<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2000 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
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
TITLE NUMBER OF SHARES OUTSTANDING
OF EACH CLASS AS OF MARCH 31, 2000
<S> <C>
Common Stock, $.01 par value 16,164,307
Class A Stock, $.01 par value 828,100
</TABLE>
<PAGE>
SCHOLASTIC CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 2000
INDEX
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Statement of Operations for the Three and
Nine Months Ended February 29, 2000 and February 28, 1999 1
Condensed Consolidated Balance Sheet at February 29, 2000,
February 28, 1999 and May 31, 1999 2
Condensed Consolidated Statement of Cash Flows for the Nine Months
Ended February 29, 2000 and February 28, 1999 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II - OTHER INFORMATION
Item 4. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
=================================================== ================================== ================= ================
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
=================================================== ================ ================= ================= ================
2000 1999 2000 1999
=================================================== ================ ================= ================= ================
<S> <C> <C> <C> <C>
REVENUES $ 312.8 $ 267.3 $ 1,000.6 $ 820.7
Operating costs and expenses:
Cost of goods sold 155.6 133.5 500.7 406.6
Selling, general and administrative expenses 143.1 123.6 427.9 360.1
Depreciation 5.1 4.2 14.4 12.4
Goodwill and trademark amortization 1.3 1.1 3.5 3.9
Non-recurring charge - - 8.5 -
- --------------------------------------------------- ---------------- ----------------- ----------------- ----------------
TOTAL OPERATING COSTS AND EXPENSES 305.1 262.4 955.0 783.0
Operating income 7.7 4.9 45.6 37.7
Interest expense, net (4.5) (4.6) (14.6) (14.5)
- --------------------------------------------------- ---------------- ----------------- ----------------- ----------------
Income before income taxes 3.2 0.3 31.0 23.2
Provision for income taxes 1.2 0.1 11.3 8.8
- --------------------------------------------------- ---------------- ----------------- ----------------- ----------------
NET INCOME $ 2.0 $ 0.2 $ 19.7 $ 14.4
=================================================== ================ ================= ================= ================
Net income per Class A and Common Share:
Basic $ 0.12 $ 0.01 $ 1.18 $ 0.88
Diluted $ 0.11 $ 0.01 $ 1.16 $ 0.86
=================================================== ================ ================= ================= ================
</TABLE>
SEE ACCOMPANYING NOTES
1
<PAGE>
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
================================================= ====================== ====================== =======================
FEBRUARY 29, 2000 MAY 31, 1999 FEBRUARY 28, 1999
================================================= ====================== ====================== =======================
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5.6 $ 5.9 $ 1.6
Accounts receivable less allowance for
doubtful accounts 183.8 136.4 129.2
Inventories, net 319.5 227.4 267.6
Deferred taxes 41.9 41.8 48.1
Prepaid and other deferred expenses 29.6 22.7 24.2
- -------------------------------------------------- ---------- -------- --------
TOTAL CURRENT ASSETS 580.4 434.2 470.7
Property, plant and equipment, net 166.0 152.2 143.0
Prepublication costs 99.7 95.3 88.2
Other assets and deferred charges 154.3 160.6 170.1
- -------------------------------------------------- ---------- -------- --------
TOTAL ASSETS $ 1,000.4 $ 842.3 $ 872.0
================================================== ========== ======== =========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit $ 21.2 $ 18.0 $ 15.7
Accounts payable 131.7 97.0 105.5
Accrued royalties 56.8 23.7 35.6
Deferred revenue 23.6 6.7 21.8
Other accrued expenses 61.5 66.4 55.7
- -------------------------------------------------- ---------- -------- --------
TOTAL CURRENT LIABILITIES 294.8 211.8 234.3
NONCURRENT LIABILITIES:
Long-term debt 281.2 248.0 277.9
Other noncurrent liabilities 23.7 21.1 22.0
- -------------------------------------------------- ---------- -------- --------
TOTAL NONCURRENT LIABILITIES 304.9 269.1 299.9
STOCKHOLDERS' EQUITY:
Preferred Stock, $1.00 par value -- -- --
Class A Stock, $.01 par value 0.0 0.0 0.0
Common Stock, $.01 par value 0.2 0.2 0.2
Additional paid-in capital 223.0 212.3 211.5
Accumulated other comprehensive loss:
Foreign currency translation adjustment (7.6) (5.7) (6.1)
Retained earnings 211.1 191.4 169.0
Less shares of Common Stock
held in treasury (26.0) (36.8) (36.8)
- -------------------------------------------------- ---------- -------- --------
TOTAL STOCKHOLDERS' EQUITY 400.7 361.4 337.8
- -------------------------------------------------- ---------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,000.4 $ 842.3 $ 872.0
================================================== ========== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES
2
<PAGE>
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
================================================================================================================
NINE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28,
============================================================================ =================== ===============
2000 1999
============================================================================ =================== ===============
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 42.7 $ 45.1
CASH FLOWS USED IN INVESTING ACTIVITIES:
Prepublication costs (35.3) (28.8)
Additions to property, plant and equipment (28.8) (18.1)
Royalty advances (17.1) (18.1)
Production costs (8.1) (11.9)
Business and trademark acquisition-related payments (0.2) (15.7)
Other (1.4) (3.1)
- ---------------------------------------------------------------------------- ------------------- ---------------
Net cash used in investing activities (90.9) (95.7)
CASH FLOWS PROVIDED BY/(USED IN) FINANCING ACTIVITIES:
Borrowings under Loan Agreement and Revolver 282.4 213.1
Repayments of Loan Agreement and Revolver (249.3) (178.9)
Borrowings under lines of credit 48.3 49.3
Repayments of lines of credit (49.9) (42.9)
Proceeds from the exercise of stock options and related tax
benefits 17.0 0.0
Other (0.6) 6.5
- ---------------------------------------------------------------------------- ------------------- ---------------
Net cash provided by financing activities 47.9 47.1
- ---------------------------------------------------------------------------- ------------------- ---------------
Net decrease in cash and cash equivalents (0.3) (3.5)
Cash and cash equivalents at beginning of period 5.9 5.1
- ---------------------------------------------------------------------------- ------------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5.6 $ 1.6
============================================================================ =================== ===============
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements, which include the
accounts of Scholastic Corporation and all wholly owned subsidiaries (the
"Company"), have not been audited, but reflect those adjustments consisting of
normal recurring items which management considers necessary for a fair
presentation of financial position, results of operations and cash flow. These
financial statements should be read in conjunction with the consolidated
financial statements and related notes in the fiscal 1999 Annual Report to
Stockholders.
The Company's business is closely correlated to the school year. Consequently,
the results of operations for the nine months ended February 29, 2000 and
February 28, 1999 are not necessarily indicative of the results expected for the
full year. Due to the seasonal fluctuations that occur, the February 28, 1999
condensed consolidated balance sheet is included for comparative purposes.
Certain prior year amounts have been reclassified in the accompanying condensed
consolidated financial statements to conform to the current year presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the condensed 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.
2. RECENT ACCOUNTING PRINCIPLES
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 3 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
4
<PAGE>
hedges are included in income. The Company is required to adopt the provisions
of SFAS 133 in the first quarter of fiscal 2002.
5
<PAGE>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
3. 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, India and Argentina, 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 following four segments:
CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION; EDUCATIONAL PUBLISHING; MEDIA,
LICENSING AND ADVERTISING; and INTERNATIONAL. Such segment classification
reflects the nature of products and services consistent with the method by which
the Company's chief operating decision-maker assesses operating performance and
allocates resources.
The following tables set forth the Company's segment information for the
periods indicated:
<TABLE>
<CAPTION>
CHILDREN'S
BOOK MEDIA,
PUBLISHING LICENSING
AND EDUCATIONAL AND TOTAL
DISTRIBUTION PUBLISHING ADVERTISING DOMESTIC INTERNATIONAL OVERHEAD(1) CONSOLIDATED
========================== ============== ============ ============= ============ ============= ============ =============
THREE MONTHS ENDED
FEBRUARY 29, 2000
========================== ============== ============ ============= ============ ============= ============ =============
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 200.5 $ 40.0 $ 24.2 $ 264.7 $ 48.1 $ 0.0 $ 312.8
Depreciation 0.9 0.3 0.4 1.6 0.9 2.6 5.1
Amortization (2) 3.4 7.2 2.4 13.0 0.5 0.0 13.5
Royalty advance expense 4.1 0.2 0.2 4.5 0.0 0.0 4.5
Segment profit/(loss)(3) 35.4 (10.5) (2.6) 22.3 0.7 (15.3) 7.7
Expenditures for
long-lived assets (4) 8.5 7.6 6.0 22.1 1.0 8.9 32.0
========================== ============== ============ ============= ============ ============= ============ =============
THREE MONTHS ENDED
FEBRUARY 28, 1999
========================== ============== ============ ============= ============ ============= ============ =============
Revenues $ 162.5 $ 32.9 $ 30.7 $ 226.1 $ 41.2 $ 0.0 $ 267.3
Depreciation 0.7 0.3 0.1 1.1 1.0 2.1 4.2
Amortization (2) 3.1 6.3 5.4 14.8 0.4 0.0 15.2
Royalty advance expense 2.8 0.2 0.6 3.6 0.0 0.0 3.6
Segment profit/(loss)(3) 25.8 (10.8) 1.1 16.1 (1.4) (9.8) 4.9
Expenditures for
long-lived assets (4) 8.7 10.4 2.9 22.0 0.1 4.9 27.0
- ------------------------- -------------- ------------ ------------- ----------- -------------- ------------ -------------
</TABLE>
TABLES AND NOTES CONTINUED ON THE FOLLOWING PAGE
6
<PAGE>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
3. SEGMENT INFORMATION (continued)
<TABLE>
<CAPTION>
CHILDREN'S
BOOK MEDIA,
PUBLISHING LICENSING
AND EDUCATIONAL AND TOTAL
DISTRIBUTION PUBLISHING ADVERTISING DOMESTIC INTERNATIONAL OVERHEAD(1) CONSOLIDATED
========================== ============== ============ ============= ============ ============= ============ =============
AS OF AND FOR THE NINE
MONTHS ENDED FEBRUARY
29, 2000
========================== ============== ============ ============= ============ ============= ============ =============
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 632.7 $ 147.2 $ 73.7 $ 853.6 $ 147.0 $ 0.0 $ 1,000.6
Depreciation 2.7 0.8 0.9 4.4 2.7 7.3 14.4
Amortization (2) 10.1 21.1 7.6 38.8 1.4 0.0 40.2
Royalty advance expense 17.2 0.7 1.0 18.9 1.2 0.0 20.1
Segment profit/(loss) (3) 115.5 (16.2) (11.3) 88.0 1.4 (43.8) 45.6
Segment assets 435.7 191.1 49.4 676.2 147.2 177.0 1,000.4
Long-lived assets (5) 94.6 98.1 30.0 222.7 54.6 118.2 395.5
Expenditures for
long-lived assets (4) 27.4 25.2 15.4 68.0 3.4 17.9 89.3
========================== ============== ============ ============= ============ ============= ============ =============
AS OF AND FOR THE NINE
MONTHS ENDED FEBRUARY
28, 1999
========================== ============== ============ ============= ============ ============= ============ =============
Revenues $ 470.1 $ 143.0 $ 72.1 $ 685.2 $ 135.5 $ 0.0 $ 820.7
Depreciation 2.3 0.7 0.5 3.5 2.6 6.3 12.4
Amortization (2) 9.3 18.2 12.9 40.4 1.6 0.0 42.0
Royalty advance expense 10.9 0.2 2.2 13.3 0.0 0.0 13.3
Segment profit/(loss) (3) 70.8 0.4 (4.5) 66.7 (1.7) (27.3) 37.7
Segment assets 352.8 159.2 50.3 562.3 147.7 162.0 872.0
Long-lived assets (5) 96.9 89.6 25.2 211.7 56.1 102.3 370.1
Expenditures for
long-lived assets (4) 26.9 21.5 15.1 63.5 5.5 7.9 76.9
- ------------------------- -------------- ------------ ------------- ----------- -------------- ------------ -------------
</TABLE>
(1) OVERHEAD INCLUDES UNALLOCATED DOMESTIC CORPORATE-RELATED 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, PROVISION FOR INCOME TAXES, AND A PRE-TAX $8.5 MILLION
NON-RECURRING CHARGE PRIMARILY RELATED TO THE ESTABLISHMENT OF A LITIGATION
RESERVE. UNALLOCATED ASSETS ARE PRINCIPALLY COMPRISED OF DEFERRED INCOME
TAXES AND PROPERTY, PLANT AND EQUIPMENT RELATED TO THE COMPANY'S
HEADQUARTERS IN THE METROPOLITAN NEW YORK AREA AND ITS NATIONAL SERVICE
OPERATION LOCATED IN MISSOURI.
(2) INCLUDES AMORTIZATION OF GOODWILL, INTANGIBLE ASSETS, AND PREPUBLICATION AND
PRODUCTION COSTS.
(3) SEGMENT PROFIT/(LOSS) REPRESENTS EARNINGS BEFORE INTEREST AND TAXES.
(4) INCLUDES PURCHASES OF PROPERTY, PLANT AND EQUIPMENT, INVESTMENTS IN
PREPUBLICATION AND PRODUCTION COSTS, AND ROYALTY ADVANCES.
(5) INCLUDES PROPERTY, PLANT AND EQUIPMENT, PREPUBLICATION COSTS, GOODWILL AND
TRADEMARKS, ROYALTY ADVANCES AND PRODUCTION COSTS.
7
<PAGE>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
4. DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
============================================== ======================== ======================== =====================
FEBRUARY 29, 2000 MAY 31, 1999 FEBRUARY 28, 1999
============================================== ======================== ======================== =====================
<S> <C> <C> <C>
Loan Agreement and Revolver $ 43.0 $ 10.0 $ 39.5
7% Notes due 2003, net of discount 124.8 124.8 124.8
Convertible Subordinated Debentures 110.0 110.0 110.0
Other debt 3.4 3.4 3.6
- ---------------------------------------------- ------------------------ ------------------------ ---------------------
TOTAL DEBT 281.2 248.2 277.9
Less current portion 0.0 (0.2) 0.0
============================================== ======================== ======================== =====================
TOTAL LONG-TERM DEBT $ 281.2 $ 248.0 $ 277.9
============================================== ======================== ======================== =====================
</TABLE>
LOAN AGREEMENT. The Company and Scholastic Inc. (a wholly owned subsidiary)
are joint and several borrowers under a loan agreement with certain banks
which was amended and restated effective August 11, 1999 (the "Loan
Agreement"). The Loan Agreement, which 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 (of which $1.0 was outstanding at February 29, 2000). Interest under
this facility is either at the prime rate or 0.325% to 0.90% over LIBOR (as
defined). There is a facility fee ranging from 0.10% to 0.30% 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. Based on the Company's current credit ratings, the interest rate,
facility fee and utilization fee are 0.475% over LIBOR, 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.
REVOLVER. The Company and Scholastic Inc. are joint and several borrowers
under a Revolving Loan Agreement with SunTrust Bank, which was amended and
restated effective November 10, 1999 (the "Revolver") and provides for
revolving credit loans of up to $40.0 and expires on August 11, 2004.
Interest under this facility is at the prime rate minus 1% or 0.325% to 0.90%
over LIBOR (as defined). There is a facility fee ranging from 0.10% to 0.30%.
The amounts charged vary based upon the Company's credit ratings. Based on
the Company's current credit ratings, the interest rate and facility fee are
0.475% over LIBOR and 0.150%, respectively. The Revolver has certain
financial covenants related to debt and interest coverage ratios (as defined)
and limits dividends and other distributions.
7% NOTES DUE 2003. In December 1996, the Company issued $125.0 of 7% Notes due
2003 (the "Notes"). The Notes are unsecured and unsubordinated obligations of
the Company and will 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. In August 1995, the Company sold $110.0 of
5.0% Convertible Subordinated Debentures due August 15, 2005 (the "Debentures").
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
8
<PAGE>
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.
9
<PAGE>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
5. CONTINGENCIES
The Company and certain officers have been named as defendants in litigation
which alleges, among other things, violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder, resulting from
purportedly materially false and misleading statements to the investing public
concerning the financial condition of the Company. On January 26, 2000, an order
was entered granting the Company's motion to dismiss plaintiffs' Second Amended
Consolidated Complaint without leave to further amend the complaint. Previously,
on December 14, 1998, an order was entered granting the Company's motion to
dismiss plaintiffs' First Amendment Consolidated Complaint and granting
plaintiffs leave to amend the complaint. In dismissing both complaints, which
alleged substantially similar claims, the court held that plaintiffs failed to
state a claim upon which relief can be granted. On February 25, 2000, plaintiffs
filed a Notice of Appeal in connection with the most recent dismissal. 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 of New York in New York County against Parachute
Press, Inc. ("Parachute"), the licensor of certain publication and
nonpublication rights to the GOOSEBUMPS-Registered Trademark- series, certain
affiliated Parachute companies and R.L. Stine, individually, alleging material
breach of contract and fraud in connection with the agreements under which such
GOOSEBUMPS rights are licensed to the Company. The 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 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 of New
York in New York County. In its two complaints, and in its counterclaims,
Parachute alleges that the exercise of contractual remedies by the Company was
improper and seeks declaratory relief and unspecified damages for, among other
claims, alleged breaches of contract and acts of unfair competition. Damages
sought by Parachute include the payment of a total of approximately $36.1 of
advances over the term of the contract (of which approximately $15.3 had been
paid at the time the first Parachute litigation began) 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 lost profits and disgorgement of certain payments received by Parachute.
Discovery, which has been consolidated for the litigations, is continuing. The
Company intends to vigorously pursue its claims against Parachute and the other
named defendants and to vigorously defend its position against the new lawsuit
and the appeal. The Company does not believe that this dispute will have a
material adverse effect on its financial condition.
The Company is also engaged in various legal proceedings incident to its normal
business activities. In the opinion of the Company, none of such proceedings is
material to the consolidated financial position of the Company.
10
<PAGE>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
6. COMPREHENSIVE INCOME/(LOSS)
The following table sets forth comprehensive income/(loss) for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
===================================================== ================= ================ ================= =================
2000 1999 2000 1999
===================================================== ================= ================ ================= =================
<S> <C> <C> <C> <C>
Net income $ 2.0 $ 0.2 $ 19.7 $ 14.4
Other comprehensive loss:
Foreign currency translation adjustment
net of provision for income taxes (0.9) (0.9) (1.1) (0.8)
- ----------------------------------------------------- ----------------- ---------------- ----------------- -----------------
COMPREHENSIVE INCOME/(LOSS) $ 1.1 $ (0.7) $ 18.6 $ 13.6
===================================================== ================= ================ ================= =================
</TABLE>
7. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted-average number of shares outstanding during the period. Diluted
earnings per share is calculated to give effect to potentially dilutive stock
options and convertible debentures that were outstanding during the period.
The following table summarizes the reconciliation of the numerators and
denominators for the Basic and Diluted earnings per share ("EPS")
computations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
====================================================== ================= ================ ================= ================
2000 1999 2000 1999
====================================================== ================= ================ ================= ================
<S> <C> <C> <C> <C>
Net income for EPS $ 2.0 $ 0.2 $ 19.7 $ 14.4
Weighted-average shares for basic EPS 16.8 16.4 16.6 16.3
Effect of stock options 0.6 0.5 0.4 0.4
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
WEIGHTED-AVERAGE SHARES FOR DILUTED EPS 17.4 16.9 17.0 16.7
====================================================== ================= ================ ================= ================
Net income per Class A and Common Share:
Basic $ 0.12 $ 0.01 $ 1.18 $ 0.88
Diluted $ 0.11 $ 0.01 $ 1.16 $ 0.86
</TABLE>
Note: The effect of the 5.0% Convertible Subordinated Debentures on the
weighted-average shares outstanding for diluted EPS was anti-dilutive and not
included in the calculation.
11
<PAGE>
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
8. NON-RECURRING CHARGE
The operating results for the nine months ended February 29, 2000 include a
$8.5 non-recurring charge primarily related to the establishment of a
litigation reserve following an adverse decision in a lawsuit, which was
received on December 10, 1999. The case, SCHOLASTIC INC. AND SCHOLASTIC
PRODUCTIONS, INC. V. ROBERT HARRIS AND HARRIS ENTERTAINMENT, INC., involves
stock appreciation rights allegedly granted to Mr. Harris in 1990 in
connection with a joint venture formed primarily to produce motion pictures.
Although the Company disagrees with the judge's decision and is appealing the
ruling, the Company has recorded $6.7 to fully reserve with respect to the
case. The $8.5 charge also includes an unrelated non-recurring expense of
$1.8 relating to the liquidation of certain stock options.
9. SUBSEQUENT EVENT
On April 13, 2000, the Company entered into a definitive agreement with
Lagardere S.C.A. of France to acquire Grolier, Inc. ("Grolier") for $400
million in cash. Grolier is the leading provider of U.S. direct mail-to-home
and e-commerce book clubs for children through age 5, the leading on-line and
print publisher of children's reference products (including major
encyclopedias) sold primarily to U.S. school libraries and has international
operations in the United Kingdom, Canada and Southeast Asia. Grolier also
publishes trade books under the Orchard Books, Children's Press and Franklin
Watts imprints, sold both to libraries and the trade. Grolier's fiscal 1999
revenues were approximately $450 million and earnings before interest, taxes,
depreciation and amortization were approximately $45 million. The
transaction, which is subject to certain regulatory approvals, is expected to
close by early June 2000. The Company plans to finance the acquisition
initially through bank debt, under a committed facility, and subsequently
through an offering of debt or a combination of debt and equity. The Company
intends to account for the acquisition under the purchase method of
accounting.
12
<PAGE>
SCHOLASTIC CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
("MD&A")
================================================================================
RESULTS OF OPERATIONS - CONSOLIDATED
Revenues for the quarter ended February 29, 2000 increased approximately 17% to
$312.8 million from $267.3 million in the comparable quarter of the prior fiscal
year. For the nine months ended February 29, 2000, revenues increased
approximately 22% to $1,000.6 million from $820.7 million in the prior fiscal
year period. The increases in revenue for the three and nine-month periods were
driven primarily by the Company's CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION
segment, which was up 23% over the prior year quarter and 35% over the prior
year-to-date period. This segment accounted for 64% and 63% of the Company's
revenues for the three and nine-month periods ended February 29, 2000,
respectively, as compared to 61% and 57%, respectively, in the corresponding
prior fiscal year periods.
As a percentage of sales, cost of goods sold for the three and nine-month
periods ended February 29, 2000, remained a constant percentage from the
comparable periods of the prior fiscal year. Selling, general and administrative
expenses also remained constant for the three-month period and decreased 1% as a
percentage of revenue for the nine-month period ended February 29, 2000.
Operating expenses for the nine months included a non-recurring charge of $8.5
million primarily related to the establishment of a litigation reserve following
an adverse decision in a lawsuit. The case, which the Company is appealing,
involves stock appreciation rights allegedly granted in 1990 in connection with
a joint venture formed primarily to produce motion pictures. The charge also
includes an unrelated non-recurring expense of $1.8 million relating to the
liquidation of certain stock options.
The operating profit for the quarter ended February 29, 2000 increased 57% to
$7.7 million from a profit of $4.9 million in the same quarter of the prior
fiscal year. Operating profit for the nine-month period ended February 29, 2000,
excluding the non-recurring charge, was up 44% to $54.1 million when compared to
the same period in the prior year. Inclusive of the charge, the year-to-date
operating profit was up approximately 21% to $45.6 million from $37.7 million in
the prior year period. These increases reflect increased revenues in CHILDREN'S
BOOK PUBLISHING AND DISTRIBUTION primarily due to strong trade sales, led by the
HARRY POTTER-TM- AND POKEMON-TM- books, strong results in book clubs and fairs,
and the effect of implementing cost-cutting/margin improvement plans across the
Company.
Net income for the quarter ended February 29, 2000, increased $1.8 million to
$2.0 million, or $.11 per diluted share, compared to net income of $0.2 million,
or $.01 per diluted share, in the comparable quarter of the prior year. Net
income for the nine months ended February 29, 2000, increased 37% to $19.7
million or $1.16 per diluted share compared to the same nine-month period in the
prior fiscal year. Excluding the non-recurring charge (and the related
tax-effect), net income increased 74% to $25.1 million or $1.47 per diluted
share for the nine months when compared to the same period in the prior fiscal
year.
SUBSEQUENT EVENT
On April 13, 2000, the Company entered into a definitive agreement with
Lagardere S.C.A. of France to acquire Grolier, Inc. ("Grolier") for $400
million in cash. Grolier is the leading provider of U.S. direct mail-to-home
and e-commerce book clubs for children through age 5, the leading on-line and
print publisher of children's reference products (including major
encyclopedias) sold primarily to U.S. school libraries and has international
operations in the United Kingdom, Canada and Southeast Asia. Grolier also
publishes trade books under the Orchard Books, Children's Press and Franklin
Watts imprints, sold both to libraries and the trade. Grolier's fiscal 1999
revenues were approximately $450 million and earnings before interest, taxes,
depreciation and amortization were approximately $45 million. The
transaction, which is subject to certain regulatory approvals, is expected to
close by early June 2000. The Company plans to finance the acquisition
initially through bank debt, under a committed facility, and subsequently
through an offering of debt or a combination of debt and equity. The Company
intends to account for the acquisition under the purchase method of
accounting.
13
<PAGE>
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
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 club (including home continuity programs), book fair and
trade channels.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(IN MILLIONS) FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
============================== ===================== ===================== ==================== ====================
2000 1999 2000 1999
============================== ===================== ===================== ==================== ====================
<S> <C> <C> <C> <C>
Revenue $ 200.5 $ 162.5 $ 632.7 $ 470.1
Operating Profit 35.4 25.8 115.5 70.8
- ------------------------------ --------------------- --------------------- -------------------- --------------------
OPERATING MARGIN 17.7% 15.9% 18.3% 15.1%
</TABLE>
Revenues in the CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION segment for the
third quarter of fiscal 2000 were up 23% to $200.5 million from $162.5
million in the comparable quarter of the prior fiscal year. Year-to-date
revenues were up 35% at $632.7 million compared to the same period of the
prior year. As a result, operating results improved approximately 37% to
$35.4 million for the quarter and approximately 63% for the nine months ended
February 29, 2000 when compared to the same period in the prior fiscal year.
The increased revenue reflects the impact of continued strong trade sales
volume of Scholastic properties including HARRY POTTER, DEAR
AMERICA-Registered Trademark-, I SPY-TM-, ROYAL DIARIES, CAPTAIN
UNDERPANTS-TM-, POKEMON AND EVERWORLD-TM-. Additionally, revenues in the
Company's book clubs and book fair were up approximately 12% over the prior
year quarter. Book club and book fair revenues benefited from continuing
improvements in product marketing and selection. These improvements resulted
in a higher level of book club orders, increased fair count and higher
revenue per book club order and per book fair.
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 schools and libraries in the United States.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(IN MILLIONS) FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
============================== ===================== ===================== ==================== ====================
2000 1999 2000 1999
============================== ===================== ===================== ==================== ====================
<S> <C> <C> <C> <C>
Revenue $ 40.0 $ 32.9 $ 147.2 $ 143.0
Operating Profit (Loss) (10.5) (10.8) (16.2) 0.4
- ------------------------------ --------------------- --------------------- -------------------- --------------------
OPERATING MARGIN * * * 0.3%
</TABLE>
* - NOT MEANINGFUL
Revenues in the EDUCATIONAL PUBLISHING segment for the quarter increased
approximately 22% to $40.0 million with an operating loss of $10.5 million as
compared to revenues of $32.9 million and an operating loss of $10.8 million in
the comparable quarter of the prior fiscal year. The increase in revenue is due
to
14
<PAGE>
growth from READ 180!-TM-, SCHOLASTIC READING COUNTS!-TM-, Paperback and
professional publishing, and supplemental teaching products.
15
<PAGE>
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
RESULTS OF OPERATIONS - SEGMENTS (CONTINUED)
The operating loss for the fiscal 2000 quarter reflects the impact of
increased marketing and promotional costs related to the Texas reading
adoption to be delivered in the summer of 2000. On a year-to-date basis,
revenues for the period ended February 29, 2000 increased approximately 3% to
$147.2 million, from $143.0 million for the comparable period of the prior
fiscal year reflecting the growth of READ 180!, SCHOLASTIC READING COUNTS!,
and paperback and professional publishing, partially offset by lower order
levels for SCHOLASTIC LITERACY PLACE-Registered Trademark-. The year-to-date
operating loss for the period ended February 29, 2000 reflects the increased
costs related to the Texas reading adoption and certain costs related to the
rollout of the Company's READ 180! software.
MEDIA, LICENSING AND ADVERTISING
The Company's MEDIA, LICENSING AND ADVERTISING segment includes the production
and distribution in the United States of entertainment products (including
television programming, videos and motion pictures), Internet services,
CD-ROM-based products and Scholastic-branded licensed properties, as well as
advertising and promotional activities.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(IN MILLIONS) FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
============================== ===================== ===================== ==================== ====================
2000 1999 2000 1999
============================== ===================== ===================== ==================== ====================
<S> <C> <C> <C> <C>
Revenue $ 24.2 $ 30.7 $ 73.7 $ 72.1
Operating Profit (Loss) (2.6) 1.1 (11.3) (4.5)
- ------------------------------ --------------------- --------------------- -------------------- --------------------
OPERATING MARGIN * 3.6% * *
</TABLE>
* - NOT MEANINGFUL
MEDIA, LICENSING AND ADVERTISING revenues decreased 21% to $24.2 million in the
third quarter of fiscal 2000 as compared to the prior year quarter. For the nine
months ended February 29, 2000, revenues increased approximately 2% to $73.7
million from $72.1 million for the same period of the prior fiscal year. For the
quarter ended February 29, 2000, the segment recognized an operating loss of
$2.6 million as compared to a profit of $1.1 million in the same period of the
prior fiscal year. On a year-to-date basis, the operating loss grew to $11.3
million from an operating loss of $4.5 million in the same period of the prior
fiscal year. These results reflect increased promotional, editorial and other
operating costs associated with Scholastic internet development and reduced TV
production revenues.
16
<PAGE>
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
RESULTS OF OPERATIONS - SEGMENTS (CONTINUED)
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, India, and
Argentina.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(IN MILLIONS) FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
============================== ===================== ===================== ==================== ====================
2000 1999 2000 1999
============================== ===================== ===================== ==================== ====================
<S> <C> <C> <C> <C>
Revenue $ 48.1 $ 41.2 $ 147.0 $ 135.5
Operating Profit (Loss) 0.7 (1.4) 1.4 (1.7)
- ------------------------------ --------------------- --------------------- -------------------- --------------------
OPERATING MARGIN 1.5% * 1.0% *
</TABLE>
* - NOT MEANINGFUL
INTERNATIONAL revenues for the quarter ended February 29, 2000 increased 17% to
$48.1 million compared to $41.2 million in the prior year quarter, benefiting
from improved sales and operating margins in the Company's Australian and
Canadian operations. On a year-to-date basis, revenues increased approximately
9% to $147.0 million compared to $135.5 million in the prior fiscal year period.
This improvement reflects strong performance in Canada's book club and trade
businesses, and in Australia's book club and software businesses, which was
partially offset by weak sales in the United Kingdom. Operating profit for the
quarter improved $2.1 million over the prior year period to $0.7 million,
reflecting the impact of revenue improvements and cost containment efforts. For
the nine months ended February 29, 2000, operating profit improved $3.1 million
to $1.4 million from a loss of $1.7 million for the prior year fiscal period,
reflecting primarily the net impact of revenue improvements and cost reductions.
SEASONALITY
The Company's book clubs, book fairs and most of its magazines operate on a
school-year basis; therefore, the Company's business is highly seasonal. As a
consequence, the Company's revenues in the first and third quarters of the
fiscal year are lower than its revenues in the other two fiscal quarters, and
the Company generally experiences a substantial loss from operations in the
first quarter. Typically, book club and book fair revenues are proportionately
larger in the second quarter of the fiscal year, while revenues from the sale of
instructional materials are larger in the first quarter.
LIQUIDITY AND CAPITAL RESOURCES
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, 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.
17
<PAGE>
The Company's cash and cash equivalents decreased by $0.3 million during the
nine-month period ended February 29, 2000, compared to a decrease of $3.5
million during the comparable period in the prior fiscal year.
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company generated $42.7 million of cash from operating activities during the
nine-month period ended February 29, 2000 versus $45.1 million in the comparable
period of the prior fiscal year. Improvements in operating results were more
than offset by increased inventory and accounts receivable requirements.
Inventory levels increased as a result of higher sales volumes and accelerated
purchasing to better ensure high levels of customer service.
Cash used in investing activities was $90.9 million and $95.7 million for the
nine months February 29, 2000 and February 28, 1999, respectively. Investing
activities consisted primarily of prepublication cost expenditures, capital
expenditures, royalty advances and production cost expenditures. Prepublication
cost expenditures increased $6.5 million to $35.3 million for the nine months
ended February 29, 2000 over the comparable period of the prior year largely due
to the planned revision of SCHOLASTIC LITERACY PLACE and the spending on the
Company's new READ 180! program.
Capital expenditures increased $10.7 million to $28.8 million in the current
year reflecting the construction of a new office facility. Royalty advances
decreased $1.0 million for the nine months ended February 29, 2000 over the same
period in the prior fiscal year to $17.1 million. Production costs decreased
$3.8 million to $8.1 million for the nine months ended February 29, 2000, as
compared to the same period in the prior fiscal year, due to a reduction in the
number of shows being produced. Business and trademark acquisition-related
payments for the prior fiscal year were primarily related to the acquisition of
certain assets of Pages Book Fairs, Inc. and Quality Education Data.
FINANCING
The Company maintains two unsecured credit facilities which provide for
aggregate borrowings of up to $210.0 million (with a right, in certain
circumstances, to increase to $240.0 million), including the issuance of up to
$10.0 million in letters of credit. The Company uses these facilities for
various purposes including the funding of seasonal cash flow needs and other
working capital requirements. At February 29, 2000, the Company had $43.0
million in borrowings outstanding. The weighted-average interest rate under
these facilities for the nine-month period was 6.6%.
The Loan Agreement was amended and restated on August 11, 1999, principally
to extend the expiration date of the facility to August 11, 2004 and expand
the facility from $135.0 million to $170.0 million (with a right, in certain
circumstances, to increase to $200.0 million). In addition, on November 10,
1999, the Company amended and restated the Revolver to increase the amount
available thereunder to $40.0 million and extend its expiration date to be
concurrent with the Loan Agreement.
In addition, unsecured lines of credit available to the Company's United
Kingdom, Canadian and Australian operations totaled $39.5 million at February
29, 2000. These lines are used primarily to fund
18
<PAGE>
working capital needs in those countries. At February 29, 2000, $21.2 million in
borrowings were outstanding. Under these lines the weighted-average interest
rate for the nine months ended was 6.1%.
The Company believes its existing cash position, combined with funds generated
from operations and funds available under the two credit facilities and other
lines of credit will be sufficient to finance its ongoing working capital
requirements for the remainder of the fiscal year.
19
<PAGE>
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
In connection with the acquisition of Grolier, Inc., (See Item 2-MD&A-Results
of Operations-Subsequent Event), the Company plans to primarily finance the
$400 million purchase price initially through bank debt under a committed
facility and subsequently through an offering of debt or a combination of
debt and equity. The Company does not anticipate any difficulties in
obtaining permanent financing.
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.
YEAR 2000 READINESS DISCLOSURE
Commencing in July 1997, the Company initiated its Year 2000 program, which
consisted of the following three components relating to the Company's
operations: (i) information technology ("IT") computer systems and applications
which were judged to be potentially impacted by the Year 2000 problem and the
actions related thereto, (ii) non-IT systems and equipment which include
embedded technology which also could have been impacted by the Year 2000 problem
and actions related thereto and (iii) third party suppliers and customers with
which the Company has material relationships and which could adversely affect
the Company if such parties failed to be Year 2000 complaint and the actions
related thereto.
The Company completed its Year 2000 Readiness Program on a timely basis and
experienced no significant Year 2000 related problems to date with either its
internal operations or its material third party vendors. Similarly, there have
been no material Year 2000 impacts reported with respect to the Company's
products that we classified as Year 2000 ready. The Company estimates the total
cost of the Year 2000 program, including consulting fees, infrastructure and
facilities enhancements, and expenses related to internal staff, was
approximately $12.0 million, of which $4.0 million was incurred during the
current fiscal year. No additional material Year 2000 program costs are
anticipated.
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.
NON-RECURRING CHARGE
The year-to-date operating results include an $8.5 million non-recurring charge
primarily related to the establishment of a litigation reserve following an
adverse decision in a lawsuit originally filed in January, 1995. The case,
SCHOLASTIC INC. AND SCHOLASTIC PRODUCTIONS, INC. V. ROBERT HARRIS AND HARRIS
ENTERTAINMENT, INC., involves stock appreciation rights allegedly granted to Mr.
Harris in 1990 in connection with a joint venture formed primarily to produce
motion pictures. Although the Company disagrees with the judge's decision and is
appealing, the Company has recorded $6.7 million to fully
20
<PAGE>
reserve with respect to the case. The $8.5 million charge also includes an
unrelated non-recurring expense of $1.8 million relating to the liquidation of
certain stock options.
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
FORWARD LOOKING STATEMENTS
This Report on Form 10-Q contains forward-looking statements, which are subject
to various risks and uncertainties, including the conditions of the children's
book and instructional materials markets and acceptance of the Company's
products within those markets and other risks and factors identified in the
Company's Report on Form 10-K for the fiscal year ended May 31, 1999.
21
<PAGE>
SCHOLASTIC CORPORATION
ITEM 3. 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 such currency fluctuations to
represent a significant risk to the Company's results of operations. The Company
does not generally enter into derivative financial instruments for material
amounts, 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. The Company does not
generally utilize interest rate derivative instruments to manage its exposure to
interest rate changes.
As of February 29, 2000, the balance outstanding under its revolving credit
facilities was $64.2 million. The nine-month weighted-average interest rate
was 6.5%. 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 2 - MD&A - Results of Operations - Subsequent
Event.
22
<PAGE>
PART II - OTHER INFORMATION
SCHOLASTIC CORPORATION
ITEM 4. LEGAL PROCEEDINGS
================================================================================
As previously reported, three purported class action complaints were filed in
the United States District 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 CORPORATION SECURITIES LITIGATION, 97 Civ.
II 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 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. On January 26, 2000, an order was entered granting the
Company's motion to dismiss plaintiffs' Second Amended Consolidated Complaint
without leave to further amend the complaint. Previously, on December 14, 1998,
an order was entered granting the Company's motion to dismiss plaintiffs' First
Amended Consolidated Complaint and granted plaintiffs leave to amend the
complaint. In dismissing both complaints, which alleged substantially similar
claims, the court held that plaintiffs failed to state a claim upon which relief
can be granted. On February 25, 2000, plaintiffs filed a Notice of Appeal in
connection with the most recent dismissal. The Company continues to believe that
the litigation is without merit and will continue to vigorously defend against
it.
23
<PAGE>
SCHOLASTIC CORPORATION
================================================================================
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
3.2 Bylaws of the Company, Amended and Restated as of March 16,
2000
10.6 Scholastic Corporation Employee Stock Purchase Plan, amended
and restated effective as of March 1, 2000
27.1 Financial Data Schedule as of and for the nine months ended
February 29, 2000
(b) Reports on Form 8-K filed during the quarter: none.
- --------------------------------------------------------------------------------
24
<PAGE>
SCHOLASTIC CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCHOLASTIC CORPORATION
(Registrant)
Date: April 14, 2000 /s/ RICHARD ROBINSON
-----------------------------------
Richard Robinson
CHAIRMAN OF THE BOARD,
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
Date: April 14, 2000 /s/ KEVIN J. MCENERY
-----------------------------------
Kevin J. McEnery
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
25
<PAGE>
SCHOLASTIC CORPORATION
FORM 10-Q FOR QUARTERLY PERIOD ENDED FEBRUARY 29, 2000
EXHIBIT INDEX
- ----------------- --------------------------------------------------------------
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
3.2 Bylaws of the Company, Amended and Restated as of March 16,
2000
10.6 Scholastic Corporation Employee Stock Purchase Plan, amended
and restated effective as of March 1, 2000
27.1 Financial Data Schedule as of and for the nine months ended
February 29, 2000
<PAGE>
EXHIBIT 3.2
Amended and Restated as of March 16, 2000
BY-LAWS
of
SCHOLASTIC CORPORATION
(a Delaware corporation)
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office shall be
established and maintained at 1209 Orange Street, Wilmington, Delaware. The
Corporation Trust Company shall be the registered agent of this Corporation in
charge thereof.
Section 2. PRINCIPAL OFFICE. The principal office of the Corporation
shall be located at 555 Broadway, New York, New York 10012, or at such other
location in the State of New York as the Board of Directors may from time to
time determine.
Section 3. OTHER OFFICES. The Corporation may also have such other
offices, either within or without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS
Section 1. PLACE OF MEETINGS OF STOCKHOLDERS. All meetings of the
stockholders shall be held at the principal office of the Corporation in the
State of New York or at such other location, within or without the State, as
shall be fixed by the Board of Directors and specified in a notice of meeting or
waiver of notice thereof.
<PAGE>
Section 2. ANNUAL MEETINGS OF STOCKHOLDERS. Annual meetings of
stockholders shall be held at such times and on such dates as the Board of
Directors, by resolution, shall determine and as set forth in the notice of the
meeting.
Section 3. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the
stockholders may be called at any time by the President and shall be called by
the Corporate Secretary upon receipt of a written request therefor signed by a
majority of the Board of Directors or by the holders of record of at least
one-quarter of the outstanding shares of the Corporation entitled to vote on the
action proposed to be taken. Such written request shall state the purpose or
purposes of the proposed meeting. Business transacted at any special meeting
shall be limited to the business stated to be the purpose or purposes of the
meeting in such written request and the notice of the meeting or any waiver of
notice thereof.
Section 4. NOTICE OF MEETINGS OF STOCKHOLDERS. There shall be written
notice of every meeting of stockholders, which shall state the place, date and
hour of the meeting and, unless it is the annual meeting, indicate that it is
being issued by or at the direction of the person or persons calling the
meeting. Notice of a special meeting shall also state the purpose or purposes
for which the meeting is called. A copy of the notice of any meeting shall be
given, personally or by mail, not less than ten nor more than sixty days before
the date of the meeting, to each stockholder entitled to vote at such meeting.
If mailed, such notice shall be deemed given when deposited in the United States
mail, with postage thereon prepaid, directed to the stockholder at such
stockholder's address as it appears on the record of stockholders, or, if such
stockholder shall have filed with the Corporate Secretary of the Corporation a
written request that notices be mailed to some other address, then directed to
such stockholder at such other address.
2
<PAGE>
Section 5. WAIVERS OF NOTICE OF MEETINGS OF STOCKHOLDERS. Notice of
meeting need not be given to any stockholder who submits a signed waiver of
notice, in person or by proxy, whether before or after the meeting. The
attendance of any stockholder at a meeting, in person or by proxy, without
objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened, shall constitute a
waiver of notice by such stockholder.
Section 6. ADJOURNED MEETINGS. The stockholders present at a meeting of
stockholders may adjourn the meeting despite the absence of a quorum. When a
determination of stockholders entitled to notice of or to vote at any meeting of
stockholders has been made, such determination shall apply to any adjournment
thereof, unless the Board of Directors fixes a new record date for the adjourned
meeting. When a meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting the Corporation may transact
any business that might have been transacted on the original date of the
meeting. However, if the adjournment is for more than thirty days or if, at or
after the adjournment, the Board of Directors fixes a new record date for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 7. QUORUM OF STOCKHOLDERS. The holders of a majority of the
shares entitled to vote thereat shall constitute a quorum at a meeting of
stockholders for the transaction of any business, provided that, when a
specified item of business is required to be voted on by a class or series,
voting as a class or series, the holders of a majority of such class or series
shall constitute
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a quorum for the transaction of such specified item of business. When a quorum
is once present to organize a meeting, it is not broken by the subsequent
withdrawal of any stockholders.
Section 8. FIXING RECORD DATE. The Board of Directors may fix, in
advance, a date as the record date for the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action. Such date, fixed as the record date, shall not be
more than sixty nor less than ten days before the date of such meeting, nor more
than sixty days prior to any other action.
Section 9. LIST OF STOCKHOLDERS AT MEETING. A complete list of the
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order, with the address of each and the number of shares held by
each, shall be opened to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list, which shall be certified by the Corporate Secretary or the transfer
agent, shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present.
Section 10. PROXIES. Every stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him by proxy. Every proxy must be signed by
the stockholder or the stockholder's attorney-in-fact. No proxy shall be valid
after the expiration of three years from the date thereof unless
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otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the stockholder executing it, except in those cases where an irrevocable
proxy is provided by law.
Section 11. INSPECTORS AT MEETINGS OF STOCKHOLDERS. The Board of
Directors, in advance of any meeting of stockholders, shall appoint one or more
inspectors to act at the meeting or any adjournment thereof and make a written
report thereof. In case any person appointed fails to appear or act, the vacancy
shall be filled by alternate appointment made by the Board of Directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, before entering upon the discharge of the inspector's duties, shall
take and sign an oath faithfully to execute the duties of inspector at such
meeting with strict impartiality and according to the best of such inspector's
ability. The inspectors shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents,
determine and retain for a reasonable period a record of the disposition of any
challenges determined by them, certify their determination of the number of
shares represented at the meeting and their count of all votes, ballots or
consents and otherwise do such acts as are proper to conduct the election or
vote with fairness to all stockholders. A report or certificate made by them
shall be prima facie evidence of the facts stated and of the vote as certified
by them.
Section 12. VOTING. Subject to any limitations on the right to vote
contained in the Certificate of Incorporation of the Corporation, every
stockholder of record shall be entitled at every meeting of stockholders to one
vote for every share standing in the stockholder's name on the record of
stockholders. Subject to the Certificate of Incorporation of the Corporation and
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Article III, Section 4 of these By-laws and except as otherwise required by law,
directors shall be elected by a plurality of the votes cast at a meeting of
stockholders by the holders of shares entitled to vote in the election. Any
other corporate action by vote of the stockholders shall, except as otherwise
required by law, be authorized by a majority of the votes cast at a meeting of
stockholders by the holders of shares entitled to vote thereon.
Section 13. ACTION WITHOUT MEETING. Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing setting forth the action so taken shall
be signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
DIRECTORS
Section 1. BOARD OF DIRECTORS. The business of the Corporation shall be
managed by its Board of Directors.
Section 2. QUALIFICATIONS OF DIRECTORS. Each director shall be at least
18 years of age. Directors need not be stockholders.
Section 3. NUMBER OF DIRECTORS. The number of directors constituting
the entire Board of Directors shall be not less than three nor more than
fifteen, such number to be determined annually by the holders of the Class A
Stock.
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Section 4. ELECTION AND TERM OF DIRECTORS. At each annual meeting of
stockholders the holders of the shares of the Corporation's Common Stock voting
as a class shall elect one-fifth of the members of the Board of Directors,
provided, however, that such holders, voting as a class, shall always be
entitled to elect at least one member of the Board of Directors, and the holders
of the shares of the Corporation's Class A Stock, voting as a class, shall elect
the remaining members of the Board of Directors. Each director shall hold office
until the next annual meeting and until such director's successor shall have
been elected and qualified or until such director's earlier resignation or
removal.
Section 5. VACANCIES. In the event of a vacancy occurring, for any
reason, in the seat of a director who has been or would be elected by the
holders of the Common Stock, such vacancy shall be filled solely by vote of a
majority of the remaining directors, though less than a quorum, who have been
elected by the holders of the Common Stock. In the event of a vacancy occurring,
for any reason, in the seat of a director who has been or would be elected by
the holders of the Class A Stock, such vacancy shall be filled solely by vote of
a majority of the remaining directors, though less than a quorum, who have been
elected by the holders of the Class A Stock. A director elected to fill a
vacancy shall hold office until the next meeting of stockholders at which the
election of directors is in the regular order of business and until such
director's successor shall have been elected and qualified.
Section 6. REMOVAL OF DIRECTORS. Any director may be removed for cause
or without cause by vote of the holders of the class of stock which elected such
director.
Section 7. QUORUM OF DIRECTORS. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business or of any
specified item of business.
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Section 8. ACTION BY THE BOARD OF DIRECTORS. The vote of a majority of
the directors present at a meeting of the Board of Directors at the time of the
vote, if a quorum is present at such time, shall, except as otherwise provided
by law, be the act of the Board of Directors.
Section 9. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting by written consent, setting forth the action so
taken, signed by all members of the Board of Directors or of such committee, as
the case may be.
Section 10. PARTICIPATION BY CONFERENCE TELEPHONE. Any one or more
members of the Board or any committee thereof may participate in a meeting of
the Board or such committee by means of conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
Section 11. PLACE AND TIME OF MEETINGS OF THE BOARD OF DIRECTORS. The
first meeting of each newly elected Board of Directors shall be held immediately
following the annual meeting of stockholders and at the place thereof. Other
meetings of the Board of Directors, regular or special, may be held at any place
selected by the Board of Directors.
Section 12. NOTICE OF MEETINGS OF THE BOARD OF DIRECTORS. Regular
meetings of the Board of Directors may be held without notice if the time and
place of such meetings are fixed by these By-laws or the Board of Directors.
Special meetings of the Board of Directors may be called by the President and
shall be called by the Corporate Secretary upon receipt of a written request
therefor signed by any two directors and shall be held upon notice to the
directors. The notice shall state the place, date and hour of the meeting and
indicate that it is being issued by or at the direction of the person or persons
calling the meeting. The notice shall be given personally
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(including by telephone) or by mail, telecopier, telegram, cable or other public
instrumentality, not less than three business days before the date of the
meeting, to each director. Such notice shall be deemed given, if mailed, when
deposited in the United States mail, with postage thereon prepaid, if
telecopied, upon confirmed receipt, or, if telegraphed, cabled or sent by other
pubic instrumentality, when given to the telegraph company, cable company or
other public instrumentality, directed to the director at such director's
business address, or, if such director shall have filed with the Corporate
Secretary of the Corporation a written request that notices to such director be
mailed, telegraphed, cabled or sent to some other address, then directed to such
director at such other address. A notice, or waiver of notice, need not specify
the purpose of any regular or special meeting of the Board of Directors.
Section 13. WAIVERS OF NOTICE OF MEETINGS OF DIRECTORS. Notice of a
meeting need not be given to any director who submits a signed waiver of notice,
whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
director.
Section 14. EXECUTIVE COMMITTEE AND OTHER COMMITTEES. The Board of
Directors, by resolution adopted by a majority of the entire Board of Directors,
may designate from among its members an executive committee and other
committees, each of which shall consist of three or more directors, and each of
which, to the extent provided in the resolution or in these By-laws, shall have
all the powers and authority of the Board of Directors, except that no such
committee shall have the power or authority as to the following matters:
(1) Approving or adopting, or recommending to the stockholders, any
action or matter expressly required by the Delaware General Corporation Law to
be submitted to stockholders for approval.
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(2) The amendment or repeal of the By-laws or the adoption of new
By-laws.
The Board of Directors may designate one or more directors as
alternative members of any such committee, who may replace an absent or
disqualified member or members at any meeting of such committee. In addition,
the member or members of any committee present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any absent or disqualified member. Each such committee shall serve at
the pleasure of the Board of Directors.
Section 15. REIMBURSEMENT AND COMPENSATION OF DIRECTORS. The Board of
Directors shall have authority to fix the compensation of directors for services
in any capacity. The directors may be paid their expenses of attendance at each
meeting of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of the executive committee
or any other committee may be allowed similar reimbursement and compensation for
their services as such.
ARTICLE IV
OFFICERS
Section 1. NUMBER. The Board of Directors may elect or appoint a
Chairman of the Board, one or more Vice Chairmen of the Board, a Chief Executive
Officer, a President, one or more Vice Presidents, a Corporate Secretary and a
Treasurer, and such other officers as it may determine. Any two or more offices
may be held by the same person, except that the same person may not hold both
the offices of President and Corporate Secretary.
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Section 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
to be elected or appointed by the Board of Directors shall be elected or
appointed annually by the Board of Directors at the first meeting of the Board
of Directors held after each annual meeting of the stockholders. Each officer
shall hold office until the first meeting of the Board of Directors following
the next annual meeting of stockholders and until such officer's successor shall
have been elected or appointed and qualified or until such officer's earlier
resignation or removal.
Section 3. CHAIRMAN. The Chairman of the Board of Directors shall
preside at all meetings of the Board of Directors and shall have and perform
such other duties as from time to time may be assigned to the Chairman by the
Board of Directors or the executive committee.
Section 4. VICE CHAIRMAN. The Vice Chairman (or, if there shall be more
than one, the Vice Chairman designated by the Chairman) shall preside at the
meetings of the Board of Directors in the absence of the Chairman of the Board.
Each Vice Chairman shall otherwise have and perform such other duties as from
time to time may be assigned to such Vice Chairman by the Board of Directors or
the executive committee.
Section 5. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
have direct charge of and general supervision over the affairs, property and
business of the Corporation, including the power to appoint and remove such
employees (other than those specifically mentioned in this Article IV) as the
business may require, shall have general supervision over all officers of the
Corporation, including the determination of their specific responsibilities and
duties, shall determine or approve all additions or changes in management
personnel and shall have such other duties as may be assigned to the Chief
Executive Officer from time to time by the Board of Directors.
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Section 6. PRESIDENT. The President shall have such general powers and
duties of supervision and management usually vested in the office of President
of the Corporation. The President shall preside at all meetings of the
stockholders if present thereat and, in the absence of the Chairman and Vice
Chairman of the Board of Directors, at all meetings of the Board of Directors.
Except as the Board of Directors shall authorize the execution thereof in some
other manner, the President shall execute bonds, mortgages and other contracts
on behalf of the Corporation and shall cause the seal to be affixed to any
instrument requiring it.
Section 7. VICE PRESIDENTS. Vice Presidents shall have seniority in
order designated by the Board of Directors, shall have such powers and shall
perform such duties as shall be assigned by the Board of Directors or the Chief
Executive Officer and may be designated by such further title descriptive of
their duties or seniority as the Board of Directors may approve. In the absence
or disability of the President, the Vice President designated by the Board of
Directors shall perform the duties and exercise the powers of the President.
Section 8. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the Corporation. The Treasurer
shall deposit all moneys and other valuables in the name and to the credit of
the Corporation in such depositaries as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors or the President, taking proper vouchers for
such disbursements. The Treasurer shall render to the President and the Board of
Directors at the regular meetings of the Board of Directors, or whenever they
may request it, an account of all his transactions as Treasurer and of the
financial condition of the Corporation. If required by the Board of
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Directors, the Treasurer shall give the Corporation a bond for the faithful
discharge of his or her duties in such amount and with such surety as the Board
shall prescribe.
Section 9. CORPORATE SECRETARY. The Corporate Secretary shall give, or
cause to be given, notice of all meetings of stockholders and directors, and all
other notices required by law or by these By-laws. In case of the absence of or
refusal or neglect by the Corporate Secretary to do so, any such notice may be
given by any person thereunto directed by the President, or by the directors or
stockholders upon whose requisition the meeting is called as provided in these
By-laws. The Corporate Secretary shall record all the proceedings of the
meetings of the stockholders and of the Board of Directors in a book to be kept
for that purpose and shall perform such other duties as may be assigned to the
Corporate Secretary by the Board of Directors or the Chief Executive Officer.
The Corporate Secretary shall have the custody of the seal of the Corporation
and shall affix the same to all instruments requiring it, when authorized by the
Board of Directors or the President, and attest the same.
Section 10. ASSISTANT TREASURERS AND ASSISTANT CORPORATE SECRETARIES.
Assistant Treasurers and Assistant Corporate Secretaries, if any, shall be
elected and shall have such powers and shall perform such duties as shall be
assigned to them, respectively, by the Board of Directors or the Chief Executive
Officer.
Section 11. REMOVAL. Any officer elected or appointed by the Board of
Directors may be removed by the Board of Directors with or without cause, but
such removal without cause shall be without prejudice to the contract rights, if
any, of the person so removed.
Section 12. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
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Section 13. COMPENSATION OF OFFICERS. The compensation of the officers
shall be fixed from time to time by the Board of Directors or any committee
thereof to which such authority has been delegated, and no officer shall be
prevented from receiving such compensation by reason of the fact that he or she
is also a director of the Corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer
or officers, agent or agents to enter into any contract or execute and deliver
any instrument or other document in the name of and on behalf of the
Corporation, and such authority may be general or confined to specific
instances.
Section 2. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES, RECORD
OF STOCKHOLDERS, TRANSFER OF SHARES
Section 1. CERTIFICATES REPRESENTING SHARES. The shares of the
Corporation shall be represented by certificates which shall be in such form as
shall be determined by the Board of Directors. All such certificates shall be
consecutively numbered or otherwise identified. Such certificates shall be
signed by the Chairman or a Vice-Chairman of the Board of Directors or the
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President or a Vice-President and the Corporate Secretary or an Assistant
Corporate Secretary or the Treasurer or an Assistant Treasurer and may, but need
not, be sealed with the seal of the Corporation or a facsimile thereof. The
signatures of the officers upon a certificate may be facsimiles. In case any
officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the date of issue. Each certificate shall state upon the face
thereof: (1) that the Corporation is formed under the laws of the State of
Delaware; (2) the name of the person or persons to whom issued; and (3) the
number and class of shares and the designation of the series, if any, which such
certificate represents.
Section 2. LOST, DESTROYED OR WRONGFULLY TAKEN CERTIFICATES. The Board
of Directors may direct a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Corporation,
alleged to have been lost, apparently destroyed or wrongfully taken, upon the
making of an affidavit of that fact by the person claiming the certificate to be
lost, apparently destroyed or wrongfully taken. When authorizing such issue of a
new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, apparently destroyed or wrongfully taken certificate or certificates, or
the owner's legal representative, to advertise the same in such a manner as it
shall require and/or give the Corporation a bond in such sum and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, apparently destroyed or wrongfully taken.
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Section 3. RECORD OF STOCKHOLDERS. The Corporation shall keep a record
containing the names and addresses of all stockholders, the number and class of
shares held by each and the dates when they respectively became the owners of
record thereof. The Corporation shall be protected in treating the persons in
whose names shares stand on the record of stockholders as the owners thereof for
all purposes.
Section 4. TRANSFER OF SHARES. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, and cancel the old certificate, and
every such transfer of shares shall be entered on the record of stockholders of
the Corporation.
ARTICLE VII
INDEMNIFICATION
No director of the Corporation shall be personally liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director of the Corporation; provided, however, that the
foregoing is not intended to eliminate or limit the liability of a director of
the Corporation for (i) any breach of a director's duty of loyalty to the
Corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) a
violation of Section 174 of the General Corporation Law of the State of Delaware
or (iv) any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this Article VII shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment. The Corporation shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of
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Delaware, as that Section may be amended and supplemented from time to time,
indemnify any director or officer of the Corporation (and any director, trustee
or officer of any corporation, business trust or other entity to whose business
the Corporation shall have succeeded) which it shall have power to indemnify
under that Section against any expenses, liabilities or other matter referred to
in or covered by that Section. The indemnification provided for in this Article
(a) shall not be deemed exclusive of any other rights to which those indemnified
may be entitled under any By-law, agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, (b)
shall continue as to a person who has ceased to be a director or officer and (c)
shall inure to the benefit of the heirs, executors and administrators of such a
person. To assure indemnification under this Article of all such persons who are
determined by the Corporation or otherwise to be or to have been "Fiduciaries"
of any employee benefit plan of the Corporation which may exist from time to
time and which is governed by the Act of Congress entitled "Employee Retirement
Income Security Act of 1974," as amended from time to time, such Section 145
shall, for the purposes of this Article, be interpreted as follows: an "other
enterprise" shall be deemed to include such an employee benefit plan; the
Corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his or her duties to the
Corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to such
Act of Congress shall be deemed "fines;" and action taken or omitted by a person
with respect to an employee benefit plan in the performance of such person's
duties for a purpose reasonably believed by
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such person to be in the interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not opposed to the best
interests of the Corporation.
Any person made, or threatened to be made, a party to any action, suit
or proceeding, whether civil, criminal, administrative or investigative,
including any action by or in the right of the Corporation or any other
corporation of any type or kind, domestic or foreign, or of any partnership,
joint venture, trust, employee benefit plan or other enterprise, which any
director or officer of the Corporation served in any capacity at the request of
the Corporation, by reason of the fact that such person, or such person's
testator or intestate, was a director or officer of the Corporation, or served
such other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise in any capacity at the request of the Corporation, shall be
indemnified by the Corporation to the fullest extent permitted by law.
The right to indemnification conferred in this Article VII in respect
of directors and officers shall also include the right to be paid by the
Corporation the expenses (including attorneys' fees) incurred in defending any
civil, criminal, administrative or investigative action, suit or proceeding in
advance of its final disposition, provided that any such advancement of expenses
incurred by an indemnitee in his or her capacity as a director or officer shall
only be made upon delivery to the Corporation of an undertaking, by or on behalf
of such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified for such expenses
under this Article, the Certificate of Incorporation of the Corporation or
otherwise.
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ARTICLE VIII
DIVIDENDS
The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law and its Certificate of Incorporation.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall begin on June 1 of each year.
ARTICLE X
SEAL
The Board of Directors shall provide a suitable seal containing the
name of the Corporation, which seal shall be in the charge of the Corporate
Secretary. The Corporation may use the seal by causing it or a facsimile to be
affixed or impressed or reproduced in any other manner.
ARTICLE XI
AMENDMENT AND REPEAL
These By-laws may be amended or repealed by vote of the holders of the
shares of the Corporation's Class A Stock. These By-laws may also be amended or
repealed by the Board of Directors.
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EXHIBIT 10.6
- -------------------------------------------------------------------------------
SCHOLASTIC CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
(AMENDED AND RESTATED EFFECTIVE AS OF MARCH 1, 2000)
- -------------------------------------------------------------------------------
<PAGE>
SCHOLASTIC CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
(AMENDED AND RESTATED EFFECTIVE AS OF MARCH 1, 2000)
TABLE OF CONTENTS
1. Purpose ....................................................... 1
2. Definitions ................................................... 1
3. Shares Reserved for Plan ...................................... 4
4. Administration of the Plan .................................... 4
5. Participation in the Plan ..................................... 5
6. Purchase Price ................................................ 6
7. Method of Payment ............................................. 6
8. Employee's Election to Purchase. Grants of Options ............ 6
9. Exercise of Option ............................................ 7
10. Delivery of Common Stock ...................................... 7
11. Limitations of Number of Shares Which May Be Purchased ........ 8
12. Stockholder Rights ............................................ 9
13. Rights to Purchase Shares Not Transferable .................... 9
14. Cancellation of Election to Purchase .......................... 9
15. Leave of Absence or Layoff .................................... 10
16. Effect of Failure to Make Payments When Due ................... 11
17. Retirement .................................................... 11
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18. Death ......................................................... 11
19. Termination of Employment Other Than for Retirement or Death .. 12
20. Dividends and Interest ........................................ 12
21. Application of Funds .......................................... 12
22. Amendment and Termination ..................................... 12
23. Reports ....................................................... 13
24. Effective Date; Governmental Approvals or Consents ............ 13
25. Notices ....................................................... 13
26. Regulations and Other Approvals; Governing Law ................ 14
27. Withholding of Taxes .......................................... 14
28. Legend ........................................................ 14
29. No Employment Rights .......................................... 15
30. Severability of Provisions .................................... 15
31. Construction .................................................. 15
ii
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SCHOLASTIC CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
(AMENDED AND RESTATED EFFECTIVE AS OF MARCH 1, 2000)
1. PURPOSE.
The purpose of the Scholastic Corporation 1998 Employee Stock
Purchase Plan (the "Plan") is to encourage and enable eligible employees of
Scholastic Corporation (the "Company") and certain affiliated companies to
acquire proprietary interests in the Company through the ownership of Common
Stock of the Company. The Company believes that employees who participate in the
Plan will have a closer identification with the Company by virtue of their
ability as stockholders to participate in the Company's growth and earnings. It
is the intention of the Company to have the Plan qualify as an "employee stock
purchase plan" under Section 423 of the Code. Accordingly, the provisions of the
Plan shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
The Plan was originally approved by the holders of the
Company's Class A Stock pursuant to written consent dated November 30, 1998
and adopted by the Board of Directors the Company effective as of January 1,
1999 and was amended and restated by action of the Board of Directors of the
Company effective as of March 1, 2000.
2. DEFINITIONS.
The following words or terms have the following meanings:
(a) "AGENT" shall mean the agent, broker or other
administrator, including without limitation, employees of the Employer,
appointed by the Committee pursuant to Section 4(b) hereof.
(b) "ANNUAL PAY" shall mean an amount equal to the sum of (i)
the annual basic rate of pay of an Eligible Employee as determined from the
payroll records of the Company, Designated Subsidiary or Designated Parent and
(ii) all other cash compensation paid to an Eligible Employee during a Purchase
Period by the Company, Designated Subsidiary or Designated Parent, including
overtime, bonuses, and 401(k) salary deferral contributions and amounts
excludable under Section 125 of the Code under certain employee benefit plans,
but does not include any contributions by the Company, Designated Parent or
Designated Subsidiary, to, or benefits paid under, the Plan or any other
pension, profit-sharing, fringe
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benefit, group insurance or other employee welfare plan or any deferred
compensation arrangement. Notwithstanding the foregoing, the Committee, in its
sole discretion, may adjust the types of compensation constituting Annual Pay;
provided that any such determination shall be applied on a uniform and
consistent basis to all Eligible Employees.
(c) "BOARD OF DIRECTORS" shall mean the Board of Directors of
the Company or the Executive Committee of such Board of Directors.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMMITTEE" shall mean the Human Resources and
Compensation Committee of the Board of Directors of the Company or any successor
committee, or such other committee of the Board of Directors of the Company
appoints to administer the Plan. To the extent that no Committee exists which
has the authority to administer the Plan, the functions of the Committee shall
be exercised by the Board of Directors.
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(f) "COMPANY" shall mean Scholastic Corporation, a corporation
organized under the laws of Delaware (or any successor corporation).
(g) "DESIGNATED PARENT" shall mean any Parent of the Company
which is specifically designated as eligible to participate in the Plan by the
Committee from time to time in its sole discretion.
(h) "DESIGNATED SUBSIDIARIES" shall mean each Subsidiary of
the Company on the effective date of the Plan and future Subsidiaries which are
not specifically excluded from participation by the Committee from time to time
in its sole discretion. Notwithstanding the foregoing, the term "Designated
Subsidiaries" shall not include Subsidiaries located in Foreign Jurisdictions,
unless the Committee specifically designates such Subsidiary as a Designated
Subsidiary.
(i) "ELIGIBLE EMPLOYEE" shall mean any person (i) whose
customary employment is for more than twenty (20) hours per week for an
Employer; (ii) whose customary employment is for more than five (5) months per
year; and (iii) who has completed the Eligibility Period. Notwithstanding the
foregoing, the Committee may exclude the employees of any specified Designated
Parent or Designated Subsidiary from any offering under the Plan.
(j) "ELIGIBILITY PERIOD" shall mean, with respect to any
employee, the ninety (90) day period commencing on the first day of each fiscal
quarter of the Company after the employee has completed six (6) continuous
months of service with the Employer. Notwithstanding the foregoing, the
Committee may, in its sole discretion, increase or decrease the length of the
Eligibility Period with respect to the employees of the Company, and any and all
Designated Parent and Designated Subsidiaries; provided that such period shall
in no event exceed two (2) years.
(k) "EMPLOYER" shall mean, with respect to any employee, the
Company or Designated Subsidiary or Designated Parent by which the employee is
employed.
(l) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
(m) "EXERCISE DATE" shall mean the last business day of each
Purchase Period in which payroll deductions are made under the Plan.
(n) "FOREIGN JURISDICTION" shall mean any jurisdiction outside
of the United States including, without limitation, countries, states,
provinces, and localities.
(o) "MARKET PRICE" for purposes of this Plan, unless otherwise
required by any applicable provision of the Code or any regulations issued
thereunder, as of any date, the last sales price reported for the Common Stock
on the applicable date: (i) as reported on the principal
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national securities exchange on which it is then traded or the Nasdaq Stock
Market, Inc. or (ii) if not traded on any such national securities exchange or
the Nasdaq Stock Market, Inc. as quoted on an automated quotation system
sponsored by the National Association of Securities Dealers, Inc. If the Common
Stock is not readily tradable on a national securities exchange, the Nasdaq
Stock Market, Inc. or any automated quotation system sponsored by the National
Association of Securities Dealers, Inc., its Market Value shall be set in good
faith by the Committee.
(p) "OFFERING DATE" shall mean the first day of each Purchase
Period.
(q) "OPTION" shall mean the right or rights granted to
Eligible Employees to purchase the Company's Common Stock under an offering made
under the Plan and pursuant to such Eligible Employees' elections to purchase.
(r) "PARENT" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of granting an Option, each of the corporations other than the employer
corporation owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
(s) "PARTICIPANT" shall mean an Eligible Employee who
participates in the Plan.
(t) "PLAN" shall mean the Scholastic Corporation 1998 Employee
Stock Purchase Plan, as amended from time to time.
(u) "PURCHASE PERIOD" shall mean the period beginning on the
first day of each fiscal quarter of the Company and ending on the last day of
each fiscal quarter of the Company, or such other period designated by the
Committee, in its sole discretion, during which installment payments for Common
Stock purchased under the Plan shall be made.
(v) "RULE 16b-3" shall mean Rule 16b-3 promulgated under
Section 16(b) of the Exchange Act as then in effect or any successor provisions.
(w) "SHARES", "STOCK" or "COMMON STOCK" shall mean shares of
the Company's common stock, par value $.01 per share.
(x) "SUBSIDIARY" shall mean any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company at the
time of granting an Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
(y) "SUBSCRIPTION PERIOD" shall mean the first day of the
preceding Purchase Period through the 20th day of the last month of the
preceding the Purchase Period, or such other
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period of time designated by the Committee, in its sole discretion, in any offer
of Common Stock under the Plan beginning on the first day Eligible Employees may
elect to purchase Shares and ending on the last day such elections to purchase
are authorized to be received and accepted.
3. SHARES RESERVED FOR PLAN.
(a) The Shares of the Company's Common Stock to be sold to
Eligible Employees under the Plan may, at the election of the Committee, be
purchased by the Agent on the open market or may be treasury shares or
newly-issued and authorized Shares delivered to the Plan, upon such terms as the
Committee may approve. The maximum number of Shares which shall be reserved and
made available for sale under the Plan shall be 200,000, subject to adjustment
as provided in paragraph (b) of this Section. The Shares reserved may be issued
and sold pursuant to one or more offerings under the Plan. With respect to each
offering, the Committee may specify the number of Shares to be made available,
the length of the Subscription Period, the length of the Purchase Period, the
Offering Dates and such other terms and conditions not inconsistent with the
Plan as may be necessary or appropriate. In no event shall the Subscription
Period and the Purchase Period together exceed twenty-seven (27) months for any
offering.
(b) In the event of any increase, reduction, or change or
exchange of Common Stock for a different number or kind of Shares or other
securities of the Company by reason of a reclassification, recapitalization,
merger, consolidation, reorganization, stock dividend, stock split or reverse
stock split, combination or exchange of Shares, repurchase of Shares, change in
corporate structure or otherwise, the Committee shall conclusively determine the
appropriate equitable adjustments, if any, to be made under the Plan, including
without limitation adjustments to the number of Shares which have been
authorized for issuance under the Plan but have not yet been placed under
Option, as well as the price per Share of Common Stock covered by each Option
under the Plan which has not yet been exercised.
(c) In the event of the complete liquidation of the Company or
of a reorganization, consolidation or merger in which the Company is not the
surviving Corporation, any Option granted under the Plan shall continue in full
force and effect unless either (i) the Committee modifies such Option so that it
is fully exercisable with respect to all of the Common Stock subject thereto
prior to the effective date of such transaction or (ii) the surviving
corporation issues or assumes a stock option as contemplated under Section
424(a) of the Code.
4. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Committee and the
Committee may select an administrator or any other person to whom its duties and
responsibilities hereunder may be delegated. The Committee shall have full power
and authority, subject to the provisions of the Plan, to promulgate such rules
and regulations as it deems necessary for the proper administration of the Plan,
to interpret the provisions and supervise the administration of the Plan, and to
take all actions in connection therewith or in relation thereto as it deems
necessary or
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advisable. The Committee may adopt special guidelines and provisions for persons
who are residing in, or subject to the laws of, Foreign Jurisdictions to comply
with applicable tax and securities laws. All interpretations and determinations
of the Committee shall be made in its sole and absolute discretion based on the
Plan document and shall be final, conclusive and binding on all parties.
(b) The Committee may employ such legal counsel, consultants,
brokers and agents as it may deem desirable for the administration of the Plan
and may rely upon any opinion received from any such counsel or consultant and
any computation received from any such consultant, broker or agent. The
Committee may, in its sole discretion, designate an Agent to administer the
Plan, purchase and sell Shares in accordance with the Plan, keep records, send
statements of account to employees and to perform other duties relating to the
Plan, as the Committee may request from time to time. The Agent shall serve as
custodian for purposes of the Plan and, unless otherwise requested by the
Participant, Common Stock purchased under the Plan shall be held by and in the
name of, or in the name of a nominee of, the custodian for the benefit of each
Participant, who shall thereafter be a beneficial stockholder of the Company.
The Committee may adopt, amend or repeal any guidelines or requirements
necessary for the custody and delivery of the Common Stock, including, without
limitation, guidelines regarding the imposition of reasonable fees in certain
circumstances.
(c) The Company shall, to the fullest extent permitted by law
and the Certificate of Incorporation and By-laws of the Company and, to the
extent not covered by insurance, indemnify each director, officer or employee of
the Employer (including the heirs, executors, administrators and other personal
representatives of such person) and each member of the Committee against all
expenses, costs, liabilities and losses (including attorneys' fees, judgments,
fines, excise taxes or penalties, and amounts paid or to be paid in settlement)
actually and reasonably incurred by such person in connection with any
threatened, pending or actual suit, action or proceeding (whether civil,
criminal, administrative or investigative in nature or otherwise) in which such
person may be involved by reason of the fact that he or she is or was serving
this Plan in any capacity at the request of the Company, except in instances
where any such person engages in willful neglect or fraud. Such right of
indemnification shall include the right to be paid by the Company for expenses
incurred or reasonably anticipated to be incurred in defending any such suit,
action or proceeding in advance of its disposition; provided, however, that the
payment of expenses in advance of the settlement or final disposition of a suit,
action or proceeding, shall be made only upon delivery to the Company of an
undertaking by or on behalf of such person to repay all amounts so advanced if
it is ultimately determined that such person is not entitled to be indemnified
hereunder. Such indemnification shall be in addition to any rights of
indemnification the person may have as a director, officer or employee or under
the Certificate of Incorporation of the Company or the By-Laws of the Company.
Expenses incurred by the Committee or the Board of Directors in the engagement
of any such counsel, consultant or agent shall be paid by the Company.
5. PARTICIPATION IN THE PLAN.
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Options to purchase the Company's Common Stock under the Plan
shall be granted to all Eligible Employees; provided, however, that solely to
the extent allowable under Section 423 of the Code, the Committee may determine
that any offering of Common Stock under the Plan will not be extended to all or
some officers, highly compensated employees of the Employer or to those
employees whose principal duties consist of supervising the work of other
employees. Any decision relating to the inclusion or exclusion of any executive
officer (as defined in Rule 3b-7 promulgated under the Exchange Act as then in
effect or any successor provisions) of the Employer pursuant to this Section
shall be made only by the members of the Committee who are not executive
officers of the Employer and who have not participated or been eligible to
participate in this Plan or any similar employee stock option plan for a period
of at least one year prior to such determination.
6. PURCHASE PRICE.
The purchase price for Shares purchased pursuant to the Plan
shall be determined by the Committee, in its sole discretion, and shall remain
in effect unless modified at least thirty (30) days prior to the applicable
Offering Date, but in no event shall be less than the lesser of: (i) eighty-five
percent (85%) of the Market Price of a Share of Common Stock on the first
business day of the Purchase Period or (ii) eighty-five (85%) of the Market
Price of a Share of Common Stock on the Exercise Date. Effective as of the
effective date of the Plan until modified by the Committee, the price per Share
of the Common Stock subject to an offering shall be the lesser of: (i)
eighty-five percent (85%) of the Market Price of a Share of Common Stock on the
first business day of the Purchase Period or (ii) eighty-five (85%) of the
Market Price of a Share of Common Stock on the Exercise Date.
7. METHOD OF PAYMENT.
Payment for Shares purchased pursuant to the Plan shall be
made in installments through payroll deductions, with no right of prepayment.
8. EMPLOYEE'S ELECTION TO PURCHASE. GRANTS OF OPTIONS.
(a) In order to participate in the Plan, an Eligible Employee
must sign an election to purchase Shares on a form provided by the Company
stating the Eligible Employee's desire to purchase Shares under the Plan and
showing the amount which the Eligible Employee elects to have withheld from his
or her pay for such payroll period during the Purchase Period. The election to
purchase Shares must be delivered on or before the last day of the Subscription
Period to the person or office designated to receive and accept such elections.
An Eligible Employee may increase or decrease such payroll deductions prior to
the beginning of any subsequent Subscription Period by giving sufficient prior
written notice to the Committee on a form provided by, or acceptable to, the
Committee for such purpose. An Eligible Employee may terminate a payroll
deduction authorization at any time pursuant to Section 14(a) hereof on a form
provided by the Company. An authorization shall remain in effect until modified
or terminated by the Eligible Employee or until the percentage used to determine
the Option price is
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effectively increased or decreased. Any changes in the election to purchase
Shares, other than a full cancellation, shall become effective as of the next
succeeding Purchase Period; provided that such election is made during the
succeeding Subscription Period.
(b) All payroll deductions made by a Participant shall be
credited to such Participant's account under the Plan. A Participant may not
make any additional payments into such account except as otherwise provided
herein.
(c) In the event a Participant makes a hardship withdrawal of
employee deferral (401 (k)) contributions under a 401 (k) profit sharing plan of
the Company, a Subsidiary, or a Parent or an affiliate or any other plan
qualified under Section 401(a) of the Code that contains a Code Section 401(k)
feature, to the extent required by such plan, such Participant's payroll
deductions and the purchase of Shares under the Plan shall be suspended until
the first payroll period following the Offering Date commencing after the twelve
(12) month period after such hardship withdrawal. If a Participant who elects a
hardship withdrawal under such a 401 (k) profit sharing plan or such other plan
has a cash balance accumulated in his or her account at the time of withdrawal
that has not already been applied to purchase Shares, such cash balance shall be
returned to the Participant as soon as administratively practicable.
9. EXERCISE OF OPTION.
(a) A Participant's election to purchase Shares shall be
exercised automatically on the Exercise Date, and the maximum number of whole
and/or fractional Shares subject to such Option shall be purchased for such
Participant at the applicable Option price with the accumulated payroll
deductions in such Participant's account. If all or any portion of the Shares
cannot reasonably be purchased on the Exercise Date in the sole discretion of
the Committee because of unavailability or any other reason, such purchase shall
be made as soon thereafter as feasible. In no event shall certificates for any
fractional Shares be issued under the Plan. Shares shall be credited to the
Participant's account as soon as administratively feasible after the Exercise
Date.
(b) If the total number of Shares which would otherwise be
subject to Options granted on an Offering Date exceeds the number of Shares then
available under the Plan (after deduction of all Shares for which Options have
been exercised or are then outstanding), the Committee shall make a pro rata
allocation of the Shares remaining available for Option grant in as uniform a
manner as shall be practicable and as it shall determine to be equitable. In
such event, the Committee shall give written notice to each Participant of such
reduction of the number of Option Shares affected thereby and shall similarly
reduce the rate of payroll deductions, if necessary.
(c) All Shares included in any offering under the Plan in
excess of the total number of Shares which all Participants elect to purchase
and all Shares with respect to which elections to purchase are canceled as
provided in Section 14 shall continue to be reserved for the Plan and shall be
available for inclusion in any subsequent offering under the Plan.
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10. DELIVERY OF COMMON STOCK.
(a) Certificates for whole shares of Common Stock shall not be
issued to Participants unless and until requested or as otherwise provided
herein. Such certificates shall be issued as soon as administratively feasible
following the Participant's request for issuance. If a Participant requests
certificates for whole shares of Common Stock, any fractional shares of Common
Stock shall remain in the Participant's account during his or her employment,
unless he or she requests cash in lieu of the fractional shares. A fee fixed by
the Plan's Agent or transfer agent, as the case may be, may be charged to the
Participant for the issuance of certificates of shares of Common Stock and for
the replacement of lost certificates. Certificates for a fractional share of
Common Stock shall not be issued under any circumstance. The Committee or the
Plan's Agent may establish limitations on the issuance of certificates to the
extent allowable by applicable law.
(b) A Participant may request the Agent to sell all or a
portion of Shares for which certificates have not been issued and receive cash
for such Shares, subject to any brokerage fees or commissions.
(c) Notwithstanding any other provision of the Plan to the
contrary, following a Participant's termination of employment, death or
retirement from the Company, any Subsidiary and any Parent, the Participant (or,
in the case of death, his or her legal representative) shall elect, within such
period as prescribed by the Committee to (i) direct the Committee or Agent to
sell all or a portion of Shares for which certificates have not been issued and
receive cash for such Shares, subject to any brokerage fees or commissions; (ii)
receive certificates for all of the whole Shares and cash in lieu of any
fractional Shares credited to the Participant's account under the Plan; or (iii)
receive payment from the Plan for all Shares in such other manner permitted by
the Committee in its sole discretion, including permitting the transfer of
certificates for all Shares (including fractional Shares) credited to the
Participant's account under the Plan to an individual brokerage account
established by the Agent for the benefit of the Participant or for the benefit
of the Participant and his or her spouse as joint tenants with rights of
survivorship. The Committee may establish and adopt rules dictating the default
election of a Participant (or, in the case of death, his or her legal
representative) who does not make a timely election pursuant to this paragraph
(c). A fee fixed by the Plan's Agent may be charged to the Participant for the
issuance of certificates of Shares.
11. LIMITATIONS OF NUMBER OF SHARES WHICH MAY BE PURCHASED.
(a) Notwithstanding any provisions of the Plan to the
contrary, no individual shall be granted an Option under the Plan:
(i) if, immediately after the grant, such individual
(or any other person whose stock would be attributed to such individual pursuant
to Section 424(d) of the Code) would own stock and/or hold outstanding Options
to purchase stock possessing five percent (5%)
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or more of the total combined voting power or value of all classes of stock of
the Company or of any Subsidiary or Parent; or
(ii) which permits such individual's right to
purchase stock under all employee stock purchase plans (as described in Section
423 of the Code) of the Company and any Subsidiary or Parent to accrue at a rate
which exceeds twenty five thousand dollars ($25,000) of fair market value of
such stock (determined at the time such option is granted) for any calendar year
in which such option is outstanding at any time; or
(iii) which permits an Eligible Employee to purchase
Shares during any one offering pursuant to the Plan for an aggregate purchase
price (which shall be computed on an annual basis in the event the Purchase
Period is more or less than twelve (12) months) in excess of ten percent (10%)
of his or her Annual Pay.
(b) An Eligible Employee may elect to purchase less than the
number of Shares which he or she is entitled to elect to purchase.
12. STOCKHOLDER RIGHTS.
The Common Stock purchased upon exercise of an Option
hereunder shall be credited to the Participant's account under the Plan and
shall be deemed to be transferred to the Participant on the Exercise Date. Only
upon the issuance of Shares to a Participant or his agent (and only in respect
to such Shares purchased) shall a Participant obtain the rights of stockholders,
including, without limitation, any right to vote the Shares or receive any
dividends or any other distributions thereon. The Shares purchased will be
issued as soon as practicable after the Exercise Date.
13. RIGHTS TO PURCHASE SHARES NOT TRANSFERABLE.
(a) Neither payroll deductions credited to a Participant's
account nor any rights with regard to the exercise of an Option or to receive
Shares under the Plan may be sold, pledged, assigned or transferred in any
manner otherwise than by will or the laws of descent and distribution. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10 hereof.
(b) All rights of a Participant granted under this Plan,
including but not limited to, the grant of an Option, the right to exercise an
Option and the ability to authorize payroll deductions shall relate solely to a
Participant, except as otherwise provided in Section 17 hereof.
14. CANCELLATION OF ELECTION TO PURCHASE.
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(a) An Eligible Employee who has elected to purchase Shares
during a Purchase Period may cancel his or her election with respect to such
Purchase Period in the amount which he or she has authorized the Company to
withhold from his pay for each payroll period during the Purchase Period. Any
such cancellation shall be effective as soon as feasible after the delivery by
the Eligible Employee of sufficient prior written notice of cancellation on a
form provided by, or acceptable to, the Committee for such purpose to the office
or person designated by the Committee to receive such elections. Such notice of
full cancellation must be so delivered no later than the close of business on
the 20th day of the month preceding the Exercise Date.
(b) An Eligible Employee's rights upon the full cancellation of
his or her election to purchase Shares shall be limited to receiving in cash, as
soon as practicable after delivery of the notice of cancellation, the cash
balance (without interest) then credited to his or her account.
(c) A Participant's cancellation of his or her election to
purchase Shares in an offering shall not have any effect upon such Participant's
eligibility to participate in a subsequent offering or in any similar plan which
may hereafter be adopted by the Company.
15. LEAVE OF ABSENCE OR LAYOFF.
(a) If a Participant who is granted a leave of absence
(including a military leave) or who is laid off during a Purchase Period, his or
her election to purchase shall be deemed to have been canceled at the time of
the leave of absence or layoff. An Participant's Eligible Employee's rights upon
leave of absence (including a military leave) or layoff shall, subject to any
rights under law, be limited to having the cash balance credited to his or her
account at the time of such leave of absence or layoff becomes effective applied
to the purchase of the number of Shares such amount will then purchase at the
end of the Purchase Period.
(b) In the event that such individual's leave of absence ends
and such individual again becomes an Eligible Employee within 90 days from the
date of his or her leave of absence or layoff, payroll deductions shall resume
automatically in accordance with his or her most recent payroll deduction
authorization form in effect prior to the leave of absence or layoff.
16. EFFECT OF FAILURE TO MAKE PAYMENTS WHEN DUE.
(a) If in any payroll period, for any reason not set forth in
Section 14, a Participant who has filed an election to purchase Shares under the
Plan has no pay or his or her pay is insufficient (after other authorized
deductions) to permit deduction of his or her installment payment, the
Participant may make a payment to the Plan in cash at such time equal to the
amount of the installment payment deficiency. If such cash payment is not so
made, the Participant, when his or her pay is again sufficient to permit the
resumption of installment payments, must pay in cash the amount of the
deficiency in his or her account or arrange for uniformly increased installment
payments so that, assuming the maximum purchase price per
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Share, payment for the maximum number of Shares covered by his or her Option
will be completed in the last month of the Purchase Period. If the Participant
elects to make increased installment payments, he or she may, nevertheless, at
any time make up the remaining deficiency by making a lump sum payment.
(b) Subject to paragraph (a) above and other provisions of the
Plan permitting postponement, the Company may treat the failure by a Participant
to make any payment as a cancellation of his or her election to purchase Shares.
Such cancellation will be affected by mailing notice to him or her at his or her
last known business or home address. Upon such mailing, his or her only right
will be to receive in cash the amount credited to his or her account.
17. RETIREMENT.
(a) Upon "Retirement" (as hereinafter defined), a Participant
will be deemed canceled as of the date of retirement and the only right of the
Participant will be to receive in cash, the cash amount credited to his or her
account.
(b) For the purposes of this Plan, "Retirement shall mean a
Participant's attainment of age sixty-five (65).
18. DEATH.
If a Participant dies and has an election to purchase Shares in
effect at the time of his or her death, the election will be deemed canceled as
of the date of death, and the only right of such legal representative will be to
receive in cash, the cash amount credited to the deceased Participant's account.
19. TERMINATION OF EMPLOYMENT OTHER THAN FOR RETIREMENT OR DEATH.
If an Eligible Employee's employment is terminated for any
reason other than Retirement or death prior to the end of the Purchase Period,
his or her election to purchase shall thereupon be deemed canceled as of the
date on which his or her employment ended. In such an event, no further payments
under such election will be permitted, and the Eligible Employee's only right
will be to receive in cash the amount credited to his or her account.
20. DIVIDENDS AND INTEREST.
(a) Cash dividends, if any, on Shares acquired through the Plan
will be automatically paid by check directly to the Participant by the Company,
or if applicable, the transfer agent. Dividends paid in property other than cash
or Common Stock shall be distributed to Participants as soon as practicable.
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(b) Except as required by law, including without limitation, the
Investment Company Act of 1940, as amended, no interest shall accrue on or be
payable with respect to the payroll deductions of a Participant in the Plan.
21. APPLICATION OF FUNDS.
All funds received by the Company in payment for Shares
purchased under the Plan and held by the Company at any time may be used for any
valid corporate purpose.
22. AMENDMENT AND TERMINATION.
The Company, by action of the Board of Directors (or a duly
authorized committee) or the Committee may at any time terminate, amend or
freeze the Plan. No such termination shall adversely affect Options previously
granted and no amendment may make any change in any Option theretofore granted
which adversely affects the rights of any Participant. No amendment shall be
effective unless approved by the stockholders of the Company if stockholder
approval of such amendment is required to comply with Section 423 of the Code or
to comply with any other applicable law, regulation or stock exchange rule. Upon
termination of the Plan, the Company shall return or distribute the payroll
deductions credited to a Participant's account (that have not been used to
purchase Shares) and shall distribute or credit Shares credited to a
Participant's account. Upon the freezing of the Plan, any payroll deductions
credited to a Participant's account (that have not been used to purchase Shares)
shall be used to purchase Shares in accordance with Section 9, substituting the
term Exercise Date with the effective date of the freezing of the Plan.
23. REPORTS.
Individual accounts shall be maintained for each Participant in
the Plan. Statements of account shall be given to Participants at such times
prescribed by the Committee; such statements shall set forth the amounts of
payroll deductions, the purchase price per Share, the number of Shares
purchased, the aggregate Shares in the Participant's account and the remaining
cash balance, if any.
24. EFFECTIVE DATE; GOVERNMENTAL APPROVALS OR CONSENTS.
The Plan was originally approved by the holders of the Company's
Class A Stock pursuant to written consent dated November 30, 1998 and adopted by
the Board of Directors the Company effective as of January 1, 1999 and was
amended and restated by action of the Board of Directors of the Company
effective as of March 1, 2000. The Plan and any offerings and sales to Eligible
Employees under it are subject to any governmental approvals or consents that
may be or become applicable in connection therewith. The Board of Directors or
the Committee may make such changes in the Plan and include such terms in any
offering under the Plan as may be necessary or desirable, in the opinion of
counsel, so that the Plan will comply with the rules
13
<PAGE>
and regulations of any governmental authority and so that Eligible Employees
participating in the Plan will be eligible for tax benefits under the Code or
the laws of any state.
25. NOTICES.
All notices or other communications by a Participant to the
Company or the Committee under or in connection with the Plan shall be deemed to
have been duly given when received in the form specified by the Company or
Committee at the location, or by the person, designated for the receipt thereof
and within the time period prescribed by the Company or Committee. Each
Participant shall be responsible for furnishing the Committee with the current
and proper address for the mailing of notices and the delivery of other
information. Any notices or communications by the Company to a Participant shall
be deemed given if directed to such address and mailed by regular United States
mail, first-class and prepaid. If any item mailed to such address is returned as
undeliverable to the addressee, mailing shall be suspended until the Participant
furnishes the proper address.
26. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.
(a) This Plan and the rights of all persons claiming hereunder
shall be construed and determined in accordance with the laws of the State of
Delaware without giving effect to the choice of law principles thereof, except
to the extent that such law is preempted by federal law.
(b) The obligation of the Company to sell or deliver Shares with
respect to Options granted under the Plan shall be subject to all applicable
laws, rules and regulations, including all applicable federal and state
securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
(c) To the extent required, the Plan is intended to comply with
Rule 16b-3 and the Committee shall interpret and administer the provisions of
the Plan in a manner consistent therewith. Any provisions inconsistent with Rule
16b-3 shall be inoperative and shall not affect the validity of the Plan. The
Committee may establish and adopt administrative guidelines, designed to
facilitate compliance with Section 16(b) of the Exchange Act and Rule 16b-3, as
it may deem necessary or proper for the administration and operation of the Plan
and the transaction of business thereunder.
27. WITHHOLDING OF TAXES.
(a) If the Participant makes a disposition, within the meaning
of Section 424(c) of the Code and regulations promulgated thereunder, of any
Share or Shares issued to such Participant pursuant to such Participant's
exercise of an Option, and such disposition occurs within the two-year period
commencing on the day after the Offering Date or within the one-year
14
<PAGE>
period commencing on the day after the Exercise Date, such Participant shall
immediately, or as soon as practicable thereafter, notify the Company thereof
and thereafter immediately deliver to the Company any amount of federal, state
or local income taxes and other amounts which the Company informs the
Participant the Company is required to withhold.
(b) Notwithstanding anything herein to the contrary, the
Employer shall have the right to make such provisions as it deems necessary to
satisfy any obligations to withhold federal, state, or local income taxes or
other taxes incurred by reason of the issuance of Common Stock pursuant to the
Plan. Notwithstanding anything herein to the contrary, the Employer may require
a Participant to remit an amount equal to the required withholding amount and
may invalidate any election if the Participant does not remit applicable
withholding taxes. Without limiting the generality of the foregoing, any
withholding obligation with regard to any Participant may be satisfied by: (i)
reducing the number of shares of Common Stock otherwise deliverable to the
Participant; (ii) subject to the Committee's prior consent, any method approved
by the Committee; or (iii) by the Participant paying cash directly to the
Company.
28. LEGEND.
(a) The Committee may require each person receiving shares
pursuant to the exercise of an Option under the Plan to represent to and agree
with the Company in writing that the Participant is acquiring the shares without
a view to distribution thereof. In addition to any legend required by this Plan,
the certificates for such Shares may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer.
(b) All certificates for Shares delivered under the Plan shall
be subject to such stock transfer orders and other restrictions as the Committee
may deem advisable to assist in the compliance with any applicable tax
withholding laws or under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Common
Stock is then listed or any national securities association system upon whose
system the Common Stock is then quoted, any applicable Federal or state
securities law, and any applicable corporate law and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
29. NO EMPLOYMENT RIGHTS.
The establishment and operation of this Plan shall not confer
any legal rights upon any Participant or other person for a continuation of
employment, nor shall it interfere with the rights of an Employer to discharge
any employee and to treat him or her without regard to the effect which that
treatment might have upon him or her as a Participant or potential Participant
under the Plan.
30. SEVERABILITY OF PROVISIONS.
15
<PAGE>
If any provision of the Plan shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provisions hereof, and the Plan shall be construed and enforced as if such
provisions had not been included.
31. CONSTRUCTION.
The use of a masculine pronoun shall include the feminine, and
the singular form shall include the plural form, unless the context clearly
indicates otherwise. The headings and captions herein are provided for reference
and convenience only, shall not be considered part of the Plan, and shall not be
employed in the construction of the Plan.
16
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