board or a
state banking superintendent or commissioners, an insurance company, an
investment bank, a real estate mortgage investment conduit, a trustee in
securitization, or any assignee of any thereof (which assignee must also be a
domestic institutional lender) organized and existing under the laws of the
United States or Canada, a real estate investment trust sponsored by a domestic
institutional lender (which is not another real estate investment trust), or a
union, federal, state, municipal or secular employee's welfare, benefit, pension
or retirement fund.
ARTICLE SEVEN
USE AND ACCESS
Section 7.01. Use. (a) Tenant, its permitted assignees, permitted
subtenants and other permitted occupants of the Building or portions thereof
shall have the right to use the Building and all portions thereof for general
and executive office use and all purposes ancillary thereto, consistent with
ancillary uses in Comparable Buildings, as well as for retail use where
permitted by Applicable Law.
(b) Without limiting the foregoing, Tenant shall have the right to
use portions of the Building for the following specific purposes:
(i) medical departments for employees of Tenant;
(ii) cafeterias, kitchens, pantries and dining rooms for the
feeding of employees and guests of Tenant;
(iii) gallery and other retail uses (on the basement, first
and second floors of the Building only);
(iv) vending machines and snack bars for the sale of food,
confections, nonalcoholic beverages, cigars and cigarettes, newspapers and other
convenience items to employees of Tenant;
(v) business machines, equipment for printing, producing and
reproducing forms, circulars and other materials used in connection with the
conduct of Tenant's business,
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and equipment for the production of such photostats and other material as Tenant
may require for the transaction of its business, but in either instance not for
sale to others;
(vi) libraries;
(vii) computer and other electronic data processing equipment;
(viii) auditoriums;
(ix) board rooms, conference rooms and screening rooms;
(x) training rooms for employees and guests of Tenant;
(xi) facilities for storage of equipment and supplies in
connection with the foregoing;
(xii) safe and vault areas;
(xiii) audio-visual and closed circuit television facilities;
(xiv) a gymnasium, exercise and health room facility for
employees of Tenant, including, without limitation, locker rooms, showers and
related facilities;
(xv) radio and other electronic communication facilities;
(xvi) child care facilities; and
(xvii) retail sale of books and other educational materials.
(c) Without limiting the foregoing, Tenant shall have the right to
use the roof of the Building for the following outdoor purposes:
(i) dining area for the use by employees and guests of Tenant;
(ii) lounge area for employees and guests of Tenant;
(iii) parties and social gatherings of employees and guests of
Tenant;
(iv) area for microwave, satellite or other antenna
communication system; and
(v) such other outdoor roof activities as permitted by and in
accordance with Applicable Law in connection with such use.
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(d) To the extent any of the specific uses set forth in Subsections
(b) and (c) above or any other special use to which Tenant is permitted to put
the Premises requires an amendment to the existing certificate of occupancy,
Tenant shall be responsible for obtaining and maintaining the same at Tenant's
cost, as well as any other governmental permit, approval or license required by
Applicable Law in connection therewith. Landlord shall cooperate with Tenant and
shall execute all applications, authorizations and other instruments (but only
if the same shall be accurate, in the proper form and reasonably necessary for
Landlord to execute) reasonably required to enable Tenant to fulfill Tenant's
responsibilities under this Subsection (d); provided, however, that Landlord
shall not be required to incur any additional out-of-pocket expense therefor (it
being agreed and understood, however, that any cost or expense which Landlord is
or would be contractually obligated or legally liable to pay to any third party
or any governmental agency for any reason other than the cooperation requirement
set forth in this Subsection (d) shall not be deemed or construed an "additional
out-of-pocket expense"), unless Tenant agrees to reimburse Landlord for the
same. Tenant agrees to furnish Landlord with a copy of Tenant's applications in
connection therewith, and to furnish Landlord a copy of the amended certificate
of occupancy within a reasonable period of time following Tenant's receipt
thereof. The foregoing provisions are not intended to be deemed Landlord's
consent to any use of the Premises not otherwise permitted hereunder. Landlord
does not represent that any of the uses of the Premises specified in Subsections
7.01(b) and (c) above are or shall be in compliance with Applicable Law.
(e) Tenant shall not permit or conduct any obscene performances
within the Premises, nor permit use of the Premises for nude modeling, or as a
sex club of any sort, or as a "massage parlor". Obscenity is defined here as it
is in Penal Law '235.00. Tenant shall not use or occupy the Building, or
knowingly permit any agent, employee, licensee or invitee of Tenant to use or
occupy the Premises, or do anything in the Building, or knowingly permit
anything to be done in, brought into or kept on the Premises by any agent,
employee, licensee or invitee of Tenant, which: (i) violates the certificate of
occupancy for the Building; (ii) causes injury to the Building or any of
Landlord's equipment, facilities or systems therein; or (iii) constitutes a
violation of Applicable Laws or the requirements of relevant insurance bodies.
Landlord agrees not to enforce the provisions of this Subsection 7.01(e) against
Tenant in a commercially unreasonable manner.
(f) Tenant shall not use, or knowingly permit anyone to use, the
Premises or any part thereof, for gambling activities or for the regular conduct
of auctions, except that Tenant may conduct public art and similar auctions on
the first and second floors of the Building, occasional other auctions for
charitable, educational or community purposes, and private auctions of Tenant's
own assets.
(g) Tenant shall not commit waste upon the Premises.
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Section 7.02. Access. Tenant and its permitted subtenants and other
permitted occupants of the Premises, and their employees, agents, licensees and
invitees, shall have access to the Premises at all times, 24 hours per day,
every day of the year. Notwithstanding the foregoing, Landlord shall have the
right to close the Building one (1) day per year if necessary to prevent any
easements by prescription.
ARTICLE EIGHT
REPAIRS AND MAINTENANCE
Section 8.01. Tenant's Obligation to Repair and Maintain. (a) Tenant
shall, at its sole cost and expense, keep and maintain in good repair and
working order and make all necessary repairs and replacements to and perform all
necessary maintenance upon the Building (including, without limitation, any base
building systems) and public portions of the Building and all parts thereof,
including, without limitation, the foundation, footings, roof, exterior walls
and load-bearing walls and columns of the Building, the plumbing, electrical and
mechanical systems serving the Building, all floors and ceilings in the
Building, all core stairs, all elevators, all exterior windows, exterior plate
glass, window sills and sashes in the Building and all Building equipment within
and serving the Building.
(b) Tenant shall also be responsible for all repairs, interior and
exterior, structural and non-structural, ordinary and extraordinary, foreseen
and unforeseen, in and to the Building, the roof, and all of Tenant's leasehold
improvements.
(c) Landlord shall be responsible for all repairs to the Building or
any part thereof, the need for which arises out of the wrongful or negligent act
or omission of Landlord or of Landlord's employees, agents (including, without
limitation, Landlord's managing agent during any period when Landlord has hired
a management firm under Section 5.02(d) hereof), contractors or invitees, which
wrongful or negligent act or omission occurs after the Commencement Date. In
addition, and notwithstanding the foregoing, in the event Landlord has exercised
its right to hire a management firm under Section 5.02(d), Landlord shall be
responsible for all repairs to the Building or any part thereof to the extent
the need therefore arises out of Landlord's failure to perform its obligations
to manage the Building in accordance with the terms of this Lease. All repairs
in and to the Building for which Landlord is responsible in accordance with this
Subsection 8.01(c) shall be promptly performed by Landlord in compliance with
all Applicable Laws. If Landlord shall default in the performance of any of
Landlord's obligations under this Subsection 8.01(c), or if Landlord shall fail
to make any payment that Landlord agrees or is obligated to make pursuant to
this Subsection 8.01(c), then Tenant, after five (5) business days notice to
Landlord (and without notice in the case of an emergency), may perform the
obligation, or, in the case of a payment due others, make the payment, as
Landlord's agent. The full amount of the cost and expense so incurred by Tenant
or the payment so made, together with the amount of any reasonable attorneys'
fees in instituting,
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prosecuting or defending any action or proceeding by reason of any default of
Landlord hereunder, shall be paid by Landlord to Tenant with interest at the
Prime Rate thereon from the date so paid or incurred by Tenant until paid by
Landlord.
ARTICLE NINE
FIRE AND OTHER CASUALTY
Section 9.01. Damage or Destruction. (a) Except to the extent otherwise
provided in Subsection (b) of this Section 9.01, (i) Tenant at its sole cost and
expense shall promptly proceed to reconstruct, restore and repair any damage or
destruction to the Premises by fire or other casualty to a condition
substantially equivalent in value and function to the extent permitted by law to
its former condition; and (ii) Tenant specifically waives any rights it might
otherwise have under New York Real Property Law ' 227 to any abatement of rent
or other obligations under this Lease or to any right to terminate this Lease.
(b) (i) If, during the 19th or 20th years of the Initial Term or
during the last two years of the Initial Term (if Tenant has not exercised its
Renewal Option) or during the last two years of the Renewal Term, more than 25%
of the Building shall be damaged by fire or other casualty, Tenant may elect not
to reconstruct, restore or repair, and may terminate this Lease on thirty (30)
days written notice to Landlord given at any time after the date of the fire or
other casualty. Tenant, in that event, will assign to Landlord all its rights
under the fire and extended coverage insurance policies required to be
maintained under this Lease, and subject to a pro-ration and apportionment of
Annual Rental and Real Estate Taxes as of the date of the casualty, no further
rentals shall be due hereunder.
(ii) If, during the first eighteen (18) years of the Initial
Term, more than 25% of the Building shall be damaged by fire or other casualty,
Tenant shall be obligated to rebuild as required by Section 9.01(a) hereof but
Tenant may, at its option, elect to terminate this Lease as of the 18th
anniversary of the Commencement Date by giving Landlord a notice to that effect
no later than the earlier of (i) one year after the date of the fire or casualty
and (ii) the eighteenth anniversary of the Commencement Date.
Section 9.02. Waiver of Subrogation Rights. (a) The parties hereto hereby
waive any and all rights of recovery, claim, action or cause of action, against
the other party (and, in the case of Tenant, such waiver shall extend to
Tenant's permitted subtenants and other occupants of the Premises), their
respective agents, partners, officers and employees, for any loss or damage that
may occur to the Building and to all property, whether real, personal or mixed,
located in the Building, by reason of fire, the elements or any other cause
normally insured against under the terms of standard "all risk" insurance
policies of the type prescribed from time to time for use in respect of the
Building, regardless of cause or origin, including the negligence of the parties
hereto or of any such subtenants or other occupants of the Building, their
respective agents and
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employees. Each party agrees to provide the other with reasonable evidence of
its insurance carrier's consent to such waiver of subrogation. Nothing contained
in this Section 9.02 shall be deemed to relieve either party of any duty imposed
elsewhere in this Lease to repair, restore or rebuild provided for elsewhere in
this Lease.
(b) Landlord and Tenant shall each include in its fire insurance
policies appropriate clauses pursuant to which the insurance companies (i) waive
all rights of subrogation against the other and each party's mortgagee with
respect to losses payable under such policies and/or (ii) agree that such
policies shall not be invalidated should the insured waive in writing prior to a
loss any or all rights of recovery against any party for losses covered by such
policies.
ARTICLE TEN
LIABILITY
Section 10.01. Indemnification of the Parties. Subject to the provisions
of Section 9.02, Landlord and Tenant each agree to indemnify and save the other
(and such other's partners, directors, employees, shareholders, members and
principals) harmless from any and all claims with respect to bodily injury or
property damage: (i) arising from any breach or default on the part of the
indemnifying party in the performance of any covenant or agreement on its part
to be performed pursuant to the terms of this Lease, or (ii) arising from the
indemnifying party's negligence or the negligence of any of its agents,
contractors or employees, including, without limitation, all costs, reasonable
counsel fees and disbursements, expenses and liabilities incurred in connection
with any such claim; and if any action or proceeding is brought against either
Landlord or Tenant by reason of any such claim, the indemnifying party upon
notice from the party to be indemnified covenants to resist or defend such
action or proceeding at its expense. In addition to the foregoing and subject to
the provisions of Section 9.02, Tenant agrees to indemnify and save Landlord
harmless from any and all claims, accidents, damages or injuries whatsoever
occurring in the Building or on the roof of the Building, unless and to the
extent caused by the negligence or willful misconduct of Landlord or an
Affiliate of Landlord or of their respective agents, employees, contractors or
invitees. The party to be indemnified shall not settle any such action without
the consent of the indemnifying party, and shall permit the indemnifying party
to participate in the defense of any such action.
Section 10.02. Landlord's Exculpation. Except as otherwise expressly
provided in this Lease, Landlord shall not be liable to Tenant for any loss or
injury or damage to Tenant, or to Tenant's property, irrespective of the cause
of such injury, damage or loss, and Landlord shall not be liable for any damage
to property of Tenant entrusted to employees of Landlord or for loss of or
damage to any such property by theft or otherwise, except, in all such cases, to
the extent caused by or resulting from (i) the failure by Landlord to fulfill
any of Landlord's obligations under this Lease, or (ii) the negligence or
willful misconduct of Landlord, or of an Affiliate of
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Landlord or of their respective agents, employees, contractors or invitees
(subject, however, to the provisions of Section 9.02 above).
ARTICLE ELEVEN
ALTERATIONS AND FIXTURES
Section 11.01. Alterations by Tenant. (a) At any time, and from time to
time during the term of this Lease, Tenant may make all such improvements,
additions, changes and alterations to the Premises (collectively, "Alterations")
as Tenant shall deem necessary or desirable.
(b) Alterations to the building systems which neither constitute
waste nor materially diminish the value of the Building are not Structural
Alterations. Other Alterations to building systems are Structural Alterations.
(c) "Structural Alterations" are Alterations that (other than to a
de minimis extent): (i) reduce the value of the Building, (ii) reduce the
marketability of the office space of the Building for single or multi-tenancy,
(iii) affect the structural integrity of the Building (i.e., load-bearing
components), (iv) affect the facade or other exterior appearance of the
Building, or (v) if made to Building Systems, constitute waste.
(d) Tenant shall give Landlord at least ten (10) business days prior
written notice of any proposed Alteration (Structural or otherwise) in
sufficient detail for Landlord to determine whether the proposed Alteration is a
Structural Alteration; provided that Tenant need not give Landlord notice of any
proposed Alteration that is clearly not a Structural Alteration.
(e) If a proposed Alteration is a Structural Alteration, Landlord
may require the restoration at Lease Expiration of the portions of the Building
affected by the Structural Alteration, but only if Landlord shall have given
Tenant a written notice to that effect within ten (10) business days after
receiving Tenant's notice of the proposed Structural Alteration.
(f) Notwithstanding the foregoing provisions of this Section 11.01,
Tenant may proceed to perform any Alteration (whether or not a Structural
Alteration) without having received Landlord's notice described in Section
11.01(e) hereof. Tenant acknowledges that it proceeds at its own risk (i.e.,
Landlord may determine that the proposed Alteration is a Structural Alteration,
and require the restoration at Lease Expiration of the portions of the Building
affected by the Structural Alteration) if Tenant fails to wait for the earlier
of Landlord's notice or the lapse of the ten (10) business days as stated in
Section 11.01(e). In the event Tenant's notice to Landlord regarding the
proposed Structural Alteration does not accurately describe or cover the
Alteration that is ultimately built (as shown in the "as built" plans delivered
to Landlord upon completion of the Alteration pursuant to Section 11.02(c)),
Landlord shall have the right to
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require the restoration at Lease Expiration of the portions of the Building
affected by such Structural Alteration.
(g) Promptly upon the completion of any Structural Alteration as to
which Landlord has reserved a right to require restoration, Tenant shall inform
Landlord in writing as to Tenant's good faith reasonable estimate of the cost of
restoration.
(h) If Landlord or Tenant disputes whether (A) an Alteration is a
Structural Alteration or (B) Tenant's good faith reasonable estimate of the cost
of restoration is, in fact, a commercially reasonable estimate, the dispute
shall be settled by Expedited Arbitration commenced by either party (x) within
six (6) months after the delivery by Tenant to Landlord of the notice set forth
in Subsection 11.01(d) above (or if no such notice has been given within six (6)
months from the date Landlord has actual knowledge of the information that
Tenant is required to include in its notice to Landlord pursuant to Subsection
11.01(d) above), in the case of a dispute as to the matter set forth in clause
(A) of this Subsection 11.01(h), or (y) within six (6) months after the delivery
by Tenant to Landlord of the writing set forth in Subsection 11.01(g) above, in
the case of a dispute as to the matter set forth in clause (B) of this
Subsection 11.01(h). A failure to commence to arbitrate the Landlord's
determination that an Alteration is a Structural Alteration or Tenant's estimate
of the cost of restoration within the six (6) months shall constitute a waiver
by both parties of any objections to the determination or estimate, as the case
may be.
(i) Notwithstanding anything to the contrary set forth in Subsection
11.01(e) above, Tenant may add, without having to restore, (i) two passenger
elevators (in the location and having the operational specifications shown on
Exhibit C attached hereto) and (ii) bathrooms (in the locations shown on Exhibit
D attached hereto).
(j) Landlord shall reasonably cooperate with Tenant in connection
with the performance of Alterations, and sign any application or other
instrument ("Building Applications") for any permit, license, certificate,
approval or authorization required to be obtained under Applicable Law in
connection with any Alteration, provided the relevant Building Application is
accurate, in proper form required by Applicable Law and Landlord's execution is
reasonably necessary; provided, however, that Landlord shall not be required to
incur any additional out-of-pocket cost or expense therefor (it being agreed and
understood, however, that any cost or expense which Landlord is or would be
contractually obligated or legally liable to pay to any third party or any
governmental agency for any reason other than the cooperation requirement set
forth in this Subsection (j) shall not be deemed or construed an "additional
out-of-pocket expense"), unless Tenant agrees to reimburse Landlord for the
same.
(k) In addition to Landlord's cooperation obligation contained in
Subsection (j) above, at Tenant's request, Landlord shall transfer to Tenant and
the managing agent of the Building, to the extent permitted by Applicable Law,
the joint (but not several) authority to
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execute as "owner" all Building Applications during such times as Landlord has
not exercised its rights under Section 5.02(d) hereof.
(l) All Building Applications filed by or on behalf of Tenant shall
be signed both by Tenant and the managing agent of the Building. Tenant shall
deliver or cause to be delivered to Landlord a copy of each Building Application
promptly after it has been signed by Tenant and the managing agent of the
Building.
(m) During the performance of any Structural Alteration which
requires the issuance of a New York City Building Department permit and exceeds
$300,000 in cost, representatives of Landlord shall have the right to inspect
the same at reasonable times, on reasonable prior notice and accompanied by a
representative of Tenant (unless Tenant shall fail to make a representative
available for such purpose).
Section 11.02. Requirements. (a) When Tenant performs an Alteration,
Tenant shall:
(i) perform the Alteration in a good and workmanlike manner
using contractors and mechanics of recognized competence and using materials and
equipment at least comparable in grade to the original installation in the
Building;
(ii) perform the Alteration in compliance with Applicable Law;
and
(iii) pay for all costs incurred in connection with the
Alterations, without limitation, all permits, certificates, approvals and
licenses necessary to complete the Alterations.
(b) Prior to commencing the performance of an Alteration, Tenant
shall comply with the following requirements:
(i) Tenant shall obtain all permits, approvals and
certificates required by Applicable Law needed for the performance of the
Alteration, except insofar as governmental practice and procedure requires that
such permits, approvals and certificates be issued in stages, in which case
Tenant shall obtain the same as required for the performance of the Alteration;
and
(ii) Tenant shall obtain, or cause to be carried by Tenant's
general contractor, commercial general liability insurance, "all risk" Builder's
Risk Insurance and worker's compensation insurance, with completed operations
endorsement, which insurance shall (x) include Landlord and Landlord's Mortgagee
and the managing agent for the Building as additional insureds, and (if and to
the extent that the same shall be customary) shall provide that the insurer will
give Landlord and said additional insureds thirty (30) days prior written notice
of cancellation of said policy and of any material modification thereof, (y) be
in such limits as are reasonably appropriate for the nature and cost of the
particular work, and (z) be issued by a company or companies of recognized
responsibility and licensed to do business in the State of New York.
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(c) Promptly following completion of any Alteration and Landlord's
request therefor, Tenant shall deliver to Landlord (x) the final governmental
approvals, including any amended or newly issued certificate of occupancy
required in connection with the completed Alteration, and (y) such "as built"
plans for such Alteration as are required by Applicable Law. Landlord
acknowledges that all plans for any Alteration, including, without limitation,
any "as-built" plans required to be delivered to Landlord pursuant to this
Article 11, shall remain the exclusive property of Tenant and/or the architect
and/or the engineer who prepared such plans, provided that Landlord shall be
permitted to use such plans for the purpose of completing such Alteration if and
when Landlord has the right to do so under the terms of this Lease.
Section 11.03. Tenant's Property. (a) Tenant may, at any time and from
time to time during or upon the expiration or earlier termination of the term of
this Lease, remove from the Building any or all trade fixtures, equipment,
moveable partitions, moveable walls and wall systems, furniture and furnishings,
and other moveable personal property in the Premises by or at the behest of
Tenant, provided such installation or removal is accomplished without permanent
and material damage to the Building. Tenant shall promptly repair any damage
caused by such removal.
(b) Upon the expiration of this Lease, Tenant shall remove all of
Tenant's personal property from the Building, and Tenant shall promptly repair
any damage to the Building resulting therefrom. If Tenant shall fail to remove
any personal property of Tenant which Tenant is permitted to remove upon the
expiration of this Lease, then (unless Tenant shall then be unable to remove the
same due to Excusable Delay) any such property not removed, within ten (10) days
following notice given to Tenant by Landlord following such expiration shall be
deemed to have been abandoned, and shall, at Landlord's election, become the
property of Landlord or disposed of by Landlord, without accountability to
Tenant, in such manner as Landlord shall reasonably determine.
Section 11.04. Restoration Obligation. (a) Tenant shall be obligated to
pay for restoration after Lease Termination of the following items: (i) any
Structural Alteration as to which Landlord has reserved its right under this
Lease to require restoration; (ii) unless requested otherwise by Landlord, the
restoration of the Building effected by the separation of the Building from 557
Broadway if and to the extent required in accordance with the Easements
Agreement; and (iii) the slabbing over in a commercially reasonable manner of
any interior stairwells ("Atrium") constructed by Tenant (whether prior or
subsequent to the Commencement Date of this Lease) if, and to the extent that,
Landlord in good faith determines that it will pursue a leasing program for the
Building or portions thereof to lease space to single floor tenants or to more
than one tenant on a floor or to multifloor tenants who will not use the
existing Atrium or portions thereof.
(b) Tenant shall discharge the restoration obligations set forth in
Section 11.04(a) above by reimbursing Landlord for the commercially reasonable
cost incurred by Landlord in
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physically accomplishing those restorations which Landlord has the right under
this Lease to require. If Landlord and Tenant are unable to agree upon the
commercially reasonable cost or the appropriate allocation of cost to a required
restoration item, the dispute will be resolved by Expedited Arbitration.
(c) Landlord shall notify Tenant no later than one year after Lease
Termination which items Landlord intends to restore. Landlord will commence
restoration on those items on a schedule which, in accordance with New York City
construction industry practice, would reasonably anticipate substantial
completion prior to the second anniversary of Lease Expiration.
(d) If and for so long as Tenant does not meet the Financial Test at
Lease Termination or at any time thereafter, Tenant shall deposit in escrow with
the Escrow Agent (as hereinafter defined) the amount by which the total of all
commercially reasonable estimates of costs of restorations arrived at pursuant
to Section 11.01(g) and (h) hereof plus $280,000 (the currently agreed upon
commercially reasonable cost of restoration of the entire Atrium) exceeds the
amount of Tenant's Letter of Credit. The amount, if any, required to be
deposited will be recalculated when Landlord gives Tenant the notice required
under Section 11.04(c) above. The amounts so deposited plus Tenant's Letter of
Credit shall be security for performance of Tenant's obligations under Sections
11.04(a) and (b) hereof but shall not limit Tenant's liability. Escrow Agent
shall be agreed upon by Landlord and Tenant but in any event it shall be a
reputable law firm in New York City having no less than ten attorneys. If the
parties fail to agree on an Escrow Agent within 30 days from the date the need
for the Escrow Agent arises, then either party may ask the President of the
Association of the Bar of The City of New York to appoint an Escrow Agent. The
parties hereto shall be bound by such appointment. The Escrow Agent shall invest
the escrowed funds in a commercially reasonable interest bearing investment.
(e) Tenant's liability for payment with respect to restoration shall
not exceed the commercially reasonable costs incurred by Landlord for physical
restoration actually performed within two years of Lease Termination. Any
amounts in escrow in excess of Landlord's unreimbursed costs shall be released
from escrow and paid over (together with interest thereon) to Tenant as soon as
practicable after the second anniversary of Lease Expiration. The provisions of
this Section 11.04(e) shall survive the expiration or earlier termination of
this Lease.
Section 11.05. Landlord's Property. All Alterations performed by Tenant to
the core of the Building, and all fixtures (other than trade fixtures),
appurtenances and leasehold improvements permanently attached to or built into
the Premises shall, upon Lease Expiration, be deemed to be the property of
Landlord, subject, however, to Tenant's right to perform the Alterations
permitted pursuant to this Article 11.
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ARTICLE TWELVE
CONDEMNATION
Section 12.01. Total Taking. If all of the Premises shall be taken by
condemnation or in any other manner for any public or quasi-public use or
purpose (other than for temporary use or occupancy), the term of this Lease
shall terminate as of the date of vesting of title (the "Date of the Taking"),
and, subject to a pro-ration and apportionment of Annual Rental and Real Estate
Taxes as of the Date of the Taking, Tenant shall have no further obligations
hereunder.
Section 12.02. Partial Taking. In the event of a partial taking, this
Lease shall remain in effect with respect to the balance of the Premises without
any reduction in the Annual Rental, Additional Rent or other sums payable
hereunder and Tenant shall be obligated to rebuild, alter and restore the
remaining part of the Building.
Section 12.03. Claims of Landlord and Tenant. Except as otherwise provided
herein and subject to the provisions of Section 12.04 hereof, Landlord shall be
entitled to receive the entire award in any proceeding with respect to any
taking (other than for temporary use and occupancy) provided for in this
Article. Tenant shall also have the right to make a separate claim with the
condemning authority for (a) any moving expenses incurred by Tenant as a result
of such taking; (b) the unamortized portion (on a straight-line basis over
twenty (20) years) of any costs incurred by Tenant in connection with any
alteration or improvement made by Tenant to the Premises; (c) the value of any
of Tenant's property taken (not compensated for under (b) of this sentence); and
(d) any other separate claim which Tenant may hereafter be permitted to make. If
Tenant shall not be permitted to make a separate claim in such proceeding,
Landlord shall prosecute all claims in such proceeding on behalf of both
Landlord and Tenant, in which event Tenant may, if it so elects and at its
expense, join with Landlord in such proceeding, retain co-counsel, attend
hearings, present arguments and generally participate in the conduct of the
proceeding. Items (a), (b), (c) and (d) above in this Section 12.03 are
hereinafter referred to as "Tenant's separate claim items."
Section 12.04. Distribution of the Award. The aggregate amount of all
awards received in any proceeding relating to any taking (other than awards to
Tenant for temporary use or occupancy) is hereinafter called the "Award".
Regardless of the apportionment of the Award in such proceeding, and regardless
of any termination of this Lease, the Award shall be distributed in the
following order of priority:
(a) If Tenant shall be obligated to repair, alter and restore the
remaining part of the Building or the Premises pursuant to Section 12.02, there
shall be paid: (i) to Tenant, the amount actually expended by Tenant for such
repair, alteration and restoration; (ii) to Tenant, any Tenant's separate claim
items; (iii) to Landlord, the amount by which Landlord's reversionary interest
in the Premises had there been no taking has been reduced by the taking; (iv) to
Tenant, the amount by which the taking reduced the value of the estate vested in
Tenant
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by this Lease; and (v) to Landlord, the balance, if any of the Award. The
foregoing amounts payable to Landlord shall be paid to Landlord's Mortgagee to
the extent required by Landlord's Mortgage.
(b) If the Lease is terminated pursuant to Section 12.01: (i) the
Landlord's Mortgagee shall be paid such amount as shall be necessary to satisfy
the Mortgage; (ii) the Tenant shall be paid the Tenant's separate claim items;
and (iii) the Landlord shall be paid any balance of the Award.
(c) The provisions of this Section 12.04 shall survive termination
of the Lease.
Section 12.05. Temporary Taking of Premises. If all or any part of the
Premises shall be temporarily taken by condemnation or otherwise for any public
or quasi-public use or purpose, this Lease shall nevertheless remain in full
force and effect. Tenant shall continue to be responsible for all of its
obligations hereunder in so far as such obligations are not affected by such
taking, including, without limitation, Tenant's liability for the Annual Rental
and Additional Rent reserved hereunder. The entire Award for a temporary taking
shall belong to the Tenant provided the entire term of the temporary taking
falls within the unexpired term of this Lease; otherwise, the Award will be
apportioned between Landlord and Tenant in an equitable manner to reflect the
damages to be suffered by Tenant during the Lease term and the damages to be
suffered by Landlord thereafter. Any dispute between Landlord and Tenant with
respect to such apportionment shall be resolved by arbitration.
Section 12.06. Tenant's Obligation to Restore. In the event of a taking
which does not result in the termination of this Lease, Tenant shall, at
Tenant's expense and regardless whether any Award or Awards shall be sufficient
for the purpose, proceed with due diligence to repair, alter and restore the
remaining part of the Premises substantially to their former condition to the
extent feasible and permitted by law to constitute a complete and tenantable
Building. Upon the expiration of any temporary taking which did not result in a
termination of this Lease, Tenant shall restore the Premises to their former
condition as aforesaid.
ARTICLE THIRTEEN
REMEDIES AND DEFAULTS
Section 13.01. Default by Tenant. Any of the following events shall be an
"Event of Default" hereunder:
(a) If Tenant shall fail to pay any monthly installment of the
Annual Rental or any item of Additional Rent when due, and failure to make
either of such payments shall continue for a period of ten (10) days after
written notice thereof by Landlord; or
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(b) If Tenant shall fail to perform or observe any other covenant,
term, provision or condition of this Lease to the detriment of Landlord and such
failure shall continue for a period of thirty (30) days after written notice
thereof by Landlord (or such longer period as may be reasonably required to cure
such default), subject to Excusable Delays.
Section 13.02. Landlord's Remedies. (a) This Lease is subject to the
limitation that, if an Event of Default shall have occurred and then be
continuing, then, at Landlord's option and upon fifteen (15) days prior written
notice to Tenant (if such Event of Default shall not have been cured within said
fifteen (15) days), this Lease and the term and estate hereby granted and
Tenant's right to possession and occupancy of the Premises shall immediately
cease and terminate. Notwithstanding the foregoing, if Landlord shall have
properly delivered two (2) such termination notices to Tenant by reason of
separate Events of Default occurring within the preceding twelve (12) month
period, then Tenant shall not have the right to cure the third Event of Default
during said fifteen (15) day termination period.
(b) Despite any termination of this Lease, Tenant agrees that Tenant
shall remain liable for the Annual Rental and any Additional Rent due and to
become due hereunder, and the same shall be paid by Tenant to Landlord on the
regular days stipulated herein for payment of rentals. If the Premises are relet
in whole or in part, Tenant shall be entitled to a credit in the amount of the
Annual Rental or Additional Rent received by Landlord as a result (after
deducting all reasonable costs incurred by Landlord in finding a new tenant and
making the Premises (or any portion thereof) ready for occupancy, including, but
not limited to, brokerage and advertising fees). Tenant shall remain obligated
to pay the amount of any deficiency in the Annual Rental or any Additional Rent
obtained on such reletting, but if the Annual Rental or any Additional Rent
obtained on such reletting is greater than that provided for herein plus
Landlord's costs, Landlord shall be entitled to receive such excess. Landlord
shall have the right to collect from Tenant amounts equal to said deficiencies
provided for above by suits or proceedings brought from time to time on one or
more occasions without Landlord being obligated to wait until the expiration of
the term of this Lease.
(c) If this Lease shall have been terminated pursuant to Subsection
13.02(a) above, then, in lieu of (but not in addition to) the rental liability
provided in Subsection 13.02(b) above, Landlord may elect, by notice given to
Tenant within thirty (30) days following such termination, to claim and receive
as damages a liquidated sum equal to the then present value of the amount, if
any, by which (i) the aggregate of the Annual Rental and the Additional Rent
which would have been payable by Tenant to Landlord under this Lease during the
period beginning on the date of such election and ending on the Expiration Date,
exceeds (ii) the Fair Rental Value of the Premises (which, in the event of a
dispute thereto, shall be determined in accordance with Article 26 below) for
said period.
(d) If an Event of Default shall have occurred and then be
continuing, Landlord or Landlord's agents and employees may, after the fifteen
(15) day notice period provided in Section 13.02(a) above or at any time
thereafter, terminate this Lease and then reenter the
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Premises, either by summary dispossess proceedings or by any suitable action or
proceeding at law, without being liable to indictment, prosecution or damages
therefor, and may repossess the same, and may remove any person therefrom, to
the end that Landlord may have, hold and enjoy the Premises. If this Lease shall
be terminated, and whether or not Landlord shall then reenter the Premises under
the provisions of this Article 13, Tenant shall thereupon pay to Landlord the
Annual Rental and any other amount due hereunder payable up to the time of such
termination of this Lease, and shall also pay to Landlord damages as hereinabove
provided.
(e) If this Lease shall be terminated under the provisions of this
Article 13, and whether or not Landlord shall then reenter the Premises under
the provisions of this Article 13, Landlord shall be entitled to retain all
monies, if any, paid by Tenant to Landlord, whether as advance rent, security or
otherwise, but such monies shall be credited by Landlord against any Annual
Rental or any other amount due hereunder from Tenant at the time of such
termination or, if no such amount shall be due, against any damages payable by
Tenant hereunder.
(f) If an Event of Default shall occur and then be continuing, then
Landlord, any superior lessor or any Landlord's Mortgagee, without thereby
waiving such default, may (but shall not be obligated to) perform the same for
the account and at the reasonable expense of Tenant, without notice in a case of
emergency, and in any other case only upon five (5) business days notice to
Tenant. The full amount of the reasonable cost and expense so incurred by
Landlord, such superior lessor or Landlord's Mortgagee shall be paid by Tenant
to Landlord, with interest at the Prime Rate from the date such expense was paid
by Landlord, superior lessor or Landlord's Mortgagee until paid by Tenant.
Section 13.03. Late Payments. If either party shall fail to pay to the
other any amount then due under this Lease, and, if such failure shall continue
for a period of thirty (30) days after notice has been given to the late payor
that the same is overdue, then the party obligated to make such payment shall be
also obligated to pay to the other: (a) a one-time administrative charge equal
to one (1%) percent of the overdue amount, and (b) interest on such overdue
amount at the Prime Rate, from its due date until paid.
Section 13.04. Prevailing Party. Notwithstanding anything to the contrary
contained herein, (i) if Landlord shall institute any action or proceeding
against Tenant with respect to any matter arising from this Lease, or (ii) if
Tenant shall institute any action or proceeding against Landlord with respect to
any matter arising from this Lease, then, in either of such events, the party
not prevailing in such actions or proceedings shall, within thirty (30) days
following demand therefor, pay to the other party the expenditures (including
reasonable attorneys' fees), with interest at the Prime Rate, incurred by such
other party in connection therewith.
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ARTICLE FOURTEEN
BANKRUPTCY
Section 14.01. Bankruptcy by Tenant. This lease is subject to the
limitation that if (a) a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee of all or
substantially all of Tenant's assets shall be filed against Tenant in any court
pursuant to any statute either of the United States or of any state and Tenant
fails to secure a discharge thereof within one hundred twenty (120) days, or if
Tenant shall voluntarily file a petition in bankruptcy or makes an assignment
for the benefit of creditors or petitions for or enters into an arrangement with
creditors, or (b) if a permanent receiver shall be appointed for all of the
property of Tenant, the term of this Lease, at the option of Landlord, exercised
within thirty (30) days after notice of the happening of any one or more of such
events, shall terminate on such date as Landlord shall specify by notice to
Tenant, with the same effect as if the date of termination were the Expiration
Date of this Lease, but Tenant shall remain liable for rentals and/or damages
and attorneys' fees as provided in Article Thirteen; provided, however, that
Landlord may not terminate the term of this Lease if and for so long as Tenant
shall pay the Annual Rental when due and Tenant shall not be in default of any
other obligations hereunder after the expiration of any applicable cure period.
ARTICLE FIFTEEN
COMPLIANCE WITH LAWS
Section 15.01. Tenant's Compliance with Laws. (a) Tenant, at Tenant's
expense, shall comply with any valid and applicable laws, rules, orders,
ordinances, regulations and other requirements, present or future (collectively,
"Applicable Law"), affecting the Premises, or the use or occupancy thereof, that
are promulgated by any governmental authority or agency having jurisdiction over
the Premises, and with any reasonable and industry-wide requirements of the
insurance companies insuring Landlord or Tenant against damage, loss or
liability for accidents in or connected with the Premises. Without limiting
Tenant's obligations under the preceding sentence, Tenant, at Tenant's expense,
shall comply with Applicable Law relating to the installation, modification and
maintenance within the Premises of fire-rated partitions and sprinklers, gas,
smoke or fire detector or alarm systems, any emergency lighting systems or any
other currently required system to extinguish fires, including, but not limited
to, Local Law 5/1973. Tenant shall not at any time use or occupy the Premises so
as to violate the certificate of occupancy for the Building.
(b) Tenant may, at its expense (and, if necessary, in the name of,
but without expense to, Landlord) contest, by appropriate proceedings diligently
prosecuted, the validity or applicability to the Premises of any matter which
Tenant may be required to comply with pursuant to Subsection 15.01(a) above, and
may postpone compliance therewith until such
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contest shall be decided, provided that the postponement of such compliance
shall not (i) subject Landlord or its managing agent or any Mortgagee (or their
respective partners, directors, officers, shareholders, agents and employees) to
any civil fine or monetary penalty (unless Tenant assumes responsibility for the
payment thereof), criminal liability or forfeiture of the Land or Building or
any part thereof, (ii) subject the Building or any part thereof to being
condemned or vacated by reason thereof, or (iii) prevent the issuance of or
cause the certificate of occupancy for the Building to be revoked. Tenant shall
indemnify and hold harmless the Landlord's Mortgagee, and Landlord and
Landlord's partners, directors, officers, shareholders, agents and employees
from and against any and all claims arising from Tenant's contesting any
Applicable Law in accordance with this Subsection 15.01(b).
ARTICLE SIXTEEN
ASSIGNMENT AND SUBLETTING
Section 16.01. Assignment by Tenant. (a) Tenant shall have the right, on
notice to Landlord but without being required to obtain Landlord's consent, to
assign Tenant's interest in this Lease to any corporation or other entity: (i)
into or with which Tenant shall be merged or consolidated, provided (x) in the
case of a corporate assignee, that such assignee shall have (immediately after
such merger or consolidation) a net worth equal to not less than the assignor's
net worth immediately preceding such assignment, and (y) in the case of an
assignee which is a partnership or similar entity, that the aggregate net
operating income of both Tenant and the entity into or with which Tenant shall
be merged or consolidated, for the fiscal year immediately preceding such merger
or consolidation, shall be equal to not less than two (2) times the then current
Annual Rental due under this Lease; (ii) to which Tenant shall sell all or
substantially all of Tenant's stock or assets, provided that the assignor Tenant
and such assignee shall have (immediately after such sale) a combined net worth
equal to not less than the assignor's net worth immediately preceding the
assignment; and/or (iii) which controls, is controlled by, or is under common
control with, Tenant, provided that, in any of the events referred to in clauses
(i), (ii) and (iii) above, such merger, consolidation or transfer shall be for a
valid business purpose and not principally for the purpose of transferring this
Lease. In all other instances, Tenant shall have the right to assign this Lease,
provided that Tenant shall have obtained the prior consent of Landlord thereto,
which consent shall not be unreasonably withheld or unduly delayed, unless
Landlord shall have the right to withhold its consent pursuant to the provisions
of Subsection 16.01(c) below. Provided that Tenant's request for Landlord's
consent to such proposed assignment shall state that Landlord shall be deemed to
have granted such consent if Landlord does not respond to said request within
ten (10) business days, then, if Landlord shall fail to consent to a proposed
assignment or to notify Tenant in reasonable detail of Landlord's reasons for
refusing to consent to any proposed assignment of this Lease within ten (10)
business days after Tenant shall have requested such consent and furnished to
Landlord the information and statement required pursuant to Subsection 16.01(c)
below, then Landlord shall be deemed to have consented to such proposed
assignment. For purposes of this Lease, without limiting the
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nature of what constitutes acceptable evidence, Landlord agrees that the
certified statement of a certified public accountant (from a firm which shall be
comprised of not less than twenty five (25) accountants) attesting to the "net
worth" or the "net operating income" of the Tenant, assignee or subtenant,
respectively, computed in accordance with generally accepted accounting
principles, shall (except for the purpose of releasing assignor Tenant from its
obligations hereunder in the case of an assignment to a person which has a net
worth of $300,000,000, as provided in Subsection 16.01(b) below) be deemed
conclusive and binding evidence of the same.
(b) Any assignment or transfer, whether made with Landlord's consent
or without Landlord's consent pursuant to this Article 16 (excluding, however,
assignments by operation of law or which otherwise become effective without an
instrument of assignment), shall be made only if, and shall not be effective
until, Tenant shall deliver to Landlord a duplicate original instrument of
assignment, duly executed and acknowledged by Tenant, and assumption, duly
executed and acknowledged by the assignee, whereby the assignee shall assume the
obligations of this Lease on the part of Tenant to be performed or observed ((x)
in the case of a merger or consolidation pursuant to clause (i) of Subsection
16.01(a) above, from the Commencement Date, and (y) in the case of any other
assignment, only from the effective date of such assignment), and whereby the
assignee shall agree that the provisions of this Article 16 shall,
notwithstanding such assignment or transfer, continue to be binding upon the
assignee with respect to all future assignments and transfers. The original
named Tenant covenants that, notwithstanding any assignment or transfer, whether
or not in violation of the provisions of this Lease, and notwithstanding the
acceptance of Annual Rental and/or Additional Rent by Landlord from the
assignee, transferee or any other party, the original named Tenant shall remain
fully liable for the payment of the Annual Rental and Additional Rent provided
in this Lease and for the performance and observance of all other obligations
provided in this Lease to be performed or observed by Tenant. Notwithstanding
anything in the foregoing sentence to the contrary, if Tenant shall assign all
of its interest in this Lease to an assignee which shall have a net worth of not
less than Three Hundred Million ($300,000,000) Dollars, and Tenant shall give
Landlord reasonable evidence thereof, and the assignee shall have as of the
effective date of the assignment an S&P Senior Long Term Debt rating of BBB or
higher, then Tenant (including the initially named Tenant herein as well as all
successors, if any, to Tenant's interest herein, other than such assignee) shall
be released from all obligations to be performed or observed by Tenant under
this Lease from and after the effective date of the assignment and assumption
agreement described in this Subsection 16.01(b). If the original named Tenant
assigns this Lease in accordance with this Article 16 but is not released from
liability hereunder, Landlord shall give the original named Tenant a copy of
each notice of default given by Landlord to the then current tenant under this
Lease at the same time as any such notice shall be given to the then current
tenant. Landlord shall not have any right to terminate this Lease, or otherwise
to exercise any of its rights and remedies hereunder, after a default by such
current tenant, unless and until (i) the original named Tenant receives a copy
of the default notice in question, and (ii) the original named Tenant has an
opportunity to remedy such default within the time periods set forth in Article
13 above. Landlord shall accept timely performance by the original named Tenant
of any term, covenant, provision or agreement contained herein on the then
current tenant's part to be observed and
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performed with the same force and effect as if performed by the then current
tenant. If the original named Tenant shall cure the default by such current
tenant, or if the default shall be incurable (such as bankruptcy), and Landlord
or the current tenant seeks to terminate this Lease, then the original named
Tenant shall have the right to resume actual possession of the Premises for the
unexpired balance of the term of this Lease upon all of the then executory terms
of this Lease.
(c) With respect to any proposed assignment for which Landlord's
consent is required pursuant to Subsection 16.01(a) above, Tenant shall furnish
to Landlord, simultaneously with Tenant's request for such consent, reasonable
evidence of the proposed assignee's net worth (or, if the proposed assignee is a
partnership or similar entity, the proposed assignee's net operating income),
together with a statement by the proposed assignee as to the name and then
current address of the proposed assignee, the nature of the assignee's business
and the proposed assignee's intended use of the Premises. Landlord shall have
the right to withhold consent to the proposed assignment only if (i) on the date
that Tenant requests Landlord's consent to the proposed assignment, the proposed
assignee's net worth is less than the "Minimum Net Worth" (defined below) (or,
if the proposed assignee is a partnership or similar entity, if the proposed
assignee's aggregate net operating income for the previous year shall be less
than two (2) times the then current Annual Rental), (ii) the proposed assignee's
intended use of the Premises would violate the provisions of Article 7 above,
(iii) the proposed assignee (or any Affiliate thereof) has ever been convicted
of any felony, (iv) the proposed assignee (or any Affiliate thereof) has been
indicted on any felony charge during the five (5) years preceding the proposed
assignment, or (v) the proposed assignee (or any Affiliate thereof) has been the
subject of any voluntary or involuntary bankruptcy, insolvency, reorganization
or similar proceedings of the type described in Section 14.01 above during the
five (5) years preceding the proposed assignment (provided that, in the case of
an involuntary bankruptcy proceeding, the same shall not have been dismissed
within one hundred twenty (120) days after the commencement of such proceeding)
(the criteria set forth in the foregoing clauses (ii) through (v) being
collectively referred to as the "Use and Character Criteria"). For the purposes
hereof, the term "Minimum Net Worth" shall mean: (x) $15,000,000 during the
period commencing on the Commencement Date and continuing to the twentieth
(20th) anniversary of the Commencement Date, (y) $20,000,000 during the period
commencing on the twentieth (20th) anniversary of the Commencement Date and
continuing to the Expiration Date, and (z) $25,000,000 during the Renewal Term,
if this Lease shall have been renewed for the Renewal Term). Landlord shall also
have the right to withhold consent to the proposed assignment if there shall
then exist an uncured Event of Default.
Section 16.02. Subletting by Tenant. (a) Tenant shall have the right,
without being required to obtain Landlord's consent, to sublet all or any
portion of the Premises. Tenant shall give Landlord prior written notice of a
subletting of all or substantially all of (i) the entire Premises, (ii) the
office portion of the Premises or (iii) the retail portion of the Premises.
Landlord shall have no recapture or profit-sharing rights with respect to any
subletting.
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(b) Each sublease will terminate at least one day prior to the date
of Lease Termination.
(c) No sublease shall be valid, and no subtenant shall take
possession of the Premises or any part thereof, until Tenant shall deliver to
Landlord either a duplicate original or a conformed copy of the sublease.
(d) Each sublease shall provide that it is subject and subordinate
to this Lease and to the matters to which this Lease is or shall be subordinate,
and that, in the event of termination, reentry or dispossession by Landlord
under this Lease, Landlord may, at its option (subject, however, to the
provisions of Subsection 16.02(f) below), succeed to the right, title and
interest of Tenant, as sublessor, under such sublease, and such subtenant shall,
at Landlord's option (subject, however, to the provisions of Subsection 16.02(f)
below), attorn to Landlord pursuant to the then executory provisions of such
sublease, except that Landlord shall not be (A) liable for any previous act or
omission of Tenant under such sublease, (B) subject to any credit, offset,
claim, counterclaim, demand or defense which such subtenant may have against
Tenant, (C) bound by any previous modification of such sublease unless a
duplicate original or conformed copy of such modification has been delivered to
Landlord promptly after execution or by any previous prepayment of more than one
month's rent, (D) bound by any covenant of Tenant to undertake or complete any
construction of the Premises or any portion thereof, (E) required to account for
any security deposit of the subtenant other than any security deposit actually
delivered to Landlord by Tenant, or (F) bound by any obligation to make any
payment to such subtenant or grant any credits, except for services, repairs,
maintenance and restoration provided for under the sublease to be performed
after the date of such attornment.
(e) Each sublease which permits further assignment or subletting
shall provide that the subtenant may not assign its rights thereunder or further
sublet the space demised under the sublease, in whole or in part, without first
delivering to Landlord a duplicate original or conformed copy of any instrument
of assignment or subletting, as the case may be.
(f) Subject to the provisions of this Subsection 16.02(f), Landlord
shall, upon the request of Tenant, enter into a nondisturbance agreement (an
"NDA"), reasonably satisfactory to Landlord and the subtenant stating that, in
the event of the termination of this Lease by reason of the default of Tenant
hereunder, so long as there shall be no default by such subtenant under its
sublease beyond any applicable grace period set forth in the sublease for the
curing of such default, Landlord shall not disturb such subtenant's possession
of the subleased premises, provided that such subtenant shall attorn to and
recognize Landlord as its landlord under the sublease. Landlord shall not be
obligated to enter into an NDA, unless: (i) the sublease, if of office space:
(x) is for a full floor or more; and (y) has a rent if converted to a square
foot net lease basis (i.e., rent plus real estate taxes and operating expenses)
equal to or greater than the net rent plus Real Estate Taxes and operating
expenses payable by Tenant hereunder, or, alternatively, requires the subtenant,
should it ever attorn to Landlord, to pay to Landlord per rentable square foot
the same Annual Rental, Real Estate Taxes and operating expenses that
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Tenant would have paid with respect to the sublease premises; and (ii) the
sublease, if of retail space, has a rent and additional rent obligation that is
at or above market for comparable retail space in SoHo, or, alternatively,
requires the subtenant, should it ever attorn to Landlord, to pay to Landlord a
rent and additional rent obligation that is at market for comparable retail
space in SoHo. Notwithstanding anything to the contrary set forth herein, any
NDA delivered by Landlord pursuant to this Subsection 16.02(f) shall, pursuant
to this Lease, be conditional and by its terms expressly contain the condition,
such that, in the event of any termination of this Lease (as to all or a portion
of the Premises) other than by reason of Tenant's default (e.g., by reason of a
casualty during the last two years of the Term), any NDA with a subtenant which
occupies the space with respect to which this Lease is terminated shall,
automatically and without further act of the parties, terminate and be of no
further force or effect from and after the applicable termination date. Upon the
attornment and recognition referred to in the foregoing sentences, and the
posting of the security (if any) required pursuant to the provisions of the next
sentence, the sublease shall continue in full force and effect as, or as if it
were, a direct lease between Landlord and such subtenant upon all of the then
executory terms, conditions and covenants as are set forth in such sublease,
except as set forth in the next sentence and further except that Landlord shall
not be: (A) liable for any previous act or omission of Tenant under such
sublease, (B) subject to any credit, offset, claim, counterclaim, demand or
defense which such subtenant may have against Tenant, (C) bound by any previous
modification of such sublease unless a duplicate original or conformed copy of
the modification has been delivered to Landlord promptly after execution, (D)
bound by any covenant of Tenant to undertake or complete any construction of the
Premises or any portion thereof, (E) required to account for any security
deposit of the subtenant other than any security deposit actually delivered to
Landlord by Tenant, (F) bound by any obligation to make any payment to such
subtenant or grant any credits, except for services, repairs, maintenance and
restoration provided for under the sublease to be performed after the date of
such attornment, or (G) bound by any rent which such subtenant might have paid
to any Tenant for more than one month in advance. The foregoing NDA shall be
(and shall provide that it is) subject to the condition that the subtenant (on
the effective date of said attornment) shall have a net worth or shall deposit
security in lieu thereof (which security may be in the form of cash or a letter
of credit substantively similar to the letter of credit described in Article 32
below) in accordance with the following formula: (I) if the subtenant's net
worth shall be not less than an amount equal to twice the sum of the Annual
Rental, Real Estate Taxes and operating expenses payable pursuant to this Lease
(pro rated on a rentable square foot basis for the subleased premises) for the
calendar year in which said attornment shall become effective (such amount being
referred to herein as "Threshold Rental"), no security shall be required; and
(II) if the subtenant's net worth shall be less than one hundred (100%) percent
of Threshold Rental, then the subtenant shall be required to deposit security
equal to fifty (50%) percent of Threshold Rental.
(g) Affiliates of Tenant shall be permitted to occupy the Premises
(or portions thereof) without such occupancy being deemed an assignment of this
Lease or a subletting of the Premises (or portions thereof).
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Section 16.03. Partnership Tenant. Notwithstanding anything to the
contrary contained in this Lease, if Tenant's interest in this Lease shall be
assigned to a partnership, the partners of such partnership Tenant shall have no
personal liability with respect to any of the provisions of this Lease, and if
such partnership Tenant shall be in breach or shall default with respect to its
obligations under this Lease, Landlord shall look solely to the assets of such
partnership Tenant for the satisfaction of Landlord's remedies, and in no event
shall Landlord attempt to secure any personal judgment against any constituent
partner of such partnership Tenant by reason of such default by such partnership
Tenant.
Section 16.04. Acceptance of Rent. If this Lease shall be assigned,
Landlord may collect rent from the assignee thereof. Landlord may apply the net
amount collected to the Annual Rental and Additional Rent herein reserved, but
(except as otherwise provided elsewhere in this Article 16) no such assignment
shall be deemed a release of Tenant from the performance by Tenant of Tenant's
obligation under this Lease.
ARTICLE SEVENTEEN
LANDLORD'S ACCESS
Section 17.01. Landlord's Access to Premises. Landlord, and Landlord's
employees, agents and contractors, shall have the right to enter and pass
through the Premises or any part or parts thereof (a) during business hours,
unless otherwise consented to by Tenant: (i) to examine the Premises and to show
the Premises to mortgagees and to prospective purchasers, mortgagees or insurers
(and potential lessees during the last two (2) years of the term of this Lease),
and (ii) if and so long as Landlord has exercised its right to manage the
Premises pursuant to Section 5.02(d) hereof, for cleaning and maintenance and
making such repairs, replacements or changes in or to the Premises or its
facilities as may be permitted by this Lease or as may be mutually agreed upon
by the parties; provided, however, that the foregoing shall be done upon
reasonable advance notice to Tenant, in a reasonable manner so as to minimize
interference with Tenant's business operations and, if required by Tenant,
accompanied by a designated representative of Tenant (provided that Tenant makes
such a representative available); and (b) in emergencies. Tenant may designate
one or more areas in the Premises as secure areas, and Landlord shall have no
access thereto without being accompanied by a designated representative of
Tenant (provided that Tenant makes such a representative available) except in
the case of emergencies if Landlord is accompanied by members of the Fire or
Police Department. In connection with any entry onto the Premises permitted
hereunder, Landlord shall use, and/or shall cause Landlord's employees, agents
and contractors to use, best efforts to minimize, and if possible avoid, any
damage to Tenant's property and installations in or about the Premises. Any such
damage shall be repaired promptly by Landlord, at Landlord's expense.
Section 17.02. Limitations on Landlord's Right to Change the Building.
Unless required by Applicable Law or this Lease, and then only to the extent so
required, Landlord shall not,
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without Tenant's consent (which consent shall not be unreasonably withheld or
unduly delayed), make any addition to the Building, or any other improvements on
the Land, or any alteration of the external appearance of the Building, or make
any other alteration or change to the Premises. In addition, Landlord shall not,
at any time during the term of this Lease, construct any additional buildings or
other improvements on the Land, or lease or permit the use or occupancy of any
portion of the Land or any improvements thereon to any party or entity except as
provided in this Lease.
ARTICLE EIGHTEEN
NAME OF BUILDING; SIGNS
Section 18.01. Tenant's Right to Designate Building Name. Tenant shall
have the right, from time to time, to designate, and thereafter change, the name
of the Building, so long as such name shall relate to the name under which
Tenant (or any subtenant or occupant of at least 50% of the office space or at
least 50% of the retail space) is doing business at the time of any such
designation.
Section 18.02. Signs Identifying the Building. Tenant may install,
maintain, repair and replace exterior signs, flag poles and flags, banners,
sculptures and/or graphics identifying the Building and setting forth Tenant's
name and/or logo (or the name or logo of any permitted subtenants of the
Premises), the locations, sizes, materials and designs of such signs, sculptures
and/or graphics to be determined by Tenant in the exercise of Tenant's
reasonable discretion, provided that at any time that appropriate consents and
permits have been obtained under Applicable Law to permit two or more flagpoles
or bannerpoles, the second to southerly most flagpole or bannerpole and, if
Tenant fails or ceases to use the southerly most, the southerly most flagpole or
bannerpole shall be reserved for the use of Landlord's "555 Broadway" banner.
Landlord's "555 Broadway" banner shall be the size of the other banners, if any,
installed by or on behalf of Tenant (or any subtenant), and similar in design
and content to the "555 Broadway" banner heretofore installed. Tenant represents
that it is currently seeking to obtain consent from the Landmarks Preservation
Commission ("LPC") to install four (4) or five (5) flagpoles or bannerpoles on
the Broadway facade of the Building. Until such consent is obtained, Tenant
shall have the exclusive use of the existing flagpole and Tenant may, in
Tenant's discretion, replace Landlord's "555 Broadway" banner heretofore
installed with Tenant's own banner or remove the flagpole entirely.
Section 18.03. Landlord's Exterior Sign. Landlord has the right to affix
to the exterior of the Building a sign in the form, at the location and meeting
the specifications set forth in Exhibit E hereto and which is in accordance with
all applicable governmental laws, rules and regulations (including, without
limitation, those of the LPC).
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ARTICLE NINETEEN
QUIET ENJOYMENT
Section 19.01. Quiet Enjoyment. So long as this Lease is in effect,
Landlord covenants and agrees to take all necessary steps to secure and to
maintain for the benefit of Tenant the quiet and peaceful possession of the
Premises for the term of this Lease, without hindrance, claim or molestation by
Landlord or any other person, subject, nevertheless, to the provisions of this
Lease and to any instrument which is superior hereto.
ARTICLE TWENTY
NON-WAIVER
Section 20.01. Non-Waiver By Either Party. Failure by either party to
complain of any action, nonaction or default of the other party shall not
constitute a waiver of any aggrieved party's rights hereunder. Waiver by either
party of any right in the event of any default of the other party shall not
constitute a waiver of any right for either a subsequent default of the same
obligation or for any other default, past (except to the extent specifically
waived herein), present or future.
ARTICLE TWENTY-ONE
NOTICES; CONSENT TO JURISDICTION
Section 21.01. Notices to Landlord or Tenant. (a) Any notice or
communication ("Notices") to Landlord or Tenant required or permitted to be
given under this Lease shall be effectively given only if in writing and mailed
by United States Registered or Certified Mail, postage prepaid, return receipt
requested, or if delivered by hand or by national overnight courier, addressed
as follows:
If to Tenant, addressed as follows:
Scholastic Inc.
555 Broadway
New York, New York 10012
Attention: Larry V. Holland
Senior Vice President
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with a copy of any notice to:
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attention: Jacob Bart, Esq.
If to Landlord, addressed as follows:
Ise 555 Broadway, LLC
555 Broadway
New York, New York 10012
Attention: Kimio Tabata
with a copy of any notice to:
Corbin Silverman & Sanseverino LLP
805 Third Avenue
New York, New York 10022
Attention: Raymond A. Sanseverino, Esq.
Either party shall have the right to change the identity of persons to whom and
the address to which Notices shall thereafter be sent by giving Notice to the
other party as aforesaid. Notices shall be deemed given upon receipt (or refusal
to accept, if applicable). Landlord and Tenant shall have the right to designate
their respective mortgagees as additional notice recipients.
(b) With respect to any matter under this Lease where it is provided
that the recipient of a Notice shall be deemed to have consented to the request
set forth therein if such recipient shall fail to respond thereto within a
stated time period, such deemed consent shall not be operative unless such
Notice shall state, in capital letters at the top of such Notice, that the
consent of the recipient will be deemed to have been given if the recipient
fails to respond within the stated time period.
Section 21.02. Consent to Jurisdiction. Landlord and Tenant hereby
irrevocably consent and submit to the jurisdiction of any federal, state, county
or municipal court sitting in the County of New York in respect to any action or
proceeding brought therein by either against the other concerning any matters
arising out of or in any way relating to this Lease. Landlord expressly waives
any rights of Landlord pursuant to the laws of Japan or any other jurisdiction
by virtue of which exclusive jurisdiction of the courts of such other
jurisdiction might be claimed. Landlord and Tenant each (a) irrevocably waives
personal service of any summons and complaint and consent to the service upon
Landlord or Tenant, as the case may be, of process in any such action or
proceeding by the mailing of such process by registered mail, return receipt
requested, to Landlord or Tenant, as the case may be, at the address set forth
above or such other
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address in the New York City metropolitan area that Landlord or Tenant, as the
case may be, may designate for notices from time to time, provided that, with
respect to any time that Landlord or Tenant, as the case may be, does not
maintain offices at a New York City metropolitan area address as set forth
above, Landlord hereby designates Raymond A. Sanseverino, Esq. c/o Corbin
Silverman & Sanseverino LLP, 805 Third Avenue, New York, New York 10022 (which
designation shall be irrevocable unless Landlord shall have theretofore notified
Tenant of Landlord's similarly irrevocable designation of another
attorney-at-law in the City of New York) and Tenant hereby designates Stroock &
Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038, Attn.: Jacob
Bart, Esq. (which designation shall be irrevocable unless Tenant shall have
notified Landlord of Tenant's similar irrevocable designation of another
attorney at law in New York City) to accept service of any process on Landlord's
behalf or Tenant's behalf, as the case may be, and hereby agree that such
service shall be deemed sufficient; (b) irrevocably waives all objections as to
venue and any and all rights Landlord or Tenant, as the case may be, may have to
seek a change of venue with respect to any such act or proceeding; and (c)
agrees that the laws of the State of New York shall govern in any such action or
proceeding and waives any defense to any action or proceeding granted by the
laws of any other country or jurisdiction unless such defense is also allowed by
the laws of the State of New York. Landlord and Tenant further agree that any
action or proceeding by either against the other in respect to any matters
arising out of or in any way relating to this Lease shall be brought only in the
State of New York, County of New York. Notwithstanding anything to the contrary
set forth herein, in the event of a sale or conveyance of Landlord's interest in
the Building to a domestic entity, the designation referred to above shall be
applicable only with respect to such service of process which Tenant shall
desire to make on the initially named Landlord herein (i.e., Ise 555 Broadway,
LLC, or any other entity which would qualify under the "initially named Tenant
herein" definition (substituting the term "Landlord" for "Tenant") as set forth
in Subsection 2.02(c) above). If Landlord's interest in the Building shall be
sold or conveyed to a foreign entity, and such foreign entity shall have entered
into a written agreement with Tenant identifying a substitute agent located in
New York City, then the designation referred to above shall be applicable only
with respect to such service of process which Tenant shall desire to make on the
initially named Landlord herein. Notwithstanding anything to the contrary set
forth herein, in the event of an assignment of Tenant's interest in the Building
to a domestic entity, the designation referred to above shall be applicable only
with respect to such service of process which Landlord shall desire to make on
the initially named Tenant herein (i.e., Scholastic Inc., or any other entity
which would qualify under the "initially named Tenant herein" definition as set
forth in Subsection 2.02(c) above). If Tenant's interest in the Building shall
be assigned to a foreign entity, and such foreign entity shall have entered into
a written agreement with Landlord identifying a substitute agent located in New
York City, then the designation referred to above shall be applicable only with
respect to such service of process which Landlord shall desire to make on the
initially named Tenant herein.
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ARTICLE TWENTY-TWO
PARTIAL INVALIDITY
Section 22.01. Severability Clause. If any term, condition or covenant of
this Lease, or the application thereof to any person or circumstance, shall ever
be held to be invalid or unenforceable, then in each such event the remainder of
this Lease or the application of such term, condition or covenant to any other
person or any other circumstance (other than those as to which it shall be
invalid or unenforceable) shall not be thereby affected, and each term,
condition and covenant hereof shall remain valid and enforceable to the fullest
extent permitted by law.
ARTICLE TWENTY-THREE
BROKERAGE
Section 23.01. Brokerage. Each of Landlord and Tenant represents to the
other that the only brokers and consultants with whom they have dealt with
respect to this Lease are Charles E. Lawrence III ("Lawrence"), Alex Luce
("Luce"), Peter Pattison, Jill Ward, Commonwealth Advisors, LLC, and John
McDonagh/McDonagh Realty ("McDonagh"). Landlord agrees to pay all commissions
that may be due or owing to Lawrence, Luce and/or any person or entity claiming
a commission or similar fee by, through or under Lawrence and/or Luce pursuant
to a separate agreement. Tenant agrees to pay all commissions that may be due or
owing to Peter Pattison, Jill Ward and Commonwealth Advisors pursuant to
separate agreements. Except as has been made the responsibility of the other
party pursuant to the other provisions of this Section 23.01, Landlord and
Tenant each agree to indemnify and hold the other harmless against any claims
for commissions that may be asserted in connection with this Lease arising out
of a breach of the foregoing representation by such party. Tenant agrees to
indemnify and hold Landlord harmless from any claims for brokerage commissions
that may be asserted by Goldman, Sachs & Co. or The Lansco Corporation or Neil
J. Lerner against Landlord in connection with this Lease. Landlord agrees to
indemnify and hold Tenant harmless from any claims for brokerage commissions
that may be asserted by McDonagh, Julien J. Studley, Inc., CB Richard Ellis,
Inc. and LaSalle Partners.
ARTICLE TWENTY-FOUR
SUBORDINATION; NON-DISTURBANCE
Section 24.01. Subordination. (a) Subject to the provisions of Section
24.02, this Lease is subject and subordinate to a first mortgage of the fee
estate in the Property in the original principal amount of $34,000,000, dated as
of the date hereof, between Landlord, as mortgagor, and Credit Suisse First
Boston Mortgage Capital LLC, as mortgagee (the "First Mortgage"), and
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to any and all amendments, modifications, refinancings and replacements thereof
(and to any and all amendments and modifications of any and all refinancings and
replacements) in whatever amount, provided:
(i) any refinancing or replacement of the First Mortgage or
any other financing of the Property or Mortgage is with a domestic institutional
lender, or, if a refinancing or replacement of the First Mortgage or any other
financing of the Property or Mortgage, is with a lender other than a domestic
institutional lender, the principal amount of the mortgage upon such refinancing
or replacement or other financing does not exceed 90% of the Fair Market Value
of the Property; and
(ii) at any time during which Landlord has control of
management of the Premises pursuant to the provisions of Section 5.02(d) hereof,
any refinancing or replacement of the First Mortgage then on the Property or any
other financing of the Property or Mortgage (whether or not with a domestic
institutional lender) does not exceed 90% of the Fair Market Value of the
Property.
(b) In the event that the principal balance of a refinanced or
replaced First Mortgage or of any other financing of the Property or Mortgage
exceeds 90% of the Fair Market Value of the Premises and Land and either the
First Mortgage is refinanced or replaced or any other financing of the Property
or Mortgage is (x) with a lender other than a domestic institutional lender or
(y) at any time during which Landlord has control of management of the Premises
pursuant to the provisions of Section 5.02(d) hereof, then this Lease shall be
subject and subordinate to the refinanced or replaced First Mortgage or any
other financing of the Property or Mortgage; provided that Landlord shall
deliver to Tenant an evergreen letter of credit (the "Letter of Credit") issued
by a major money center bank, having an office in New York City which actively
handles commercial letters of credit, in an amount equal to the amount by which
the principal of the refinanced or replaced First Mortgage or any other
financing of the Property or Mortgage exceeds 90% of the Fair Market Value of
the Property. The Letter of Credit shall be substantially in the form attached
hereto as Exhibit F. Tenant shall have recourse against the Letter of Credit, or
any cash into which the Letter of Credit may be converted as a result of a
failure by Landlord to keep the Letter of Credit evergreen, to satisfy any
judgment it may obtain against Landlord for any default by Landlord under this
Lease. If control of management reverts to Tenant or if the principal balance of
the Mortgage becomes less than 90% of the Fair Market Value of the Property, the
Letter of Credit shall be returned to Landlord; provided, however, that Landlord
shall deliver to Tenant the Letter of Credit if the provisions of this
Subsection 24.01(b) shall again become applicable.
(c) If Landlord fails to renew the Letter of Credit at the later of
(i) at least ten (10) business days prior to its expiration or twenty (20)
business days after notice from Tenant that the expiration is less than sixty
(60) calendar days away, Tenant may present the Letter of Credit for payment
and, upon receiving payment, shall deposit the amount thereof in a separate,
interest bearing account in a major money center bank having a branch or main
office in New York City.
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The amount so deposited and the interest thereon shall be held for the same
purposes and turned over to Landlord under the same circumstances as apply
hereunder to the Letter of Credit.
(d) Landlord may, from time to time, grant mortgages or other
security interests covering its fee estate in the Property (collectively, a
"Mortgage"; with the holder of a Mortgage being referred to herein as
"Landlord's Mortgagee"). Subject to the provisions of this Section 24.01 and
Section 24.02, this Lease and all rights of Tenant hereunder shall be subject
and subordinate to any ground leases, overriding leases, underlying leases, and
any Mortgage, including any modifications, replacements, extensions or renewals
thereof and advances thereunder, from time to time in effect. Within thirty (30)
days after request by Landlord, Tenant agrees to execute a subordination and
non-disturbance agreement, confirming the provisions of Subsections 24.01(a) and
(d) and Section 24.02 below, in form and substance reasonably acceptable to
Tenant.
Section 24.02. Non-disturbance. (a) The subordination of this Lease to any
ground lease, overriding lease, underlying lease or Mortgage referred to in
Section 24.01 is expressly conditioned on the lessor or holder thereof expressly
agreeing to execute and deliver a subordination, nondisturbance and attornment
agreement with Tenant substantially in the form annexed hereto as Exhibit G and
made a part hereof, but in no event shall such agreement impose any greater
burden or obligations on Tenant or reduce any rights of Tenant beyond those set
forth in Exhibit G (such agreement, an "SNDA"), to the effect that (i) Tenant
will not be named or joined in any proceeding (or trustee's sale) to terminate
such lease or reenter the premises thereof, or to enforce or foreclose the
Mortgage unless such be required by law, provided that such proceeding shall not
derogate the rights of Tenant under this Lease or the use and occupancy by
Tenant (or its permitted assignees and subtenants) of the Premises, (ii)
enforcement of any such lease or Mortgage shall not terminate this Lease or
disturb Tenant in the possession or use of the Premises, (iii) any party
succeeding to the interest of Landlord as a result of the termination of such
lease or the lessor's reentry onto the premises thereof, or of the enforcement
or foreclosure of the Mortgage shall be bound to Tenant, and Tenant shall be
bound to such party, under all of the terms, covenants and conditions of this
Lease, for the balance of the term of this Lease, including the Renewal Term
(except as expressly set forth in Subsection 24.02(c) below), (iv) Tenant
acknowledges the subordination referred to in Section 24.01, if requested by
Landlord's Mortgagee or superior lessor, (v) insurance proceeds and Awards shall
be first applied as provided in this Lease, and (vi) the Mortgage shall be
subject and subordinate to the Easements Agreement.
(b) If any act or omission of Landlord would give Tenant the right,
immediately or after lapse of a period of time, to cancel or terminate this
Lease, or to abate or offset against the payment of rent or to claim a partial
or total eviction, Tenant shall not exercise such right (i) until Tenant shall
have given notice of such act or omission to Landlord and to each Landlord's
Mortgagee and each superior lessor who has entered into an SNDA with Tenant, and
whose then current name and address shall previously have been furnished to
Tenant, (ii) with respect to a notice of cancellation or termination, until the
period which is five (5) business days
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(in the case of monetary defaults) or thirty (30) days (in the case of
non-monetary defaults) beyond the date to which Landlord would be entitled under
this Lease, after similar notice, to effect such remedy, shall have elapsed
following the giving of such notice, provided that (x) such Landlord's Mortgagee
or superior lessor shall with due diligence give Tenant notice of intention to,
and promptly commence and with due diligence continue to, remedy such act or
omission, and (y) such remedy shall be within five (5) business days (in case of
monetary defaults) or thirty (30) days (in case of non-monetary defaults) after
expiration of any time period available to Landlord (and subject to the same
obligations applicable to Landlord) under the terms of this Lease or by law to
effect a cure thereof, and (iii) with respect to a notice of abatement or offset
or notice of partial or total eviction, until the period to which Landlord would
be entitled under this Lease, after similar notice, to effect such remedy, shall
have elapsed following the giving of such notice, provided that (x) such
Landlord's Mortgagee or superior lessor shall with due diligence give Tenant
notice of intention to, and promptly commence and with due diligence continue
to, remedy such act or omission, and (y) such remedy shall be within the same
time period available to Landlord (and subject to the same obligations
applicable to Landlord) under the terms of this Lease to effect a cure thereof.
Nothing contained in this Subsection 24.02(b) shall be deemed to permit or
require the further extension of the cure periods beyond the applicable cure
periods provided herein, including, without limitation, in the event (i) of
force majeure, (ii) such Landlord's Mortgagee or superior lessor shall have
commenced to cure a default within the applicable time period but shall not have
prosecuted the same to completion within said time period, and/or (iii)
possession of the Premises or the mortgaged property is required in order for
such Landlord's Mortgagee or superior lessor to cure such default, or such
default is not susceptible of being cured by such Landlord's Mortgagee or
superior lessor. The aforesaid notice to Landlord's Mortgagees and superior
lessors may be given by Tenant to any such Landlord's Mortgagee or lessor
simultaneously with the giving of such notice to Landlord, or at any time
thereafter.
(c) Supplementing the provisions of Subsection 24.02(a) above, if
any superior lessor or Landlord's Mortgagee who has entered into an SNDA with
Tenant, or any designee of any such lessor or Landlord's Mortgagee, shall
succeed to the rights of Landlord under this Lease, whether through possession
or foreclosure action or delivery of a new lease or deed, then such party so
succeeding to Landlord's rights (herein called "Successor Landlord") and Tenant
shall enter into a written agreement whereby such Successor Landlord agrees to
accept Tenant's attornment and Tenant agrees to attorn to and recognize such
Successor Landlord as Tenant's landlord under this Lease. Upon such attornment,
this Lease shall continue in full force and effect as a direct lease between the
Successor Landlord and Tenant upon all of the terms, conditions and covenants as
are set forth in this Lease as if the Successor Landlord were the original
landlord under this Lease, except that the Successor Landlord shall not be (i)
bound by any payments of rent which Tenant might have made for more than one (1)
month in advance to Landlord (or Landlord's predecessors in interest), (ii)
liable to pay damages to Tenant for any breach, act, or omission or negligence
of any prior Landlord (including the then defaulting Landlord), but shall
nonetheless remain subject to any and all abatements, deductions, offsets,
claims, counterclaims and/or defenses which shall have accrued to Tenant against
any prior
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landlord (including the then defaulting Landlord) prior to the date that
Successor Landlord shall have succeeded to the rights of Landlord under this
Lease, but in any case, provided, however, such non-liability for damages shall
neither diminish Successor Landlord's liability for continuing obligations of
Landlord nor diminish Tenant's rights under this Lease with respect to the
continuing failure of Successor Landlord to perform the Landlord's obligations
under this Lease after the date that Successor Landlord succeeds to the interest
of Landlord under this Lease; or (iii) bound by any agreement amending this
Lease made without the Successor Landlord's consent (but only to the extent that
such amendment shall increase Successor Landlord's obligations or decrease
Tenant's obligations under this Lease).
(d) If requested to do so by a first Landlord's Mortgagee who shall
have entered, or then be entering, into an SNDA with Tenant, Tenant shall agree
to make reasonable changes to this Lease, provided that such changes
(individually or collectively) shall not (i) increase or decrease the term of
this Lease or increase the rental, or (ii) increase any of Landlord's rights
under this Lease, or (iii) increase (except to a de minimis extent) any of
Tenant's obligations under this Lease.
ARTICLE TWENTY-FIVE
[Intentionally Omitted]
ARTICLE TWENTY-SIX
ARBITRATION OF DISPUTES
Section 26.01. Arbitration. (a) All disputes and determinations under this
Lease which are specifically stated to be determined pursuant to this Article
Twenty-Six or to be determined by arbitration shall be determined by arbitration
conducted in New York, New York, as follows. The party desiring such arbitration
shall give notice to the other party. If the parties shall not have agreed on a
choice of an arbitrator within fifteen (15) days after the service of such
notice, then either party, on behalf of both, may request that the New York
office of the American Arbitration Association ("AAA") appoint an arbitrator to
render a resolution of said dispute or to make the determination in question. In
the absence or failure, refusal or inability of AAA to act within twenty (20)
days, then either party, on behalf of both, may apply to a Justice of the
Supreme Court of New York, New York County, for the appointment of an
arbitrator, and the other party shall not raise any question as to the court's
full power and jurisdiction to entertain the application and make the
appointment. In the event of the failure, refusal or inability of an arbitrator
to act, a successor shall be appointed within ten (10) days as hereinbefore
provided. Notwithstanding the foregoing, if a determination of Fair Rental
Value, fair market value or the value of either Landlord's or Tenant's estate in
the Premises is the issue to be arbitrated or involved in the matter being
arbitrated, each arbitrator selected or appointed pursuant to this
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Section 26.01 shall be an appraiser, a member of the American Institute of Real
Estate Appraisers (or a successor organization), and shall have been engaged in
appraisals with respect to office properties in lower Manhattan for a period of
at least ten (10) years before the date of his appointment. Any arbitrator
acting under this Section 26.01 in connection with any other matter shall be
experienced in the issue with which the arbitration is concerned and shall have
been actively engaged in such field for a period of at least ten (10) years
before the date of his appointment as arbitrator hereunder.
(b) All arbitrators chosen or appointed pursuant to this Article 26
shall (x) be sworn fairly and impartially to perform their duties as such
arbitrator, and (y) not be an employee or past employee of Landlord or Tenant or
their respective Affiliates. Within sixty (60) days after the appointment of
such arbitrator, such arbitrator shall determine the matter which is the subject
of the arbitration and shall issue a written opinion. The decision of the
arbitrator shall be conclusively binding upon the parties, and judgment upon the
decision may be entered in any court having jurisdiction; provided, however,
that with respect to a dispute or question regarding a determination of Fair
Rental Value or the value of either Landlord's or Tenant's interest in the
Premises, the arbitrator must select one or the other of the valuations of
Landlord and Tenant, and the decision so made by the arbitrator shall in all
cases be conclusively binding upon the parties, and judgment upon the decision
may be entered in any court having jurisdiction. Except with respect to an
arbitration involving the determination of Fair Rental Value or fair market
value, the losing party shall pay the fees and expenses of all arbitrators
acting under this Section 26.01.
(c) Landlord and Tenant agree to sign all documents and to do all
other things necessary to submit any such matter to arbitration and further
agree to, and hereby do, waive any and all rights they or either of them may at
any time have to revoke their agreement hereunder to submit to arbitration and
to abide by the decision rendered thereunder. For such period, if any, as this
agreement to arbitrate is not legally binding or the arbitrator's award is not
legally enforceable, the provisions requiring arbitration shall be deemed
deleted and matters to be determined by arbitration shall be subject to
litigation.
(d) Any dispute or determination under this Lease which is
specifically stated to be determined pursuant to Expedited Arbitration or where
either party shall have the right to submit a dispute relating to the
reasonableness of the grant or denial of a consent by the other party to binding
arbitration, such dispute shall be determined under the Expedited Procedures
provisions (Rules 56 through 60 in the April 1, 1997 edition) of the Arbitration
Rules for the Real Estate Industry of AAA ("Expedited Arbitration"). In cases
where the parties utilize such arbitration: (i) the parties will have no right
to object if the arbitrator so appointed was on the list submitted by the AAA
and was not objected to in accordance with Rule 54, (ii) the first hearing shall
be held within seven (7) business days after the appointment of the arbitrator,
(iii) if the arbitrator shall find that a party acted unreasonably in
withholding or delaying a consent or approval, such consent or approval shall be
deemed granted, and (iv) the losing party in such arbitration shall pay the
arbitration costs charged by AAA and/or the arbitrator.
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Section 26.02. Payment of Expenses in Certain Circumstances. (a) Whenever
Landlord (i) is requested to give an approval or consent pursuant to any
provision of this Lease (or other document related to the Premises or Tenant's
rights hereunder, e.g., the Amended and Restated Easements Agreement dated as of
August 1, 1999) or (ii) is required to enter into an NDA, Tenant shall pay for,
or reimburse Landlord for, Landlord's reasonable out-of-pocket costs in
reviewing or preparing plans or documents, including reasonable professional
fees (such as legal, architectural, engineering, etc.) actually incurred.
(b) If Landlord unreasonably withholds an approval or consent under
circumstances where Landlord may not unreasonably withhold an approval or
consent, then, notwithstanding Subsection 26.02(a)(i) above, Tenant shall not be
obligated to pay Landlord's legal fees and Landlord shall be obligated to pay
Tenant's reasonable legal fees incurred in connection with the proceeding
brought to establish Tenant's entitlement to the approval or consent.
Conversely, if a proceeding establishes that Landlord acted reasonably in
withholding its approval or consent, Tenant shall pay Landlord's reasonable
legal fees incurred in the proceeding.
ARTICLE TWENTY-SEVEN
ENVIRONMENTAL MATTERS
Section 27.01. Tenant's Covenants. Tenant covenants and agrees that Tenant
will not cause or permit the storage, treatment or disposal on, under or about
the Building, or transport to or from the Building any "Hazardous Materials"
(which term shall mean substances defined as "hazardous wastes" or "toxic
substances" in the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss.6901, et seq.,) or any other substances similarly
defined pursuant to federal law and the laws of the State or City of New York in
violation of Applicable Laws. In the event of a breach of the provisions of this
Section 27.01, Landlord shall have the right, in addition to all other rights
and remedies available to it under this Lease or at law, to require Tenant to
remove or remediate any such Hazardous Materials from the Premises in the manner
prescribed for such removal by Applicable Laws. The provisions of this Section
27.01 shall survive the expiration of this Lease.
Section 27.02. Indemnity. Tenant hereby indemnifies, saves and holds
harmless Landlord from and against any and all costs, claims, damages,
liabilities, losses and expenses (including, without limitation, reasonable
attorneys' fees and disbursements) suffered or incurred by Landlord and arising
from Tenant's breach of its covenants and/or agreements contained in this
Article 27.
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ARTICLE TWENTY-EIGHT
REPRESENTATIONS AND WARRANTIES OF LANDLORD; INDEMNITIES
Section 28.01. Representations and Warranties of Landlord. (a)
Notwithstanding anything herein contained to the contrary, Landlord represents
and warrants to, and covenants with, Tenant that the following are true on the
Commencement Date: (i) Landlord owns fee title to the Land and Building, free
and clear of liens, mortgages, encumbrances, claims, agreements, covenants,
restrictions, easements, liens, or other matters affecting title to the Land and
Building, except as set forth on Exhibit H annexed hereto; (ii) no persons or
entities, other than Tenant and subtenants of Tenant, shall have any right to
possession or use of all or any part of the Premises from and after the
Commencement Date, other than as expressly set forth elsewhere in this Lease;
(iii) no person has an option to purchase all or any part of the Property; (iv)
no lien or encumbrance, other than Real Estate Taxes which are not yet due and
payable and the matters set forth on Exhibit H annexed hereto, has been levied
or assessed against, or imposed upon, the Property; (v) Landlord has no
knowledge of any pending or threatened proceeding or public improvements which
might result in the levy of any special assessment against the Property; (vi)
there is no pending eminent domain proceeding affecting the Property, and
Landlord has received no notice of any pending or threatened eminent domain
proceeding; and (vii) there are no claims, actions, proceedings, orders or
disputes pending, or to the knowledge of Landlord, threatened against or
affecting the Property or Landlord's interest therein and there are no existing
orders, judgments or decrees of any court or governmental authority affecting
the Property or Landlord's interest therein.
(b) Landlord represents and warrants to Tenant:
(i) That, to the best of Landlord's knowledge, there are no
actions, suits or proceedings pending or, to the knowledge of Landlord,
threatened against or affecting Landlord, at law or in equity or before any
governmental authority which would impair Landlord's ability to perform
Landlord's obligations under this Lease;
(ii) That this Lease has been duly authorized, executed and
delivered by Landlord, and (subject to the provisions hereof) constitutes the
legal, valid and binding obligation of Landlord; and
(iii) That, to the best of Landlord's knowledge, the
consummation of the transactions hereby contemplated and the performance of this
Lease will not result in any breach or violation of, or constitute a default
under any lease, bank loan or credit agreement to which Landlord is a party.
Section 28.02. Negative Covenants. Except as otherwise expressly provided
in this Lease, Landlord covenants and agrees that from and after the date
hereof, if the same would (other than in a de minimis manner) reduce the value
of the Property, Landlord shall not: (i)
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create or permit to be created any lien, encumbrance, easement, covenant,
restriction or any other matter of record against the Premises or the Property
(it being agreed by the parties hereto that any financing or refinancing of the
Building shall not be deemed to reduce the value of the Property); (ii) modify,
amend, terminate, suspend or otherwise impair the certificate of occupancy for
the Building; or (iii) amend, modify, terminate or otherwise impair any
covenant, agreement, easement or other matter listed in Exhibit H annexed
hereto. Supplementing the foregoing, except to the extent then required by
Applicable Law, Landlord shall not (except as expressly permitted elsewhere in
this Lease) violate any of the foregoing covenants contained in clauses (i)
through (iii) above, if violation thereof would (other than in a de minimis
manner) adversely affect Tenant's use of the Premises or adversely affect
Tenant's rights under this Lease.
Section 28.03. Landlord's Indemnity. Landlord hereby indemnifies, saves
and holds Tenant harmless from and against any and all liability, damages,
claims, losses, costs and expenses (including, without limitation, reasonable
attorneys' fee and disbursements) suffered or incurred by Tenant and to the
extent arising out of or in connection with the breach of any representations,
warranties, agreements and/or covenants of Landlord under this Article 28.
Section 28.04. Tenant's Indemnity. Tenant hereby indemnifies, saves and
holds Landlord harmless from and against any and all liability, damages, claims,
losses, costs and expenses (including, without limitation, reasonable attorneys'
fees and disbursements) suffered or incurred by Landlord and to the extent
arising out of or in connection with (i) the breach of any representations,
warranties, agreements and/or covenants of Tenant under Subsection 31.01(m)
below, or (ii) the existence of one or more conditions which are the subject of
such representations and warranties (regardless of whether the existence of such
condition(s) constitutes a breach of such representations or warranties).
ARTICLE TWENTY-NINE
LANDLORD'S LIABILITY
Section 29.01. Landlord's Liability. Tenant shall look only to Landlord's
estate, interest and property in the Property (including for these purposes, if
applicable, the Letter of Credit described in Section 24.01(b) or cash proceeds
thereof) for the satisfaction of Tenant's remedies hereunder or, for the
collection of a judgment (or other judicial process) requiring the payment of
money by Landlord in the event of any default by Landlord hereunder, and no
other property or assets of Landlord or of Landlord's partners, officers,
directors, shareholders or principals, disclosed or undisclosed, shall be
subject to levy, execution or other enforcement procedure for the satisfaction
of Tenant's remedies under or with respect to this Lease, the relationship of
Landlord and Tenant hereunder or Tenant's use or occupancy of the Premises.
Landlord's estate, interest and property in the Property shall include (from and
after the date of such default, act or omission by Landlord) all rents received
by Landlord with respect to the Property (or any portion thereof), the
consideration or proceeds of any sale or other conveyance of Landlord's estate,
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interest and property in the Property (or any portion thereof), the proceeds of
a financing or refinancing received by Landlord from the grant of any mortgage
interest in Landlord's estate, interest and property in the Property (or any
portion thereof), and any insurance proceeds or Awards relating to the Property,
to the extent not previously applied to the restoration of the Property. For the
purposes of this Section 29.01, the terms "consideration" and "proceeds" of a
sale, conveyance or financing shall not include the amount of indebtedness,
theretofore secured by a third-party mortgage lien against the Property, repaid
by such consideration or proceeds.
ARTICLE THIRTY
Intentionally Omitted
ARTICLE THIRTY-ONE
MISCELLANEOUS
Section 31.01. Certain Miscellaneous Provisions. (a) This Lease (including
the Exhibits referred to herein and all supplementary agreements provided for
herein) and the Easements Agreement contain the entire agreement between the
parties, and except for the Easements Agreement, all prior negotiations and
agreements are merged into this Lease.
(b) This Lease may not be changed, modified, terminated or
discharged, in whole or in part, except by a writing, executed by the party
against whom enforcement of the change, modification, termination or discharge
is sought.
(c) The Article and Section headings or titles in this Lease are
inserted for convenience only and are not to be given any effect in its
construction.
(d) Wherever appropriate in this Lease, personal pronouns shall be
deemed to include the other genders and the singular to include the plural.
(e) The covenants and agreements contained herein shall inure to and
be binding upon Landlord, its successors and assigns, and Tenant, its successors
and assigns.
(f) Except as expressly set forth herein or in any SNDA, any party
succeeding to or acquiring any part of the interest of any party "Landlord"
hereunder shall automatically take the same subject to such liability and
indebtedness to Tenant as said party "Landlord" may have had under this Lease
prior to said successor party's acquisition or succession, subject, however, to
any valid defenses or offsets that would have been available to such party
"Landlord" under this Lease.
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(g) The term "Prime Rate" shall mean the rate of interest announced
publicly by Citibank, N.A., or its successor, from time to time, as the rate of
interest to its most credit-worthy customers on commercial loans having a
duration of ninety (90) days.
(h) The term "Excusable Delays" as used in this Lease shall mean any
delay due to strikes, lockouts or other labor or industrial disturbance, civil
disturbance, future order of any government, court or regulatory body claiming
jurisdiction, act of the public enemy, war, riot, sabotage, blockade, embargo,
inability to secure materials, supplies or labor though ordinary sources by
reason of shortages or priority or similar regulation or order of any
government, court or regulatory body, lightning, earthquake, fire, storm,
hurricane, tornado, flood, washout, explosion, or any cause whatsoever beyond
the reasonable control of the party from whom performance is required, or any of
its contractors or other representatives, whether or not similar to any of the
causes hereinabove stated; provided, however, that for purposes of this
definition, a party's lack of funds shall not be deemed to be a cause beyond the
control of such party.
(i) The term "person" shall mean any natural person or persons, a
partnership, a corporation, and any other form of business or legal association
or entity, unless otherwise expressly stated. An "Affiliate" of a particular
person shall mean any other person which controls, is controlled by or is under
common control with, the particular person.
(j) The term "Tenant" shall mean the Tenant herein named or any
assignee or other successor in interest (immediate or remote) of the Tenant
herein named, which at the time in question is the owner of the Tenant's estate
and interest granted by this Lease; but the foregoing provisions of this
Subsection (j) shall not be construed to permit any assignment of this Lease or
to relieve the Tenant herein named or any assignee or other successor in
interest (whether immediate or remote) of the Tenant herein named from the full
and prompt payment, performance and observance of the covenants, obligations and
conditions to be paid, performed and observed by Tenant under this Lease, except
as specifically set forth elsewhere in this Lease.
(k) The term "Landlord" shall mean only the owner, at the time in
question, of the Building, or Landlord's interest in a superior lease of the
Building, so that in the event of any transfer or transfers of title to the
Building or of Landlord's interest in a superior lease of the Building, the
transferor shall be and hereby is relieved and freed of all obligations of
Landlord under this Lease accruing after such transfer, provided that such
transferee shall have entered into a written agreement with Tenant whereby such
transferee shall assume and agree to perform and observe all obligations of
Landlord herein during the period that such transferee is the holder of
Landlord's interest under this Lease. The foregoing provisions shall not be
construed to permit any transfer by Landlord except as specifically set forth
elsewhere in this Lease.
(l) The primary remedies of a party in cases where such party
disputes the other's reasonableness in exercising its judgment or withholding or
delaying any consent or approval expressly required pursuant to a specific
provision of this Lease shall be those remedies in the nature of an injunction,
declaratory judgment or specific performance, or arbitration as set forth
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in Subsection 26.01(d) above; and such party's right to seek money damages shall
be limited to actual compensatory damages, and shall be available only in
instances where (i) said primary remedies shall be unavailable or inadequate, or
(ii) the party whose reasonableness is being disputed shall have acted in bad
faith.
(m) Tenant represents and warrants:
(i) That, to the best of Tenant's knowledge, there are no
actions, suits or proceedings pending or, to the knowledge of Tenant, threatened
against or affecting Tenant, at law or in equity or before any governmental
authority which would impair Tenant's ability to perform its obligations under
this Lease;
(ii) That this Lease has been duly authorized, executed and
delivered by Tenant, and (subject to the provisions hereof) constitutes the
legal, valid and binding obligation of Tenant; and
(iii) That, to the best of Tenant's knowledge, the
consummation of the transactions hereby contemplated and the performance of this
Lease will not result in any breach or violation of, or constitute a default
under any lease, bank loan or credit agreement to which Tenant is a party.
(n) This Lease may be executed in counterparts, all of which taken
together shall constitute one and the same original, and the execution of
separate counterparts by Landlord and Tenant shall bind Landlord and Tenant as
if they had executed the same counterparts.
Section 31.02. Governing Law. This Lease shall be governed (i) in all
respects by the law of the State of New York, and (ii) the provisions hereof,
without the aid of any canon, custom or rule of law requiring construction
against the party drafting the provision in question.
Section 31.03. Memoranda Agreements. Each of Landlord and Tenant shall, at
the other's request, execute, acknowledge and deliver a memorandum or short-form
of this Lease, and memoranda or short-forms of all agreements supplementary
hereto, which the requesting party may, at such party's expense, file and record
of record.
Section 31.04. Additional Rent. If Tenant shall fail to pay to the
appropriate taxing authority such Real Estate Taxes as Tenant is required to pay
under this Lease prior to the last date when the same is payable without
penalty, Landlord may, after ten (10) days notice thereof to Tenant (and
Tenant's failure to pay the same within said ten (10) day period), pay the same,
and Tenant shall within ten (10) days after notice of such payment by Landlord,
reimburse Landlord for the amount thereof (including penalties and interest (if
any)), with interest thereon at the Prime Rate from the date of such payment by
Landlord to the date of reimbursement. Such obligation of Tenant, if not timely
so paid, shall constitute "Additional Rent" payable hereunder
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by Tenant to Landlord, and together with Annual Rental shall be included in the
terms "rent" and "rental."
Section 31.05. Estoppel Certificates. Each of Landlord and Tenant shall,
upon not less than fifteen (15) days notice from the other party, execute,
acknowledge and deliver to the other a written statement certifying that this
Lease is unmodified and in full force and effect (or, if this Lease shall have
been modified, listing such modifications), the dates to which Annual Rental and
Additional Rent have been paid and whether or not, to the best knowledge of such
party, the other party is in default of any of its obligations under this Lease
and such other reasonable matters reasonably requested by the relevant third
parties for whom such estoppel certificates are being procured.
Section 31.06. No Merger. There shall be no merger of this Lease, or the
leasehold estate created by this Lease, with any other estate or interest in the
Premises, or any part thereof, by reason of the fact that the same person may
acquire or own or hold, directly or indirectly, (i) this Lease or the leasehold
estate created by this Lease, or any interest in this Lease or in any such
leasehold estate, and (ii) any such other estate or interest in the Premises or
any part thereof; and no such merger shall occur unless and until all persons
having an interest (including a security interest) in (a) this Lease or the
leasehold estate created by this Lease and (b) any such other estate or interest
in the Premises, or any part thereof, shall join in a written instrument
effecting such merger and shall duly record the same.
Section 31.07. Business Days. The term "business days" shall mean all days
other than Saturdays, Sundays and those holidays observed by the federal
government and New York State as holidays.
Section 31.08. Hold-over. If Tenant shall hold-over after the expiration
of this Lease, the parties hereby agree that Tenant's occupancy of the Premises
after the expiration of the term shall be under a month-to-month tenancy
commencing on the first day after the Expiration Date, and shall be upon all of
the terms and conditions set forth herein, except that Tenant shall pay for each
month of Tenant's continued use and occupancy of the Premises during which
Tenant shall hold-over a sum equal to one-twelfth (1/12) of: (x) one hundred ten
(110%) percent of the Annual Rental which would have been payable by Tenant had
Tenant exercised its Renewal Option (as such amount is determined in accordance
with Section 4.04(a)(i)), plus (y) the Additional Rent paid by Tenant during the
preceding twelve (12) months pursuant to Sections 4.02 and 4.03 of this Lease;
provided, however, that if Tenant shall not have vacated the Premises as a
result of an Excusable Delay, or if Tenant shall have been conducting good faith
negotiations with Landlord in connection with a renewal or extension of this
Lease beyond the expiration of the Initial Term or the Renewal Term, then, for
the ninety (90) day period following the expiration of this Lease, the reference
in clause (x) above to one hundred ten (110%) percent shall be deemed to be one
hundred (100%) percent. The payment provided in this Section 31.08 shall be in
lieu of any other remedy or payment that shall be available to Landlord under
this
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Lease or at law, including, without limitation, damages, for holding-over, but
the same shall not detract from Landlord's right to continue to seek to obtain
possession of the Premises.
Section 31.09. Financial Statements. Within fifteen (15) days following
Landlord's written request therefor, but no more frequently then once in any six
(6) month period, Tenant shall submit to Landlord a copy of Tenant's most recent
audited consolidated financial statement.
Section 31.10. Ise Sublease. Simultaneously or nearly so herewith, Tenant
has entered into a sublease with an affiliate of Landlord (the "Ise Sublease").
In the event that any or all of the space demised under the Ise Sublease becomes
subject to Tenant's exclusive control, the Annual Rental hereunder shall be
increased by an amount which is the product of the rentable square footage of
the space demised under the Ise Sublease that becomes subject to Tenant's
exclusive control times 0.35 times the Annual Rental per rentable square foot of
the balance of the Premises demised hereunder. For the purposes of this
calculation, the rentable square footage of the space demised under the ISE
Sublease is 3,608 and the rentable square footage of the balance of the Premises
demised hereunder is 223,200. Thus, by way of example, if 2,000 rentable square
feet of the space demised under the ISE Sublease becomes subject to Tenant's
exclusive control during the time the Annual Rental per rentable square foot is
$4,200,000/223,200 (or $18.82 per rental square foot), the Annual Rental will be
increased by $13,174 (that is, $18.82 times 0.35 times 2,000). Thereafter, when
the Annual Rental as set forth on Schedule 2 hereof is increased, the amount to
be added to the Annual Rental for the former ISE Sublease space will be
appropriately adjusted to reflect the increase in the Annual Rental per square
foot of the balance of the Premises demised hereunder.
Section 31.11. Transfer of Ownership. Tenant acknowledges and accepts the
transfer of ownership of the Property from the named Landlord under the Prior
Lease to the named Landlord under this Lease.
Section 31.12. Reduced FAR. Landlord acknowledges that Tenant shall have
no liability to Landlord for any subsequent reduction in the floor area of the
Building that might come about or be required by Applicable Law if, as a result
of the enforcement by Landlord of any of Tenant's restoration obligations
hereunder, one or more governmental or quasi-governmental authorities determine
that there is an increase in the measurable floor area of the Building and
requires a reduction of the floor area of the Building in connection therewith.
The provisions of this Section 31.12 shall survive the expiration or earlier
termination of this Lease.
ARTICLE THIRTY-TWO
SECURITY
Section 32.01. Security. (a) Landlord acknowledges that Tenant has
delivered to Landlord or, at Landlord's direction, to Landlord's Mortgagee, as
the case may be, a irrevocable
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standby and "evergreen" letter of credit (the "Tenant's Letter of Credit", a
copy of which is substantially in the form attached hereto as Exhibit I) as
security for the performance of Tenant's obligations under this Lease, in the
amount of $1,000,000.
(b) In the event that an Event of Default shall occur and be
continuing, Landlord or, for so long as Landlord's Mortgagee shall be the
beneficiary of Tenant's Letter of Credit, Landlord's Mortgagee, as the case may
be, may apply the whole or any part of the proceeds of the Tenant's Letter of
Credit or any cash security then held by Landlord or, for so long as Landlord's
Mortgagee shall be the beneficiary of Tenant's Letter of Credit, Landlord's
Mortgagee, as the case may be, so deposited to the extent required for the
payment of (i) Annual Rental or Additional Rent, or (ii) any sum which Landlord
or, for so long as Landlord's Mortgagee shall be the beneficiary of Tenant's
Letter of Credit, Landlord's Mortgagee, as the case may be, may reasonably
expend to cure such Event of Default. If Landlord or, for so long as Landlord's
Mortgagee shall be the beneficiary of Tenant's Letter of Credit, Landlord's
Mortgagee, as the case may be, applies or retains any part of the Tenant's
Letter of Credit in accordance with the foregoing, Tenant shall, within thirty
(30) days after demand therefor by Landlord or, for so long as Landlord's
Mortgagee shall be the beneficiary of Tenant's Letter of Credit, Landlord's
Mortgagee, as the case may be, deposit with Landlord or, for so long as
Landlord's Mortgagee shall be the beneficiary of Tenant's Letter of Credit,
Landlord's Mortgagee, as the case may be, a sum equal to the amount so used,
applied or retained, as security as aforesaid, or a suitable replacement
Tenant's Letter of Credit, failing which Landlord or, for so long as Landlord's
Mortgagee shall be the beneficiary of Tenant's Letter of Credit, Landlord's
Mortgagee, as the case may be, shall have the same rights and remedies as for
the nonpayment of Annual Rental beyond the applicable grace period.
(c) If, on the Expiration Date or sooner termination of this Lease,
Tenant is in compliance with the Financial Test and Tenant shall not be (I) in
default of any of Tenant's monetary obligations under this Lease, or (II) in
material default of any of Tenant's non-monetary obligations under this Lease
(it being agreed for the purposes hereof that a material default of a
non-monetary obligation shall be limited to a default which, if not cured by
Tenant, would cause monetary damages to Landlord or would jeopardize Landlord's
interest in the Building), Landlord shall return or shall cause to be returned
the Tenant's Letter of Credit (or any cash security then held by Landlord or,
for so long as Landlord's Mortgagee shall be the beneficiary of Tenant's Letter
of Credit, Landlord's Mortgagee, as the case may be) to Tenant on the Expiration
Date or on such earlier date on which this Lease may terminate in accordance
with the provisions of this Lease, together with a letter, duly signed and
acknowledged by Landlord or, for so long as Landlord's Mortgagee shall be the
beneficiary of Tenant's Letter of Credit, Landlord's Mortgagee, as the case may
be, (x) stating that Landlord or, for so long as Landlord's Mortgagee shall be
the beneficiary of Tenant's Letter of Credit, Landlord's Mortgagee, as the case
may be, has relinquished all of Landlord's or, for so long as Landlord's
Mortgagee shall be the beneficiary of Tenant's Letter of Credit, Landlord's
Mortgagee's (as the case may be) rights and interest in the Tenant's Letter of
Credit and (y) authorizing the issuing bank to cancel the Tenant's Letter of
Credit.
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(d) If, on the Expiration Date or sooner termination of this Lease,
Tenant does not meet the Financial Test and Tenant has restoration obligations
pursuant to Section 11.04, Tenant's Letter of Credit shall remain outstanding
and shall be kept current by Tenant until Tenant's restoration obligation is
fully discharged and Tenant has met the requirements (other than the Financial
Test) for return of the Tenant's Letter of Credit set forth in Subsection
32.01(c) above, whereupon Landlord shall return or shall cause to be returned
the Tenant's Letter of Credit (and any cash security then held by Landlord, or
for so long as Landlord's Mortgagee shall be the beneficiary of Tenant's Letter
of Credit, Landlord's Mortgagee, as the case may be) to Tenant together with the
letter described in Subsection 32.01(c) above.
(e) In the event of a transfer of Landlord's interest in the
Property or Landlord's Mortgagee's interest in the Mortgage (and only in such
events), Landlord or, for so long as Landlord's Mortgagee shall be the
beneficiary of Tenant's Letter of Credit, Landlord's Mortgagee, as the case may
be, shall have the right to transfer the Tenant's Letter of Credit, or any sums
collected thereunder by Landlord or, for so long as Landlord's Mortgagee shall
be the beneficiary of Tenant's Letter of Credit, Landlord's Mortgagee, as the
case may be, from the issuing bank, to the transferee in accordance with all
requirements of the issuing bank, and Landlord or, for so long as Landlord's
Mortgagee shall be the beneficiary of Tenant's Letter of Credit, Landlord's
Mortgagee, as the case may be, shall thereupon be released by Tenant from all
liability for the return or payment of the amount transferred, and Tenant shall
look solely to the new Landlord or, if designated by Landlord as the transferee,
the new Landlord's Mortgagee, as the case may be, for the return or payment of
the same.
(f) If Landlord, or for so long as Landlord's Mortgagee shall be the
beneficiary of Tenant's Letter of Credit, Landlord's Mortgagee, as the case may
be, shall be holding any part of the proceeds of the Tenant's Letter of Credit
as cash security, the same shall be placed by Landlord or, so long as Landlord's
Mortgagee shall be the beneficiary of Tenant's Letter of Credit, Landlord's
Mortgagee, as the case may be, in a bank or similar institutional
interest-bearing account, and the interest earned thereon shall be disbursed
annually by Landlord, or for so long as Landlord's Mortgagee shall be the
beneficiary of Tenant's Letter of Credit, Landlord's Mortgagee, as the case may
be, to Tenant.
(g) Landlord agrees to pay the transfer fee of the issuing bank in
the event of a transfer of Tenant's Letter of Credit pursuant to Subsection
32.01(e) above.
ARTICLE THIRTY-THREE
IDA FINANCING
Section 33.01. IDA Financing. Landlord acknowledges that Tenant has
obtained financing from the New York City Industrial Development Agency (the
"IDA") in connection
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with the Prior Lease (the "IDA Financing"). Accordingly, Landlord agrees that,
if Tenant shall so request, Landlord shall cooperate with Tenant in connection
with such IDA Financing, and any amendments, modifications, refinancings and
replacements thereof, including, without limitation, if Tenant has or may enter
into a leasing of personalty arrangement with the IDA, permitting the IDA access
to the Premises to repossess such personalty if entitled to do so under the
provisions of the IDA Financing documents; provided that Landlord shall not be
deprived of any of the economic benefits or legal rights (including, without
limitation, privity) or remedies set forth in this Lease, and that the same
shall be accomplished without Landlord being required to incur any additional
out-of-pocket cost or expense thereby (it being agreed and understood, however,
that any cost or expense which Landlord is or would be contractually obligated
or legally liable to pay to any third party or any governmental agency for any
reason other than the cooperation requirement set forth in this Section 33.01
shall not be deemed or construed an "additional out-of-pocket cost or expense").
If any amendments, modifications, refinancings and replacements of such IDA
Financing shall result in an additional out-of-pocket cost or expense to
Landlord, Tenant shall nonetheless have the right to require Landlord's
cooperation in connection therewith, provided that Tenant shall promptly
reimburse Landlord for such additional out-of-pocket costs or expenses.
Notwithstanding anything to the contrary contained herein, this Section 33.01
shall not impose any greater obligations on Landlord beyond those previously
performed by Landlord with respect to the IDA Financing under the Prior Lease.
[SIGNATURES ON FOLLOWING PAGE]
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THIS LEASE is hereby executed and delivered effective as of the day and
year first above written.
LANDLORD:
ISE 555 BROADWAY, LLC
By: ISE HIYOKO, INC.
its Managing Member
By: /s/ Kimio Tabata
---------------------------
Kimio Tabata
Vice Chairman
TENANT:
SCHOLASTIC INC.
By: /s/ Larry V. Holland
---------------------------
Name: Larry V. Holland
Title: SVP
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EXHIBIT A
DESCRIPTION OF LAND
ALL that certain plot, piece or parcel of land, situate, lying and being in the
Borough of Manhattan, City, County and State of New York bounded and described
as follows:
BEGINNING at a point on the westerly side of Broadway, distant 224 feet 8 inches
northerly from the corner formed by the intersection of the westerly side of
Broadway and the northerly side of Spring Street;
RUNNING THENCE westerly along the southerly face of the southerly wall of the
building on the premises herein described, 200 feet 3 inches to the easterly
side of Mercer Street at a point therein distant 225 feet 1/4 of an inch
northerly from the northerly side of Spring Street, as measured along said
easterly line of Mercer Street;
THENCE RUNNING northerly along the easterly side of Mercer Street, 99 feet 5
inches;
THENCE easterly on a line which forms an angle on its northerly side with
easterly side of Mercer Street of 90 degrees 32 minutes 10 seconds 50 feet to an
angle point.
THENCE easterly on a line drawn parallel with the southerly side of Prince
Street and partly along the northerly face of the northerly wall of the building
on the premises herein described, 150 feet 3 inches to the westerly side of
Broadway; and
THENCE southerly along the westerly side of Broadway, 99 feet 1 inch to the
point or place of BEGINNING.
Together with all improvements now or hereafter existing thereon.
Having a street address of 549-555 Broadway (a/k/a 120-126 Mercer Street), New
York, New York.
A-1
<PAGE>
EXHIBIT B
DESCRIPTION OF THE 557 LAND
ALL that certain plot, piece or parcel of land, situate, lying and being in the
Borough of Manhattan, County of New York, City and State of New York, bounded
and described as follows:
BEGINNING at a point on the westerly side of Broadway distant one hundred and
one feet southerly from the corner formed by the intersection of the said
westerly side of Broadway with the southerly side of Prince Street;
RUNNING THENCE westerly parallel with Prince Street, 200 feet to the easterly
side of Mercer Street;
THENCE southerly along the said easterly side of Mercer Street, 50 feet;
THENCE easterly again parallel with Prince Street, 200 feet to the westerly side
of Broadway; and
THENCE northerly along the said westerly side of Broadway, 50 feet to the point
or place of BEGINNING.
B-1
<PAGE>
EXHIBIT C
ELEVATOR LOCATION
[follows this page]
C-1
<PAGE>
[second floor plan indicating future
elevator location]
<PAGE>
EXHIBIT D
BATHROOM LOCATION
[follows this page]
D-1
<PAGE>
[Second floor plans indicating optional
locations for proposed restrooms]
[Typical floor partial plan indicating
optional locations for proposed
restrooms - 555 Broadway]
<PAGE>
EXHIBIT E
LANDLORD'S SIGN
[follows this page]
E-1
<PAGE>
[Diagram of partial exterior
elevation indicating layout for
signs]
<PAGE>
EXHIBIT F
LANDLORD'S LETTER OF CREDIT
[ISSUING BANK]
[Date]
Scholastic Inc.
555 Broadway
New York, New York 10003
Ref: Irrevocable Letter of Credit No. __________
Gentlemen:
By order of our client, ISE 555 Broadway, LLC, having an office at 555 Broadway,
New York, New York, we hereby open in your favor our irrevocable standby Letter
of Credit No. __________ for the aggregate sum of [amount described in Section
___ of this Lease] United States Dollars, (U.S. $__________) effective
immediately and expiring at our [address of Bank] New York Office on __________
or any automatically extended date.
Funds under this Letter of Credit are available to you against presentation of
your sight draft(s) drawn on us marked "drawn under Irrevocable Letter of Credit
No. __________ date [date of Letter of Credit]", and accompanied by the
following:
Beneficiary's signed statement that ISE 555 Broadway, LLC has failed to comply
with the terms and conditions of a contract described as Amended and Restated
Lease between ISE 555 Broadway, LLC, as Landlord, and Scholastic Inc. as Tenant,
dated August 1, 1999 and that the beneficiary is entitled to draw on this Letter
of Credit.
It is a condition of this Letter of Credit that it shall be deemed automatically
extended without amendment for one year from the present or any future
expiration date hereof, unless thirty (30) days prior to any such date we shall
notify you by registered mail that we elect not to consider this Letter of
Credit renewed for any such additional period. Upon receipt by you of such
notice, you may draw hereunder by means of your draft on us at sight,
accompanied by the original Letter of Credit.
F-1
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This Letter of Credit is transferrable in whole but not in part by the
beneficiary upon notice to the undersigned, together with the payment of a
transfer charge of one-quarter of one percent of the amount of this Letter of
Credit. Requests for transfer will be in the form of Annex A attached hereto,
duly completed by an officer of your company and accompanied by the original of
this Letter of Credit.
If we receive your sight draft as mentioned above, in accordance with the terms
and conditions of this credit, here at our [address], New York Office we will
promptly honor the same.
This Letter of Credit is subject to the Uniform Customs and Practice for
Documentary Credits (1993 Revision) International Chamber of Commerce
Brochure No. 500, shall be deemed to be a contract made under, and as to
matters not governed by the UCP, shall be governed by and construed in
accordance with the laws of the State of New York and applicable U.S. Federal
Law.
[Name of Bank]
By: __________________________
Authorized Signature
Title:
[ANNEX A TO BE ADDED BY ISSUING BANK, IF REQUIRED]
F-2
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EXHIBIT G
NON-DISTURBANCE, SUBORDINATION AND ATTORNMENT AGREEMENT
THIS AGREEMENT (this "Agreement"), made as of this ____ day of
______________, ______, by and between ______________________, a
_________________________ with its principal place of business located at
________________________________ (the "Mortgagee"), and SCHOLASTIC INC., a New
York corporation having an address at 555 Broadway, New York, New York 10003
("Tenant").
W I T N E S S E T H
WHEREAS, Tenant is the tenant under and pursuant to that certain amended
and restated lease (the "Lease"), dated as of August 1, 1999, with Ise 555
Broadway, LLC, a New York limited liability company ("Landlord"), as landlord,
pursuant to which Tenant leased the entire building (the "Premises") located at
555 Broadway, New York, New York, as more particularly set forth in the Lease;
WHEREAS, Landlord, Tenant, and Carol Blechman, Donald Blechman, Howard
Blechman, Noma Joan Blechman, Stephen Blechman, Norma Gastwirth (formerly known
as Norma Blechman) and Nauma Blechman Levin (formerly known as Nauma Blechman)
(collectively, the "557 Landlord") entered into an Amended and Restated
Easements Agreement dated as of August 1, 1999, pursuant to which Landlord
granted to Tenant and/or the 557 Landlord certain easements and rights as more
particularly set forth therein (such agreement, as it may be amended and/or
restated from time to time with, so long as the Mortgage (as hereinafter
defined) shall be in full force and effect, Mortgagee's written consent (which
consent shall not be unreasonably withheld or delayed), the "Easements
Agreement"), which Easements Agreement is intended to be recorded simultaneously
or nearly so with the recording of this Agreement and which Easements Agreement
amends and restates in its entirety the easements agreement dated as of July 10,
1998, recorded on August 26, 1998 in Reel 2689 Page 00792;
WHEREAS, Mortgagee is the owner and holder of those certain mortgages as
more particularly described on Schedule A annexed hereto (collectively, the
"Mortgage"). The Mortgage secures a loan made by Mortgagee to Landlord (the
"Loan");
WHEREAS, the Mortgage constitutes a lien upon all of Landlord's right,
title and interest in and to that certain property (the "Mortgaged Property")
situated in the Borough of Manhattan, City, County and State of New York, as
more particularly described in Schedule B annexed
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hereto, and the building located thereon commonly known as 555 Broadway, New
York, New York; and
WHEREAS, Tenant has agreed to subordinate the Lease to the Mortgage and to
the lien thereof, and Mortgagee has agreed to grant non-disturbance to Tenant
under the Lease, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained and other good and valuable consideration, the receipt and sufficiency
whereof are hereby acknowledged, Tenant and Mortgagee, intending to be legally
bound, hereby covenant and agree as follows:
1. So long as Tenant is not in default under the Lease after the
expiration of all applicable notice and cure periods provided for therein,
Mortgagee and Tenant each expressly agrees, on behalf of itself and its
successors and assigns, to the following:
(a) Tenant's possession and occupancy of the Premises and Tenant's
rights and privileges under the Lease shall not be disturbed by Mortgagee.
(b) Tenant shall not be named or joined by Mortgagee as a party
defendant in any action or proceeding or trustee's sale which may be instituted
or commenced by Mortgagee to foreclose or enforce the Mortgage, unless Tenant is
deemed a necessary party by the court, in which event Tenant may be so named or
joined, but such naming or joining shall not otherwise be in derogation of the
rights of Tenant set forth in this Agreement.
(c) Any insurance proceeds or Awards (as such term is defined in the
Lease) shall be applied and distributed as provided in the Lease.
Notwithstanding anything to the contrary herein or in the Lease, all fire and
casualty insurance proceeds and Awards shall be held by an independent third
party trustee selected by Mortgagee and reasonably acceptable to Tenant (the
"Insurance Trustee"), which trustee shall be deemed acceptable if such trustee
shall be a major money center bank with a branch office in New York City. The
Insurance Trustee shall be paid a reasonable and customary fee, which amount
shall be paid out of the fire and casualty insurance proceeds or Award.
(i) The Insurance Trustee shall distribute to Tenant all fire
and casualty insurance proceeds actually received by the Insurance Trustee such
that Tenant can restore the Premises in accordance with Section 9.01(a) of the
Lease, subject to the following provisions. Within ten (10) days after request
by Tenant therefor, the Insurance Trustee shall release to Tenant thirty percent
(30%) of such fire and casualty insurance proceeds, which Tenant agrees to hold
as a trust fund for expenses due and owing, incurred or to be incurred by Tenant
in connection with the restoration of the Premises in accordance with the
provisions of the Lease. Within ten (10) days after receipt by the Insurance
Trustee of (A) receipted invoices or other
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sufficient evidence showing the expenses incurred by Tenant in connection with
the restoration of the Premises theretofore performed, (B) a certification of
Tenant's architect or engineer that the restoration of the Premises is
proceeding on schedule and in accordance with the provisions of the Lease, and
(C) a certification by Tenant that Tenant has utilized the first thirty (30)
percent of such fire and casualty insurance proceeds in connection with the
restoration of the Premises (collectively, the "Deliveries"), the Insurance
Trustee shall advance to Tenant the next installment of thirty percent (30%) of
such fire and casualty insurance proceeds. The third installment of thirty
percent (30%) of such fire and casualty insurance proceeds shall be advanced to
Tenant by the Insurance Trustee within ten (10) days after receipt by the
Insurance Trustee of the Deliveries with respect to the second thirty (30)
percent of such fire and casualty insurance proceeds in connection with the
restoration of the Premises. The Insurance Trustee shall retain the final ten
percent (10%) of such fire and casualty insurance proceeds until Tenant's
restoration shall have been substantially completed, and (x) receipted invoices
or other sufficient evidence showing the expenses incurred by Tenant in
connection with the restoration of the Premises theretofore performed, and (y)
final waivers of lien from all contractors, subcontractors and materialmen who
have furnished materials or supplies or performed work or services in connection
with the restoration of the Premises, shall have been delivered by Tenant to the
Insurance Trustee, which final ten percent (10%) of such fire and casualty
insurance proceeds shall be paid to Tenant within ten (10) days thereafter. Any
excess fire and casualty insurance proceeds held by the Insurance Trustee upon
the completion of the restoration or repair of the Premises in accordance with
the provisions of the Lease, as certified to the Insurance Trustee and Mortgagee
by the Tenant and Tenant's architect or engineer, shall be paid to Tenant within
ten (10) days after written demand therefor by Tenant. Notwithstanding anything
to the contrary set forth in this Agreement, neither the Insurance Trustee nor
the Mortgagee shall have any right to approve of, or consent to, the restoration
of the Premises or any aspect thereof or any plans and specifications for the
restoration of the Premises.
(ii) The Insurance Trustee shall distribute to Tenant Tenant's
share of the Award as provided in the Lease, and shall distribute Landlord's
share of the Award as provided in the Mortgage. To the extent Tenant's share of
the Award is required to be used to restore the Premises (a "Restoration
Award"), the Insurance Trustee shall distribute the same to Tenant in accordance
with the provisions set forth in Paragraph (i) above. All Awards due Tenant
under the Lease which are not Restoration Awards shall be paid by the Insurance
Trustee to Tenant within ten (10) days after written demand therefor by Tenant.
(d) The Mortgage shall be subject and subordinate to the Easements
Agreement.
2. If Mortgagee shall succeed to the rights of the Landlord under the
Lease, whether through possession, termination or cancellation of the Lease,
surrender, assignment, judicial action, sublettings, foreclosure action or
delivery of a deed or otherwise, and, provided no event of default then exists
under the Lease beyond the applicable notice and cure periods of the Lease
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and this Agreement, Tenant shall attorn to and recognize Mortgagee as its
landlord and Mortgagee shall accept such attornment and recognize Tenant's
rights of possession and use of the Premises in accordance with the terms,
covenants and conditions of the Lease immediately upon Mortgagee's succeeding to
the interests of the Landlord under the Lease (said attornment to be effective
and self-operative without the execution of any further instruments, but Tenant
nevertheless agrees to execute any instruments or documents reasonably
satisfactory to Mortgagee and Tenant to confirm such attornment and/or otherwise
carry out the intent and purposes of this Agreement). The respective rights and
obligations of Tenant and Mortgagee upon such attornment shall be the same
during the balance of the term of the Lease, including any extensions or
renewals of the term of the Lease, as the respective rights and obligations of
Landlord and Tenant under the Lease as if Mortgagee and Tenant had entered into
a direct lease upon the terms of the Lease, except as provided in Paragraph 3
below; it being the intention of the parties hereto for this purpose to
incorporate the Lease in this Agreement by reference with the same force and
effect as if set forth at length herein. Tenant acknowledges that, except as
provided below, the provisions of Section 2.03 of the Lease shall not apply to
any foreclosure sale of the Mortgage or to the delivery of a deed in lieu of
foreclosure of the Mortgage. Notwithstanding the foregoing, so long as Tenant is
not in default under the Lease after the expiration of all applicable notice and
cure periods provided for therein, in the event that any such delivery of a deed
in lieu of foreclosure will be to an entity which is not the then holder of the
Mortgage or its related or affiliated entity, then the then holder of the
Mortgage shall give Tenant notice of such proposed transfer and the proposed
consideration to be paid to the then holder of the Mortgage and the terms of
such transfer, and Tenant shall have the right, by notice exercised within sixty
(60) days after Tenant shall have received such notice, to receive the proposed
deed in lieu of foreclosure for the same consideration and upon the same terms.
If the grantee of the deed in lieu of foreclosure is Mortgagee or its related or
affiliated entity, then the provisions of Section 2.03 of the Lease shall apply
to any transaction whereby such grantee ceases to be Mortgagee or its related or
affiliated entity (as if such transaction were a proposed sale of the Mortgaged
Property.) Following any purchase of the Mortgaged Property at foreclosure or
any transfer of the Mortgaged Property by deed in lieu of foreclosure, the
provisions of Section 2.03 of the Lease shall apply to any subsequent proposed
transfer of the Mortgaged Property.
3. Upon Mortgagee succeeding to the rights of Landlord under the Lease,
Mortgagee, as landlord, shall not be:
(a) Liable to pay damages to Tenant caused by any breach, act,
omission or negligence of any prior Landlord (including the then defaulting
Landlord), but shall (subject to Tenant's having complied with the provisions of
Paragraph 5 below) nonetheless remain subject to any and all abatements,
deductions, offsets, claims, counterclaims and/or defenses which shall have
accrued to Tenant against any prior landlord (including the then defaulting
Landlord) prior to the date that Mortgagee shall have succeeded to the rights of
Landlord under the Lease, but in any case, provided, however, such non-liability
for damages shall neither diminish Mortgagee's
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liability for continuing obligations of Landlord nor diminish Tenant's rights
under the Lease with respect to the continuing failure of Mortgagee to perform
the Landlord's obligations under the Lease after the date that Mortgagee
succeeds to the interest of Landlord under the Lease and after the expiration of
all applicable notice and cure periods provided for herein;
(b) Bound by any rent, additional rent or other items of rental
under the Lease which Tenant might have paid for more than the current month to
any prior Landlord (including the then defaulting Landlord); or
(c) Bound by the terms of any agreement amending, modifying,
supplementing or terminating the Lease made without Mortgagee's written consent,
which consent shall not be unreasonably withheld or delayed.
4. Tenant waives, and covenants not to exercise, any rights it may have to
terminate or avoid the Lease arising out of any proceedings brought to foreclose
or enforce the Mortgage, provided, however, that, so long as Tenant is not in
default under the Lease after the expiration of all applicable notice and cure
periods provided for therein, such proceeding shall not derogate the rights of
Tenant under the Lease or the use and occupancy by Tenant (or its permitted
assignees and subtenants) of the Premises, it being intended that the Lease
shall survive any such proceedings.
5. (a) Tenant shall notify Mortgagee of any default by Landlord under the
Lease which would entitle Tenant to cancel the Lease or abate the fixed rent,
additional rent or other items of rental due and payable thereunder, and agrees
that, notwithstanding any provisions of the Lease to the contrary, (i) no notice
of cancellation thereof shall be effective unless Mortgagee shall have received
notice of the default giving rise to such cancellation and shall have failed
within five (5) business days (in the case of monetary defaults) or thirty (30)
days (in the case of non-monetary defaults) after expiration of any time period
available to Landlord (and subject to the same obligations applicable to
Landlord) under the terms of the Lease to effect a cure thereof, and (ii) no
notice of abatement shall be effective unless Mortgagee shall have received
notice of the default giving rise to such abatement and shall have failed within
the same time period available to Landlord (and subject to the same obligations
applicable to Landlord) under the terms of the Lease to effect a cure thereof;
provided, however, that, if Mortgagee shall not have been given notice of the
default giving rise to such right of cancellation of the Lease or such right of
abatement of rental concurrently with the giving of such notice of the default
to Landlord, then the applicable cure periods provided above shall be deemed to
be extended by one (1) day for each day from and after the giving of such notice
of the default to Landlord that Mortgagee shall not have been given such notice
of the default. Nothing contained in this Paragraph 5 shall be deemed to permit
or require the further extension of the cure periods beyond the applicable cure
periods provided in this Agreement, including, without limitation, in the event
(i) of force majeure, (ii) Mortgagee shall have commenced to cure a default
within the applicable time period but shall not have prosecuted the same to
completion within said time period, and/or (iii)
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possession of the Premises or the Mortgaged Property is required in order for
Mortgagee to cure such default, or such default is not susceptible of being
cured by Mortgagee.
(b) Landlord shall notify the holder of any leasehold mortgage on
the interest of Tenant under the Lease (a "Leasehold Mortgagee") of any default
by Tenant under the Lease, and agrees that, notwithstanding any provisions of
the Lease to the contrary, no notice of default shall be effective unless such
Leasehold Mortgagee shall have received notice of the default and shall have
failed within five (5) business days (in the case of monetary defaults) or
thirty (30) days (in the case of non-monetary defaults) after expiration of any
time period available to Tenant (and subject to the same obligations applicable
to Tenant) under the terms of the Lease to effect a cure thereof; provided,
however, that, if the Leasehold Mortgagee shall not have been given notice of
the default concurrently with the giving of such notice of the default to
Tenant, then the applicable cure periods provided above shall be deemed to be
extended by one (1) day for each day from and after the giving of such notice of
the default to Tenant that the Leasehold Mortgagee shall not have been given
such notice of the default.
6. Tenant acknowledges and agrees that the Lease and Tenant's right, title
and interest under the Lease shall be subject and subordinate to the Mortgage
(including all amendments, modifications, supplements, renewals and extensions
at any time with respect thereto), and all advances made or to be made
thereunder. Without limiting the foregoing, if Tenant shall desire to purchase
the Mortgaged Property at any time during which the Mortgaged Property is
subject to the Mortgage, Tenant shall have no right to purchase all or any part
of the Mortgaged Property or the Premises, whether pursuant to Section 2.03 of
the Lease or otherwise, unless Tenant shall comply with the provisions of
clauses (i) through (vi) only of Subsection 10(f) and Section 12 of the Mortgage
(it being acknowledged by the Mortgagee that (x) clauses (i) through (vi) of
Subsection 10(f) shall be the only factors considered by Mortgagee in giving its
consent to the sale or transfer of the Mortgaged Property, and (y) after the
date that is the earlier of (i) four (4) years after the date of the Mortgage,
and (ii) two years after the date of securitization of the Loan, Landlord (on
behalf of and at the request of Tenant) may cause the release of the Mortgaged
Property from the lien of the Mortgage and the other Loan Documents (as such
term is defined in the Mortgage) in accordance with the provisions of Section 55
of the Mortgage, in which case, provided that the Mortgaged Property is released
in accordance with the provisions of Section 55 of the Mortgage, the foregoing
restrictions shall not apply.
7. Notwithstanding anything to the contrary contained in the Lease, Tenant
acknowledges and agrees that in the event that Mortgagee shall succeed to
Landlord's interest under the Lease (i) no shareholder, partner, director,
officer, agent or employee of Mortgagee (collectively, the "Parties") shall be
liable for the performance of the Mortgagee's obligation under the Lease; (ii)
Tenant shall look to Mortgagee to enforce Mortgagee's obligations under the
Lease and shall not seek any damages against any of the Parties; and (iii) the
liability of Mortgagee for Mortgagee's obligations under the Lease shall not
exceed and shall be limited to Mortgagee's estate, interest and property in the
Mortgaged Property and Tenant shall not look to
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any other property or assets of Mortgagee or the property or assets of any of
the Parties in seeking either to enforce Mortgagee's obligations under the Lease
or to satisfy a judgment for Mortgagee's failure to perform such obligations.
Notwithstanding anything to the contrary contained herein, Mortgagee's estate,
interest and property in the Mortgaged Property shall include all rents received
by Mortgagee with respect to the Mortgaged Property (or any portion thereof),
the consideration or proceeds of any sale or other conveyance of Mortgagee's
estate, interest and property in the Mortgaged Property (or any portion
thereof), the proceeds of a financing or refinancing received by Mortgagee from
the grant of any mortgage interest in Mortgagee's estate, interest and property
in the Mortgaged Property (or any portion thereof), and any insurance proceeds
or Awards relating to the Mortgaged Property.
8. Tenant hereby represents and warrants to Mortgagee that as of the date
hereof (i) Tenant is the owner and holder of the Tenant's interest under the
Lease, (ii) the Lease has not been modified or amended, (iii) the Lease is in
full force and effect pursuant to the provisions thereof and the term thereof
has commenced, and (iv) to the best of Tenant's knowledge, neither Tenant nor
Landlord is in default or in breach of any of the terms, covenants or provisions
of the Lease.
9. Landlord hereby authorizes and directs Tenant to name the Mortgagee as
the beneficiary of the Tenant's Letter of Credit (as such term is defined in the
Lease), and Landlord agrees to return to Tenant the existing letter of credit
under the Prior Lease (as such term is defined in the Lease), together with a
letter, duly signed and acknowledged by Landlord, (a) stating that Landlord has
relinquished all of Landlord's rights and interest in and to the existing letter
of credit under the Prior Lease, and (b) authorizing the issuing bank to cancel
the existing letter of credit under the Prior Lease simultaneously with the
issuance of the Tenant's Letter of Credit naming the Mortgagee as the
beneficiary. For so long as Mortgagee shall be the beneficiary of Tenant's
Letter of Credit, Mortgagee agrees to comply with all obligations of Landlord
under Article 32 of the Lease, including, without limitation, such obligations
of Landlord upon the expiration or earlier termination of the Lease, it being
agreed that Landlord shall be bound by all actions taken by Mortgagee under
Article 32 of the Lease as if Landlord had performed such actions itself. If,
prior to the expiration or earlier termination of the Lease, the Mortgage shall
no longer be in effect, Mortgagee shall return to Tenant the Tenant's Letter of
Credit, together with (i) a letter, duly signed and acknowledged by Mortgagee,
(x) stating that Mortgagee has relinquished all of Mortgagee's rights and
interest in and to the Tenant's Letter of Credit, and (y) authorizing the
issuing bank to transfer Tenant's Letter of Credit to Landlord or to the
subsequent holder of any refinanced or replaced mortgage on Landlord's fee
estate in the Mortgaged Property designated by Landlord, (ii) transfer forms,
duly signed and acknowledged by Mortgagee, required by the issuing bank, and
(iii) payment of the transfer fee required by the issuing bank, which payment
shall be made or provided for solely by Landlord on behalf of Mortgagee, it
being agreed that Landlord shall be solely liable for (and Mortgagee shall not
be liable for) any transfer fees required by the issuing bank.
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10. All notices, consents and other communications pursuant to the
provisions of this Agreement shall be in writing and shall be deemed to have
been sufficiently given or served for all purposes as of the date (i) when hand
delivered or (ii) five (5) business days after being sent by registered or
certified mail, return receipt requested or (iii) the date actually received (as
shown on a signed receipt) if sent by overnight courier to any party hereto at
the following addresses:
If to Mortgagee:
_________________________________
_________________________________
_________________________________
_________________________________
Attention: ______________________
Telecopier: _____________________
with copies to:
_________________________________
_________________________________
_________________________________
_________________________________
Attention: ______________________
Telecopier: _____________________
and to:
_________________________________
_________________________________
_________________________________
Attention: ______________________
Telephone: ______________________
If to Tenant:
Scholastic Inc.
555 Broadway
New York, New York 10012
Attention: Mr. Larry V. Holland
with copies to:
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Scholastic Inc.
555 Broadway
New York, New York 10012
Attention: Charles Deull, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 1003884982
Attention: Jacob Bart, Esq.
Each party may designate a change of address by notice to the other party, given
at least fifteen (15) days before such change of address is to become effective.
11. To the extent that the Lease shall entitle Tenant to notice of any
mortgage, this Agreement shall constitute such notice to Tenant with respect to
the Mortgage.
12. Whenever used in this Agreement, unless the context clearly indicates
a contrary intent or unless otherwise specifically provided herein, the word
"Tenant" shall mean "Tenant or any subsequent holder of an interest under the
Lease, provided the interest of such holder is acquired in conformance with the
terms and conditions of the Lease"; "Mortgagee" shall mean "Mortgagee or any
subsequent holder or holders of the Mortgage, or any party acquiring fee title
to the Mortgaged Property or any part thereof by purchase at a foreclosure sale
or by deed in lieu of foreclosure"; 'Landlord" shall mean "the present landlord
under the lease and such landlord's predecessors and successors and assigns."
Pronouns of any gender shall include the other genders, and either the singular
or plural shall include the other.
13. This Agreement shall inure to the benefit of and be binding upon the
Tenant and Mortgagee, and each successor Tenant and Mortgagee, and may not be
modified other than by a written instrument duly signed and delivered by Tenant
and Mortgagee.
14. This Agreement may be executed in counterparts, all of which taken
together shall constitute one and the same original, and the execution of
separate counterparts by Tenant and Mortgagee shall bind Tenant and Mortgagee as
if they had executed the same counterparts.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
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IN WITNESS WHEREOF, Tenant and Mortgagee have caused this agreement to be
duly executed as of the date first above written.
Mortgagee: Tenant:
_________________________ SCHOLASTIC INC.
By: _________________________ By: _________________________
Name: Name:
Title: Title:
In order to induce Tenant and Mortgagee to enter into the foregoing
Non-Disturbance, Subordination and Attornment Agreement, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
undersigned hereby consents to each and every term and condition of such
Agreement and to the execution of such agreement by Tenant and Mortgagee.
Landlord:
ISE 555 BROADWAY, LLC
By: ISE Hiyoko, Inc.,
its managing member
By: _____________________
Name:
Title:
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STATE OF _________ )
)
COUNTY OF _________ )
On the _____ day of ______________________ in the year 1999, before me,
the undersigned, a notary public in and for said state, personally appeared
____________________, personally known to me or proved to me on the basis of
satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.
_________________________
Notary Public
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STATE OF _________ )
)
COUNTY OF _________ )
On the _____ day of ______________________ in the year 1999, before me,
the undersigned, a notary public in and for said state, personally appeared
____________________, personally known to me or proved to me on the basis of
satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.
_________________________
Notary Public
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STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
On the _____ day of ______________________ in the year 1999, before me,
personally came Kimio Tabata, to me known, who, being by me duly sworn, did
depose and say that he resides at 3335 Galena Sassafras Road, Golts, Maryland;
that he is the Vice Chairman of Ise Hiyoko, Inc., a Japanese corporation (the
"Corporation"), the managing member of ISE 555 Broadway, LLC, the New York
limited liability company (the "Limited Liability Company") named in the
foregoing instrument; and that he has the authority to sign the same by order of
the board of directors of the Corporation, as managing member of the Limited
Liability Company and that he acknowledged that he executed the same as the act
and deed of the Corporation and the Limited Liability Company.
_________________________
Notary Public
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SCHEDULE A
Mortgages
1. Mortgage made by Rouss Building, Inc. to The Beekman Estate dated 3/29/38,
recorded 3/30/38 in Liber 4325 Mp. 138 to secure the sum of $50,000.00 and
interest.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 1 was/were assigned by The Beekman Estate to Union Square
Savings Bank by assignment dated 12/29/50, recorded 2/51, in Liber 5208
Mp. 112.
2. Mortgage made by Rouss Building Inc. to S. Blechman and Sons Inc. dated
11/1/38, recorded 11/29/38 in Liber 4347 Mp. 471 to secure the sum of
$30,000.00 and interest.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 2 was/were assigned by S. Blechman and Sons Inc. to Simon
Blechman Holdings Inc. by assignment dated 6/23/47, recorded 6/25/47, i
n Liber 4919 Mp. 13.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 2 was/were assigned by Simon Blechman Holdings Inc. to
William Blechman, Nathan S. Blechman, Raphael Blechman and Oscar
Blechman by assignment dated 10/30/47, recorded 11/3/47, in Liber 4949
Mp. 454.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 2 was/were assigned by William Blechman, Nathan S.
Blechman, Raphael Blechman, Oscar Blechman and Simon Blechman Holdings
Inc. to Union Square Savings Bank by assignment dated 12/28/50,
recorded 2/51, in Liber 5208 Mp. 108.
3. Mortgage made by Rouss Building Inc. to The RFC Mortgage Company dated
4/13/39, recorded 4/18/39 in Liber 43644 Mp. 179 to secure the sum of
$160,000.00 and interest.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 3 was/were assigned by The RFC Mortgage Company to Union
Square Savings Bank by assignment dated 6/21/44, recorded 6/23/44, in
Liber 4685 Mp. 548
Agreement Extending Mortgage Agreement made between Rouss Building Inc.
and Union Square Savings Bank dated 12/29/50 recorded 1/16/51 in Liber
5211 Mp. 513. Consolidated mortgages 1 thru 3 to form a single lien of
$164,578.00.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 1 thru 3 as consolidated was/were assigned by Union Square
Savings Bank to Gindoff Export Corporation by assignment dated 3/7/60,
recorded 3/7/60, in Liber 5881 Mp. 415.
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ASSIGNMENT OF MORTGAGE
Mortgage(s) 1 thru 3 as consolidated was/were assigned by Gindoff Export
Corporation to The Manhattan Savings Bank by assignment dated 10/28/65,
recorded 11/3/65, in Liber 6428 Mp. 414.
4. Mortgage made by Harry Gindoff to The Manhattan Savings Bank dated
10/28/65, recorded 11/3/65 in Liber 6428 Mp. 419 to secure the sum of
$431,492.00 and interest.
Consolidation and Extension Agreement made between Harry Gindoff and The
Manhattan Savings Bank dated 10/28/65 recorded 11/3/65 in Liber 6428 Mp.
423. Consolidates mortgages 1 thru 4 to form a single lien of $525,000.00.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 1 thru 4 as consolidated was/were assigned by The Manhattan
Savings Bank to The Globe Wernicke Realty Company by assignment dated
6/30/75, recorded 6/30/75, in Reel 344 Page 1469
Extension Agreement made between 361 Broadway Corp. and The Globe Wernicke
Realty Company dated 11/1/75 recorded 11/5/75 in Reel 354 Page 1956.
Extends mortgages 1 thru 4 as consolidated.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 1 thru 4 as consolidated was/were assigned by The Globe
Wernicke Realty Company to American Savings Bank, FSB by assignment dated
10/14/86, recorded 10/23/86, in Reel 1133 Page 1269.
5. Mortgage made by Gindoff Enterprises Incorporated to American Savings
Bank, FSB dated 10/14/86, recorded 10/23/86 in Reel 1133 Page 1274 to
secure the sum of $3,109,075.34 and interest.
Consolidation, Modification and Extension Agreement made between Gindoff
Enterprises Incorporated and American Savings Bank, FSB dated 10/14/86
recorded 10/23/86 in Reel 1133 Page 1292. Consolidates mortgages 1 thru 5
to form a single lien of $3,350,000.00.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 1 thru 5 as consolidated was/were assigned by American Savings
Bank, FSB f/k/a American Savings Bank to City Federal Savings Bank by
assignment dated 4/28/88, recorded 5/10/88, in Reel 1400 Page 361.
G-15
<PAGE>
6. Mortgage made by Gindoff Enterprises incorporated to City Federal Savings
Bank dated 5/3/88, recorded 5/10/88 in Reel 1400 Page 367 to secure the
sum of $7,186,901.72 and interest.
Consolidated, Modification and Spreader Agreement made between Gindoff
Enterprises Incorporated and City Federal Savings Bank dated 5/3/88
recorded 5/10/88 in Reel 1400 Page 435. Consolidates mortgages 1 thru 6 to
form a single lien of $10,510,000.00 and same are modified and spread to
cover those parts of premises not already covered.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 1 thru 6 as consolidated was/were assigned by City Savings
Bank, FSB in conservatorship, resolution trust corporation as conservator
to Barclays Bank PLC and The Day-Ichi Kangyo Bank, Ltd. by assignment
dated 9/18/90, recorded 9/19/90, in Reel 1729 Page 1645.
7. Subordinate Loan Mortgage and Security Agreement made by Gindoff
Enterprises Incorporated to City Federal Savings Bank dated 5/3/88,
recorded 5/10/88 in Reel 1400 Page 401 to secure the sum of $1,490,000.00
and interest.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 7 was/were assigned by City Savings Bank, FSB in
conservatorship, resolution trust corporation as conservator to Barclays
Bank PLC (Tokyo Branch) and The Dai-Ichi Kangyo Bank Ltd. by assignment
dated 9/18/90, recorded 9/19/90, in Reel 1729 Page 1650.
8. Mortgage made by Ise Hiyoko Inc. to Barclays Bank PLC (Tokyo Branch) and
The Dai-Ichi Kangyo Bank dated 9/18/90, recorded 9/19/90 in Reel 1729 Page
1655 to secure the sum of $2,639,878.66 and interest.
Consolidation, Modification and Extension Agreement made between Ise
Hiyoko, Inc. and Barclays Bank PLC (Tokyo Branch) and The Dai-Ichi Kangyo
Bank dated 9/18/90 recorded 9/19/90 in Reel 1729 Page 1661. Consolidates
mortgages 1 thru 8 to form a single lien of $14,000,000.00 and modifies
and extends same.
COLLATERAL ASSIGNMENT OF MORTGAGE
Mortgage(s) 1 thru 8 as consolidated was/were assigned by Barclays Bank
PLC (Tokyo Branch) and The Dai-Ichi Kangyo Bank, Ltd. to Orient
Corporation by assignment dated 9/18/90, recorded 9/19/90, in Reel 1729
Page 1702.
ASSIGNMENT OF MORTGAGE
G-16
<PAGE>
Mortgages 1 thru 8 were assigned by Orient Corporation to Barclays Bank,
PLC (Tokyo Branch) and The Dai-Ichi Kangyo Bank, Ltd. by assignment dated
8/25/95, recorded 8/31/95, in Reel 2238 Page 2018.
ASSIGNMENT OF MORTGAGE
Mortgages 1 thru 8 were assigned by Barclays Bank, PLC (Tokyo Branch) and
The Dai-Ichi Kangyo Bank, Ltd. to Greyrock Capital Group Inc. by
assignment dated 8/25/95, recorded 8/31/95, in Reel 2238 Page 2034.
9. Mortgage made by Ise Hiyoko Inc. to Orient Corporation dated 1/20/93,
recorded 2/1/93 in Reel 1942 Page 458 to secure the sum of $2,000,000.00
and interest.
Mortgage Modification Agreement made by and between Orient Corporation and
Ise Hiyoko, Inc. by agreement dated 8/25/95, recorded 8/31/95 in Reel 2238
Page 1987.
ASSIGNMENT OF MORTGAGE
Mortgage 9 was assigned by Orient Corporation to Greyrock Capital Group,
Inc. by assignment dated 8/25/95, recorded 8/31/95 in Reel 2238 Page 2008.
10. Mortgage made by Ise Hiyoko Inc. to Orient Corporation dated 1/20/93,
recorded 2/1/93 in Reel 1942 Page 498 to secure the sum of $5,000,000.00
and interest.
Mortgage Modification Agreement made by and between Orient Corporation and
Ise Hiyoko, Inc. by agreement dated 8/25/95, recorded 8/31/95 in Reel 2238
Page 1994.
ASSIGNMENT OF MORTGAGE
Mortgage 10 was assigned by Orient Corporation to Greyrock Capital Group,
Inc. by assignment dated 8/25/95, recorded 8/31/95 in Reel 2238 Page 2013.
11. Subordinate Mortgage made by Ise Hiyoko, Inc. to Orient Corporation dated
4/6/94, recorded 4/7/94 in Reel 2077 Page 1669 as re-indexed in Reel 2229
Page 503 on 7/31/95 to secure the sum of $7,000,000.00 and interest.
Modification Agreement made by and between Orient Corporation and Ise
Hiyoko, Inc. by agreement dated 8/25/95, recorded 8/31/95 in Reel 2238
Page 2001.
ASSIGNMENT OF MORTGAGE
Mortgage 11 was assigned by Orient Corporation to Greyrock Capital Group,
Inc. by assignment dated 8/25/95, recorded 8/31/95 in Reel 2243 Page 915.
Consolidation Agreement made by and between Greyrock Capital Group, Inc.
and Ise Hiyoko, Inc. by agreement dated 8/25/95, recorded 8/31/95 in Reel
2238 Page 2055.
G-17
<PAGE>
Consolidates mortgages 1 thru 11 to form a single lien of $28,000,000.00.
Modification and Splitter Agreement made by and between Greyrock Capital
Group, Inc. and Ise Hiyoko, Inc. by agreement dated 8/25/95, recorded
8/31/95 in Reel 2238 Page 2066. Splits mortgages 1 thru 11 as consolidated
into two liens:
a. 1st mortgage (Substitute Mortgage A) in the amount of
$20,000,000.00.
b. 2nd mortgage (Substitute Mortgage B) in the amount of $8,000,000.00.
12. Superior Mortgage - Substitute A made by Ise Hiyoko, Inc. to Greyrock
Capital Group Inc. dated 8/25/95, recorded 8/31/95 in Reel 2238 Page 2080
to secure the sum of $20,000,000.00 and interest.
ASSIGNMENT OF MORTGAGE
Superior Mortgage - Substitute A is being assigned to Credit Suisse First
Boston Mortgage Capital LLC by that certain Assignment of Mortgage from
NationsCredit Commercial Corporation, successor-in-interest to Greyrock
Capital Group, dated as of 8/4/99 and being recorded in the Register's
Office simultaneously herewith.
13. Subordinate Mortgage - Substitute B (the "Mortgage") made by Ise Hiyoko,
Inc. to Greyrock Capital Group Inc. dated 8/25/95, recorded 8/31/95 in
Reel 2238 Page 2147 to secure the sum of $8,000,000.00 and interest.
ASSIGNMENT OF MORTGAGE
The Mortgage was assigned by Greyrock Capital Group Inc. to Harayokey,
Inc. by assignment dated 8/25/95, recorded 8/31/95 in Reel 2238 Page 2152.
Subordination Agreement made by and between Greyrock Capital Group Inc. to
Harayokey, Inc. by agreement dated 8/25/95, recorded 8/31/95 in Reel 2238
Page 2135. Subordinates mortgage in Reel 2238 Page 2147 to mortgage in
Reel 2238 Page 2080.
ASSIGNMENT OF MORTGAGE
The Mortgage is being assigned to Credit Suisse First Boston Mortgage
Capital LLC by that certain Assignment of Mortgage made by Harayokey,
Inc., dated as of 8/4/99 and being recorded in the Register's Office
simultaneously herewith.
14. MORTGAGE made by ISE 555 Broadway, LLC to Credit Suisse First Boston
Mortgage Capital LLC dated as of 8/4/99 and to be recorded to secure the
sum of $9,731,893.37 and interest.
G-18
<PAGE>
AMENDED, RESTATED AND CONSOLIDATED MORTGAGE, ASSIGNMENT OF LEASES AND
RENTS AND SECURITY AGREEMENT made between ISE 555 Broadway, LLC and Credit
Suisse First Boston Mortgage Capital LLC dated as of 8/4/99 and to be
recorded.
Consolidates Mortgages 1 through 14 above to form a single first lien of
$34,000,000.00. and interest.
G-19
<PAGE>
SCHEDULE B
Mortgaged Property
ALL that certain plot, piece or parcel of land, situate, lying and being in the
Borough of Manhattan, City, County and State of New York bounded and described
as follows:
BEGINNING at a point on the westerly side of Broadway, distant 224 feet 8 inches
northerly from the corner formed by the intersection of the westerly side of
Broadway and the northerly side of Spring Street;
RUNNING THENCE westerly along the southerly face of the southerly wall of the
building on the premises herein described, 200 feet 3 inches to the easterly
side of Mercer Street at a point therein distant 225 feet 1/4 of an inch
northerly from the northerly side of Spring Street, as measured along said
easterly line of Mercer Street;
THENCE RUNNING northerly along the easterly side of Mercer Street, 99 feet 5
inches;
THENCE easterly on a line which forms an angle on its northerly side with
easterly side of Mercer Street of 90 degrees 32 minutes 10 seconds 50 feet to an
angle point.
THENCE easterly on a line drawn parallel with the southerly side of Prince
Street and partly along the northerly face of the northerly wall of the building
on the premises herein described, 150 feet 3 inches to the westerly side of
Broadway; and
THENCE southerly along the westerly side of Broadway, 99 feet 1 inch to the
point or place of BEGINNING.
Together with all improvements now or hereafter existing thereon.
G-20
<PAGE>
EXHIBIT H
EXISTING ENCUMBRANCES, COVENANTS, AGREEMENTS AND EASEMENTS
1. The Premises (or part of the Premises) have been designated as a
Landmark, Landmark Site or Historic District, by an instrument dated 8/16/73 and
recorded on 8/17/73 in Reel 288 Page 1059 and are subject to the restricted use
as provided in the New York City Administrative Code, Chapter 3, Landmarks
Preservation and Historic Districts, Section 25-30 et. seq.
2. Recital as to underground tunnel contained in deed made by The Beekman
Estate to Rouss Building, Inc., dated February 19, 1938, recorded March 30, 1938
in Liber 3984 cp 62.
3. Violations:
(a) Sidewalk Violation filed May 11, 1990 (File # 53161).
(b) Sidewalk Violation filed December 5, 1991 (File # 60692).
(c) ECB violation 38055606J issued 7/31/96.
4. Amended and Restated Easements Agreement dated as of August 1, 1999,
among Landlord, Tenant, and Carol Blechman, Donald Blechman, Howard Blechman,
Noma Joan Blechman, Stephen Blechman, Norma Gastwirth (formerly known as Norma
Blechman) and Nauma Blechman Levin (formerly known as Nauma Blechman)
(collectively, the "557 Landlord"), as such agreement may be amended and/or
restated from time to time, which Easements Agreement amends and restates in its
entirety the easements agreement dated as of July 10, 1998, recorded on August
26, 1998, in Reel 2689, Page 00792.
5. A survey of the Premises made by Montrose Surveying Co., Inc. dated
June 18, 1999 shows the following:
a. The northerly wall of the building on the premises adjoining on the
south leans up to .08 foot, over the Premises.
b. The chimney of the building on the premises adjoining on the south
is anchored to the wall of the Building and carried to the roof
thereof.
c. The brick piers, above first story of Building encroach .08 foot on
Mercer Street.
d. The northerly wall of the Building leans .5 foot, more or less, over
premises adjoining on the north.
H-1
<PAGE>
e. Roof of Building projects .33 foot over the north adjoining
premises.
f. Roof trim of Building projects .6 foot over premises on the north,
and .37 foot over premises on the south.
g. Encroachments and projections on and over Broadway by stone bases,
trim, grade areas, and stone and iron piers.
h. Encroachments and projections on and over Mercer Street by steps,
cellar doors, trim, marquee and vents.
i. Building in the course of construction on the premises adjoining on
the north, foundation only completed. Said construction subject to
easement referred to in item 4 above.
j. Mortgages set forth on Schedule 1 of this Exhibit H.
H-2
<PAGE>
Schedule 1 to Exhibit H
Mortgages
1. Mortgage made by Rouss Building, Inc. to The Beekman Estate dated 3/29/38,
recorded 3/30/38 in Liber 4325 Mp. 138 to secure the sum of $50,000.00 and
interest.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 1 was/were assigned by The Beekman Estate to Union Square
Savings Bank by assignment dated 12/29/50, recorded 1/2/51, in Liber 5208
Mp. 112.
2. Mortgage made by Rouss Building Inc. to S. Blechman and Sons Inc. dated
11/1/38, recorded 11/29/38 in Liber 4347 Mp. 471 to secure the sum of
$30,000.00 and interest.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 2 was/were assigned by S. Blechman and Sons Inc. to Simon
Blechman Holdings Inc. by assignment dated 6/23/47, recorded 6/25/47, i n
Liber 4919 Mp. 13.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 2 was/were assigned by Simon Blechman Holdings Inc. to William
Blechman, Nathan S. Blechman, Raphael Blechman and Oscar Blechman by
assignment dated 10/30/47, recorded 11/3/47, in Liber 4949 Mp. 454.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 2 was/were assigned by William Blechman, Nathan S. Blechman,
Raphael Blechman, Oscar Blechman and Simon Blechman Holdings Inc. to Union
Square Savings Bank by assignment dated 12/28/50, recorded 1/2/51, in
Liber 5208 Mp. 108.
3. Mortgage made by Rouss Building Inc. to The RFC Mortgage Company dated
4/13/39, recorded 4/18/39 in Liber 43644 Mp. 179 to secure the sum of
$160,000.00 and interest.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 3 was/were assigned by The RFC Mortgage Company to Union
Square Savings Bank by assignment dated 6/21/44, recorded 6/23/44, in
Liber 4685 Mp. 548
Agreement Extending Mortgage Agreement made between Rouss Building Inc.
and Union Square Savings Bank dated 12/29/50 recorded 1/16/51 in Liber
5211 Mp. 513. Consolidated mortgages 1 thru 3 to form a single lien of
$164,578.00.
H-3
<PAGE>
ASSIGNMENT OF MORTGAGE
Mortgage(s) 1 thru 3 as consolidated was/were assigned by Union Square
Savings Bank to Gindoff Export Corporation by assignment dated 3/7/60,
recorded 3/7/60, in Liber 5881 Mp. 415.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 1 thru 3 as consolidated was/were assigned by Gindoff Export
Corporation to The Manhattan Savings Bank by assignment dated 10/28/65,
recorded 11/3/65, in Liber 6428 Mp. 414.
4. Mortgage made by Harry Gindoff to The Manhattan Savings Bank dated
10/28/65, recorded 11/3/65 in Liber 6428 Mp. 419 to secure the sum of
$431,492.00 and interest.
Consolidation and Extension Agreement made between Harry Gindoff and The
Manhattan Savings Bank dated 10/28/65 recorded 11/3/65 in Liber 6428 Mp.
423. Consolidates mortgages 1 thru 4 to form a single lien of $525,00000.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 1 thru 4 as consolidated was/were assigned by The Manhattan
Savings Bank to The Globe Wernicke Realty Company by assignment dated
6/30/75, recorded 6/30/75, in Reel 344 Page 1469
Extension Agreement made between 361 Broadway Corp. and The Globe Wernicke
Realty Company dated 11/1/75 recorded 11/5/75 in Reel 354 Page 1956.
Extends mortgages 1 thru 4 as consolidated.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 1 thru 4 as consolidated was/were assigned by The Globe
Wernicke Realty Company to American Savings Bank, FSB by assignment dated
10/14/86, recorded 10/23/86, in Reel 1133 Page 1269.
5. Mortgage made by Gindoff Enterprises Incorporated to American Savings
Bank, FSB dated 10/14/86, recorded 10/23/86 in Reel 1133 Page 1274 to
secure the sum of $3,109,075.34 and interest.
Consolidation, Modification and Extension Agreement made between Gindoff
Enterprises Incorporated and American Savings Bank, FSB dated 10/14/86
recorded 10/23/86 in Reel 1133 Page 1292. Consolidates mortgages 1 thru 5
to form a single lien of $3,350,000.00.
H-4
<PAGE>
ASSIGNMENT OF MORTGAGE
Mortgage(s) 1 thru 5 as consolidated was/were assigned by American Savings
Bank, FSB f/k/a American Savings Bank to City Federal Savings Bank by
assignment dated 4/28/88, recorded 5/10/88, in Reel 1400 Page 361.
6. Mortgage made by Gindoff Enterprises incorporated to City Federal Savings
Bank dated 5/3/88, recorded 5/10/88 in Reel 1400 Page 367 to secure the
sum of $7,186,901.72 and interest.
Consolidated, Modification and Spreader Agreement made between Gindoff
Enterprises Incorporated and City Federal Savings Bank dated 5/3/88
recorded 5/10/88 in Reel 1400 Page 435. Consolidates mortgages 1 thru 6 to
form a single lien of $10,510,000.00 and same are modified and spread to
cover those parts of premises not already covered.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 1 thru 6 as consolidated was/were assigned by City Savings
Bank, FSB in conservatorship, resolution trust corporation as conservator
to Barclays Bank PLC and The Day-Ichi Kangyo Bank, Ltd. by assignment
dated 9/18/90, recorded 9/19/90, in Reel 1729 Page 1645.
7. Subordinate Loan Mortgage and Security Agreement made by Gindoff
Enterprises Incorporated to City Federal Savings Bank dated 5/3/88,
recorded 5/10/88 in Reel 1400 Page 401 to secure the sum of $1,490,000.00
and interest.
ASSIGNMENT OF MORTGAGE
Mortgage(s) 7 was/were assigned by City Savings Bank, FSB in
conservatorship, resolution trust corporation as conservator to Barclays
Bank PLC (Tokyo Branch) and The Dai-Ichi Kangyo Bank Ltd. by assignment
dated 9/18/90, recorded 9/19/90, in Reel 1729 Page 1650.
8. Mortgage made by Ise Hiyoko Inc. to Barclays Bank PLC (Tokyo Branch) and
The Dai-Ichi Kangyo Bank dated 9/18/90, recorded 9/19/90 in Reel 1729 Page
1655 to secure the sum of $2,639,878.66 and interest.
Consolidation, Modification and Extension Agreement made between Ise
Hiyoko, Inc. and Barclays Bank PLC (Tokyo Branch) and The Dai-Ichi Kangyo
Bank dated 9/18/90 recorded 9/19/90 in Reel 1729 Page 1661. Consolidates
mortgages 1 thru 8 to form a single lien of $14,000,000.00 and modifies
and extends same.
COLLATERAL ASSIGNMENT OF MORTGAGE
H-5
<PAGE>
Mortgage(s) 1 thru 8 as consolidated was/were assigned by Barclays Bank
PLC (Tokyo Branch) and The Dai-Ichi Kangyo Bank, Ltd. to Orient
Corporation by assignment dated 9/18/90, recorded 9/19/90, in Reel 1729
Page 1702.
ASSIGNMENT OF MORTGAGE
Mortgages 1 thru 8 were assigned by Orient Corporation to Barclays Bank,
PLC (Tokyo Branch) and The Dai-Ichi Kangyo Bank, Ltd. by assignment dated
8/25/95, recorded 8/31/95, in Reel 2238 Page 2018.
ASSIGNMENT OF MORTGAGE
Mortgages 1 thru 8 were assigned by Barclays Bank, PLC (Tokyo Branch) and
The Dai-Ichi Kangyo Bank, Ltd. to Greyrock Capital Group Inc. by
assignment dated 8/25/95, recorded 8/31/95, in Reel 2238 Page 2034.
9. Mortgage made by Ise Hiyoko Inc. to Orient Corporation dated 1/20/93,
recorded 2/1/93 in Reel 1942 Page 458 to secure the sum of $2,000,000.00
and interest.
Mortgage Modification Agreement made by and between Orient Corporation and
Ise Hiyoko, Inc. by agreement dated 8/25/95, recorded 8/31/95 in Reel 2238
Page 1987.
ASSIGNMENT OF MORTGAGE
Mortgage 9 was assigned by Orient Corporation to Greyrock Capital Group,
Inc. by assignment dated 8/25/95, recorded 8/31/95 in Reel 2238 Page 2008.
10. Mortgage made by Ise Hiyoko Inc. to Orient Corporation dated 1/20/93,
recorded 2/1/93 in Reel 1942 Page 498 to secure the sum of $5,000,000.00
and interest.
Mortgage Modification Agreement made by and between Orient Corporation and
Ise Hiyoko, Inc. by agreement dated 8/25/95, recorded 8/31/95 in Reel 2238
Page 1994.
ASSIGNMENT OF MORTGAGE
Mortgage 10 was assigned by Orient Corporation to Greyrock Capital Group,
Inc. by assignment dated 8/25/95, recorded 8/31/95 in Reel 2238 Page 2013.
11. Subordinate Mortgage made by Ise Hiyoko, Inc. to Orient Corporation dated
4/6/94, recorded 4/7/94 in Reel 2077 Page 1669 as re-indexed in Reel 2229
Page 503 on 7/31/95 to secure the sum of $7,000,000.00 and interest.
Modification Agreement made by and between Orient Corporation and Ise
Hiyoko, Inc. by agreement dated 8/25/95, recorded 8/31/95 in Reel 2238
Page 2001.
ASSIGNMENT OF MORTGAGE
H-6
<PAGE>
Mortgage 11 was assigned by Orient Corporation to Greyrock Capital Group,
Inc. by assignment dated 8/25/95, recorded 8/31/95 in Reel 2243 Page 915.
Consolidation Agreement made by and between Greyrock Capital Group, Inc.
and Ise Hiyoko, Inc. by agreement dated 8/25/95, recorded 8/31/95 in Reel
2238 Page 2055.
Consolidates mortgages 1 thru 11 to form a single lien of $28,000,000.00.
Modification and Splitter Agreement made by and between Greyrock Capital
Group, Inc. and Ise Hiyoko, Inc. by agreement dated 8/25/95, recorded
8/31/95 in Reel 2238 Page 2066. Splits mortgages 1 thru 11 as consolidated
into two liens:
a. 1st mortgage (Substitute Mortgage A) in the amount of
$20,000,000.00.
b. 2nd mortgage (Substitute Mortgage B) in the amount of $8,000,000.00.
12. Superior Mortgage - Substitute A made by Ise Hiyoko, Inc. to Greyrock
Capital Group Inc. dated 8/25/95, recorded 8/31/95 in Reel 2238 Page 2080
to secure the sum of $20,000,000.00 and interest.
ASSIGNMENT OF MORTGAGE
Superior Mortgage - Substitute A is being assigned to Credit Suisse First
Boston Mortgage Capital LLC by that certain Assignment of Mortgage from
NationsCredit Commercial Corporation, successor-in-interest to Greyrock
Capital Group, dated as of 8/4/99 and being recorded in the Register's
Office simultaneously herewith.
13. Subordinate Mortgage - Substitute B (the "Mortgage") made by Ise Hiyoko,
Inc. to Greyrock Capital Group Inc. dated 8/25/95, recorded 8/31/95 in
Reel 2238 Page 2147 to secure the sum of $8,000,000.00 and interest.
ASSIGNMENT OF MORTGAGE
The Mortgage was assigned by Greyrock Capital Group Inc. to Harayokey,
Inc. by assignment dated 8/25/95, recorded 8/31/95 in Reel 2238 Page 2152.
Subordination Agreement made by and between Greyrock Capital Group Inc. to
Harayokey, Inc. by agreement dated 8/25/95, recorded 8/31/95 in Reel 2238
Page 2135. Subordinates mortgage in Reel 2238 Page 2147 to mortgage in
Reel 2238 Page 2080.
ASSIGNMENT OF MORTGAGE
The Mortgage is being assigned to Credit Suisse First Boston Mortgage
Capital LLC by that certain Assignment of Mortgage made by Harayokey,
Inc., dated as of 8/4/99 and being recorded in the Register's Office
simultaneously herewith.
H-7
<PAGE>
14. MORTGAGE made by ISE 555 Broadway, LLC to Credit Suisse First Boston
Mortgage Capital LLC dated as of 8/4/99 and to be recorded to secure the
sum of $9,731,893.37 and interest.
AMENDED, RESTATED AND CONSOLIDATED MORTGAGE, ASSIGNMENT OF LEASES AND
RENTS AND SECURITY AGREEMENT made between ISE 555 Broadway, LLC and Credit
Suisse First Boston Mortgage Capital LLC dated as of 8/4/99 and to be
recorded.
Consolidates Mortgages 1 through 14 above to form a single first lien of
$34,000,000.00. and interest.
H-8
<PAGE>
EXHIBIT I
TENANT'S LETTER OF CREDIT
[ISSUING BANK]
[Date]
Beneficiary:
[Landlord or Landlord's Mortgagee
(if required by Landlord's Mortgagee)]
Ref: Irrevocable Letter of Credit No. __________
Gentlemen:
By order of our client, Scholastic Inc., having an office at 555 Broadway, New
York, New York, we hereby open in your favor our irrevocable standby Letter of
Credit No. __________ for the aggregate sum of One Million United States
Dollars, (U.S. $1,000,000.00) effective immediately and expiring at our [address
of Bank] New York Office on __________ or any automatically extended date.
Funds under this Letter of Credit are available to you against presentation of
your sight draft(s) drawn on us marked "drawn under Irrevocable Letter of Credit
No. __________ date [date of Letter of Credit]", and accompanied by the
following:
Beneficiary's signed statement that Scholastic Inc. has failed to comply with
the terms and conditions of a contract described as Amended and Restated Lease
between ISE 555 Broadway, LLC, as Landlord, and Scholastic Inc. as Tenant, dated
August 1, 1999 and that the beneficiary is entitled to draw on this Letter of
Credit.
It is a condition of this Letter of Credit that it shall be deemed automatically
extended without amendment for one year from the present or any future
expiration date hereof, unless thirty (30) days prior to any such date we shall
notify you by registered mail that we elect not to consider this Letter of
Credit renewed for any such additional period. Upon receipt by you of such
notice,
I-1
<PAGE>
you may draw hereunder by means of your draft on us at sight, accompanied by the
original Letter of Credit.
This Letter of Credit is transferrable in whole but not in part by the
beneficiary upon notice to the undersigned, together with the payment of a
transfer charge of one-quarter of one percent of the amount of this Letter of
Credit. Requests for transfer will be in the form of Annex A attached hereto,
duly completed by an officer of your company and accompanied by the original of
this Letter of Credit.
If we receive your sight draft as mentioned above, in accordance with the terms
and conditions of this credit, here at our [address], New York Office we will
promptly honor the same.
This Letter of Credit is subject to the Uniform Customs and Practice for
Documentary Credits (1993 Revision) International Chamber of Commerce Brochure
No. 500, shall be deemed to be a contract made under, and as to matters not
governed by the UCP, shall be governed by and construed in accordance with the
laws of the State of New York and applicable U.S. Federal Law.
[Name of Bank]
By: __________________________
Authorized Signature
Title:
[ANNEX A TO BE ADDED BY ISSUING BANK, IF REQUIRED]
I-2
<PAGE>
SCHEDULE 1
SUBLEASES
1. Indenture of Lease dated as of March 17, 1998, between Scholastic Inc. and
DFS Group, L.P., as amended by Commencement Date Agreement dated May 20,
1998, and as assigned by DFS Group, L.P. to Sephora USA, LLC, for a
portion of ground floor space in the Building.
2. Sublease dated as of April 4, 1999, between Scholastic Inc. and Federal
Express Corporation, for a portion of ground floor space in the Building.
3. Sublease dated as of August 1, 1999, between Scholastic Inc. and ISE New
York, LLC, for a portion of space on the first floor below grade in the
Building.
I-3
<PAGE>
SCHEDULE 2
ANNUAL RENTAL
Period Annual Rental
8/1/99 - 7/31/02 $4,200,000
8/1/02 - 7/31/07 $4,620,000
8/1/07 - 7/31/12 $5,313,000
8/1/12 - 7/31/16 $6,163,080
8/1/16 - 7/31/19 $7,149,173
8/1/19 - 7/31/24 $8,042,820
8/1/24 - 7/31/29 $9,048,172
I-4
EXHIBIT 10.15
AMENDED AND RESTATED
S U B L E A S E
between
KALODOP PARK CORP.
As Sublandlord
and
SCHOLASTIC INC.
As Subtenant
Dated: as of October 9, 1996
Demised Premises: 557 Broadway, New York, New York
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Amended and Restated Sublease
AMENDED AND RESTATED AGREEMENT OF SUBLEASE (the "Sublease"), dated as of
the 9th day of October, 1996, between KALODOP PARK CORP., a New York corporation
having an office at c/o Wilfred Garage, Inc., 200 East 19th Street, New York,
New York 10003 (hereinafter sometimes called "Sublandlord"), and SCHOLASTIC
INC., a New York corporation having an office at 555 Broadway, New York, New
York 10012 (hereinafter called "Subtenant").
W I T N E S S E T H :
WHEREAS, Sublandlord is the tenant under that certain lease dated as of
September 23, 1992 (the "Existing Overlease") by and between Carol W. Blechman,
as Executrix under the Will of Arthur Blechman, Donald Blechman, Howard
Blechman, Noma Joan Blechman, Stephen Blechman, Norma Blechman Gastwirth and
Nauma Blechman Levin (d/b/a Blechman Brothers; collectively "Existing
Overlandlord"), as landlord, and Sublandlord, as tenant;
WHEREAS, Sublandlord and Subtenant are parties to a certain sublease of
even date herewith (the "Existing Sublease"), pursuant to which Sublandlord has
subleased to Subtenant the premises covered by the Existing Overlease;
WHEREAS, Sublandlord is the tenant under that certain Amended and Restated
Agreement of Lease dated as of October 9, 1996 (the "Overlease") by and between
Carol W. Blechman, Donald Blechman, Howard Blechman, Noma Joan Blechman, Stephen
Blechman, Norma Blechman Gastwirth and Nauma Blechman Levin (collectively
"Overlandlord"), as landlord , and Sublandlord, as tenant;
WHEREAS, pursuant to the terms of that certain agreement dated as of April
11, 1996 (the "Agreement"), by and between Sublandlord and Subtenant,
Sublandlord and Subtenant agreed to enter into a sublease of the premises
covered by the Overlease upon satisfaction of certain conditions set forth in
the Agreement;
WHEREAS, all of such conditions have been satisfied and/or the same have
been waived;
WHEREAS, the parties hereto desire hereby to enter into an amended and
restated sublease of the premises covered by the Overlease; and
WHEREAS, the terms of the Overlease and this Sublease shall not become
effective until the Vacate Date (as hereinafter defined).
<PAGE>
ARTICLE 1
PREMISES--TERM OF SUBLEASE; CERTAIN DEFINITIONS
Section 1.01. Sublandlord hereby subleases to Subtenant, and Subtenant
hereby hires, the Premises, including the Land, as more particularly described
in Exhibit "A" annexed hereto and made a part hereof, and the Building (as
defined in the Overlease).
SUBJECT, however, to the following (collectively, the "Permitted
Encumbrances"):
(a) The state of facts shown on a survey made by Lovell-Belcher dated
September 27, 1954 and redated by visual examination made by Lovell-Belcher on
September 24, 1992 and any other state of facts that an accurate survey of the
Premises may show;
(b) Real estate taxes affecting the Premises not yet due and payable or a
lien on the Premises;
(c) All utility company rights, easements and franchises to maintain and
operate lines, poles, wires, cables, pipes, distribution boxes and other
fixtures and facilities in, over, under and upon the Premises;
(d) Covenants, restrictions, easements, reservations and agreements of
record;
(e) Zoning ordinances and restrictions and amendments now or hereafter in
force or effect;
(f) The rights, if any, of any governmental authority having or asserting
jurisdiction thereof, with respect to any vaults under the sidewalks beyond the
building line and to consents by Sublandlord or any present or former owner of
the Premises for the erection of any structure or structures on, under or above
any streets or roads in front of or adjoining the Land;
(g) All notes or notices of any violation of law or municipal ordinances,
orders or requirements noted in or issued prior to the date hereof or hereafter
noted in or issued by the Department of Buildings, Fire, Labor, Health, Air
Resources or any other federal, state or municipal departments having or
asserting jurisdiction against the Premises;
(h) Any other matter or thing affecting the Premises which Subtenant
agrees to take subject to or waives pursuant to the terms of this Sublease; and
(i) All of the terms, covenants, conditions and
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limitations of the Overlease.
Notwithstanding anything to the contrary contained herein, any right,
easement or franchise described in clause (c) above or any covenant,
restriction, easement, reservation or agreement of record described in clause
(d) above, in each case which have been created, consented to or incurred by
Sublandlord after the date of this Sublease shall not be deemed to be a
Permitted Encumbrance and the provisions of this Sublease shall control as to
the disposition thereof.
TO HAVE AND TO HOLD the Premises unto Subtenant, its successors and
assigns, for a term (the "Term") commencing on the Vacate Date, and expiring at
12:00 p.m. on March 31, 2013, (the "Expiration Date") unless this Sublease shall
sooner terminate as hereinafter provided. If the Vacate Date shall not have
occurred on or before the second (2nd) anniversary of the date hereof,
Overlandlord shall have the right to terminate the Overlease upon ten (10) days
prior notice to Sublandlord; provided, however, that if the Vacate Date shall
occur within such ten (10) days period, Overlandlord's termination notice to
Sublandlord shall be deemed to be withdrawn and the Overlease shall continue in
full force and effect. If the Vacate Date shall occur prior to the date that the
Overlease shall be terminated, in such case, the terms of the Existing Overlease
shall be superseded in their entirety and replaced by the Overlease, which fully
restates and supersedes, as of the Vacate Date, all of the terms, covenants and
conditions of the Existing Overlease. If the Overlease shall have been
terminated by Overlandlord because the Vacate Date shall not have occurred on or
before the second (2nd) anniversary of the date hereof, in such case, this
Sublease and the Existing Sublease shall be terminated as of the termination of
the Overlease. In addition, if the Vacate Date shall not have occurred on or
before February 1, 1998, Subtenant shall have the right to terminate this
Sublease and the Existing Sublease upon ten (10) days prior notice to
Sublandlord; provided, however, that if the Vacate Date shall occur within such
ten (10) days period, Subtenant's termination notice to Sublandlord shall be
deemed to be withdrawn and this Sublease shall continue in full force and
effect. If the Vacate Date shall occur prior to the date that this Sublease
shall be terminated, in such case, the terms of the Existing Sublease shall be
superseded in their entirety and replaced by this Sublease, which fully restates
and supersedes, as of the Vacate Date, all of the terms, covenants and
conditions of the Existing Sublease.
Section 1.02. For purposes of this Sublease, the following capitalized
terms set forth below shall have the following meanings: (i) "Discount Rate"
shall mean the rate of seven and three-fourths (7.75%) percent per annum,
compounded monthly, (ii) "Effective Date" shall mean December 1, 1996, (iii)
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"Sublease Rent" shall mean the Basic Rent and Monthly Deferred Rent that shall
be payable hereunder, and (iv) "Vacate Date" shall mean the later of (1) the
Effective Date and (2) the date that Sublandlord shall tender delivery to
Subtenant of vacant possession of the Premises, free of all vehicles and all
other tenants or occupants.
ARTICLE 2
BASIC RENT
Section 2.01. (a) Subtenant shall pay to Sublandlord as basic rent (the
"Basic Rent"), a rental as follows:
(i) From and after the Vacate Date through and including the date
immediately preceding the first (1st) anniversary of the Vacate Date, the amount
of One Hundred Fifty Thousand and 00/100 Dollars ($150,000.00) per annum,
payable in equal monthly installments of Twelve Thousand Five Hundred and 00/100
Dollars ($12,500.00); provided, that, in light of the fact that Subtenant
delivered to Sublandlord the First Additional New Lease Payment (as defined in
the Agreement) in the amount of Fifty Thousand and 00/100 Dollars ($50,000.00)
and the Second Additional New Lease Payment (as defined in the Agreement) in the
amount of Thirty-Five Thousand and 00/100 Dollars ($35,000.00) in accordance
with the terms of Subsection 13(a)(ii) of the Agreement, Subtenant shall be
entitled to a credit in the amount of Eighty-Five Thousand and 00/100 Dollars
($85,000.00) against the first installment(s) of Sublease Rent that shall be
payable by Subtenant to Sublandlord under this Subsection 2.01(a)(i);
(ii) From and after the first (1st) anniversary of the Vacate Date through
and including the date immediately preceding the third (3rd) anniversary of the
Vacate Date, the amount of Four Hundred Thousand and 00/100 Dollars
($400,000.00) per annum, payable in equal monthly installments of Thirty-Three
Thousand Three Hundred Thirty-Three and 33/100 Dollars ($33,333.33);
(iii) From and after the third (3rd) anniversary of the Vacate Date
through and including the date immediately preceding the sixth (6th) anniversary
of the Vacate Date, the amount of Four Hundred Thirty-Two Thousand and 00/100
Dollars ($432,000.00) per annum, payable in equal monthly installments of
Thirty-Six Thousand and 00/100 Dollars ($36,000.00);
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(iv) From and after the sixth (6th) anniversary of the Vacate Date through
and including the date immediately preceding the ninth (9th) anniversary of the
Vacate Date, the amount of Four Hundred Sixty-Six Thousand Five Hundred Sixty
and 00/100 Dollars ($466,560.00) per annum, payable in equal monthly
installments of Thirty-Eight Thousand Eight Hundred Eighty and 00/100 Dollars
($38,880.00);
(v) From and after the ninth (9th) anniversary of the Vacate Date through
and including the date immediately preceding the twelfth (12th) anniversary of
the Vacate Date, the amount of Five Hundred Three Thousand Eight Hundred
Eighty-Four and 80/100 Dollars ($503,884.80) per annum, payable in equal monthly
installments of Forty-One Thousand Nine Hundred Ninety and 40/100 Dollars
($41,990.40);
(vi) From and after the twelfth (12th) anniversary of the Vacate Date
through and including the earlier to occur of (1) the date immediately preceding
the fifteenth (15th) anniversary of the Vacate Date and (2) the Expiration Date,
the amount of Five Hundred Forty-Four Thousand One Hundred Ninety-Five and
58/100 Dollars ($544,195.58) per annum, payable in equal monthly installments of
Forty-Five Thousand Three Hundred Forty-Nine and 63/100 Dollars ($45,349.63);
and
(vii) If the Expiration Date of this Sublease shall occur after the
fifteenth (15th) anniversary of the Vacate Date, from and after the fifteenth
(15th) anniversary of the Vacate Date through and including the Expiration Date,
the amount of Five Hundred Eighty-Seven Thousand Seven Hundred Thirty-One and
23/100 Dollars ($587,731.23) per annum, payable in equal monthly installments of
Forty-Eight Thousand Nine Hundred Seventy-Seven and 60/100 Dollars ($48,977.60).
(b) Payments of the Basic Rent due under this Section 2.01 shall be made
at Sublandlord's address set forth in Article 12 hereof, or such other address
as Sublandlord may pursuant to Article 12 advise Subtenant, and such payments
shall be payable in advance commencing on the Vacate Date and on the first day
of each calendar month thereafter during the Term; provided, however, if
Subtenant's obligation to pay Basic Rent shall commence on a date which shall be
other than the first day of a calendar month, the same shall be appropriately
prorated at the rental rate applicable during the first year of the Term, if the
Expiration Date shall be other than the last day of a calendar month, the Basic
Rent for such last calendar month shall be appropriately prorated at the rental
rate applicable during the last year of the Term, if any payment hereunder
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shall be payable on a date that shall not be a business day, such payment shall
be payable on the next succeeding business day and with respect to any month in
which the Basic Rent that is payable hereunder shall increase, the Basic Rent
payable on first (1st) day of such calendar month shall be appropriately
calculated to reflect the portion of the calendar month occurring prior to the
increase in the Basic Rent and the portion of the calendar month occurring from
and after the increase in the Basic Rent.
Section 2.02. (a) Notwithstanding the fact that the Term of this Sublease
is less than twenty (20) years, it is the intention of Sublandlord and Subtenant
that Sublandlord shall receive the same economic benefit during the Term of this
Sublease as Sublandlord would otherwise have received if the Term of this
Sublease were for twenty (20) years commencing on the Effective Date.
Accordingly, at such time that the Vacate Date shall be determined, Sublandlord
and Subtenant shall determine the net present value (calculated as of the Vacate
Date) of the amount of Basic Rent that Sublandlord would have received under
this Sublease after the Expiration Date (i) if the Expiration Date of this
Sublease were instead the date immediately preceding the twentieth (20th)
anniversary of the Effective Date and (ii) assuming that the Basic Rent that
would otherwise be payable following the Expiration Date was an amount set forth
in Schedule 1 attached hereto. In calculating the net present value of the
additional Basic Rent payments, such payments shall be discounted at the
Discount Rate. For purposes of this Sublease, the net present value of such
additional Basic Rent payments shall be referred to as the "Deferred Rent."
Schedule 2 attached hereto sets forth an example of the calculation of the
Deferred Rent. After the amount of the Deferred Rent shall be calculated,
Sublandlord and Subtenant shall determine the amount of the fixed monthly
payment that shall be required to be paid by Subtenant from and after the Vacate
Date such that the net present value (calculated as of the Vacate Date) of such
additional rent payments over the balance of the Term (calculated at the
Discount Rate) shall be equal to the amount of the Deferred Rent. For purposes
of this Sublease, the monthly payment of additional rent required under this
Subsection 2.02(a) shall be referred to as the "Monthly Deferred Rent." Schedule
3 attached hereto sets forth an example of the calculation of the Monthly
Deferred Rent. Subtenant shall pay to Sublandlord the Monthly Deferred Rent as
and when the monthly installments of Basic Rent shall be payable commencing on
the first day of the month next succeeding the date that the amount of the
Monthly Deferred Rent is determined. On such date, Subtenant shall also pay to
Sublandlord an amount equal to the amount of all installments of Monthly
Deferred Rent that shall have accrued since the Vacate Date.
(b) Payments of the Monthly Deferred Rent due under this Section
2.02 shall be made at Sublandlord's address set forth in Article 12 hereof, or
such other address as Sublandlord may pursuant to Article 12 advise Subtenant,
and such payments shall be payable in advance commencing on the Vacate Date and
on
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the first day of each calendar month thereafter during the Term; provided,
however, if Subtenant's obligation to pay the Monthly Deferred Rent shall
commence on a date which shall be other than the first day of a calendar month,
the same shall be appropriately prorated and if any payment hereunder shall be
payable on a date that shall not be a business day, such payment shall be
payable on the next succeeding business day.
Section 2.03. In addition to the Basic Rent that shall be payable to
Sublandlord pursuant to Section 2.01 hereof, from and after the Vacate Date,
Subtenant shall pay to Sublandlord each installment of Net Annual Rent (as
defined in Section 3.01 of the Overlease) that Sublandlord shall be required to
pay to Overlandlord from and after the Vacate Date under the Overlease. Payments
of Net Annual Rent shall be payable by Subtenant to Sublandlord on the fifth
(5th) day prior to the first day of each calendar month that shall occur from
and after the Vacate Date; provided, however, the first such payment of the Net
Annual Rent shall occur on the Vacate Date if the Vacate Date shall occur after
the fifth (5th) day prior to the first day of the next succeeding calendar
month. Provided that Subtenant shall have paid the monthly installment of Net
Annual Rent that shall be required to be paid hereunder, Sublandlord shall
deliver to Subtenant written evidence that Sublandlord shall have made the
corresponding payment of the Net Annual Rent to Overlandlord within five (5)
days after the date that such payment shall be required to be paid to
Overlandlord, which evidence shall include a copy of the check delivered to
Overlandlord and Sublandlord's transmittal letter to Overlandlord (if any). If
Sublandlord shall fail to deliver such evidence to Subtenant prior to the date
that the next installment of Net Annual Rent shall be payable by Subtenant to
Sublandlord hereunder, in such case, Subtenant shall thereafter be deemed to be
authorized and directed by Sublandlord to make such payments of Net Annual Rent
directly to Overlandlord as and when required pursuant to the terms of the
Overlease and Subtenant shall be entitled to a credit against the installment(s)
of Basic Rent and Monthly Deferred Rent next becoming due hereunder in an
aggregate amount equal to the amount of the monthly installment of Net Annual
Rent for which Sublandlord shall have failed to deliver to Subtenant evidence
that such payment shall have been made to Overlandlord.
Section 2.04. This Sublease shall be deemed and construed to be a "net
lease" and Subtenant shall pay to Sublandlord the Basic Rent, the Monthly
Deferred Rent, the Net Annual Rent, additional rent and other payments hereunder
free of any charges, assessments, impositions or deductions of any kind and
without abatement, deduction or set-off, except as otherwise expressly provided
herein and in the License Agreement (as defined in the Agreement), and under no
circumstances or conditions shall Sublandlord be expected or required to make
any
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payment of any kind or be under any other obligation or liability hereunder
except as otherwise expressly provided herein.
ARTICLE 3
USE OF THE PREMISES
Section 3.01. Subtenant may use and occupy the Premises for any and all of
the purposes set forth in the Overlease, and for no other purpose, and further
covenants not to do any act which will result in a violation of the Overlease.
ARTICLE 4
INCORPORATION OF THE OVERLEASE TERMS
Section 4.01. (a) All capitalized and other terms not otherwise defined
herein shall have the meanings ascribed to them in the Overlease, unless the
context clearly requires otherwise.
(b) Except as herein otherwise expressly provided, all of the terms,
provisions, covenants and conditions contained in the Overlease, are hereby made
a part hereof. The rights and obligations contained in the Overlease, are,
during the Term, hereby imposed upon the respective parties hereto,
"Sublandlord" being substituted for "Landlord," "Subtenant" being substituted
for "Tenant", "Sublease" being inserted for "lease" or "Lease", "sub-subtenant"
being inserted for "Subtenant", "Subtenant" being inserted for "Scholastic",
"Basic Rent" being inserted for "Net Annual Rent" and "Vacate Date" being
inserted for "Effective Date"; provided, however, that Sublandlord shall not be
liable to Subtenant for any failure in performance resulting from the failure in
performance by the Overlandlord under the Overlease, of the corresponding
covenant of the Overlease, and Sublandlord's obligations hereunder are
accordingly conditional where such obligations require such parallel performance
by Overlandlord. It is expressly agreed that Sublandlord shall not be obligated
to perform any obligation which is the obligation of Overlandlord under the
Overlease. In the event of a conflict between the performance required by
Subtenant or Sublandlord under this Sublease or the performance required by
Subtenant or Sublandlord under the Overlease, the provisions of this Sublease
shall control. Sublandlord agrees that Subtenant shall be permitted to deal
directly with Overlandlord in connection with obtaining any consent or approval
that shall be required to be obtained from Overlandlord pursuant to the terms of
the Overlease and, in connection therewith, Sublandlord shall
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cooperate with Subtenant in connection with Subtenant obtaining any such consent
or approval and Sublandlord shall not take any action which will interfere with
Subtenant obtaining any such consent or approval from Overlandlord. Subtenant
shall deliver to Sublandlord a copy of each consent or approval in connection
with the Overlease that Overlandlord shall deliver to Subtenant, such delivery
to be made within five (5) business days of posting or receipt, as the case may
be. If Overlandlord shall grant any consent or approval that shall be required
to be obtained from Overlandlord under the terms of the Overlease, in such case,
Sublandlord shall be deemed to have consented to such action by Subtenant;
provided, however, if any such consent or approval shall constitute an amendment
to the Overlease, such consent or approval shall only be binding upon
Sublandlord if the amendment to the Overlease that shall result from such
consent or approval would be permitted pursuant to Subsection 5.01(c) hereof. To
the extent that Sublandlord shall have any right pursuant to the terms of the
Overlease, or otherwise, to consent or approve any action which Overlandlord
shall propose to take, Sublandlord agrees that Subtenant shall have the full
right and authority on behalf of Sublandlord to approve or consent to any such
proposed action of Overlandlord. In addition, in the event that Overlandlord
shall fail to perform any of its obligations under the Overlease, Subtenant on
behalf of Sublandlord shall have the right to require that Overlandlord perform
its obligations under the Overlease and in the event that Overlandlord shall
fail to perform its obligations, Subtenant shall be permitted to institute an
action or proceeding against Overlandlord, at Subtenant's sole cost and expense,
in the name of Sublandlord to enforce Sublandlord's rights under the Overlease
which are applicable to Subtenant. Subtenant shall deliver to Sublandlord a copy
of any litigation documents in connection with any such action or proceeding
against Overlandlord. Subtenant shall also deliver to Sublandlord a copy of each
letter or other correspondence in connection with this Sublease that Subtenant
shall deliver to Overlandlord or that Overlandlord shall deliver to Subtenant,
such delivery to be made within five (5) business days of posting or receipt, as
the case may be.
(c) Sublandlord and Subtenant agree that the Overlease annexed hereto as
Exhibit "B" and made a part hereof is a true and complete copy of the Overlease.
(d) Subtenant agrees to indemnify, protect, defend and save harmless
Sublandlord from and against any and all liability (statutory or otherwise),
claims, suits, demands, damages, judgments, costs, fines, penalties, interest
and expenses (including, without limitation, reasonable counsel and other
professional fees and disbursements incurred in connection therewith, but
excluding consequential damages) to which Sublandlord may be subject or suffer
arising from, or in
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connection with, any default by Subtenant in the performance of any provisions
of the Overlease (except as specifically provided to the contrary in this
Sublease) that accrue from and after the Vacate Date, except if the same shall
have been caused by any act, omission, negligence or willful misconduct of
Sublandlord. Subtenant agrees that the provisions of Section 5.03 of the
Overlease are incorporated herein and that Sublandlord is an intended
beneficiary of such provision. Sublandlord agrees to indemnify, protect, defend
and save harmless Subtenant from and against any and all liability (statutory or
otherwise), claims, suits, demands, damages, judgments, costs, fines, penalties,
interest and expenses (including, without limitation, reasonable counsel and
other professional fees and disbursements incurred in connection therewith, but
excluding consequential damages) to which Subtenant may be subject or suffer
arising from, or in connection with, any default by Sublandlord in the
performance of any provisions of the Overlease that accrue prior to the
occurrence of the Vacate Date, except if the same shall have been caused by any
act, omission, negligence or willful misconduct of Subtenant.
Section 4.02. Notwithstanding anything in this Sublease to the contrary,
Subtenant shall be able to deal directly with Overlandlord in connection with
any and all matters arising under the terms of the Overlease and in connection
therewith Subtenant shall have the sole right to negotiate with and settle or
compromise any claims against Overlandlord; provided, however, if any such
settlement or compromise shall constitute an amendment to the Overlease, such
settlement or compromise shall only be binding upon Sublandlord if the amendment
to the Overlease that shall result from such settlement or compromise would be
permitted pursuant to Subsection 5.01(c) hereof. In addition, as to any matter
which is to be determined by arbitration pursuant to Article 28 of the
Overlease, Subtenant shall have the sole right, on behalf of Sublandlord, to
participate in such arbitration. Subtenant shall deliver to Sublandlord a copy
of any documents in connection with any such settlement or compromise of any
claims against Overlandlord or any such arbitration, which documents Sublandlord
agrees shall be binding upon Sublandlord.
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ARTICLE 5
SUBLEASE SUBJECT TO OVERLEASE
Section 5.01. (a) This Sublease is expressly made subject and subordinate
to all of the terms and conditions of the Overlease and to all matters which the
foregoing is subject, except as specifically provided to the contrary in this
Sublease. Subtenant hereby assumes and covenants that Subtenant shall observe
and perform all of the provisions of the Overlease (except as specifically
provided to the contrary in this Sublease) that shall accrue during the portion
of the Term accruing from and after the Vacate Date which are to be observed and
performed by Sublandlord thereunder. Subtenant covenants that Subtenant shall
not do any act, matter or thing which will be, result in, or constitute a
default under the Overlease; it being expressly agreed to by Subtenant that any
such violation, breach or default shall constitute a breach by Subtenant of a
substantial obligation under this Sublease. Sublandlord covenants that
Sublandlord shall not do any act, matter or thing which will be, result in, or
constitute a default under the Overlease; it being expressly agreed to by
Sublandlord that any such default shall constitute a default by Sublandlord of a
substantial obligation under this Sublease. Notwithstanding the immediate prior
sentence, after the Sublandlord has tendered delivery of vacant possession of
the Premises to Subtenant, then any default of the Sublandlord in performance of
the Overlease shall not affect the payments of Basic Rent and Monthly Deferred
Rent to be paid hereunder. Subtenant's sole remedy for any such default shall be
to offset the costs and expenses of curing said defaults against the first
installments of the Sublease Rent. Notwithstanding anything in this Sublease to
the contrary, in any case where the consent or approval of Overlandlord shall be
required pursuant to the Overlease, Sublandlord's consent shall not be required
hereunder if the Overlandlord shall have granted its consent or approval.
(b) Subtenant covenants and agrees that if, by reason of a default on the
part of Sublandlord, as the tenant under the Overlease, in the performance of
any of the terms or provisions of the Overlease, or for any other reason of any
nature whatsoever, such lease or the leasehold estate of the tenant thereunder
is terminated by summary dispossess proceeding or otherwise, then Subtenant will
attorn to Overlandlord and will recognize Overlandlord as Subtenant's landlord
under this Sublease. Subtenant covenants and agrees to execute and deliver, at
any time and from time to time, within five (5) business days following a
request therefor by Sublandlord or Overlandlord, any instrument which may be
reasonably necessary or appropriate to evidence such attornment. Subtenant
further covenants and agrees that the obligation of Subtenant to pay the
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Sublease Rent that shall be payable to Sublandlord by Subtenant under this
Sublease shall survive the expiration or sooner termination of the Overlease or
this Sublease (including without limitation, a termination of the Overlease by
reason of a casualty occurring under the provisions of Section 6.02 of the
Overlease). The obligation of the Subtenant to make payment of the Sublease Rent
to Sublandlord shall be considered an independent covenant of Subtenant to
Sublandlord without any conditions or privity of estate between Subtenant and
Sublandlord and shall survive the termination of the Overlease or this Sublease
and shall continue as a direct obligation of Subtenant to Sublandlord. The sole
right of the Subtenant in the event of such termination that does not result in
the loss of possession of the Premises by Subtenant or of the Overlease
resulting from a default of Sublandlord (which is not assumed to be performed by
Subtenant under the terms hereof) shall be to offset the costs and reasonable
expenses that Subtenant shall incur in obtaining the attornment or a direct
lease with Overlandlord or any other arrangement to maintain occupancy of the
Premises (but excluding any rentals to be paid to Overlandlord which are not the
obligation of the Sublandlord or the purchase price of the Premises.)
(c) Sublandlord agrees not to amend or modify the Overlease in any way,
except as provided below, without Subtenant's prior written approval, which
approval may be granted or withheld for any or no reason, and any such amendment
or modification that shall be made without Subtenant's prior written approval
shall not be binding upon Subtenant. Upon request of Subtenant, Sublandlord
shall promptly execute and deliver (i) any amendments or modifications to the
Overlease, provided that such amendments or modifications to the Overlease shall
not change the provisions of Section 27.01 of the Overlease, and (ii) any
amendments or modifications of this Sublease required in order to conform this
Sublease with the terms and conditions of the Overlease, as so amended or
modified, provided that such amendments or modifications (1) shall not change
the rental terms as set forth in Article 2 of this Sublease prior to such
amendments or modifications, (2) shall not materially increase Sublandlord's
obligations or materially reduce Sublandlord's rights from those set forth in
this Sublease prior to such amendments or modifications, and (3) shall, by their
terms, become effective on the date that the amendments or modifications to the
Overlease shall become effective. If Sublandlord shall not execute and deliver
any such amendment or modification of the Overlease or this Sublease within ten
(10) days after request of Subtenant, then Sublandlord shall be deemed to
constitute and appoint Subtenant as Sublandlord's attorney-in-fact, coupled with
an interest, to execute and deliver such amendment or modification for and on
behalf of Sublandlord. Any amendment or modification of the Overlease of this
Sublease in accordance with the provisions of
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this Subsection 5.01(c) shall be binding upon the holder of any mortgage
encumbering Sublandlord's interest in the Overlease and this Sublease, and no
such amendment or modification shall require the prior approval of the holder of
any such mortgage.
(d) Sublandlord covenants and agrees with Subtenant that upon Subtenant
paying the Sublease Rent and the Net Annual Rent reserved in this Sublease and
observing and performing all of the terms, covenants and conditions of this
Sublease on Subtenant's part to be observed and performed, Subtenant may
peaceably and quietly enjoy the Premises during the Term, subject, however, to
the terms, covenants and conditions of this Sublease.
ARTICLE 6
OCCUPANCY TAX
Section 6.01. If any commercial rent or occupancy tax shall be levied with
regard to the Premises, Subtenant shall pay the same to the taxing authority,
when due.
ARTICLE 7
NON-APPLICABILITY OF CERTAIN PROVISIONS OF THE OVERLEASE
Section 7.01. (a) All of the terms, provisions, covenants and conditions
contained in the Overlease are hereby incorporated by reference and made a part
hereof and Subtenant hereby assumes and covenants that Subtenant shall observe
and perform all of the provisions of the Overlease that shall accrue during the
portion of the Term accruing from and after the Vacate Date which are to be
observed and performed by Sublandlord thereunder with the following exceptions
and those contained herein, which shall not be incorporated by reference in this
Sublease: Section 2.01, Section 3.01, Section 3.02, Section 3.05, Section 3.06,
Section 3.08, Section 8.02, clauses (i) and (iv) of Section 13.01, Section
13.02, Section 14.02, Section 16.01(a) shall be amended by deleting the phrase
"Tenant shall fail to pay the Net Annual Rent due for the first Lease Year in
accordance with Subsection 3.02(a) hereof as and when required by Subsection
3.02(a); or", Subsection 16.01(c), Article 17 and Section 18.05. In addition,
any reference in the Overlease to "Designated Person" shall be deemed deleted.
(b) Notwithstanding the incorporation by reference of the Overlease,
Sublandlord shall not have the right to enforce such provisions unless
Overlandlord shall be enforcing the same provisions under the Overlease against
the Sublandlord and in such case Subtenant may deliver directly to Overlandlord
any
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<PAGE>
money or security that Subtenant shall be required to provide pursuant to any
such provisions.
(c) Notwithstanding the incorporation by reference of the Overlease,
Sublandlord shall not have any right under Section 6.02, Section 16.02 and
Section 20.01 of the Overlease to require Subtenant to demolish the Building, it
being agreed that any election of Overlandlord under such provisions of the
Overlease shall be binding upon Sublandlord and Subtenant, with the obligation
of performance on Subtenant.
(d) If Subtenant pursuant to Section 6.02 of the Overlease shall elect to
terminate this Sublease, in such case, Subtenant shall have the right to deliver
a Termination Notice to Overlandlord, in which case the term of the Overlease
shall be terminated as well. Notwithstanding anything to the contrary set forth
in this Sublease, the obligation of Subtenant to make payment of the Sublease
Rent to Sublandlord shall survive the termination of this Sublease and the
Overlease by reason of a casualty occurring under the provisions of Section 6.02
of the Overlease, and shall continue as a direct obligation of Subtenant to
Sublandlord as if the balance of the term of this Sublease had continued.
ARTICLE 8
INSURANCE
Section 8.01. (a) From and after the Vacate Date, Subtenant shall maintain
during the remainder of the Term all insurance that Sublandlord shall be
required to maintain pursuant to Section 5.01 of the Overlease and in connection
therewith Subtenant shall cause Sublandlord and Overlandlord to be named as
additional insureds in accordance with the requirements of the Overlease and
this Sublease.
(b) Notwithstanding anything in Section 5.02 of the Overlease to the
contrary, Sublandlord shall have no right to request that Subtenant increase the
limits of insurance required by Subsections 5.01(d) and/or (e) of the Overlease,
it being agreed that such rights shall be reserved expressly to the
Overlandlord.
(c) Notwithstanding the provisions of Article 5 of the Overlease,
certificates of, copies or the original insurance policies procured by
Subtenant, at Subtenant's option, shall be delivered to Overlandlord.
(d) Any insurance that Subtenant shall deliver to Overlandlord which shall
satisfy Overlandlord's requirements under the Overlease, shall be deemed to
satisfy Sublandlord's
-14-
<PAGE>
requirements under this Sublease.
Section 8.02. Notwithstanding anything in the Overlease to the contrary,
Sublandlord shall not be entitled to receive any portion of the casualty or
condemnation proceeds that shall be payable in connection with any such casualty
or condemnation.
ARTICLE 9
REAL ESTATE TAXES
Section 9.01. Supplementing the provisions of Article 4 of the Overlease,
Subtenant shall have the right to contest the amount or validity, in whole or in
part, of any imposition by appropriate proceedings, and, notwithstanding Section
4.01 of the Overlease, Subtenant may defer payment of such imposition in
accordance with Section 4.02 of the Overlease. Upon the termination of such
proceedings, Subtenant shall pay the amount of such imposition or part thereof
as finally determined in such proceedings, the payment of which may have been
deferred during the prosecution of such proceedings, together with any costs,
fees, interest, penalties or other liabilities in connection therewith.
Sublandlord shall not unreasonably withhold its consent to joining in any such
proceedings or permitting the same to be brought in its name if required by law.
Sublandlord shall not be subjected to any liability for the payment of any costs
or expenses in connection with any such proceedings unless Sublandlord
intervenes and takes an affirmative part therein and Subtenant shall indemnify
and save harmless Sublandlord from any such costs or expenses, except in the
case of such intervention. Subtenant shall be entitled to receive any refund of
any such imposition and penalties or interest thereon which have been paid by
Subtenant, or which have been paid by Overlandlord or Sublandlord and for which
Sublandlord or Overlandlord has been fully reimbursed.
ARTICLE 10
ASSIGNMENT AND SUBLETTING
Section 10.01. Subtenant shall have the right to assign its interest in
this Sublease or sublet all or any portion of the Premises without obtaining
Sublandlord's prior consent thereto; provided, however, Subtenant shall be
required to obtain the consent of Overlandlord if such consent shall be required
pursuant to the terms of the Overlease. Upon any assignment, or subletting,
Subtenant shall continue to remain liable for its obligations under this
Sublease. Simultaneously with the execution of any sublease or assignment a
fully executed copy (with all business and other confidential terms redacted) of
such sublease or assignment shall be delivered to
-15-
<PAGE>
Sublandlord. In the event of any such assignment or subletting, Subtenant shall
notify Sublandlord, in writing, of the name of the assignee or subtenant, as the
case may be, and the business address of such subtenant or assignee for purposes
of service of notice of process. In addition, Sublandlord agrees to provide to
the subtenant, and, if applicable, to obtain from the holder of any mortgage
encumbering Sublandlord's interest in this Sublease for the benefit of such
subtenant, a non-disturbance and attornment agreement, which shall provide in
substance that, so long as such subtenant is not in default with respect to any
of its obligations under its sublease after notice and the expiration of any
applicable cure period, the subtenant shall not be joined as a party defendant
(unless required by applicable law) (i) in any action or proceeding which may be
instituted or taken by Sublandlord or the holder of any mortgage encumbering
Sublandlord's interest in this Sublease for the purposes of terminating this
Sublease by reason of any default thereunder beyond the expiration of an
applicable notice and cure period, or (ii) in any foreclosure action or
proceeding which may be instituted by any such mortgage holder. Any
non-disturbance agreement shall also provide that the subtenant shall, at the
option of Sublandlord or the holder of any mortgage encumbering Sublandlord's
interest in this Sublease, either (x) attorn to Sublandlord or the holder of
such mortgage and perform for the benefit of Sublandlord or the holder of such
mortgage all of the terms, covenants and conditions to be performed by such
subtenant under its sublease, or (y) enter into a new sublease with Sublandlord
or the holder of such mortgage or their respective successors or assigns for the
balance of the term of its sublease on the same terms and conditions as are
contained in its sublease. In the event that this Sublease shall be terminated
and Sublandlord shall collect from the subtenant any rent under its sublease,
then any rent so collected shall be credited against the first installment(s) of
the Sublease Rent that shall be payable by Subtenant to Sublandlord under this
Sublease.
ARTICLE 11
DEFAULT PROVISIONS
Section 11.01. (a) The provisions of Article 16 of the Overlease are an
integral part of this Sublease for the purposes of providing a default provision
for the benefit of Sublandlord in the event of a default in the performance by
Subtenant of its obligations under this Sublease. For the purposes of enforcing
any default by Subtenant hereunder, the rights and obligations contained in
Article 16 of the Overlease (other than the provisions of Subsection 16.01(c) of
the Overlease), are, during the Term, hereby imposed upon the respective parties
hereto, "Sublandlord" being substituted for "Landlord" and
-16-
<PAGE>
"Subtenant" being substituted for "Tenant". Notwithstanding the provisions of
Section 16.01 of the Overlease, other than an Event of Default that shall arise
under Subsection 16.01(a) of the Overlease (which shall include the failure to
pay the Sublease Rent), no event of default under this Sublease shall be deemed
to have occurred unless and until Overlandlord shall have elected to exercise
any of its rights under the Overlease as a result of a corresponding default by
Sublandlord in the performance of its obligations under the Overlease.
Sublandlord agrees to promptly give Subtenant copies of any notices of default
received by Sublandlord from Overlandlord. In connection with curing any default
under this Sublease, Subtenant shall have five (5) fewer days to cure such
default than are otherwise provided in the Overlease for the curing of such
default.
(b) In the event that Sublandlord shall encumber its interest under
the Overlease, and provided that Sublandlord shall have notified Subtenant in
writing of the name and post office address of the holder of such mortgage
encumbering the Sublandlord's interest under this Sublease, then Subtenant shall
deliver to the holder of such mortgage copies of each notice in connection with
this Sublease that Subtenant shall deliver to Sublandlord hereunder and that
Subtenant shall deliver to Overlandlord under the Overlease simultaneously with
the delivery thereof to Sublandlord or Overlandlord, as the case may be. In the
event of a default by Sublandlord in the performance of the terms and provisions
of this Sublease, the holder of such mortgage encumbering the Sublandlord's
interest under the Overlease shall have the right, during the pendency of any
grace or cure period provided in this Sublease, to remedy or cause to be
remedied any default by Sublandlord hereunder which is the basis of a default
notice, and in the case of a default by Sublandlord not susceptible of being
cured by reason of an insolvency of Sublandlord or any other similar events, the
holder of such mortgage shall have a reasonable additional period of time needed
by such mortgage holder in the exercise of reasonable diligence to foreclose its
mortgage and succeed to the interest of Sublandlord hereunder, so long as such
mortgage holder has cured all monetary defaults under this Sublease.
ARTICLE 12
NOTICES
Section 12.01. (a) All notices hereunder to Sublandlord or Subtenant shall
be given in writing and delivered by hand or by national overnight courier
service or mailed by certified or registered mail, postage prepaid, return
receipt requested, to the addresses set forth below:
-17-
<PAGE>
If to Sublandlord:
Kalodop Park Corp.
c/o Wilfred Garage, Inc.
200 East 19th Street
New York, New York 10003
Attn: Fred Spindler
with a copy to:
Fischbein Badillo Wagner Harding
909 Third Avenue
New York, New York 10022
Attn: Hugh Heller, Esq.
If to Subtenant:
Scholastic Inc.
555 Broadway
New York, New York 10012
Attn: General Counsel
with a copy to:
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004
Attn: Peter A. Miller, Esq.
(b) By notice given in the aforesaid manner, either party hereto may
notify the other as to any change as to where and to whom such party's notices
are thereafter to be addressed.
(c) Any notice so sent by certified or registered mail shall be
deemed given on the date of receipt or refusal as indicated on the return
receipt. The effective date of any other notice shall be the date such notice is
delivered or the date that delivery thereof shall be rejected.
-18-
<PAGE>
ARTICLE 13
MISCELLANEOUS
Section 13.01. This Sublease is made in the State of New York and shall be
governed by and construed under the laws thereof. During the term of this
Sublease, this Sublease supersedes any and all other or prior understandings,
agreements, covenants, promises, representations or warranties of or between the
parties with respect to the subject matter hereof (which are fully merged
herein). The headings in this Sublease are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof. Whenever necessary or
appropriate, the neuter gender as used herein shall be deemed to include the
masculine and feminine; the masculine to include the feminine and neuter; the
feminine to include the masculine and neuter; the singular to include the
plural; and the plural to include the singular. If Subtenant or Sublandlord
shall at any time acquire the interest of the other party in this Sublease, this
Sublease shall remain in full force and effect and the estate created hereby
shall not be merged unless the party acquiring the interest of the other party
shall agree in writing to the contrary. This Sublease is binding upon, and shall
inure to the benefit of, the parties and each of their respective successors and
permitted assigns, if any.
ARTICLE 14
INVALIDITY OF PARTICULAR PROVISIONS
SECTION 14.01. If any provision of this Sublease or the application
thereof to any person or situation shall, to any extent, be held invalid or
unenforceable, the remainder of this Sublease, and the application of such
provision to persons or situations other than those as to which it shall have
been held invalid or unenforceable, shall not be affected thereby, and shall
continue to be valid and be enforced to the fullest extent permitted by law.
ARTICLE 15
LEASEHOLD MORTGAGES
SECTION 15.01. Sublandlord represents that, as of the date hereof, there
is no Leasehold Mortgage encumbering Sublandlord's interest in the Overlease.
This Sublease (as the same may be amended or modified from time to time) is and
shall be superior to all Leasehold Mortgages. Sublandlord shall cause each
Leasehold Mortgagee to execute and deliver to Subtenant any documents that
Subtenant may reasonably require to confirm the
-19-
<PAGE>
provisions of this Article 15. Any such Leasehold Mortgage shall be made subject
to the terms of this Sublease, including, without limitation, the provisions of
the last sentence of Subsection 5.01(c) hereof.
ARTICLE 16
SUBLANDLORD'S EXCULPATION
SECTION 16.01. Subtenant agrees that there shall be no personal liability
on the part of Sublandlord or any of its officers, directors, shareholders or
employees arising out of any default by Sublandlord under this Sublease, and
that Subtenant shall look solely to the interest of Sublandlord in the Premises
for the enforcement and satisfaction of any default by Sublandlord hereunder,
and that Subtenant shall not enforce any judgment (or other monetary decree)
against Sublandlord or any of its officers, directors, shareholders or employees
from or against any other assets of Sublandlord or any of the personal assets of
Sublandlord or any of its officers, directors, shareholders or employees.
ARTICLE 17
EMINENT DOMAIN
Section 17.01. (a) Regardless of any termination of this Sublease
pursuant to Article 18 of the Overlease, the Award shall be distributed in the
following order of priority:
(i) If Subtenant shall be obligated to repair, alter and restore the
remaining parts of the Building and the Premises pursuant to Section 18.04 of
the Overlease, the amount expended by Subtenant for the repair, alteration and
restoration shall be paid to Subtenant out of the Award;
(ii) If payment out of the Award is made to Subtenant under clause (i) of
this Section 17.01, next, or if no such payment is made to Subtenant under
clause (i) of this Section 17.01, there shall be paid to Sublandlord (from the
proceeds that Sublandlord shall be entitled to receive pursuant to Section
18.05(c) of the Overlease), (1) in the case of a taking of all of the Premises,
an amount equal to the net present value (calculated as of the Date of the
Taking) of the amount of Basic Rent and Monthly Deferred Rent that Sublandlord
would otherwise be entitled to receive pursuant to the terms of this Sublease
from and after the Date of Taking to the end of the Term (such amount, the
"Sublandlord's Amount") or (2) in the case of a taking of part of the Premises,
an amount equal to the product obtained by multiplying (A) the Sublandlord's
Amount (as
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<PAGE>
calculated above), by (B) the fraction obtained by dividing the square footage
of the portion of the Premises so taken by the total square footage of the
Premises. In calculating the net present value of the Basic Rent and the Monthly
Deferred Rent, such payments shall be discounted at the Discount Rate; and
(iii) The balance of the Award shall then be paid to Subtenant.
(b) Notwithstanding the foregoing, Sublandlord shall not be entitled to
any portion of the Award that shall be attributable to a temporary taking of the
Premises and shall not affect the rental received by the Sublandlord under this
Lease.
ARTICLE 18
ESTOPPEL CERTIFICATES BY SUBLANDLORD AND SUBTENANT
Section 18.01. Sublandlord and Subtenant each hereby agree, at any time
and from time to time upon not less than twenty (20) days prior written notice
by the requesting party, to execute, acknowledge and deliver to the requesting
party, or any other party specified by the requesting party, a statement in
writing certifying that this Sublease is unmodified and in full force and effect
(or if there have been modifications, that the same is in full force and effect
as unmodified and stating the modifications) and the dates to which the Sublease
Rent have been paid, and stating whether or not, to the best knowledge of the
party executing such statement, Sublandlord or Subtenant is in default in the
performance of any covenant, agreement or condition contained in this Sublease
and, if so, specifying each such default, it being intended that any such
statement delivered pursuant to this Section 18.01 may be relied upon by such
parties that the party requesting such certificate shall designate, including,
without limitation, any prospective assignee or subtenant of Subtenant's
interest in this Sublease or the holder of, or prospective holder of, a
Subleasehold Mortgage, if requested by Subtenant, or the holder of, or
prospective holder of, a Leasehold Mortgage, if requested by Sublandlord.
ARTICLE 19
Like-Kind Exchange
Section 19.01. Each of the parties hereto, without cost or expense to it,
shall use its reasonable efforts to cooperate with the other party to enable the
other party to effectuate a "like-kind" exchange of its interest in the Premises
in accordance with Section 1031 of the Internal Revenue code of 1986, as
amended, if the other party so elects, provided the
-21-
<PAGE>
effectuation of such exchange does not prejudice or otherwise impair the rights
possessed by such party under this Sublease.
-22-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Sublease as of the day
and year first above written.
KALODOP PARK CORP.
By: /s/ [Illegible signature]
------------------------------
Name:
Title:
SCHOLASTIC INC.
By: /s/ Richard Robinson
------------------------------
Name: Richard Robinson
Title: President
<PAGE>
EXHIBIT A
ALL that certain plot, piece or parcel of land, situate, lying and being in the
Borough of Manhattan, County of New York, City and State of New York, bounded
and described as follows:-
BEGINNING at a point on the westerly side of Broadway distant one hundred and
one feet southerly from the corner formed by the intersection of the said
westerly side of Broadway with the southerly side of Prince Street;
RUNNING THENCE Westerly parallel with Prince Street, 200 feet to the easterly
side of Mercer Street;
THENCE Southerly along the said easterly side of Mercer Street, 50 feet;
THENCE Easterly again parallel with Prince Street, 200 feet to the Westerly side
of Broadway; and
THENCE Northerly along the said westerly side of Broadway, 50 feet to the point
or place of BEGINNING.
<PAGE>
EXHIBIT B
OVERLEASE
[NOT REPRODUCED HEREIN]
B-1
<PAGE>
SCHEDULE 1
BASIC RENT ASSUMPTIONS
PERIOD BASIC RENT AMOUNT
- ------ -----------------
1. Twelfth (12th) anniversary of the Vacate Date $544,195.58/annum
through the date immediately preceding the
fifteenth (15th) anniversary of the Vacate Date
2. Fifteenth (15th) anniversary of the Vacate Date $587,731.23/annum
through the date immediately preceding the
eighteenth (18th) anniversary of the Vacate
Date
3. Eighteenth (18th) anniversary of the Vacate $634,749.73/annum
Date through the date immediately preceding the
twentieth (20th) anniversary of the Effective
Date
S-1
<PAGE>
SCHEDULE 2
DEFERRED RENT
Assumptions:
1. Term of Sublease - December 1, 1996 - March 31, 2013 (the
"Expiration Date")
2. Effective Date - December 1, 1996
Vacate Date - December 1, 1996
3. Expiration Date for
a 20 Year Sublease - November 30, 2016
4. Rent Shortfall - (i) April 1, 2013 - November 30, 2014
$48,977.60/mo. x 20 months = $ 979,552.00
(ii) December 1, 2014 - November 30, 2016
$52,895.81/mo. x 24 months = $1,269,499.44
-------------
Total $2,249,051.44
5. Net Present Value of the
Rent Shortfall (calculated
as of the
Expiration Date) (i) The net present value of the amount set
forth in Paragraph 4(i)above equals
$922,075.69(1)
(ii) The net present value of the amount set
forth in Paragraph 4(ii) above equals
$1,037,518.69(2)
- ----------
(1) The net present value as of the Expiration Date for this calculation was
determined by discounting, at the Discount Rate (compounded monthly),
twenty (20) equal monthly installments of rent in the amount of $48,977.60
paid in advance at the beginning of each month.
(2) This amount was calculated as follows:
(i) the net present value (as of December 1, 2014) of the twenty-four (24)
monthly payments of $52,895.81 paid in advance was determined by
discounting, at the Discount Rate (compounded monthly), such payments.
This calculation equals $1,180,081.31.
(ii) The amount of $1,180,081.31 was then divided by 1.137403. The number
1.137403 was determined utilizing the following formula - x = ( 1+ (.0775
/ 12)) n, where n equals the number of months between March 31, 2013 and
November 30, 2014. N in this example equals 20.
S-2-1
<PAGE>
SCHEDULE 2 (Cont'd.)
DEFERRED RENT
Assumptions:
Total Net Present Value (equal to the sum of
the amounts set forth in 5(i) and 5(ii) above)
$1,959,594.38.
6. Deferred Rent (Net Present
Value of the amount set
forth in #5 calculated
as of the Vacate Date) -
$ 554,867.60(3)
- ----------
(3) The amount of $554,867.60 was determined by dividing $1,959,594.38 by
3.5316432. The number 3.5316432 was determined utilizing the following
formula - x = (1 + (.0775 / 12)) n where n equals the number of months
from the Vacate Date through the Expiration Date. N in this example equals
196.
S-2-2
<PAGE>
SCHEDULE 3
MONTHLY DEFERRED RENT
1. Amount of Deferred Rent $ 554,867.60
2. Monthly Deferred Rent
(Amount required to pay
the Deferred Rent over
the Term of the Sublease
occurring from and after
the Vacate Date) $ 4,966.93/month
S-3
EXHIBIT 21
SCHOLASTIC CORPORATION
SUBSIDIARIES OF THE REGISTRANT
Domestic Subsidiaries State of Incorporation
Scholastic Inc. New York
Children's Music Library, Inc. New York
(a subsidiary of Weston Woods Studios, Inc.)
The Electronic Bookshelf, Inc. Indiana
Georgetown Studios, Inc. Connecticut
(a subsidiary of Weston Woods Studios, Inc.)
Lectorum Publications, Inc. New York
SE Distribution Inc. Delaware
(a subsidiary of Scholastic Entertainment Inc.)
Scholastic Book Clubs, Inc. Missouri
Scholastic Book Services, Inc. Delaware
Scholastic Entertainment Inc. New York
(formerly Scholastic Productions Inc.)
Scholastic UK Group Ltd. Delaware
(formerly Scholastic Publications (Magazines), Ltd.)
Weston Woods Studios, Inc. Delaware
Foreign Subsidiaries Jurisdiction
Scholastic Australia Pty. Ltd. Australia
Bookshelf Publishing Australia Pty. Ltd. Australia
Troll School Book Clubs and Fairs Australia Pty. Ltd. Australia
Scholastic Australia Superannuation Pty. Ltd. Australia
Scholastic Executive Superannuation Pty. Ltd. Australia
Oldmeadow Booksellers (Aust.) Pty. Ltd. Australia
Scholastic (Barbados), Inc. Barbados
Scholastic Canada Ltd. Canada
Scholastic Productions Canada Ltd. Canada
Scholastic Book Fairs Canada Inc. Canada
Scholastic Ltd. England
England School Book Fairs Ltd. England
Scholastic Book Clubs Ltd. England
Red House Books Ltd. England
Scholastic Publication Ltd. England
Scholastic Educational Magazines Ltd. England
Red House Book Clubs Ltd. England
Scholastic Hong Kong Limited Hong Kong
Scholastic Book Fairs Ltd. Ireland
Scholastic India Private Limited India
Scholastic Mexico, S.A. de C.V. Mexico
Scholastic New Zealand Ltd. New Zealand
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-48655, No. 33-69058 and No. 33-91090) pertaining to the Scholastic
Inc. 401(K) Savings and Retirement Plan, in the Registration Statement (Form S-8
No. 33-46338) pertaining to the 1992 Stock Option Plan as of May 19, 1992, in
the Registration Statement (Form S-8 No. 33-50128) pertaining to the Outside
Directors' Stock Option Plan and the Stock Option Agreement with Joseph W.
Oliver in the Registration Statement (Form S-8 No. 33-74064) pertaining to the
Non-Employee Director Stock-For-Retainer Plan and in the Registration Statement
(Form S-3 No. 333-17365) pertaining to $150,000,000 of Securities of our report
dated July 8, 1999 except for Note 12, as to which the date is August 11, 1999,
with respect to the consolidated financial statements and schedule of Scholastic
Corporation included in this Annual Report (Form 10-K) for the year ended May
31, 1999.
/s/ERNST & YOUNG LLP
New York, New York
August 20, 1999
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<CIK> 0000866729
<NAME> Scholastic Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 5,882
<SECURITIES> 0
<RECEIVABLES> 148,700
<ALLOWANCES> 12,315
<INVENTORY> 227,467
<CURRENT-ASSETS> 434,200
<PP&E> 214,504
<DEPRECIATION> 65,369
<TOTAL-ASSETS> 842,300
<CURRENT-LIABILITIES> 211,800
<BONDS> 234,795
0
0
<COMMON> 177
<OTHER-SE> 361,210
<TOTAL-LIABILITY-AND-EQUITY> 842,300
<SALES> 1,154,710
<TOTAL-REVENUES> 1,154,710
<CGS> 561,100
<TOTAL-COSTS> 1,054,400
<OTHER-EXPENSES> 22,400
<LOSS-PROVISION> 17,000
<INTEREST-EXPENSE> 19,000
<INCOME-PRETAX> 58,900
<INCOME-TAX> 22,100
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,800
<EPS-BASIC> 2.25
<EPS-DILUTED> 2.20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000866729
<NAME> Scholastic Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 5,062
<SECURITIES> 0
<RECEIVABLES> 126,750
<ALLOWANCES> 10,077
<INVENTORY> 200,300
<CURRENT-ASSETS> 382,640
<PP&E> 191,157
<DEPRECIATION> 54,330
<TOTAL-ASSETS> 763,599
<CURRENT-LIABILITIES> 181,702
<BONDS> 234,750
0
0
<COMMON> 175
<OTHER-SE> 317,963
<TOTAL-LIABILITY-AND-EQUITY> 763,599
<SALES> 1,058,400
<TOTAL-REVENUES> 1,058,400
<CGS> 536,800
<TOTAL-COSTS> 977,200
<OTHER-EXPENSES> 33,100
<LOSS-PROVISION> 14,600
<INTEREST-EXPENSE> 19,980
<INCOME-PRETAX> 38,135
<INCOME-TAX> 14,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,644
<EPS-BASIC> 1.46
<EPS-DILUTED> 1.45
</TABLE>
