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 28, 2002 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)
557 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.
Title Number of shares outstanding
of each class as of March 29, 2002
------------- --------------------
Common Stock, $.01 par value 37,251,690
Class A Stock, $.01 par value 1,656,200
SCHOLASTIC CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2002
INDEX
- -------------------------------------------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the Three and
Nine Months Ended February 28, 2002 and 2001 1
Condensed Consolidated Balance Sheets at February 28, 2002
and 2001, and May 31, 2001 2
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended February 28, 2002 and 2001 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Item 3. Quantitative and Qualitative Disclosures about Market Risk 29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 6. Exhibits and Reports on Form 8-K 31
SIGNATURES 32
- -------------------------------------------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
============================================================================================================
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
============================================================================================================
2002 2001 2002 2001
============================================================================================================
REVENUES $ 432.7 $ 433.0 $ 1,376.0 $ 1,463.4
Operating costs and expenses:
Cost of goods sold 190.5 199.7 602.8 669.5
Selling, general and administrative expenses 194.9 187.3 598.4 600.6
Bad debt expense 11.0 19.9 51.6 52.3
Depreciation 9.5 6.3 25.4 19.6
Goodwill and other intangibles amortization 0.2 3.5 0.6 10.5
- ------------------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 406.1 416.7 1,278.8 1,352.5
Operating income 26.6 16.3 97.2 110.9
Interest expense, net 7.9 10.5 24.3 33.7
- ------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative
effect of accounting change 18.7 5.8 72.9 77.2
Provision for income taxes 6.8 2.1 26.2 27.8
- ------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting
change 11.9 3.7 46.7 49.4
Cumulative effect of accounting change
(net of income taxes) -- -- (5.2) --
- ------------------------------------------------------------------------------------------------------------
NET INCOME $ 11.9 $ 3.7 $ 41.5 $ 49.4
============================================================================================================
Net income per Class A and Common Share:
Basic $ 0.32 $ 0.11 $ 1.15 $ 1.43
Diluted $ 0.31 $ 0.10 $ 1.09 $ 1.34
============================================================================================================
============================================================================================================
SEE ACCOMPANYING NOTES
1
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
==================================================================================================================
FEBRUARY 28, 2002 MAY 31, 2001 FEBRUARY 28, 2001
==================================================================================================================
(UNAUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12.6 $ 13.8 $ 11.9
Accounts receivable, net 233.9 220.7 242.8
Inventories 408.2 340.3 406.3
Deferred promotion costs 42.8 44.0 46.7
Deferred income taxes 87.6 89.3 58.4
Prepaid and other current assets 68.7 61.4 63.6
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 853.8 769.5 829.7
Property, plant and equipment, net 278.3 257.3 223.6
Prepublication costs 109.5 103.3 138.6
Production costs 11.6 13.8 13.2
Goodwill 235.3 221.9 213.9
Other intangibles 61.3 61.9 62.9
Other assets and deferred charges 82.5 74.1 86.8
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,632.3 $ 1,501.8 $ 1,568.7
==================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit and current portion of
long-term debt $ 77.9 $ 23.3 $ 22.4
Accounts payable 136.1 157.3 136.3
Accrued royalties 69.5 45.7 97.3
Deferred revenue 34.4 12.1 29.6
Other accrued expenses 127.1 136.5 132.0
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 445.0 374.9 417.6
NONCURRENT LIABILITIES:
Long-term debt 471.2 585.3 596.7
Other noncurrent liabilities 48.1 47.9 48.1
- ------------------------------------------------------------------------------------------------------------------
TOTAL NONCURRENT LIABILITIES 519.3 633.2 644.8
COMMITMENTS AND CONTINGENCIES -- -- --
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 0.4 0.3 0.3
Additional paid-in capital 365.3 233.7 236.7
Deferred compensation (0.5) (0.2) (0.2)
Accumulated other comprehensive loss (17.8) (16.4) (13.6)
Retained earnings 320.6 279.1 292.2
Less shares of Common Stock held in treasury -- (2.8) (9.1)
- ------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 668.0 493.7 506.3
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,632.3 $ 1,501.8 $ 1,568.7
==================================================================================================================
==================================================================================================================
SEE ACCOMPANYING NOTES
2
SCHOLASTIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(AMOUNTS IN MILLIONS)
====================================================================================================================
NINE MONTHS ENDED
FEBRUARY 28,
====================================================================================================================
2002 2001
====================================================================================================================
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 65.5 $ 135.4
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property, plant and equipment (46.5) (49.6)
Prepublication costs (39.4) (36.6)
Royalty advances (23.7) (19.3)
Acquisition-related payments (13.1) (396.4)
Production costs (10.5) (10.2)
Other 0.2 (4.4)
- --------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (133.0) (516.5)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Borrowings under Loan Agreement and Revolver 666.8 454.4
Repayments of Loan Agreement and Revolver (620.6) (448.8)
Borrowings under Grolier Facility -- 350.0
Repayment of Grolier Facility (300.0) --
Proceeds received from issuance of 5.75% Notes, net of related costs 296.7 --
Borrowings under lines of credit 110.2 78.0
Repayments of lines of credit (103.5) (70.1)
Proceeds pursuant to employee stock plans 17.1 21.8
Other (0.4) (1.3)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 66.3 384.0
- --------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (1.2) 2.9
Cash and cash equivalents at beginning of period 13.8 9.0
- --------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12.6 $ 11.9
====================================================================================================================
====================================================================================================================
SEE ACCOMPANYING NOTES
3
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 consist of the
accounts of Scholastic Corporation and its wholly-owned subsidiaries (the
"Company"), which include the consolidated accounts of Grolier Incorporated
("Grolier") and its subsidiaries as of the date of acquisition on June 22, 2000
(See Note 2). These financial statements have not been audited, but reflect
those adjustments consisting of normal recurring items which management
considers necessary for a fair presentation of financial position, results of
operations and cash flow. These financial statements should be read in
conjunction with the consolidated financial statements and related notes in the
Report on Form 10-K for the fiscal year ended May 31, 2001, as well as the
Current Reports on Form 8-K dated July 7, 2000, as amended on September 5, 2000,
February 8, 2001 and January 22, 2002, filed in connection with the acquisition
of Grolier.
The Company's business is closely correlated to the school year. Consequently,
the results of operations for the nine months ended February 28, 2002 and 2001
are not necessarily indicative of the results expected for the full year. Due to
the seasonal fluctuations that occur, the February 28, 2001 condensed
consolidated balance sheet is included for comparative purposes.
The preparation of the financial statements, in accordance with accounting
principles generally accepted in the United States, requires management to make
estimates and assumptions that affect the amounts reported in the condensed
consolidated financial statements and accompanying notes. The Company bases its
estimates on historical experience, current business factors, and various other
assumptions believed to be reasonable under the circumstances, which are
necessary in order to form a basis for making judgments about the carrying
values of assets and liabilities. Actual results could differ from those
estimates and assumptions. On an on-going basis, the Company evaluates its
estimates which include, but are not limited to: collectability of accounts
receivable; book returns; amortization periods; and recovery of inventories,
deferred promotion costs, prepublication costs, royalty advances, production
costs and long-lived assets.
Certain prior year amounts have been reclassified in the accompanying condensed
consolidated financial statements to conform to the current year presentation.
NEW ACCOUNTING PRONOUNCEMENT
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 establishes a single accounting
model, based upon the framework established in SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
for long-lived assets to be disposed of by sale and to address significant
implementation issues. The Company is required to adopt this statement by the
first quarter of fiscal 2003. The Company does not expect that the adoption of
SFAS No. 144 will have a material impact on its financial position, results of
operations or cash flows.
4
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
2. ACQUISITION OF GROLIER
On June 22, 2000, Scholastic Inc., a subsidiary of the Company, acquired all of
the issued and outstanding capital stock of Grolier, a Delaware corporation, for
$400.0 in cash. The acquisition was financed by the Company using bank debt, of
which $350.0 was borrowed under a new facility and $50.0 was borrowed under the
Company's existing credit facility. (See Note 4)
Through the purchase of Grolier, the Company acquired the leading operator in
the United States of direct-to-home continuity book clubs serving children
primarily age five and under and the leading print and on-line publisher of
children's non-fiction and reference products sold primarily to school libraries
in the United States. The acquisition also expanded the Company's operations in
the United Kingdom, Canada and Southeast Asia. In accordance with SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," the
Company has analyzed economic characteristics, similarity of nature of products,
similarity of the nature of production, class of customer and method of
distribution of products of the acquired Grolier businesses. Accordingly, the
Grolier businesses have been included in the following business segments: the
domestic direct-to-home continuity and trade operations have been included in
the Children's Book Publishing and Distribution segment; the children's
reference and non-fiction operations have been included in the Educational
Publishing segment; software operations have been included in the Media,
Licensing and Advertising segment; and all international operations have been
included in the International segment.
The Grolier acquisition has been accounted for under the purchase method of
accounting and, accordingly, the operating results of Grolier have been included
in the Company's condensed consolidated results of operations since the date of
acquisition. The assets and liabilities at the acquisition date were adjusted to
their fair values, based upon an independent valuation, with the excess purchase
price over the fair value assigned to goodwill. The valuation was finalized as
of the end of fiscal 2001. With regard to any possible future adjustments to
established liabilities, such adjustments will be included in the determination
of net income.
The following table sets forth the final allocation of the Grolier purchase
price, based on the independent valuation, and includes the related transaction
and financing costs:
==================================================================
VALUE
==================================================================
Accounts receivable $ 95.3
Inventory 45.5
Other current assets 58.5
Property, plant and equipment, net 18.9
Goodwill and other intangibles 231.8
Other assets 44.2
Current liabilities (85.6)
Non-current liabilities (12.2)
-----------------------------------------------------------------
CASH PAID FOR ACQUISITION, NET OF CASH RECEIVED $ 396.4
================================================================
5
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
The following table sets forth the allocation of Goodwill and Other Intangibles
resulting from the acquisition of Grolier:
===================================================================
VALUE
===================================================================
Goodwill $ 170.2
----------------------------------------------------------------
Titles 29.8
Licenses 17.8
Major sets 11.8
Customer lists 2.2
----------------------------------------------------------------
Total other intangibles 61.6
----------------------------------------------------------------
TOTAL GOODWILL AND OTHER INTANGIBLES $ 231.8
================================================================
In connection with the Grolier acquisition, the Company established a plan
for integrating Grolier's operations. Accordingly, the Company established
liabilities of $17.7 relating primarily to severance, fringe benefits and
related salary continuance, as well as certain exit costs associated with the
integration and relocation of certain of Grolier's operational and
administrative functions. This amount, originally estimated at $12.4, was
increased at May 31, 2001 as the Company refined its estimate of the costs of
the integration plan. As of February 28, 2002, $10.4 of these liabilities
remained unpaid. Payment of these liabilities, which result from actions
already taken, will be made over the next three years.
A summary of the fiscal 2002 activity in the established reserves is detailed in
the following table:
============================================================================================================
SEVERANCE AND
RELATED COSTS OTHER EXIT COSTS TOTAL
============================================================================================================
Liability balance at May 31, 2001 $ 11.5 $ 3.2 $ 14.7
Fiscal year 2002 payments to date (3.9) (0.4) (4.3)
- ------------------------------------------------------------------------------------------------------------
Liability at February 28, 2002 $ 7.6 $ 2.8 $ 10.4
============================================================================================================
6
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
The following table reflects the unaudited pro forma results of operations of
the Company, giving effect to the acquisition of Grolier as if it was
consummated as of the first day of the nine-month period ended February 28,
2001, including the effect of increased interest expense on debt related to the
acquisition. Additionally, the nine-month period ended February 28, 2001
reflects the adoption of SFAS No. 142 ("Goodwill and Other Intangible Assets"),
which resulted in a pro forma reduction of amortization expense. This
information does not necessarily reflect the actual results of operations that
would have occurred had the purchase been made at the beginning of the period
presented, nor is it necessarily indicative of future results of operations of
the combined companies.
NINE MONTHS ENDED FEBRUARY 28,
===================================================================================================
2002 2001
===================================================================================================
Revenues $ 1,376.0 $ 1,499.0
Net income before cumulative effect of accounting change $ 46.7 $ 57.5
Net income $ 41.5 $ 57.5
Net income per Class A and Common Share:
Basic before cumulative effect of
accounting change $ 1.30 $ 1.66
Diluted before cumulative effect of
accounting change $ 1.22 $ 1.55
Basic net income $ 1.15 $ 1.66
Diluted net income $ 1.09 $ 1.55
7
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, Ireland, Argentina and Southeast Asia, and distributes
its products and services through a variety of channels, including school-based
book clubs, school-based book fairs, school-based and direct-to-home continuity
programs, 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.
o CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION includes the publication and
distribution of children's books in the United States through school-based book
clubs and book fairs, school-based and direct-to-home continuity programs and
the trade channel. The direct-to-home continuity and trade businesses formerly
operated by Grolier are incorporated in this segment from June 22, 2000, the
date on which Grolier was acquired.
o EDUCATIONAL PUBLISHING includes the publication and distribution to schools
and libraries of supplemental and core materials, classroom magazines and print
and on-line reference and non-fiction products for grades K to 12 in the United
States. The reference and non-fiction business formerly operated by Grolier is
included in this segment from June 22, 2000, the date on which Grolier was
acquired.
o MEDIA, LICENSING AND ADVERTISING includes the production and/or distribution
in the United States of software, Internet services and the production and/or
distribution by and through the Company's subsidiary, Scholastic Entertainment
Inc. ("SEI"), of programming and consumer products (including children's
television programming, videos, software, feature films, promotional activities
and non-book merchandise). The software business formerly operated by Grolier is
included in this segment from June 22, 2000, the date on which Grolier was
acquired.
o INTERNATIONAL includes the publication and distribution of products and
services outside the United States by the Company's international operations and
its domestic export and foreign rights businesses. The international businesses
formerly operated by Grolier are included in this segment from June 22, 2000,
the date on which Grolier was acquired.
8
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
The following table sets forth the Company's segment information for the periods
indicated. Certain prior year amounts have been reclassified to conform with the
current year presentation.
CHILDREN'S
BOOK MEDIA,
PUBLISHING LICENSING
AND EDUCATIONAL AND TOTAL
DISTRIBUTION PUBLISHING ADVERTISING OVERHEAD(1) DOMESTIC INTERNATIONAL CONSOLIDATED
====================================================================================================================
THREE MONTHS ENDED
FEBRUARY 28, 2002
====================================================================================================================
Revenues $ 268.9 $ 60.9 $ 32.4 $ 0.0 $ 362.2 $ 70.5 $ 432.7
Bad debt (3) 7.9 0.3 0.5 0.0 8.7 2.3 11.0
Depreciation 1.7 0.5 1.4 4.8 8.4 1.1 9.5
Amortization (2) 4.7 4.8 2.7 0.0 12.2 0.0 12.2
Royalty advances
expensed 5.0 0.2 0.0 0.0 5.2 0.0 5.2
Segment profit/(loss)(3) 43.1 (1.6) (3.3) (14.6) 23.6 3.0 26.6
Expenditures for
long-lived assets (4) 9.8 16.5 7.9 11.5 45.7 0.9 46.6
====================================================================================================================
THREE MONTHS ENDED
FEBRUARY 28, 2001
====================================================================================================================
Revenues $ 266.4 $ 59.4 $ 35.6 $ 0.0 $ 361.4 $ 71.6 $ 433.0
Bad debt 17.0 0.4 0.7 0.0 18.1 1.8 19.9
Depreciation 1.1 0.5 0.2 3.4 5.2 1.1 6.3
Amortization (2) 4.9 12.4 6.7 0.1 24.1 1.0 25.1
Royalty advances
expensed 4.0 0.3 0.3 0.0 4.6 0.0 4.6
Segment profit/(loss)(3) 39.3 (7.8) (3.3) (14.2) 14.0 2.3 16.3
Expenditures for
long-lived assets (4) 10.8 10.6 4.8 15.6 41.8 1.0 42.8
====================================================================================================================
NINE MONTHS ENDED
FEBRUARY 28, 2002
====================================================================================================================
Revenues $ 836.9 $ 225.9 $ 98.3 $ 0.0 $ 1,161.1 $ 214.9 $ 1,376.0
Bad debt (3) 43.2 0.9 1.9 0.0 46.0 5.6 51.6
Depreciation 4.4 1.3 3.3 13.1 22.1 3.3 25.4
Amortization (2) 12.7 17.1 14.9 0.0 44.7 0.6 45.3
Royalty advances
expensed 13.4 1.0 0.6 0.0 15.0 0.0 15.0
Segment profit/(loss)(3) 118.0 25.3 (11.8) (42.6) 88.9 8.3 97.2
Segment assets 725.8 262.2 76.7 353.6 1,418.3 214.0 1,632.3
Goodwill 110.9 77.4 9.4 4.6 202.3 33.0 235.3
Long-lived assets (5) 258.1 173.6 44.7 213.8 690.2 60.0 750.2
Expenditures for
long-lived assets (4) 48.0 32.0 23.9 24.6 128.5 4.7 133.2
====================================================================================================================
NINE MONTHS ENDED
FEBRUARY 28, 2001
====================================================================================================================
Revenues $ 918.5 $ 226.2 $ 101.4 $ 0.0 $ 1,246.1 $ 217.3 $ 1,463.4
Bad debt 43.7 0.7 1.7 0.0 46.1 6.2 52.3
Depreciation 3.2 1.3 2.4 9.6 16.5 3.1 19.6
Amortization (2) 13.3 38.1 13.6 0.1 65.1 2.1 67.2
Royalty advances
expensed 15.5 1.3 1.4 0.0 18.2 0.3 18.5
Segment profit/(loss)(3) 157.5 (1.4) (13.6) (43.4) 99.1 11.8 110.9
Segment assets 699.2 286.3 72.4 285.0 1,342.9 225.8 1,568.7
Goodwill 101.7 65.9 8.6 4.3 180.1 33.4 213.9
Long-lived assets (5) 236.6 190.3 40.0 177.5 644.4 59.7 704.1
Expenditures for
long-lived assets (4) 251.0 169.5 15.7 50.1 486.3 25.8 512.1
9
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
(1) OVERHEAD INCLUDES ALL DOMESTIC CORPORATE-RELATED ITEMS NOT ALLOCATED TO
REPORTABLE SEGMENTS WHICH INCLUDES UNALLOCATED EXPENSES AND COSTS RELATED
TO THE MANAGEMENT OF CORPORATE ASSETS. 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,
ITS NATIONAL SERVICE OPERATION LOCATED IN MISSOURI AND AN INDUSTRIAL/OFFICE
BUILDING COMPLEX IN CONNECTICUT.
(2) IN FISCAL 2002, INCLUDES AMORTIZATION OF OTHER INTANGIBLES WITH DEFINITE
LIVES, PREPUBLICATION AND PRODUCTION COSTS. IN FISCAL 2001, INCLUDES
AMORTIZATION OF GOODWILL, OTHER INTANGIBLES, PREPUBLICATION AND PRODUCTION
COSTS.
(3) SEGMENT PROFIT/(LOSS) REPRESENTS EARNINGS BEFORE INTEREST AND INCOME TAXES.
IN THE NINE MONTHS ENDED FEBRUARY 28, 2002, IT EXCLUDES THE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE OF $5.2 ($0.13 PER DILUTED SHARE) RELATED TO
THE MEDIA, LICENSING AND ADVERTISING SEGMENT ). IN THE THREE- AND
NINE-MONTH PERIODS ENDED FEBRUARY 28, 2002, CHILDREN'S BOOK PUBLISHING AND
DISTRIBUTION INCLUDES THE NET EFFECT OF THE REDUCTION IN BAD DEBT
EXPENSE OF $3.9 ($0.10 PER DILUTED SHARE), RESULTING FROM THE
REFINEMENT OF THE BAD DEBT RESERVE. IN THE THREE-MONTH PERIOD ENDED
FEBRUARY 28, 2001, CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION INCLUDES
THE NET EFFECT OF THE CHANGES IN SALES RETURNS ESTIMATES WHICH RESULTED
IN AN INCREASE TO NET INCOME OF $3.6 ($0.10 PER DILUTED SHARE).
(4) INCLUDES EXPENDITURES FOR PROPERTY, PLANT AND EQUIPMENT, INVESTMENTS IN
PREPUBLICATION AND PRODUCTION COSTS, ROYALTY ADVANCES AND ACQUISITIONS OF
BUSINESSES.
(5) INCLUDES PROPERTY, PLANT AND EQUIPMENT, PREPUBLICATION COSTS, GOODWILL,
OTHER INTANGIBLES, ROYALTY ADVANCES AND PRODUCTION COSTS.
The following table separately sets forth information for the U.S.
direct-to-home continuity business formerly operated by Grolier, which,
effective June 22, 2000, is included in the Children's Book Publishing and
Distribution segment, and for all other businesses included in the segment:
=============================================================
THREE MONTHS ENDED FEBRUARY 28,
=============================================================
Direct-to-home All Other Total
2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ----
Revenues $ 47.1 $ 58.0 $ 221.8 $ 208.4 $ 268.9 $ 266.4
Bad debt (2) 3.3 11.4 4.6 5.6 7.9 17.0
Depreciation 0.1 0.0 1.6 1.1 1.7 1.1
Amortization (1) 0.4 2.6 4.3 2.3 4.7 4.9
Royalty advances expensed 0.0 0.2 5.0 3.8 5.0 4.0
Business profit (2) 10.7 5.3 32.4 34.0 43.1 39.3
Expenditures for long-lived assets (3) 1.1 0.5 8.7 10.3 9.8 10.8
=============================================================
NINE MONTHS ENDED FEBRUARY 28,
=============================================================
Direct-to-home All Other Total
2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ----
Revenues $ 157.6 $ 161.9 $ 679.3 $ 756.6 $ 836.9 $ 918.5
Bad debt (2) 27.6 30.8 15.6 12.9 43.2 43.7
Depreciation 0.2 0.2 4.2 3.0 4.4 3.2
Amortization (1) 1.1 3.6 11.6 9.7 12.7 13.3
Royalty advances expensed 1.2 0.6 12.2 14.9 13.4 15.5
Business profit (2) 21.0 11.5 97.0 146.0 118.0 157.5
Business assets 245.6 247.4 480.2 451.8 725.8 699.2
Goodwill 86.1 80.6 24.8 20.7 110.9 101.7
Long-lived assets (4) 135.9 132.0 122.2 104.6 258.1 236.6
Expenditures for long-lived assets (3) 3.3 210.1 44.7 40.9 48.0 251.0
(1) IN FISCAL 2002, INCLUDES AMORTIZATION OF OTHER INTANGIBLES WITH DEFINITE
LIVES AND PREPUBLICATION COSTS. IN FISCAL 2001, INCLUDES AMORTIZATION OF
GOODWILL, OTHER INTANGIBLES, AND PREPUBLICATION COSTS.
(2) BUSINESS PROFIT REPRESENTS EARNINGS BEFORE INTEREST AND INCOME TAXES.
IN THE THREE- AND NINE-MONTH PERIODS ENDED FEBRUARY 28, 2002, DIRECT-TO-
HOME INCLUDES THE NET EFFECT OF THE REDUCTION IN BAD DEBT EXPENSE OF
$3.9 ($0.10 PRE DILUTED SHARES), RESULTING FROM THE COMPANY'S REFINEMENT
OF THE BAD DEBT RESERVE. IN THE THREE-MONTH PERIOD ENDED FEBRUARY 28,
2001, "ALL OTHER" INCLUDES THE NET EFFECT OF THE CHANGES IN SALES
RETURNS ESTIMATES WHICH RESULTED IN AN INCREASE TO NET INCOME OF
$3.6 ($0.10 PER DILUTED SHARE).
(3) INCLUDES EXPENDITURES FOR PROPERTY, PLANT AND EQUIPMENT, INVESTMENTS IN
PREPUBLICATION COSTS, ROYALTY ADVANCES AND ACQUISITIONS OF BUSINESSES.
(4) INCLUDES PROPERTY, PLANT AND EQUIPMENT, PREPUBLICATION COSTS, GOODWILL,
OTHER INTANGIBLES AND ROYALTY ADVANCES.
10
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
===================================================================================================================
4. DEBT
The following table sets forth the Company's debt balances as of the dates
indicated:
=================================================================================================================
FEBRUARY 28, 2002 MAY 31, 2001 FEBRUARY 28, 2001
=================================================================================================================
Lines of Credit $ 27.9 $ 23.1 $ 22.4
Grolier Facility 50.0 350.0 350.0
Loan Agreement and Revolver 46.3 -- 11.2
7% Notes due 2003, net of discount 124.9 124.9 124.9
5.75% Notes due 2007, net of discount 299.6 -- --
Convertible Subordinated Debentures -- 110.0 110.0
Other debt 0.4 0.6 0.6
- -----------------------------------------------------------------------------------------------------------------
TOTAL DEBT 549.1 608.6 619.1
Less current portion of long-term debt
and lines of credit (77.9) (23.3) (22.4)
- -----------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $ 471.2 $ 585.3 $ 596.7
=================================================================================================================
The following table sets forth the maturities of the Company's debt obligations
for the remainder of fiscal 2002 and the next five fiscal years:
================================================================================
MAY 31,
================================================================================
Three-month period ending: 2002 $ 27.9
Fiscal years ending: 2003 50.0
2004 125.3
2005 46.3
2006 --
THEREAFTER 299.6
-------------------------------
Total $ 549.1
===============================
GROLIER FACILITY. On June 22, 2000, the Company established a new credit
facility (the "Grolier Facility") to finance $350.0 of the $400.0 Grolier
purchase price. The Grolier Facility expires on June 21, 2002. Scholastic Inc.
is the borrower, and the Company is the guarantor. Borrowings bear interest at
the prime rate, or 0.39% to 1.10% over LIBOR (as defined). The Grolier Facility
also provides for a facility fee ranging from 0.085% to 0.25%, based on the
Company's credit rating. Based on the Company's current credit rating, the
interest rate and facility fee as of February 28, 2002 were 0.575% over LIBOR
and 0.125%, respectively. The Grolier Facility contains certain financial
covenants related to debt and interest coverage ratios (as defined) and limits
dividends and other distributions. At February 28, 2002, $50.0 was outstanding
under the Grolier Facility and no additional borrowings were available. The net
proceeds from the issuance of the 5.75% Notes in January 2002 were used to repay
a portion of the Grolier Facility (see 5.75% Notes due 2007 below).
11
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
LOAN AGREEMENT. The Company and Scholastic Inc. are joint and several
borrowers under an amended and restated loan agreement with certain banks,
effective August 11, 1999 and amended June 22, 2000 (the "Loan Agreement").
The Loan Agreement, which expires on August 11, 2004, provides for aggregate
borrowings of up to $170.0 (with a right in certain circumstances to increase
borrowings to $200.0), including the issuance of up to $10.0 in letters of
credit, of which none was outstanding at February 28, 2002. 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
rating. Based on the Company's current credit rating, the interest rate,
facility fee and utilization fee (when applicable) as of February 28, 2002
were 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. At February
28, 2002, $40.0 was outstanding under the Loan Agreement.
REVOLVER. The Company and Scholastic Inc. are joint and several borrowers under
a Revolving Loan Agreement with a bank, effective November 10, 1999 and amended
June 22, 2000 (the "Revolver"). It provides for unsecured 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 rating. Based on the Company's current credit rating, the
interest rate and facility fee as of February 28, 2002 were 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. At February 28, 2002, $6.3 was outstanding under the Revolver.
7% NOTES DUE 2003. On December 23, 1996, the Company issued $125.0 of 7% Notes
(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.
5.75% NOTES DUE 2007. On January 23, 2002, the Company issued $300.0 of 5.75%
Notes (the "5.75% Notes"). The 5.75% Notes are unsecured and unsubordinated
obligations of the Company and will mature on January 15, 2007. Interest on the
5.75% Notes is payable semi-annually on July 15 and January 15 of each year. The
Company may, at any time, redeem all or a portion of the 5.75% Notes at a
redemption price (plus accrued interest to the date of redemption), equal to the
greater of a) 100% of the principal amount, or b) the sum of the present values
of the remaining scheduled payments of principal and interest discounted to the
date of redemption on a semiannual basis. The net proceeds were used to
permanently repay a portion of the $350.0 Grolier Facility.
INTEREST RATE SWAP AGREEMENT. On February 5, 2002, the Company entered into an
interest rate swap agreement, designated as a fair value hedge as defined under
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
with a notional amount totaling $100.0 and a variable interest rate which is
reset semi-annually based on six-month LIBOR (as defined). This agreement was
entered into to exchange the fixed interest rate on a portion of the Company's
5.75% Notes for a variable interest rate. In accordance with SFAS No. 133, the
value of the Company's 5.75% Notes was increased by $0.9 to reflect an increase
in the fair value as of February 28, 2002 and the corresponding swap asset of
$0.9 was recorded in Other assets. Changes in the fair value of the interest
rate swap offset changes in the fair value of the fixed rate debt due to changes
in market interest rates. As such, there was no ineffective portion to the hedge
recognized in earnings during the period.
12
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
CONVERTIBLE SUBORDINATED DEBENTURES. On August 18, 1995, the Company sold $110.0
of its 5.0% Convertible Subordinated Debentures due August 15, 2005 (the
"Debentures"). Effective January 11, 2002, pursuant to a Notice of Redemption
issued by the Company on November 29, 2001, $109.8 of the Debentures were
converted into 2.9 shares of common stock and $0.2 was redeemed for cash.
5. CONTINGENCIES
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(R) 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, with leave to amend the complaint. On June 1,
2001, the Court of Appeals for the Second Circuit reversed the dismissal of the
Second Amended Consolidated Complaint and remanded the case for further
proceedings. On December 10, 2001, the Supreme Court of the United States denied
the Company's Petition for a Writ of Certiorari to review the Second Circuit's
decision. The Company continues to believe that the litigation is without merit
and will continue to vigorously defend against it.
As previously reported, on February 1, 1999, two subsidiaries of the Company
commenced an action in the Supreme Court of the State of New York, New York
County, against Parachute Press, Inc. ("Parachute"), the licensor of certain
publication and nonpublication rights to the Goosebumps series, certain
affiliated Parachute companies and R.L. Stine, individually, alleging material
breach of contract and fraud in connection with the agreements under which such
Goosebumps rights are licensed to the Company. The issues in the case, captioned
Scholastic Inc. and Scholastic Entertainment Inc. v. Parachute Press, Inc.,
Parachute Publishing, LLC, Parachute Consumer Products, LLC, and R.L. Stine
(Index No. 99/600512), 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 previously reported first Parachute action, Parachute Press,
Inc. v.
13
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
Scholastic Inc., Scholastic Productions, Inc. and Scholastic Entertainment
Inc., 97 Civ. 8510 (JFK), in which two subsidiaries of the Company are
defendants and counterclaim plaintiffs, was commenced in 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. In August 2000,
the Court of Appeals for the Second Circuit vacated the dismissal and
remanded the case for further proceedings. The second action, captioned
Parachute Press, Inc. v. Scholastic Inc., Scholastic Productions, Inc. and
Scholastic Entertainment Inc. (Index No. 99/600507), 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, New York County. In its
two complaints and its counterclaims, Parachute alleges that the exercise of
contractual remedies by the Company was improper and seeks declaratory relief
and unspecified damages for, among other claims, alleged breaches of contract
and acts of unfair competition. Damages sought by Parachute include the
payment of the total of approximately $36.1 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 payment of royalties set-off by Scholastic
against amounts claimed by the Company. On July 21, 2000, the Company and
Parachute each filed motions for partial summary judgment in the pending
state court cases, which on April 4, 2002 were denied in all material
respects. On May 18, 2001, each party filed motions for summary judgment in
the federal court case. The Company is seeking declaratory relief and damages
for, among other claims, breaches of contract, fraud and acts of unfair
competition. Damages sought by the Company include repayment by Parachute of
a portion of the $15.3 advance already paid. The Company intends to
vigorously defend its position in these proceedings. The Company does not
believe that this dispute will have a material adverse effect on its
financial condition.
In addition to the above actions, various claims and lawsuits arising in the
normal course of business are pending against the Company. The results of these
proceedings are not expected to have a material adverse effect on the Company's
consolidated financial position or results of operations
6. COMPREHENSIVE INCOME
The following table sets forth comprehensive income for the periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
===========================================================================================================================
FEBRUARY 28, 2002 2001 2002 2001
===========================================================================================================================
Net income $ 11.9 $ 3.7 $ 41.5 $ 49.4
Other comprehensive (loss)/income:
Foreign currency translation adjustment
net of provision for income taxes (2.2) 1.5 (1.4) (2.5)
- ---------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 9.7 $ 5.2 $ 40.1 $ 46.9
===========================================================================================================================
14
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
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
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 for the periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
=============================================================================================================
FEBRUARY 28, 2002 2001 2002 2001
=============================================================================================================
Net income for basic EPS $ 11.9 $ 3.7 $ 41.5 $ 49.4
Dilutive effect of Debentures 0.4 -- (1) 2.1 2.6
- -------------------------------------------------------------------------------------------------------------
Adjusted net income for diluted EPS $ 12.3 $ 3.7 $ 43.6 $ 52.0
=============================================================================================================
Weighted average Class A and Common
Shares outstanding for basic EPS 37.3 35.0 36.0 34.5
Dilutive effect of shares issued pursuant to
employee stock plans 1.7 1.7 1.5 1.4
Dilutive effect of Debentures 1.3 -- (1) 2.4 2.9
- -------------------------------------------------------------------------------------------------------------
Adjusted weighted average Class A and
Common Shares for diluted EPS
outstanding 40.3 36.7 39.9 38.8
=============================================================================================================
Earnings per Class A and Common Share:
Earnings before cumulative effect of
accounting change
Basic $ 0.32 $ 0.11 $ 1.30 $ 1.43
Diluted $ 0.31 $ 0.10 $ 1.22 $ 1.34
Cumulative effect of accounting change
(net of income taxes)
Basic -- -- $ (0.15) --
Diluted -- -- $ (0.13) --
Net income
Basic $ 0.32 $ 0.11 $ 1.15 $ 1.43
Diluted $ 0.31 $ 0.10 $ 1.09 $ 1.34
=============================================================================================================
(1) THE EFFECT OF THE DEBENTURES ON THE WEIGHTED AVERAGE SHARES OUTSTANDING FOR
DILUTED EPS WAS ANTI-DILUTIVE AND NOT INCLUDED IN THE CALCULATION.
15
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
================================================================================
8. GOODWILL AND OTHER INTANGIBLES
Effective as of June 1, 2001, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets." Under SFAS No. 142, goodwill and other intangible
assets with indefinite lives are no longer amortized but are reviewed annually,
or more frequently if impairment indicators arise. During the quarter ended
November 30, 2001, the Company completed the required transitional impairment
review of goodwill. This review required the Company to estimate the fair value
of its identified reporting units as of June 1, 2001. For each of the reporting
units, the estimated fair value was determined utilizing the expected present
value of the future cash flows of the units. In all instances, the estimated
fair value of the reporting units exceeded their book values and therefore no
write-down of goodwill was required as of June 1, 2001.
The following table reflects unaudited pro forma results of operations of the
Company, giving effect to SFAS No. 142 as if it were adopted on June 1, 2000:
NINE MONTHS ENDED FEBRUARY 28,
============================================================================================================
2002 2001
============================================================================================================
Net income, as reported $ 41.5 $ 49.4
Add back: amortization expense, net of tax - 6.1
- -------------------------------------------------------------------- -------------------- --------------------
Pro forma net income $ 41.5 $ 55.5
Basic net income per Class A and Common Share:
As reported $ 1.15 $ 1.43
Pro forma $ 1.15 $ 1.60
Diluted net income per Class A and Common Share:
As reported $ 1.09 $ 1.34
Pro forma $ 1.09 $ 1.50
============================================================================================================
The following table summarizes the activity in Goodwill for the periods indicated:
=====================================================================================================================
NINE MONTHS ENDED TWELVE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, 2002 MAY 31, 2001 FEBRUARY 28, 2001
=====================================================================================================================
Beginning balance $ 221.9 $ 63.5 $ 63.5
Additions due to acquisitions 13.1 169.9 158.6
Amortization - (10.3) (7.3)
Other, principally translation adjustments 0.3 (1.2) (0.9)
---------------------------------------------------------------------------------------------------------------------
TOTAL $ 235.3 $ 221.9 $ 213.9
=====================================================================================================================
The following table summarizes Other intangibles subject to amortization at the dates indicated:
=====================================================================================================================
FEBRUARY 28, 2002 MAY 31, 2001 FEBRUARY 28, 2001
=====================================================================================================================
Customer lists $ 2.2 $ 2.2 $ 2.2
Accumulated amortization (1.8) (1.3) (0.9)
---------------------------------------------------------------------------------------------------------------------
Net customer lists $ 0.4 $ 0.9 $ 1.3
Other intangibles 3.9 3.9 3.9
Accumulated amortization (2.1) (2.0) (1.9)
---------------------------------------------------------------------------------------------------------------------
Net other intangibles $ 1.8 $ 1.9 $ 2.0
---------------------------------------------------------------------------------------------------------------------
TOTAL $ 2.2 $ 2.8 $ 3.3
=====================================================================================================================
16
SCHOLASTIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
===================================================================================================================
The following table summarizes Other intangibles not subject to amortization at the dates indicated:
==============================================================================================================
FEBRUARY 28, 2002 MAY 31, 2001 FEBRUARY 28, 2001
==============================================================================================================
Net carrying value by major class:
Titles $ 28.7 $ 28.7 $ 29.0
Licenses 17.2 17.2 17.3
Major sets 11.4 11.4 11.5
Trademarks and Other 1.8 1.8 1.8
--------------------------------------------------------------------------------------------------------------
TOTAL $ 59.1 $ 59.1 $ 59.6
==============================================================================================================
Amortization expense for Other intangibles totaled $0.2 and $0.6 for the three
and nine months ended February 28, 2002, respectively, and $1.1 and $3.2 for the
three and nine months ended February 28, 2001, respectively. Amortization
expense for the twelve months ended May 31, 2001 totaled $3.9.
9. CUMULATIVE EFFECT OF ACCOUNTING CHANGE
On June 1, 2001, the Company adopted Statement of Position No. 00-2 ("SOP
00-2"), "Accounting by Producers and Distributors of Films," which replaced SFAS
No. 53, "Financial Reporting by Producers and Distributors of Motion Picture
Films." SOP 00-2 provides that film costs should be accounted for under an
inventory model and discusses various topics such as revenue recognition and
accounting for exploitation costs and impairment assessment. In addition, SOP
00-2 establishes criteria for which revenues should be included in the Company's
ultimate revenue projections.
The Company recognizes revenue from its film licensing arrangements when the
film is complete and delivered, the license period has begun, the fee is fixed
or determinable and collection is reasonably assured. Costs of producing film
and acquiring film distribution rights are capitalized and amortized using the
individual-film-forecast method. This method amortizes such residual costs in
the same ratio that current period revenue bears to estimated remaining
unrecognized revenue as of the beginning of the fiscal year. All exploitation
costs are expensed as incurred. As a result of the adoption of SOP 00-2, the
Company recorded a charge of $5.2, net of tax, in the first quarter of fiscal
2002, to reduce the carrying value of its film production costs. This charge is
reflected in the Company's condensed consolidated statements of operations as a
cumulative effect of accounting change and is attributed entirely to the Media,
Licensing and Advertising segment. Management estimates that 100% of the costs
of its unamortized films will be amortized over the next three years.
10. SUBSEQUENT EVENT
On April 8, 2002, the Company acquired the shares of Klutz, a publisher and
creator of "books plus" products for children, from Corus Entertainment, Inc.
The Company's initial payment was $42.8 in cash. The agreement provides for
additional payments of up to $31.3 to be made to the seller in 2004 and 2005,
contingent upon the achievement of certain revenue thresholds for Klutz.
17
SCHOLASTIC CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ("MD&A")
================================================================================
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
GENERAL:
The Company's condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make
estimates and assumptions that affect the amounts reported in the condensed
consolidated financial statements and accompanying notes. The Company bases its
estimates on historical experience, current business factors, and various other
assumptions believed to be reasonable under the circumstances, which are
necessary in order to form a basis for making judgments about the carrying
values of assets and liabilities. Actual results could differ from those
estimates and assumptions. On an on-going basis, the Company evaluates its
estimates which include, but are not limited to: collectability of accounts
receivable; book returns; amortization periods; and recovery of inventories,
deferred promotion costs, prepublication costs, royalty advances, production
costs and long-lived assets.
The Company has identified the following policies as critical to its business
operations and the understanding of its results of operations:
REVENUE RECOGNITION:
The Company's revenue recognition policies for its principal businesses are as
follows:
TRADE - Revenue from the sale of children's books to bookstores and mass
merchandisers primarily is recognized at the time of shipment, which
generally is when title transfers to the customer. A reserve for estimated
returns is established at the time of sale, based on historical experience,
and recorded as a reduction to revenue. Actual returns are charged to the
reserve as received. Actual returns could differ materially from the
Company's estimate, and may result in a revision to net revenue.
CONTINUITIES - The Company operates continuity programs in which customers
generally place a single order and receive more than one shipment of books over
a period of time. Revenue from continuities is recognized at the time of
shipment or upon customer acceptance. Reserves for estimated returns are
established at the time of sale, based on historical experience, and recorded as
a reduction to revenue. Actual returns are charged to the reserve as received.
Actual returns could differ materially from the Company's estimate, and may
result in a revision to net revenue.
SCHOOL-BASED BOOK CLUBS - Revenue from school-based book clubs is recognized
upon shipment of the products.
SCHOOL-BASED BOOK FAIRS - Revenue from school-based book fairs is recognized
ratably as the book fair occurs.
18
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
FILM PRODUCTION AND LICENSING - Revenue from the sale of film rights,
principally for the home video and domestic and foreign syndicated television
markets, is recognized when the film has been delivered and is available for
showing or exploitation. Licensing revenue is recorded in accordance with
royalty agreements, at the time characters are available to the licensee and
collections are reasonably assured. These policies are compliant with Statement
of Position 00-2, "Accounting by Producers and Distributors of Films" ("SOP
00-2"), issued in June 2000, which the Company adopted in June 2001. (See Note 9
in the Notes to Condensed Consolidated Financial Statements.)
ACCOUNTS RECEIVABLE, NET:
Accounts receivable are shown net of allowance for doubtful accounts and reserve
for returns. In the normal course of business, the Company extends credit to
customers that satisfy predefined credit criteria. The Company is required to
estimate the collectability of its receivables. Judgment is required in
determining the ultimate realization of these receivables, including the current
credit-worthiness of each customer. Significant revisions to bad debt expense
and the related allowance for doubtful accounts have been recorded and may occur
in the future.
INVENTORIES:
Inventories, consisting principally of books, are stated at the lower of cost,
using the first-in, first-out method, or market. The Company records a reserve
for excess and obsolete inventory based primarily upon historical and forecasted
demand for its products. If actual market conditions are less favorable than
those projected by management, additional inventory write-downs may be required.
DEFERRED PROMOTION COSTS:
Deferred promotion costs represent direct mail and telemarketing promotion
costs incurred to acquire customers in the Company's continuity businesses
and classroom magazine subscriptions. Promotional costs are deferred when
incurred, and amortized in the proportion that current revenues bear to
estimated total revenues. The Company regularly evaluates the operating
performance of the promotions over their life cycle based on historical and
forecasted demand. Based on this evaluation, adjustments may be required to
promotional expense.
PREPUBLICATION COSTS:
The Company capitalizes prepublication costs, consisting primarily of art,
prepress and editorial expenses incurred in the creation of the master copy of a
book or other media. Prepublication costs are amortized over the product life
cycle on a straight-line basis over a three- to seven-year period, commencing
with publication. The Company regularly evaluates the profitability of the
products over their life cycle based on historical and forecasted demand. Based
on this evaluation, adjustments may be required to amortization expense.
19
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
GOODWILL AND OTHER INTANGIBLES:
In accordance with Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets" ("SFAS 142"), goodwill and other intangible assets
with indefinite lives are no longer amortized. The Company reviews its goodwill
and non-amortizable intangibles on an annual basis for impairment, or more
frequently if impairment indicators arise. The impairment review process entails
determining the future cash flows for the Company's identified reporting units
and comparing those cash flows to the reporting units' carrying values. The
determination of cash flows requires management to make significant estimates
and assumptions about its reporting units' future operating performance. Actual
operating results could differ materially from those estimates and assumptions.
The Company's judgment regarding the existence of impairment indicators is based
on legal factors, market conditions and operational performance of the acquired
businesses. Future events could cause the Company to conclude that impairment
indicators exist and result in an impairment charge to goodwill and/or
non-amortizable intangibles. (See Note 8 in the Notes to Condensed Consolidated
Financial Statements.)
RESULTS OF OPERATIONS - CONSOLIDATED
Revenues for the quarter ended February 28, 2002 of $432.7 million were
nearly level with revenues of $433.0 million in the third quarter of the
prior fiscal year. School-based book club and school-based book fair revenues
for the quarter increased by $15.8 million and $11.4 million, respectively,
over the prior year quarter. The school-based book club revenue increase
primarily reflected the impact of higher order volume. The school-based book
fair revenue increase was due to increased revenue per fair as well as a
higher number of fairs. The elimination of less profitable programs in the
direct-to-home continuity business resulted in a decrease in revenues of
$10.9 million to $47.1 million for the quarter ended February 28, 2002, as
compared to revenues of $58.0 million in the prior year quarter. Also, lower
enrollments from the school-based continuity programs contributed to a
decrease of $7.0 million in revenues for the current year quarter as compared
to the prior year quarter. The year ago quarter benefited from strong sales
of HARRY POTTER(R) titles, which provided approximately $25 million in
revenues (including approximately $12 million from the launch of the HARRY
POTTER companion books, the net proceeds of which were donated to a charity
at the request of author J.K. Rowling), as compared to approximately $17
million in the current year quarter.
For the nine months ended February 28, 2002, revenues decreased 6.0% to
$1,376.0 million from $1,463.4 million in the prior year period. In the year
ago period, the Company benefited from strong sales of HARRY POTTER books,
fueled by the successful domestic trade release of HARRY POTTER AND THE
GOBLET OF FIRE, totaling approximately $190 million as compared to
approximately $70 million in the current fiscal period. Also contributing to
the revenue decrease was the Company's decision not to update SCHOLASTIC
LITERACY PLACE(R), which resulted in a decrease of $12.8 million to $38.3
million in the current fiscal period, from $51.1 million in the prior year.
These anticipated declines were partially offset by strong growth in
school-based book fairs and school-based book clubs of $24.2 million and
$23.1 million, respectively.
20
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
Cost of goods sold as a percentage of revenues improved to 44.0% in the
quarter ended February 28, 2002 from 46.1% in the prior year quarter. This
improvement was primarily attributable to the Company's ongoing cost savings
program, which produced approximately $6 million of savings, or 1.4% of
revenues in the current year quarter. Also contributing to the improvement
was the Company's April 2001 decision not to update SCHOLASTIC LITERACY
PLACE, thereby reducing amortization expense of prepublication costs included
in cost of product in the current quarter by $4.4 million, or 1.0% of
revenues. For the nine months ended February 28, 2002, cost of goods as a
percentage of revenues improved to 43.8% from 45.7% in the prior year period,
primarily as a result of the Company's cost savings program.
As a percentage of revenues, selling, general and administrative expenses
increased to 45.0% for the quarter ended February 28, 2002 compared to 43.2%
in the year ago quarter. This increase was primarily the result of the prior
year's strong sales of HARRY POTTER titles without the incurrence of
proportionate marketing and promotional expenses. For the nine-month period
ended February 28, 2002, selling, general and administrative expenses as a
percentage of revenues increased to 43.5% from 41.0% in the prior fiscal year
period. This increase reflected the impact of the decrease in HARRY POTTER
revenues of approximately $120 million from the prior fiscal year, partially
offset by the benefit of the Company's ongoing cost savings program of
approximately $16 million.
Bad debt expense decreased to $11.0 million, or 2.5% of revenues, for the
quarter ended February 28, 2002, as compared to $19.9 million, or 4.6% of
revenues, in the prior year quarter. In the current fiscal quarter, the
Company refined its estimation of the bad debt reserve for the direct-to-home
continuity business to reflect better than previously anticipated credit
performance. These refinements resulted in a decrease in bad debt expense of
$6.1 million. The after-tax effect of the bad debt reduction on net income
was $3.9 million, or $0.10 per diluted share. For the nine months ended
February 28, 2002, bad debt expense increased to 3.8% of revenue, as compared
3.6% of revenue, in the prior year period. This increase was due primarily to
the inclusion in the current period of three additional weeks of the
direct-to-home continuity business, which has lower collection rates than the
Company's other businesses.
Depreciation for the quarter ended February 28, 2002 increased to $9.5 million
from $6.3 million in the prior year quarter. For the nine months ended February
28, 2002, depreciation increased to $25.4 million from $19.6 million in the
prior year period. These increases are a result of depreciation on projects
recently placed in service, including information technology initiatives.
Goodwill and other intangibles amortization reflected reductions of $3.3 million
and $9.9 million in the quarter and the nine-month periods ended February 28,
2002, respectively, related to the Company's adoption of SFAS 142. Under this
pronouncement, the Company is required to take an impairment-only approach to
amortizing goodwill and other intangible assets with indefinite lives, which
accordingly reduced amortization expense. (See Note 8 in the Notes to Condensed
Consolidated Financial Statements.)
21
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
The resulting operating income for the quarter ended February 28, 2002 grew over
the prior year quarter by $10.3 million to $26.6 million, or 6.1% of revenue, as
compared to $16.3 million, or 3.8% of revenue, in the prior year quarter. For
the nine months ended February 28, 2002, operating income decreased to $97.2
million, or 7.1% of revenue, compared to $110.9 million, or 7.6% of revenue, in
the prior fiscal year.
Net interest expense decreased to $7.9 million and $24.3 million from $10.5
million and $33.7 million in the three- and nine-month periods ended February
28, 2002, respectively, primarily due to lower interest rates.
In the first quarter of fiscal 2002, the Company adopted SOP 00-2. As a result,
the Company recorded an after-tax charge of $5.2 million, which was reflected as
a cumulative effect of accounting change. (See Note 9 in the Notes to Condensed
Consolidated Financial Statements.)
Net income for the third fiscal quarter increased to $11.9 million, or $0.31 per
diluted share, compared to $3.7 million, or $0.10 per diluted share, in the
prior year quarter. For the nine months ended February 28, 2002, net income
decreased to $41.5 million, or $1.09 per diluted share, from $49.4 million, or
$1.34 per diluted share, in the prior year. Included in the current year's net
income was the effect of the SOP 00-2 charge of $5.2 million, or $0.13 per
diluted share.
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 of children's books in the United States through
school-based book clubs and book fairs, school-based and direct-to-home
continuity programs and the trade channel. The direct-to-home continuity and
trade businesses formerly operated by Grolier are incorporated in this segment
from June 22, 2000, the date on which Grolier was acquired.
(IN MILLIONS) THREE MONTHS ENDED NINE MONTHS ENDED
====================================================================================================================
FEBRUARY 28, 2002 2001 2002 2001
====================================================================================================================
Revenue $ 268.9 $ 266.4 $ 836.9 $ 918.5
Operating profit 43.1 39.3 118.0 157.5
- --------------------------------------------------------------------------------------------------------------------
OPERATING MARGIN 16.0% 14.8% 14.1% 17.1%
The following table highlights the results of the direct-to-home continuity
business included in the Children's Book Publishing and Distribution segment,
formerly operated by Grolier, from June 22, 2000, the date on which Grolier was
acquired.
(IN MILLIONS) THREE MONTHS ENDED NINE MONTHS ENDED
=============================================================================================================
FEBRUARY 28, 2002 2001 2002 2001
=============================================================================================================
Revenue $ 47.1 $ 58.0 $ 157.6 $ 161.9
Operating profit 10.7 5.3 21.0 11.5
-------------------------------------------------------------------------------------------------------------
OPERATING MARGIN 22.7% 9.1% 13.3% 7.1%
22
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
Revenues in the CHILDREN'S BOOK PUBLISHING AND DISTRIBUTION segment for the
quarter ended February 28, 2002 increased slightly to $268.9 million compared
to $266.4 million in the prior fiscal year quarter. This increase in revenues
related principally to higher school-based book clubs and school-based book
fairs revenues of $15.8 million and $11.4 million, respectively, over the
prior fiscal year quarter. Sales growth for school-based book clubs primarily
reflected the impact of higher order volume. Sales growth for school-based
book fairs reflected continued growth in revenue per fair and fair count,
which benefited from the July 2001 acquisition of assets of Troll Book Fairs.
Revenue increases were partially offset by lower trade sales of $7.1 million
due to the effect of the strong prior year sales of HARRY POTTER titles and a
decrease of $7.0 million in the school-based continuity programs reflecting
lower customer enrollments. Additionally, in the quarter ended February 28,
2002, revenues for the Company's direct-to-home continuity business decreased
18.8%, or $10.9 million, to $47.1 million when compared to the prior year,
reflecting the planned elimination of less profitable programs. Excluding the
direct-to-home continuity business, segment revenues for the quarter
increased by $13.4 million to $221.8 million compared to the prior year
quarter.
Operating profit for the quarter increased $3.8 million to $43.1 million
compared to $39.3 million in the prior year. Increases in the operating profits
of the direct-to-home continuity business, school-based book fairs and
school-based book clubs of $5.4 million, $5.3 million and $3.4 million,
respectively, were offset by operating profit decreases in trade and
school-based continuity programs results of $6.6 million and $3.7 million,
respectively. Operating profit for the Company's direct-to-home continuity
business increased in the current year quarter to $10.7 million from $5.3
million in the prior year quarter, reflecting planned lower revenues which were
more than offset by higher operating margins and the $6.1 million impact of the
Company's refinement of the bad debt reserve to reflect better than previously
anticipated credit performance. The after-tax effect of the bad debt reduction
on net income was $3.9 million, or $0.10 per diluted share. Segment operating
margins for the quarter increased to 16.0% from 14.8% in the prior year period,
primarily reflecting reduced promotional costs related to the elimination of
less profitable programs in the direct-to-home continuity business. Excluding
the direct-to-home continuity business, segment operating profit for the quarter
decreased to $32.4 million (14.6% of revenue) from $34.0 million (16.3% of
revenue) in the prior year period.
Revenues for the nine-month period ended February 28, 2002 decreased $81.6
million to $836.9 million compared to $918.5 million in the year ago period.
This decrease was primarily due to a decline in trade sales of $118.3 million
reflecting strong prior year sales of HARRY POTTER titles, including the release
in the summer of 2000 of HARRY POTTER AND THE GOBLET OF FIRE, of approximately
$190 million compared to approximately $70 million of sales in the current
period. This decrease was partially offset by revenue increases of $24.2 million
and $23.1 million in school-based book fairs and school-based book clubs,
respectively, as compared to the prior year period. Revenues from the
direct-to-home continuity business decreased $4.3 million to $157.6 million from
$161.9 million in the prior period. This decrease reflected the elimination of
less profitable programs partially offset by the impact of three weeks of
additional direct-to-home revenues in the current year of $17.8 million from
Grolier's direct-to-home continuity business. Excluding the direct-to-home
continuity business, segment revenues decreased by $77.3 million to $679.3
million from $756.6 million in the prior year period.
23
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
Segment operating profit for the nine-month period ended February 28, 2002
decreased $39.5 million to $118.0 million, as compared to $157.5 million for the
prior year period. This decrease reflected the impact of the reduced HARRY
POTTER sales discussed above. Segment operating margins for the nine-month
period decreased to 14.1% from 17.1% in the prior year period, also primarily
due to the decrease in HARRY POTTER sales. Operating profit for the
direct-to-home continuity business for the nine-month period increased to $21.0
million (13.3% of revenue), from $11.5 million (7.1% of revenue) in the prior
year period, primarily as a result of the decrease in the bad debt reserve.
Excluding the direct-to-home continuity business, segment operating profit for
the nine-month period decreased to $97.0 million (14.3% of revenue) from $146.0
million (19.3% of revenue) in the prior year period.
EDUCATIONAL PUBLISHING
The Company's EDUCATIONAL PUBLISHING segment includes the publication and
distribution to schools and libraries of supplemental and core materials,
classroom magazines and print and on-line reference and non-fiction products for
grades K to 12 in the United States. The reference and non-fiction business
formerly operated by Grolier is included in this segment from June 22, 2000, the
date on which Grolier was acquired.
(IN MILLIONS) THREE MONTHS ENDED NINE MONTHS ENDED
====================================================================================================================
FEBRUARY 28, 2002 2001 2002 2001
====================================================================================================================
Revenue $ 60.9 $ 59.4 $ 225.9 $ 226.2
Operating (loss) profit (1.6) (7.8) 25.3 (1.4)
- ------------------------------ --------------------- --------------------- -------------------- --------------------
OPERATING MARGIN * * 11.2% *
* - NOT MEANINGFUL
Revenues in the EDUCATIONAL PUBLISHING segment for the quarter ended February
28, 2002 increased modestly to $60.9 million, compared to $59.4 million in the
comparable quarter of the prior year. The slight increase in revenue for the
quarter is due to increases in revenues of paperback reading collections of $2.4
million, the inclusion of $1.6 million of revenues related to the December 2001
acquisition of Tom Snyder Productions Inc. and increases in other core products
of $1.1 million. These increases were partially offset by lower sales of Grolier
reference and non-fiction products of $2.3 million combined with lower sales of
SCHOLASTIC LITERACY PLACE of $1.1 million related to the Company's strategic
decision not to update the program. For the nine-month period ended February 28,
2002, revenues decreased slightly to $225.9 million, compared to $226.2 million
in the comparable prior year period, reflecting the anticipated decrease of
SCHOLASTIC LITERACY PLACE sales of $12.8 million. This decrease was offset by
increased sales of paperback reading collections of $9.1 million and the impact
of three additional weeks of Grolier reference and non-fiction products in the
current year of $4.1 million.
Operating loss for this segment for the third quarter improved by $6.2
million over the comparable quarter of the prior year, primarily due to
reduced prepublication amortization of $4.0 million, principally related to
the Company's April 2001 decision not to update SCHOLASTIC LITERACY PLACE,
and reduced goodwill and other intangibles amortization of $1.7 million,
resulting from the adoption of SFAS 142 in the current year. For the
nine-month period ended February 28, 2002, operating profit improved by $26.7
million over the comparable prior year period, primarily due to reductions in
prepublication costs of $17.0 million, in marketing, promotion and editorial
costs of $5.5 million and in goodwill and other intangibles amortization of
$4.5 million.
24
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
MEDIA, LICENSING AND ADVERTISING
The Company's MEDIA, LICENSING AND ADVERTISING segment includes the production
and/or distribution in the United States of software, Internet services and the
production and/or distribution by and through the Company's subsidiary,
Scholastic Entertainment Inc. ("SEI"), of programming and consumer products
(including children's television programming, videos, software, feature films,
promotional activities and non-book merchandise). The software business formerly
operated by Grolier is included in this segment from June 22, 2000, the date on
which Grolier was acquired.
(IN MILLIONS) THREE MONTHS ENDED NINE MONTHS ENDED
====================================================================================================================
FEBRUARY 28, 2002 2001 2002 2001
====================================================================================================================
Revenue $ 32.4 $ 35.6 $ 98.3 $ 101.4
Operating loss (3.3) (3.3) (11.8) (13.6)
- --------------------------------------------------------------------------------------------------------------------
OPERATING MARGIN * * * *
* - NOT MEANINGFUL
MEDIA, LICENSING AND ADVERTISING revenues decreased $3.2 million to $32.4
million for the quarter ended February 28, 2002 compared to $35.6 million in
the prior year quarter. The revenue decrease is primarily attributable to
reduced SEI film production revenue of $4.3 million, principally due to fewer
new shows delivered for the TV series, CLIFFORD THE BIG RED DOG(TM),
partially offset by increased licensing royalty revenue from the CLIFFORD
property of $3.4 million. For the nine-month period, segment revenues for the
current fiscal year amounted to $98.3 million versus $101.4 million in the
prior year. The decrease is principally due to the decline in film revenue of
$12.1 million due to fewer new CLIFFORD series episodes delivered this year
and the benefit of last year's $3.9 million license renewal from FOX TV of
THE MAGIC SCHOOL BUS(R) series, partially offset by increased licensing and
merchandising revenue of $8.7 million from the CLIFFORD property.
For the quarter ended February 28, 2002 and the comparable prior year quarter,
segment operating loss was flat at $3.3 million. For the nine-month period,
operating loss improved $1.8 million to $11.8 million, primarily reflecting a
reduction of $3.6 million in Internet development expenses, partially offset by
a decrease in other segment operating results.
INTERNATIONAL
The INTERNATIONAL segment includes the publication and distribution of products
and services outside the United States by the Company's international operations
and its domestic export and foreign rights businesses. The international
businesses formerly operated by Grolier are included in this segment from June
22, 2000, the date on which Grolier was acquired.
(IN MILLIONS) THREE MONTHS ENDED NINE MONTHS ENDED
====================================================================================================================
FEBRUARY 28, 2002 2001 2002 2001
====================================================================================================================
Revenue $ 70.5 $ 71.6 $ 214.9 $ 217.3
Operating profit 3.0 2.3 8.3 11.8
- --------------------------------------------------------------------------------------------------------------------
OPERATING MARGIN 4.3% 3.2% 3.9% 5.4%
25
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
INTERNATIONAL revenues decreased by $1.1 million to $70.5 million for the
quarter ended February 28, 2002 from $71.6 million in the year ago quarter. This
decrease is due primarily to the adverse impact of foreign currency exchange
rates of $2.3 million, as well as lower revenues in the United Kingdom of $2.1
million. These decreases were partially offset by increases of $2.4 million in
Canadian revenues and $1.0 million in Australian revenues. International
revenues for the nine months ended February 28, 2002 decreased $2.4 million to
$214.9 million, as compared to $217.3 million in the prior year period. This
decrease is primarily due to the adverse impact of foreign currency exchange
rates of $8.1 million, in addition to lower revenues in the United Kingdom and
Export operations of $2.9 million and $1.9 million, respectively. These declines
were partially offset by three additional weeks of Grolier business revenues of
$6.2 million in the current year, along with increases in revenues in Australia
and Canada of $2.8 million and $1.7 million, respectively.
For the quarter ended February 28, 2002, operating profit increased $0.7 million
from the prior year quarter, to $3.0 million. The increase is attributed to
higher operating profits in the United Kingdom, Canada and Australia of $0.8
million, $0.8 million and $0.5 million, respectively, partially offset by a
decrease in operating profit in Export operations of $0.9 million. For the nine
months ended February 28, 2002, operating profit decreased by $3.5 million to
$8.3 million as compared to the prior year. This decrease is primarily the
result of lower operating profits in Export operations and Canada of $1.6
million and $1.4 million, respectively.
SEASONALITY
The Company's school-based book clubs, school-based 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 generally lower than its revenues in the other two fiscal
quarters. The Company experiences a substantial loss from operations in the
first quarter. Typically, school-based 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 highest in the first quarter.
In the June through October time period, the Company experiences negative cash
flow due to the seasonality of its business. As a result of the Company's
business cycle, seasonal borrowings have historically increased during June,
July and August, have generally peaked in September or October, and have been at
their lowest point in May.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased by $1.2 million during the
nine-month period ended February 28, 2002, compared to an increase of $2.9
million during the comparable period in the prior year.
Cash flow provided from operations was $65.5 million for the nine-month
period ended February 28, 2002, resulting from net income adjusted for
non-cash activity of $180.3 million, partially offset by working capital
increases of $114.8 million.
26
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
Cash outflows for investing activities were $133.0 million for the current
nine-month period as compared to $516.5 million in the prior year period, which
reflected the acquisition of Grolier. The spending for the nine months ended
February 28, 2002 principally consisted of capital expenditures, prepublication
costs, royalty advances, business acquisitions and production costs. Capital
expenditures, including capitalized interest, totaled $46.5 million for the nine
months ended February 28, 2002, decreasing $3.1 million from the year ago
period. Prepublication expenditures increased $2.8 million to $39.4 million in
the nine-month period. Payments for royalty advances increased to $23.7 million
in the nine-month period from $19.3 million in the prior year nine-month period.
The Company believes its existing cash position, combined with funds
generated from operations and available under the Loan Agreement and the
Revolver, will be sufficient to finance its ongoing working capital
requirements for the next fiscal year.
FINANCING
On January 11, 2002, pursuant to a Notice of Redemption issued by the Company on
November 29, 2001, $109.8 million of the Company's 5.0% Convertible Subordinated
Debentures were converted into 2.9 million shares of common stock, and $0.2
million was redeemed for cash.
On January 23, 2002, the Company issued $300.0 million of 5.75% Notes (the
"5.75% Notes"). The 5.75% Notes are unsecured and unsubordinated obligations
of the Company and will mature on January 15, 2007. The Company may, at any
time, redeem all or a portion of the 5.75% Notes at a redemption price (plus
accrued interest to the date of redemption), equal to the greater of a) 100%
of the principal amount, or b) the sum of the present values of the remaining
scheduled payments of principal and interest discounted to the date of
redemption on a semiannual basis. The net proceeds were used to permanently
repay a portion of the $350.0 million facility (the "Grolier Facility")
established in connection with the June 22, 2000 acquisition of Grolier
Incorporated. At February 28, 2002, the Company has outstanding $50.0 million
on the Grolier Facility which expires on June 21, 2002. The weighted average
interest rate under the Grolier Facility at February 28, 2002 was 2.5%.
On February 5, 2002, the Company entered into an interest rate swap agreement,
designated as a fair value hedge as defined under SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities," with a notional amount totaling
$100.0 million and a variable interest rate which is reset semi-annually based
on six-month LIBOR (as defined). This agreement was entered into to exchange the
fixed interest rate on a portion of the Company's 5.75% Notes for a variable
interest rate. Changes in the fair value of the interest rate swap offset
changes in the fair value of the fixed rate debt due to changes in market
interest rates. As such, there was no ineffective portion to the hedge
recognized in earnings during the period.
The Company maintains two unsecured credit facilities, the Loan Agreement and
the Revolver, 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. Both the
Loan Agreement and the Revolver expire on August 11, 2004. The Company uses
these facilities primarily to fund seasonal cash flow needs and other working
capital requirements. At February 28, 2002, the Company had $46.3 million in
borrowings outstanding under these facilities at a weighted average interest
rate of 2.5%.
27
SCHOLASTIC CORPORATION
ITEM 2. MD&A
================================================================================
In addition, unsecured lines of credit available to the Company's international
subsidiaries totaled $52.0 million at February 28, 2002. These lines are used
primarily to fund local working capital needs. At February 28, 2002, $27.9
million in borrowings were outstanding under these lines of credit at a weighted
average interest rate of 5.6%.
ACQUISITIONS
On June 22, 2000, the Company acquired the capital stock of Grolier for $400.0
million in cash, and in July 2001, the Company acquired certain assets of Troll
Book Fairs Inc. On December 21, 2001, the Company acquired, for $9.0 million in
cash, assets of Tom Snyder Productions Inc., a leading developer and publisher
of interactive educational software.
On April 4, 2002, the Company acquired Baby's First Book Club(TM), a direct
marketer of high quality, age-appropriate books and toys for young children,
from Norwegian publisher Sandvik AS for $7.5 million.
On April 8, 2002, the Company acquired the shares of Klutz, a publisher and
creator of "books plus" products for children, from Corus Entertainment, Inc.
The Company's initial payment was $42.8 million in cash. The agreement provides
for additional payments of up to $31.3 million to be made to the seller in 2004
and 2005, contingent upon the achievement of certain revenue thresholds for
Klutz.
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.
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 Annual Report on Form 10-K for the fiscal year ended May 31, 2001.
28
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 believes that the impact of currency fluctuations do not represent a
significant risk in the context of the Company's current international
operations.
Market risks relating to the Company's operations result primarily from changes
in interest rate fluctuations, which are managed by balancing the mix of
variable- versus fixed-rate borrowings. Additionally, financial instruments,
including swap and forward contracts, are used to hedge exposure to interest
rate and foreign currency risks. Approximately forty percent of the Company's
debt bears interest at a variable rate and is sensitive to changes in interest
rates. The Company is subject to the risk that market interest rates will
increase and thereby increase the interest rates currently being charged under
the variable rate debt.
As of February 28, 2002, the balance outstanding under its variable rate
facilities, including interest rate swap agreements, was $224.2 million, at a
weighted average interest rate of 3.1%. A 15% increase or decrease in the
average cost of the Company's variable rate debt under the various facilities at
February 28, 2002 would impact the Company's pre-tax results of operations and
cash flows by approximately $1 million annually.
29
PART II - OTHER INFORMATION
SCHOLASTIC CORPORATION
ITEM 1. LEGAL PROCEEDINGS
================================================================================
See Note 5 (Contingencies) of the Notes to Condensed Consolidated Financial
Statements - Unaudited appearing in Item 1 of this Report for updated
information concerning the two actions captioned SCHOLASTIC INC. AND
SCHOLASTIC ENTERTAINMENT INC. V. PARACHUTE PRESS, INC., PARACHUTE PUBLISHING,
LLC, PARACHUTE CONSUMER PRODUCTS, LLC, AND R. L. STINE (Index No. 99/600512)
and PARACHUTE PRESS, INC. V. SCHOLASTIC INC., SCHOLASTIC PRODUCTIONS, INC.
AND SCHOLASTIC ENTERTAINMENT INC. (Index No. 99/600507), which description is
incorporated herein by reference.
30
SCHOLASTIC CORPORATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
================================================================================
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
4.10 Indenture dated January 23, 2002 for
5.75% Notes due January 15, 2007 issued
by the Company (incorporated by reference
to the Company's Registration Statement
on Form S-3 (Registration No. 333-55238)
as filed with the Commission on February
8, 2001).
(b) Reports on Form 8-K A current report on Form 8-K was filed on
January 22, 2002 noticing the Company's
announcement that it entered into a Terms
Agreement relating to a public offering
of $300 million aggregate principal
amount of its 5.75% Notes due January 15,
2007 (the "Notes") under its Registration
Statement on Form S-3 (no. 333-55238),
filed with the Securities and Exchange
Commission on February 8, 2001, a
prospectus dated February 28, 2001 and
the related prospectus supplement dated
January 17, 2002. The Notes bear
interest at 5.75% and will mature on
January 15, 2007.
- --------------------------------------------------------------------------------
31
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 15, 2002 /s/ Richard Robinson
-----------------------------------
Richard Robinson
CHAIRMAN OF THE BOARD,
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
Date: April 15, 2002 /s/ Kevin J. McEnery
-----------------------------------
Kevin J. McEnery
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
32
SCHOLASTIC CORPORATION
CURRENT REPORT ON FORM 10-Q, DATED FEBRUARY 28, 2002
EXHIBITS INDEX
===================================================================================================================
PAGE NUMBER IN
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED COPY
------ ----------------------- -------------
Exhibit 4.10 Indenture dated January 23, 2002 for 5.75% Notes due January 15, E-1
2007 issued by the Company (incorporated by reference to the
Company's Registration Statement on Form S-3 (Registration No.
333-55238) as filed with the Commission on February 8, 2001).
33
EXHIBIT 4.10
================================================================================
Scholastic Corporation
TO
Citibank, N.A.
TRUSTEE
--------------
INDENTURE
Dated as of January 23, 2002
--------------
Senior Debt Securities
================================================================================
TABLE OF CONTENTS
PAGE
RECITALS OF THE COMPANY...................................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.......................................................................1
Act.......................................................................................2
Affiliate.................................................................................2
control...................................................................................2
Attributable Debt.........................................................................2
Authenticating Agent......................................................................2
Board of Directors........................................................................2
Board Resolution..........................................................................2
Business Day..............................................................................3
Commission................................................................................3
Common Stock..............................................................................3
Company...................................................................................3
Company Request...........................................................................3
Company Order.............................................................................3
Consolidated Net Tangible Assets..........................................................3
Corporate Trust Office....................................................................3
corporation...............................................................................4
Covenant Defeasance.......................................................................4
Debt......................................................................................4
Defaulted Interest........................................................................4
Defeasance................................................................................4
Depositary................................................................................4
Event of Default..........................................................................4
Exchange Act..............................................................................4
Expiration Date...........................................................................4
Global Security...........................................................................4
Holder....................................................................................4
Indenture.................................................................................4
interest..................................................................................5
Interest Payment Date.....................................................................5
Investment Company Act....................................................................5
Lien......................................................................................5
Maturity..................................................................................5
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Nonrecourse Obligation....................................................................5
Notice of Default.........................................................................5
Officers' Certificate.....................................................................5
Opinion of Counsel........................................................................5
Original Issue Discount Security..........................................................5
Outstanding...............................................................................6
Paying Agent..............................................................................7
Person....................................................................................7
Place of Payment..........................................................................7
Predecessor Security......................................................................7
Principal Property........................................................................7
Redemption Date...........................................................................7
Redemption Price..........................................................................7
Regular Record Date.......................................................................7
Responsible Officer.......................................................................8
Restricted Subsidiary.....................................................................8
Sale and Leaseback Transaction............................................................8
Securities................................................................................8
Securities Act............................................................................8
Security Register.........................................................................8
Security Registrar........................................................................8
Special Record Date.......................................................................8
Stated Maturity...........................................................................8
Subsidiary................................................................................8
Trust Indenture Act.......................................................................8
Trustee...................................................................................8
U.S. Government Obligation................................................................8
Vice President............................................................................9
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS..............................................9
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE............................................9
SECTION 104. ACTS OF HOLDERS; RECORD DATES....................................................10
SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY............................................12
SECTION 106. NOTICE TO HOLDERS; WAIVER........................................................12
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT................................................13
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.........................................13
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SECTION 109. SUCCESSORS AND ASSIGNS...........................................................13
SECTION 110. SEPARABILITY CLAUSE..............................................................13
SECTION 111. BENEFITS OF INDENTURE............................................................13
SECTION 112. GOVERNING LAW....................................................................14
SECTION 113. LEGAL HOLIDAYS...................................................................14
ARTICLE TWO
SECURITY FORMS
SECTION 201. FORMS GENERALLY..................................................................14
SECTION 202. FORM OF FACE OF SECURITY.........................................................15
SECTION 203. FORM OF REVERSE OF SECURITY......................................................16
SECTION 204. FORM OF LEGEND FOR GLOBAL SECURITIES.............................................23
SECTION 205. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION..................................23
SECTION 206. FORM OF CONVERSION NOTICE........................................................23
ARTICLE THREE
THE SECURITIES
SECTION 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES.............................................25
SECTION 302. DENOMINATIONS....................................................................27
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING...................................27
SECTION 304. TEMPORARY SECURITIES.............................................................29
SECTION 305. REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE..............................29
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.................................31
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SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED...................................32
SECTION 308. PERSONS DEEMED OWNERS............................................................33
SECTION 309. CANCELLATION.....................................................................34
SECTION 310. COMPUTATION OF INTEREST..........................................................34
SECTION 311. CUSIP NUMBERS....................................................................34
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE..........................................34
SECTION 402. APPLICATION OF TRUST MONEY.......................................................35
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT................................................................36
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT...............................37
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE..................38
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.................................................39
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES......................39
SECTION 506. APPLICATION OF MONEY COLLECTED...................................................39
SECTION 507. LIMITATION ON SUITS..............................................................40
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST AND TO CONVERT...........................................41
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES...............................................41
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SECTION 510. RIGHTS AND REMEDIES CUMULATIVE...................................................41
SECTION 511. DELAY OR OMISSION NOT WAIVER.....................................................41
SECTION 512. CONTROL BY HOLDERS...............................................................42
SECTION 513. WAIVER OF PAST DEFAULTS..........................................................42
SECTION 514. UNDERTAKING FOR COSTS............................................................42
SECTION 515. WAIVER OF USURY, STAY OR EXTENSION LAWS..........................................43
ARTICLE SIX
THE TRUSTEE
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES..............................................43
SECTION 602. NOTICE OF DEFAULTS...............................................................43
SECTION 603. CERTAIN RIGHTS OF TRUSTEE........................................................43
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES...........................45
SECTION 605. MAY HOLD SECURITIES AND ACT AS TRUSTEE UNDER OTHER INDENTURES....................45
SECTION 606. MONEY HELD IN TRUST..............................................................45
SECTION 607. COMPENSATION AND REIMBURSEMENT...................................................46
SECTION 608. CONFLICTING INTERESTS............................................................46
SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY..........................................46
SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR................................47
SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR...........................................48
SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS......................49
SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY................................50
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SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT..............................................50
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS........................52
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS...........................52
SECTION 703. REPORTS BY TRUSTEE...............................................................52
SECTION 704. REPORTS BY COMPANY...............................................................53
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.............................53
SECTION 802. SUCCESSOR SUBSTITUTED............................................................54
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS...............................55
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS..................................56
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.............................................57
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES................................................57
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT..............................................58
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES...............................58
ARTICLE TEN
COVENANTS
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SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST......................................58
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.................................................58
SECTION 1003. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST...............................59
SECTION 1004. STATEMENT BY OFFICERS AS TO DEFAULT.............................................60
SECTION 1005. EXISTENCE.......................................................................60
SECTION 1006. MAINTENANCE OF PROPERTIES.......................................................60
SECTION 1007. PAYMENT OF TAXES AND OTHER CLAIMS...............................................61
SECTION 1008. LIMITATION ON LIENS.............................................................61
SECTION 1009. LIMITATIONS ON SALE AND LEASEBACK TRANSACTIONS..................................63
SECTION 1010. WAIVER OF CERTAIN COVENANTS.....................................................63
SECTION 1011. CALCULATION OF ORIGINAL ISSUE DISCOUNT...........................................63
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. APPLICABILITY OF ARTICLE........................................................64
SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE...........................................64
SECTION 1103. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED...............................64
SECTION 1104. NOTICE OF REDEMPTION............................................................65
SECTION 1105. DEPOSIT OF REDEMPTION PRICE.....................................................66
SECTION 1106. SECURITIES PAYABLE ON REDEMPTION DATE...........................................66
SECTION 1107. SECURITIES REDEEMED IN PART.....................................................67
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ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. APPLICABILITY OF ARTICLE........................................................67
SECTION 1202. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES...........................67
SECTION 1203. REDEMPTION OF SECURITIES FOR SINKING FUND.......................................68
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE....................68
SECTION 1302. DEFEASANCE AND DISCHARGE........................................................68
SECTION 1303. COVENANT DEFEASANCE.............................................................69
SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.................................69
SECTION 1305. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE
HELD IN TRUST; MISCELLANEOUS PROVISIONS......................................71
SECTION 1306. REINSTATEMENT...................................................................72
ARTICLE FOURTEEN
CONVERSION OF SECURITIES
SECTION 1401. APPLICABILITY OF ARTICLE........................................................72
SECTION 1402. EXERCISE OF CONVERSION PRIVILEGE................................................72
SECTION 1403. NO FRACTIONAL SHARES............................................................73
SECTION 1404. ADJUSTMENT OF CONVERSION PRICE..................................................74
SECTION 1405. NOTICE OF CERTAIN CORPORATE ACTIONS.............................................74
SECTION 1406. RESERVATION OF SHARES OF COMMON STOCK...........................................75
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SECTION 1407. PAYMENT OF CERTAIN TAXES UPON CONVERSION........................................75
SECTION 1408. NONASSESSABILITY................................................................76
SECTION 1409. EFFECT OF CONSOLIDATION OR MERGER ON CONVERSION PRIVILEGE.......................76
SECTION 1410. DUTIES OF TRUSTEE REGARDING CONVERSION..........................................77
SECTION 1411. REPAYMENT OF CERTAIN FUNDS UPON CONVERSION......................................77
TESTIMONIUM.................................................................................. 78
SIGNATURES AND SEALS......................................................................... 78
ACKNOWLEDGMENTS.............................................................................. 79
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NOTE: This table of contents shall not, for any purpose, be deemed to be a
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..............................................................
CERTAIN SECTIONS OF THIS INDENTURE RELATING TO SECTIONS 310 THROUGH 318,
INCLUSIVE, OF THE TRUST INDENTURE ACT OF 1939:
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
ss.310(a)(1) ........................................................ 609
(a)(2) ........................................................ 609
(a)(3) ........................................................ Not Applicable
(a)(4) ........................................................ Not Applicable
(b) ........................................................ 608
610
ss.311(a) ........................................................ 613
(b) ........................................................ 613
ss.312(a) ........................................................ 701
702
(b) ........................................................ 702
(c) ........................................................ 702
ss.313(a) ........................................................ 703
(b) ........................................................ 703
(c) ........................................................ 703
(d) ........................................................ 703
ss.314(a) ........................................................ 704
(a)(4) ........................................................ 101
1004
(b) ........................................................ Not Applicable
(c)(1) ........................................................ 102
(c)(2) ........................................................ 102
(c)(3) ........................................................ Not Applicable
(d) ........................................................ Not Applicable
(e) ........................................................ 102
ss.315(a) ........................................................ 601
(b) ........................................................ 602
(c) ........................................................ 601
(d) ........................................................ 601
(e) ........................................................ 514
ss.316(a) ........................................................ 101
(a)(1)(A) ........................................................ 502
512
(a)(1)(B) ........................................................ 513
(a)(2) ........................................................ Not Applicable
(b) ........................................................ 508
(c) ........................................................ 104
ss.317(a)(1) ........................................................ 503
(a)(2) ........................................................ 504
(b) ........................................................ 1003
ss.318(a) ........................................................ 107
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NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
INDENTURE, dated as of January 23, 2002, between Scholastic Corporation, a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal executive office at 555
Broadway, New York, New York 10012, and Citibank, N.A., a national banking
association duly organized and existing under the laws of the United States of
America, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness (herein called the
"Securities"), to be issued in one or more series as provided in this Indenture.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities or of series
thereof appertaining, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles,
and, except as otherwise herein expressly provided, the term "generally
accepted accounting principles" with respect to any computation required or
permitted hereunder shall mean such accounting principles as are generally
accepted at the date of such computation;
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(4) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may
be, of this Indenture; and
(5) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other sub division.
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Attributable Debt" means, in respect of a Sale and Leaseback Transaction
involving a Principal Property, at the time of determination, the lesser of: (a)
the fair value of such property (as determined in good faith by the Board of
Directors); or (b) the present value of the total net amount of rent required to
be paid under such lease during the remaining term thereof (including any
renewal term or period for which such lease has been extended), discounted at
the rate of interest set forth or implicit in the terms of such lease or, if not
practicable to determine such rate, the weighted average interest rate per annum
(or in the case of Original Issue Discount Securities, the imputed interest
rate) borne by the Securities of each series outstanding pursuant to this
Indenture compounded semi-annually. For purposes of the foregoing definition,
rent shall not include amounts required to be paid by the lessee, whether or not
designated as rent or additional rent, on account of or contingent upon
maintenance and repairs, insurance, taxes, assessments, water rates and similar
charges. In the case of any lease which is terminable by the lessee upon the
payment of a penalty, such net amount shall be the lesser of the net amount
determined assuming termination upon the first date such lease may be terminated
(in which case the net amount shall also include the amount of the penalty, but
no rent shall be considered as required to be paid under such lease subsequent
to the first date upon which it may be so terminated) and the net amount
determined assuming no such termination.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 614 to act on behalf of the Trustee to authenticate Securities of one
or more series.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board empowered to act for it with respect
to this Indenture.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
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"Business Day", when used with respect to any Place of Payment, means each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in that Place of Payment are authorized or obligated by law
or executive order to close.
"Commission" means the Securities and Exchange Commission, from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Stock" includes any stock of any class of the Company which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the Company
and which is not subject to redemption by the Company; PROVIDED, HOWEVER,
subject to the provisions of Section 1409, shares issuable on conversions of
Securities shall include only shares of the class designated as Common Stock of
the Company at the date of this Indenture or shares of any class or classes
resulting from any reclassification or reclassifications thereof and which have
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the Company
and which are not subject to redemption by the Company; PROVIDED, FURTHER that
if at any time there shall be more than one such resulting class, the shares of
each such class then so issuable shall be substantially in the proportion which
the total number of shares of such class resulting from all such
reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
"Company" means the corporation named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President or a Vice President, and by its principal
financial officer, its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary, and delivered to the Trustee.
"Consolidated Net Tangible Assets" means, as of the time of determination,
total assets (excluding applicable reserves and other property deductible items)
less: (a) total current liabilities, except for (1) notes and loans payable, (2)
current maturities of long-term debt and (3) current maturities of obligations
under capital leases; and (b) goodwill, patents and trademarks, to the extent
included in total assets, all as set forth on the most recent consolidated
balance sheet of the Company and its Subsidiaries and computed in accordance
with generally accepted accounting principles.
"Corporate Trust Office" means the corporate trust office of the Trustee
at Citibank Agency and Trust, 111 Wall Street, 14th Floor, New York, New York,
10005 or the office or agency of the Trustee at which at any particular time its
corporate trust business shall be principally administered.
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"corporation" means a corporation, association, company, joint-stock
company or business trust.
"Covenant Defeasance" has the meaning specified in Section 1303.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business), (v) the maximum fixed redemption or repurchase
price of redeemable stock of such Person at the time of determination, (vi)
every obligation to pay rent or other payment amounts of such Person with
respect to any Sale and Leaseback Transaction to which such Person is a party
and (vii) every obligation of the type referred to in Clauses (i) through (vi)
of another Person and all dividends of another Person the payment of which, in
either case, such Person has guaranteed or is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise.
"Defaulted Interest" has the meaning specified in Section 307.
"Defeasance" has the meaning specified in Section 1302.
"Depositary" means, with respect to Securities of any series issuable in
whole or in part in the form of one or more Global Securities, a clearing agency
registered under the Exchange Act that is designated to act as Depositary for
such Securities as contemplated by Section 301.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934 and any statute
successor thereto, in each case as amended from time to time.
"Expiration Date" has the meaning specified in Section 104.
"Global Security" means a Security that evidences all or part of the
Securities of any series and bears the legend set forth in Section 204 (or such
legend as may be specified as contemplated by Section 301 for such Securities).
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered
-4-
into pursuant to the applicable provisions hereof, including, for all purposes
of this instrument and any such supplemental indenture, the provisions of the
Trust Indenture Act that are deemed to be a part of and govern this instrument
and any such supplemental indenture, respectively. The term "Indenture" shall
also include the terms of particular series of Securities established as
contemplated by Section 301.
"interest", when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, means interest payable
after Maturity.
"Interest Payment Date", when used with respect to any Security, means the
Stated Maturity of an instalment of interest on such Security.
"Investment Company Act" means the Investment Company Act of 1940 and any
statute successor thereto, in each case as amended from time to time.
"Lien" means any mortgage, security interest, pledge, lien, charge or
other encumbrance.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security or an instalment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Nonrecourse Obligation" means indebtedness or other obligations
substantially related to (i) the acquisition of assets not previously owned by
the Company or any Restricted Subsidiary or (ii) the financing of a project
involving the development or expansion of properties of the Company or any
Restricted Subsidiary, as to which the obligee with respect to such indebtedness
or obligation has no recourse to the Company or any Restricted Subsidiary or any
assets of the Company or any Restricted Subsidiary other than the assets which
were acquired with the proceeds of such transaction or the project financed with
the proceeds of such transaction (and the proceeds thereof).
"Notice of Default" means a written notice of the kind specified in
Section 501(4).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President or a Vice President, and by
the principal financial officer, the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary, of the Company, and delivered to the
Trustee. One of the officers signing an Officers' Certificate given pursuant to
Section 1004 shall be the principal executive, financial or accounting officer
of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for, or an employee of, the Company.
"Original Issue Discount Security" means any Security which provides for
an amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502.
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"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, EXCEPT:
(1) Securities theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(2) Securities for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for the Holders of
such Securities; PROVIDED that, if such Securities are to be redeemed, notice
of such redemption has been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee has been made;
(3) Securities as to which Defeasance has been effected pursuant to
Section 1302; and
(4) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated and
delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been pre sented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser in
whose hands such Securities are valid obligations of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given, made or taken any
request, demand, authorization, direction, notice, consent, waiver or other
action hereunder as of any date, (A) the principal amount of an Original Issue
Discount Security which shall be deemed to be Outstanding shall be the amount of
the principal thereof which would be due and payable as of such date upon
acceleration of the Maturity thereof to such date pursuant to Section 502, (B)
if, as of such date, the principal amount payable at the Stated Maturity of a
Security is not determinable, the principal amount of such Security which shall
be deemed to be Outstanding shall be the amount as specified or determined as
contemplated by Section 301, (C) the principal amount of a Security denominated
in one or more foreign currencies or currency units which shall be deemed to be
Outstanding shall be the U.S. dollar equivalent, determined as of such date in
the manner provided as contemplated by Section 301, of the principal amount of
such Security (or, in the case of a Security described in Clause (A) or (B)
above, of the amount determined as provided in such Clause), and (D) Securities
owned by the Company or any other obligor upon the Securities or any Affiliate
of the Company or of such other obligor shall be disregarded and deemed not to
be Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent, waiver or other action, only Securities which a Responsible
Officer of the Trustee actually knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company or any other obligor upon the Securities or any Affiliate of
the Company or of such other obligor.
-6-
"Paying Agent" means any Person authorized by the Company to pay the
principal of or any premium or interest on any Securities on behalf of the
Company.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Place of Payment", when used with respect to the Securities of any
series, means the place or places where the principal of and any premium and
interest on the Securities of that series are payable as specified as
contemplated by Section 301.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Principal Property" means the land, land improvements, buildings and
fixtures (to the extent they constitute real property interests, including any
leasehold interest therein) constituting the principal corporate office, any
manufacturing facility or any distribution center (whether now owned or
hereafter acquired) which: (a) is owned by the Company or any Subsidiary; (b) is
located within any of the present 50 states of the United States (or the
District of Columbia); (c) has not been determined in good faith by the Board of
Directors not to be materially important to the total business conducted by the
Company and its Subsidiaries taken as a whole; and (d) has a market value on the
date as of which the determination is being made in excess of 2.0% of
Consolidated Net Tangible Assets of the Company as most recently determined on
or prior to such date; PROVIDED that (i) the real property located at 557
Broadway, New York, New York and (ii) the real property comprising the
distribution center located in Jefferson City, Missouri shall each be deemed not
to be a Principal Property.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date on the Securities of any series means the date specified for that purpose
as contemplated by Section 301.
"Responsible Officer" when used with respect to the Trustee, means any
vice president, any assistant vice president, any senior trust officer or
assistant trust officer, any trust officer, or any other officer associated with
the corporate trust department of the Trustee customarily performing functions
similar to those performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of such person's knowledge of and
familiarity with the particular subject.
-7-
"Restricted Subsidiary" means any Subsidiary that owns any Principal
Property.
"Sale and Leaseback Transaction" means any arrangement with any person
providing for the leasing by the Company or any Restricted Subsidiary of any
Principal Property which property has been or is to be sold or transferred by
the Company or such Restricted Subsidiary to such person.
"Securities" has the meaning stated in the first recital of this Indenture
and more particularly means any Securities authenticated and delivered under
this Indenture.
"Securities Act" means the Securities Act of 1933 and any statute
successor thereto, in each case as amended from time to time.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
instalment of principal thereof or interest thereon, means the date specified in
such Security as the fixed date on which the principal of such Security or such
instalment of principal or interest is due and payable.
"Subsidiary" means a corporation of which at least a majority of the
outstanding voting stock having the power to elect a majority of the board of
directors of such corporation is at the time owned, directly or indirectly, by
the Company or by one or more other Subsidiaries, or by the Company and one or
more other Subsidiaries. For the purposes of this definition, "voting stock"
means stock which ordinarily has voting power for the election of directors,
whether at all times or only so long as no senior class of stock has such voting
power by reason of any contingency.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; PROVIDED, HOWEVER, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
or include each Person who is then a Trustee hereunder, and if at any time there
is more than one such Person, "Trustee" as used with respect to the Securities
of any series shall mean the Trustee with respect to Securities of that series.
"U.S. Government Obligation" has the meaning specified in Section 1304.
-8-
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee such certificates and opinions as may be required under the Trust
Indenture Act. Each such certificate or opinion shall be given in the form of an
Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirements set forth in
this Indenture.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include,
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he or she
has made such examination or investigation as is necessary to enable him or
her to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his or her certificate or opinion is
based are erroneous. Any such certificate or opinion of counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
-9-
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. ACTS OF HOLDERS; RECORD DATES.
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Indenture to be given, made or taken
by Holders may be embo died in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. The
Trustee shall promptly deliver to the Company copies of all such instrument or
instruments and records delivered to the Trustee. Such instrument or instruments
(and the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Holders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and (subject to
Section 601) conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him or her the execution thereof. Where such
execution is by a signer acting in a capacity other than his or her individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his or her authority. The fact and date of the execution of any such
instrument or writing, or the authority of the Person executing the same, may
also be proved in any other manner which the Trustee deems sufficient.
The ownership of Securities shall be proved by the Security Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to
give, make or take any request,
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demand, authorization, direction, vote, notice, consent, waiver or other action
provided or permitted by this Indenture to be given, made or taken by Holders of
Securities of such series, PROVIDED that the Company may not set a record date
for, and the provisions of this paragraph shall not apply with respect to, the
giving or making of any notice, declaration, request or direction referred to in
the next paragraph. If any record date is set pursuant to this paragraph, the
Holders of Outstanding Securities of the relevant series on such record date,
and no other Holders, shall be entitled to take the relevant action, whether or
not such Holders remain Holders after such record date; PROVIDED that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities of such series on such record date. Nothing in this paragraph shall
be construed to prevent the Company from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be cancelled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities of the relevant
series on the date such action is taken. Promptly after any record date is set
pursuant to this paragraph, the Company, at its own expense, shall cause notice
of such record date, the proposed action by Holders and the applicable
Expiration Date to be given to the Trustee in writing and to each Holder of
Securities of the relevant series in the manner set forth in Section 106.
The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to join
in the giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 502, (iii) any request to institute
proceedings referred to in Section 507(2) or (iv) any direction referred to in
Section 512, in each case with respect to Securities of such series. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of such series on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date; PROVIDED that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities of such series on such record date. Nothing in this paragraph shall
be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be cancelled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities of the relevant
series on the date such action is taken. Promptly after any record date is set
pursuant to this paragraph, the Trustee, at the Company's expense, shall cause
notice of such record date, the proposed action by Holders and the applicable
Expiration Date to be given to the Company in writing and to each Holder of
Securities of the relevant series in the manner set forth in Section 106.
With respect to any record date set pursuant to this Section, the party
hereto which sets such record dates may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day; PROVIDED that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the other
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party hereto in writing, and to each Holder of Securities of the relevant series
in the manner set forth in Section 106, on or prior to the existing Expiration
Date. If an Expiration Date is not designated with respect to any record date
set pursuant to this Section, the party hereto which set such record date shall
be deemed to have initially designated the 180th day after such record date as
the Expiration Date with respect thereto, subject to its right to change the
Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no
Expiration Date shall be later than the 180th day after the applicable record
date.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing (or by
facsimile transmissions ((212) 657-4009), provided that oral confirmation of
receipt shall have been received) to or with the Trustee at its Corporate
Trust Office, Attention: Citibank Agency and Trust, or
(2) the Company by the Trustee or by any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Company addressed to
it at the address of its principal office specified in the first paragraph of
this instrument or at any other address previously furnished in writing to
the Trustee by the Company, Attention: Chief Financial Officer.
SECTION 106. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at its address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders
-12-
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every pur pose hereunder.
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act which is required under such Act to be a part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
which may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Holders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
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SECTION 112. GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security or the last date on which a Holder has the right to
convert a Security at a particular conversion price shall not be a Business Day
at any Place of Payment, then (notwithstanding any other provision of this
Indenture or of the Securities (other than a provision of any Security which
specifically states that such provision shall apply in lieu of this Section))
payment of interest or principal (and premium, if any) or, if applicable to a
particular series of Securities, conversion need not be made at such Place of
Payment on such date, but may be made on the next succeeding Business Day at
such Place of Payment with the same force and effect as if made on the Interest
Payment Date or Redemption Date, at the Stated Maturity or on such last day for
conversion, as the case may be.
ARTICLE TWO
SECURITY FORMS
SECTION 201. FORMS GENERALLY.
The Securities of each series shall be in substantially the form set forth
in this Article, or in such other form as shall be established by or pursuant to
a Board Resolution or in one or more indentures supplemental hereto, in each
case with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or Depositary therefor or as may, consistently herewith, be
determined by the officers executing such Securities, as evidenced by their
execution thereof. If the form of Securities of any series is established by
action taken pursuant to a Board Resolution, a copy of an appropriate record of
such action shall be certified by the Secretary or an Assistant Secretary of the
Company and delivered to the Trustee at or prior to the delivery of the Company
Order contemplated by Section 303 for the authentication and delivery of such
Securities. Any such Board Resolution or record of such action shall have
attached thereto a true and correct copy of the form of Security referred to
therein approved by or pursuant to such Board Resolution.
The definitive Securities shall be printed, lithographed or engraved on
steel engraved borders or may be produced in any other manner, all as determined
by the officers executing such Securities, as evidenced by their execution of
such Securities.
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SECTION 202. FORM OF FACE OF SECURITY.
SCHOLASTIC CORPORATION
..........................................................................
No. ......... $ ........
Scholastic Corporation, a corporation duly organized and existing under
the laws of Delaware (herein called the "Company", which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to ......................................., or
registered assigns, the principal sum of ....................................
Dollars on ........................................................ [IF THE
SECURITY IS TO BEAR INTEREST PRIOR TO MATURITY, INSERT-- , and to pay interest
thereon from ............. or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, semi-annually on ............
and ............ in each year, commencing ........., at the rate of ....% per
annum, until the principal hereof is paid or made available for payment [IF
APPLICABLE, INSERT-- , PROVIDED that any principal and premium, and any such
instalment of interest, which is overdue shall bear interest at the rate of ...%
per annum (to the extent that the payment of such interest shall be legally
enforceable), from the dates such amounts are due until they are paid or made
available for payment, and such interest shall be payable on demand]. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in such Indenture, be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, which shall be
the ....... or ....... (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
of this series not less than 10 days prior to such Special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities of this series
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided in said Indenture].
[IF THE SECURITY IS NOT TO BEAR INTEREST PRIOR TO MATURITY, INSERT -- The
principal of this Security shall not bear interest except in the case of a
default in payment of principal upon acceleration, upon redemption or at Stated
Maturity and in such case the overdue principal and any overdue premium shall
bear interest at the rate of ....% per annum (to the extent that the payment of
such interest shall be legally enforceable), from the dates such amounts are due
until they are paid or made available for payment. Interest on any overdue
principal or premium shall be payable on demand. [Any such interest on overdue
principal or premium which is not paid on demand shall bear interest at the rate
of ......% per annum (to the extent
-15-
that the payment of such interest on interest shall be legally enforceable),
from the date of such demand until the amount so demanded is paid or made
available for payment. Interest on any overdue interest shall be payable on
demand.]]
Payment of the principal of (and premium, if any) and [IF APPLICABLE,
INSERT -- any such] interest on this Security will be made at the office or
agency of the Company maintained for that purpose in ............, in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts [IF APPLICABLE, INSERT -- ;
PROVIDED, HOWEVER, that at the option of the Company payment of interest may be
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register].
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
SCHOLASTIC CORPORATION
By..................................
Attest:
.........................................
SECTION 203. FORM OF REVERSE OF SECURITY.
1. This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in
one or more series under an Indenture, dated as of January __, 2002
(herein called the "Indenture", which term shall have the meaning
assigned to it in such instrument), between the Company and Citibank,
N.A., as Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), and reference is hereby made to
the Indenture and all indentures supplemental thereto for a statement
of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee and the Holders of the
Securities and of the terms upon which the Securities
-16-
are, and are to be, authenticated and delivered. This Security is one
of the series designated on the face hereof [IF APPLICABLE, INSERT-- ,
limited in aggregate principal amount to $...........].
[IF APPLICABLE, INSERT - The Company, at its option, may at any time
redeem all or any portion of the Securities of this series, at a Redemption
Price plus accrued interest to the Redemption Date, equal to the greater of (1)
100% of the principal amount or (2) the sum of the present values of the
remaining scheduled payments of principal and interest thereon discounted to the
Redemption Date on a semiannual basis assuming a 360-day year consisting of
twelve 30-day months) at the applicable Treasury Yield plus ........... basis
points.
"Comparable Treasury Issue" means, with respect to this Security, the
United States Treasury security selected by [an][the] Independent Investment
Banker[s] as having a maturity comparable to the remaining term of this Security
that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity to the remaining term of this Security.
"Comparable Treasury Price" means, with respect to any Redemption Date,
(i) the average of the applicable Reference Treasury Dealer Quotations for such
Redemption Date, after excluding the highest and lowest such applicable
Reference Treasury Dealer Quotations, or (ii) if the Trustee obtains fewer than
four such Reference Treasury Dealer Quotations, the average of all such
Quotations.
"Independent Investment Banker" means ............. or, if such firm[s]
[is][are] unwilling or unable to select the applicable Comparable Treasury
Issue, an independent investment banking institution of national standing
appointed by the Trustee.
"Reference Treasury Dealer" means .............; provided, however, that
if the foregoing shall cease to be a primary United States Government securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue for
the Notes (expressed in each case as a percentage of its principal amount)
quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third business day preceding such Redemption Date.
"Treasury Yield" means, with respect to any Redemption Date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the applicable Comparable
Treasury Price for such Redemption Date.]
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[IF APPLICABLE, INSERT-- The Securities of this series are subject to
redemption upon not less than 30 days' notice by mail, [IF APPLICABLE, INSERT--
(1) on ........... in any year commencing with the year ...... and ending with
the year ...... through operation of the sinking fund for this series at a
Redemption Price equal to 100% of the principal amount, and (2)] at any time [IF
APPLICABLE, INSERT-- on or after .........., 20..], as a whole or in part, at
the election of the Company, at the following Redemption Prices (expressed as
percen tages of the principal amount): If redeemed [IF APPLICABLE, INSERT-- on
or before ..............., ...%, and if redeemed] during the 12-month period
beginning ............. of the years indicated,
Redemption Redemption
Year Price Year Price
- ---- ----- ---- -----
and thereafter at a Redemption Price equal to .....% of the principal amount,
together in the case of any such redemption [IF APPLICABLE, INSERT -- (whether
through operation of the sinking fund or otherwise)] with accrued interest to
the Redemption Date, but interest installments whose Stated Maturity is on or
prior to such Redemption Date will be payable to the Holders of such Securities,
or one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture.]
[IF APPLICABLE, INSERT-- The Securities of this series are subject to
redemption upon not less than 30 days' notice by mail, (1) on ............ in
any year commencing with the year .... and ending with the year .... through
operation of the sinking fund for this series at the Redemption Prices for
redemption through operation of the sinking fund (expressed as percentages of
the principal amount) set forth in the table below, and (2) at any time [IF
APPLICABLE, INSERT-- on or after ............], as a whole or in part, at the
election of the Company, at the Redemption Prices for redemption otherwise than
through operation of the sinking fund (expressed as percentages of the principal
amount) set forth in the table below: If redeemed during the 12-month period
beginning ............ of the years indicated,
-18-
Redemption Price
For Redemption Redemption Price For
Through Operation Redemption Otherwise
of the Than Through Operation
Year Sinking Fund of the Sinking Fund
- ---- ------------ -------------------
and thereafter at a Redemption Price equal to .....% of the principal amount,
together in the case of any such redemption (whether through operation of the
sinking fund or otherwise) with accrued interest to the Redemption Date, but
interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Securities, or one or more
Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.]
[IF APPLICABLE, INSERT -- Notwithstanding the foregoing, the Company may
not, prior to ............., redeem any Securities of this series as
contemplated by [IF APPLICABLE, INSERT -- Clause (2) of] the preceding paragraph
as a part of, or in anticipation of, any refunding operation by the application,
directly or indirectly, of moneys borrowed having an interest cost to the
Company (calculated in accordance with generally accepted financial practice) of
less than .....% per annum.]
[IF APPLICABLE, INSERT -- The sinking fund for this series provides for
the redemption on ............ in each year beginning with the year ....... and
ending with the year ...... of [IF APPLICABLE, INSERT -- not less than
$.......... ("mandatory sinking fund") and not more than] $......... aggregate
principal amount of Securities of this series. Securities of this series
acquired or redeemed by the Company otherwise than through [IF APPLICABLE,
INSERT -- mandatory] sinking fund payments may be credited against subsequent
[IF APPLICABLE, INSERT -- mandatory] sinking fund payments otherwise required to
be made [IF APPLICABLE, INSERT -- , in the inverse order in which they become
due].]
[IF THE SECURITY IS SUBJECT TO REDEMPTION OF ANY KIND, INSERT -- In the
event of redemption of this Security in part only, a new Security or Securities
of this series and of like tenor for the unredeemed portion hereof will be
issued in the name of the Holder hereof upon the cancellation hereof.]
[IF APPLICABLE, INSERT -- The Indenture contains provisions for defeasance
at any time of [the entire indebtedness of this Security] [or] [certain
restrictive covenants and Events of Default with respect to this Security] [, in
each case] upon compliance with certain conditions set forth in the Indenture.]
-19-
[IF THE SECURITY IS CONVERTIBLE INTO COMMON STOCK OF THE COMPANY, INSERT--
Subject to the provisions of the Indenture, the Holder of this Security is
entitled, at its option, at any time on or before [INSERT DATE] (except that, in
case this Security or any portion hereof shall be called for redemption, such
right shall terminate with respect to this Security or portion hereof, as the
case may be, so called for redemption at the close of business on the Business
Day immediately prior to the date fixed for redemption as provided in the
Indenture unless the Company defaults in making the payment due upon
redemption), to convert the principal amount of this Security (or any portion
hereof which is $1,000 or an integral multiple thereof), into fully paid and
non-assessable shares (calculated as to each conversion to the nearest 1/100th
of a share) of the Common Stock of the Company, as said shares shall be
constituted at the date of conversion, at the conversion price of $.......
principal amount of Securities for each share of Common Stock, or at the
adjusted conversion price in effect at the date of conversion determined as
provided in the Indenture, upon surrender of this Security, together with the
conversion notice hereon duly executed, to the Company at the designated office
or agency of the Company in .........................., accompanied (if so
required by the Company) by instruments of transfer, in form satisfactory to the
Company and to the Trustee, duly executed by the Holder or by its duly
authorized attorney in writing. Such surrender shall, if made during any period
beginning at the close of business on a Regular Record Date and ending at the
opening of business on the Interest Payment Date next following such Regular
Record Date (unless this Security or the portion being converted shall have been
called for redemption on a Redemption Date during such period), also be
accompanied by payment in funds acceptable to the Company of an amount equal to
the interest payable on such Interest Payment Date on the principal amount of
this Security then being converted. Subject to the aforesaid requirement for
payment and, in the case of a conversion after the Regular Record Date next
preceding any Interest Payment Date and on or before such Interest Payment Date,
to the right of the Holder of this Security (or any Predecessor Security) of
record at such Regular Record Date to receive an installment of interest (with
certain exceptions provided in the Indenture), no adjustment is to be made on
conversion for interest accrued hereon or for dividends on shares of Common
Stock issued on conversion. The Company is not required to issue fractional
shares upon any such conversion, but shall make adjustment therefor in cash on
the basis of the current market value of such fractional interest as provided in
the Indenture. The conversion price is subject to adjustment as provided in the
Indenture. In addition, the Indenture provides that in case of certain
consolidations or mergers to which the Company is a party or the sale of
substantially all of the assets of the Company, the Indenture shall be amended,
without the consent of any Holders of Securities, so that this Security, if then
outstanding, will be convertible thereafter, during the period this Security
shall be convertible as specified above, only into the kind and amount of
securities, cash and other property receivable upon the consolidation, merger or
sale by a holder of the number of shares of Common Stock into which this
Security might have been converted immediately prior to such consolidation,
merger or sale (assuming such holder of Common Stock failed to exercise any
rights of election and received per share the kind and amount received per share
by a plurality of non- electing shares) [, assuming if such consolidation,
merger or sale is prior to .............., 20...., that this Security were
convertible at the time of such consolidation, merger or sale at the initial
conversion price specified above as adjusted from .............., 20.... to such
time pursuant to the Indenture]. In the event of conversion of this Security in
part only, a new
-20-
Security or Securities for the unconverted portion hereof shall be issued in the
name of the Holder hereof upon the cancellation hereof.]
[IF THE SECURITY IS CONVERTIBLE INTO OTHER SECURITIES OF THE COMPANY,
SPECIFY THE CONVERSION FEATURES.]
[IF THE SECURITY IS NOT AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT -- If
an Event of Default with respect to Securities of this series shall occur and be
continuing, the principal of the Securities of this series may be declared due
and payable in the manner and with the effect provided in the Indenture.]
[IF THE SECURITY IS AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT -- If an
Event of Default with respect to Securities of this series shall occur and be
continuing, an amount of principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture. Such amount shall be equal to -- INSERT FORMULA FOR DETERMINING THE
AMOUNT. Upon payment (i) of the amount of principal so declared due and payable
and (ii) of interest on any overdue principal, premium and interest (in each
case to the extent that the payment of such interest shall be legally
enforceable), all of the Company's obligations in respect of the payment of the
principal of and premium and interest, if any, on the Securities of this series
shall terminate.]
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of more than 50% in principal amount of the Securities at
the time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee
shall not have received from the Holders of a majority in principal amount of
Securities of this series at the time Outstanding a direction inconsistent with
such request, and shall have failed to institute any such proceeding, for 60
days after receipt of such notice, request and offer of indemnity.
-21-
The foregoing shall not apply to any suit instituted by the Holder of this
Security for the enforcement of any payment of principal hereof or any premium
or interest hereon on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of and any
premium and interest on this Security are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or its
attorney duly authorized in writing, and thereupon one or more new Securities of
this series and of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities of this series are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
-22-
SECTION 204. FORM OF LEGEND FOR GLOBAL SECURITIES.
Unless otherwise specified as contemplated by Section 301 for the
Securities evidenced thereby, every Global Security authenticated and delivered
hereunder shall bear a legend in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A
SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE
REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE
THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
SECTION 205. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The Trustee's certificates of authentication shall be in substantially the
following form:
This is one of the Securities of the series designated herein referred to
in the within- mentioned Indenture.
Citibank, N.A.,
AS TRUSTEE
By.........................................
AUTHORIZED SIGNATORY
SECTION 206. FORM OF CONVERSION NOTICE.
Dated: _________________
To Scholastic Corporation:
The undersigned owner of this Security hereby irrevocably exercises the
option to convert this Security, or portion hereof (which is $1,000 or an
integral multiple thereof) below designated, into shares of Common Stock of the
Company in accordance with the terms of the Indenture referred to in this
Security, and directs that the shares issuable and deliverable upon the
conversion, together with any check in payment for fractional shares and any
Securities representing any unconverted principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below. If this Notice is being delivered on a date after the close of
business on a Regular Record Date and prior to the opening of business on the
related Interest Payment Date (unless this Security or the portion thereof being
converted has been called for redemption on a Redemption Date within such
period), this Notice is accompanied by payment, in funds acceptable to the
Company, of an amount equal to the interest payable on such Interest Payment
Date of the principal of this Security to be converted. If shares are to be
issued in the name of a person
-23-
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect hereto. Any amount required to be paid by the undersigned on
account of interest accompanies this Security.
Principal Amount to be Converted
(in an integral multiple of
$1,000, if less than all):
$.....................
..............................
..........................................................
Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the [Registrar],
which requirements include membership or participation in
the Security Transfer Agent Medallion Program ("STAMP")
or such other "signature guarantee program" as may be
determined by the [Registrar] in addition to, or in substitution
for, STAMP, all in accordance with the Securities Exchange
Act of 1934, as amended.
..........................................................
Signature Guaranty
Fill in for registration of shares of Common Stock and Security if to be
issued otherwise than to the registered holder.
...................................................... Social Security or Other Taxpayer
(NAME) Identification Number ...................
......................................................
(ADDRESS)
......................................................
PLEASE PRINT NAME AND ADDRESS
(INCLUDING ZIP CODE NUMBER)
[THE ABOVE CONVERSION NOTICE IS TO BE MODIFIED, AS APPROPRIATE, FOR CONVERSION
INTO OTHER SECURITIES OR PROPERTY OF THE COMPANY.]
-24-
ARTICLE THREE
THE SECURITIES
SECTION 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution and, subject to Section 303,
set forth, or determined in the manner provided, in an Officers' Certificate, or
established in one or more indentures supplemental hereto, prior to the issuance
of Securities of any series,
(1) the title of the Securities of the series (which shall distinguish
the Securities of the series from Securities of any other series);
(2) any limit upon the aggregate principal amount of the Securities of
the series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 304, 305, 306, 906 or 1107 and except for any
Securities which, pursuant to Section 303, are deemed never to have been
authenticated and delivered hereunder);
(3) the Person to whom any interest on a Security of the series shall be
payable, if other than the Person in whose name that Security (or one or more
Predecessor Securi ties) is registered at the close of business on the
Regular Record Date for such interest;
(4) the date or dates on which the principal of any Securities of the
series is payable;
(5) the rate or rates at which any Securities of the series shall bear
interest, if any, the date or dates from which any such interest shall
accrue, the Interest Payment Dates on which any such interest shall be
payable and the Regular Record Date for any such interest payable on any
Interest Payment Date;
(6) the place or places where the principal of and any premium and
interest on any Securities of the series shall be payable;
(7) the period or periods within which, the price or prices at which and
the terms and conditions upon which any Securities of the series may be
redeemed, in whole or in part, at the option of the Company and, if other
than by a Board Resolution, the manner in which any election by the Company
to redeem the Securities shall be evidenced;
(8) the obligation, if any, of the Company to redeem or purchase any
Securities of the series pursuant to any sinking fund or analogous provisions
or at the option of the Holder thereof and the period or periods within
which, the price or prices at which and
-25-
the terms and conditions upon which any Securities of the series shall be
redeemed or purchased, in whole or in part, pursuant to such obligation;
(9) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which any Securities of the series shall be
issuable;
(10) if the amount of principal of or any premium or interest on any
Securities of the series may be determined with reference to an index or
pursuant to a formula, the manner in which such amounts shall be determined;
(11) if other than the currency of the United States of America, the
currency, currencies or currency units in which the principal of or any
premium or interest on any Securities of the series shall be payable and the
manner of determining the equivalent thereof in the currency of the United
States of America for any purpose, including for purposes of the definition
of "Outstanding" in Section 101;
(12) if the principal of or any premium or interest on any Securities of
the series is to be payable, at the election of the Company or the Holder
thereof, in one or more currencies or currency units other than that or those
in which such Securities are stated to be payable, the currency, currencies
or currency units in which the principal of or any premium or interest on
such Securities as to which such election is made shall be payable, the
periods within which and the terms and conditions upon which such election is
to be made and the amount so payable (or the manner in which such amount
shall be determined);
(13) if other than the entire principal amount thereof, the portion of
the principal amount of any Securities of the series which shall be payable
upon declaration of acceleration of the Maturity thereof pursuant to Section
502;
(14) if the principal amount payable at the Stated Maturity of any
Securities of the series will not be determinable as of any one or more dates
prior to the Stated Maturity, the amount which shall be deemed to be the
principal amount of such Securities as of any such date for any purpose
thereunder or hereunder, including the principal amount thereof which shall
be due and payable upon any Maturity other than the Stated Maturity or which
shall be deemed to be Outstanding as of any date prior to the Stated Maturity
(or, in any such case, the manner in which such amount deemed to be the
principal amount shall be determined);
(15) if applicable, that the Securities of the series, in whole or any
specified part, shall be defeasible pursuant to Section 1302 or Section 1303
or both such Sections and, if other than by a Board Resolution, the manner in
which any election by the Company to defease such Securities shall be
evidenced;
(16) the terms of any right to convert Securities of the series into
shares of Common Stock of the Company or other securities or property;
-26-
(17) if applicable, that any Securities of the series shall be issuable
in whole or in part in the form of one or more Global Securities and, in such
case, the respective Depositaries for such Global Securities, the form of any
legend or legends which shall be borne by any such Global Security in
addition to or in lieu of that set forth in Section 204 and any circumstances
in addition to or in lieu of those set forth in Clause (2) of the last
paragraph of Section 305 in which any such Global Security may be exchanged
in whole or in part for Securities registered, and any transfer of such
Global Security in whole or in part may be registered, in the name or names
of Persons other than the Depositary for such Global Security or a nominee
thereof;
(18) any addition to or change in the Events of Default which applies to
any Securities of the series and any change in the right of the Trustee or
the requisite Holders of such Securities to declare the principal amount
thereof due and payable pursuant to Section 502;
(19) any addition to or change in the covenants set forth in Article Ten
which applies to Securities of the series; and
(20) any other terms of the series (which terms shall not be inconsistent
with the provisions of this Indenture, except as permitted by Section
901(5)).
All Securities of any one series shall be substantially identical except
as to denomination and except as may otherwise be provided in or pursuant to the
Board Resolu tion referred to above and (subject to Section 303) set forth, or
determined in the manner provided, in the Officers' Certificate referred to
above or in any such indenture supplemental hereto.
If any of the terms of the series are established by action taken pursuant
to a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
SECTION 302. DENOMINATIONS.
The Securities of each series shall be issuable only in registered form
without coupons and only in such denominations as shall be specified as
contemplated by Section 301. In the absence of any such specified denomination
with respect to the Securities of any series, the Securities of such series
shall be issuable in denominations of $1,000 and any integral mul tiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Vice Chairman of the Board, its principal executive officer,
its President or one of its Vice Presidents, under its corporate seal reproduced
thereon attested by its Secretary
-27-
or one of its Assistant Secretaries. The signature of any of these officers and
the corporate seal on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order shall authenticate and deliver such Securities. If the
form or terms of the Securities of the series have been established by or
pursuant to one or more Board Resolutions as permitted by Sections 201 and 301,
in authenticating such Securities, and accepting the additional responsibilities
under this Indenture in relation to such Securities, the Trustee shall be
provided with and (subject to Section 601) shall be fully protected in relying
upon, an Opinion of Counsel stating,
(1) if the form of such Securities has been established by or pursuant to
Board Resolution as permitted by Section 201, that such form has been
established in conformity with the provisions of this Indenture;
(2) if the terms of such Securities have been established by or pursuant
to Board Resolution as permitted by Section 301, that such terms have been
established in conformity with the provisions of this Indenture; and
(3) that such Securities, when authenticated and delivered by the Trustee
and issued by the Company in the manner and subject to any conditions
specified in such Opinion of Counsel, will constitute valid and legally
binding obligations of the Company enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity principles.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 301 and of the preceding
paragraph, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 301 or the Company Order and Opinion of Counsel
otherwise required pursuant to such preceding paragraph at or prior to the
authentication of each Security of such series if such documents are delivered
at or prior to the authentication upon original issuance of the first Security
of such series to be issued.
-28-
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder. Notwithstanding the
foregoing, if any Security shall have been authenticated and delivered hereunder
but never issued and sold by the Company, and the Company shall deliver such
Security to the Trustee for cancellation as provided in Section 309, for all
purposes of this Indenture such Security shall be deemed never to have been
authenticated and delivered hereunder and shall never be entitled to the
benefits of this Indenture.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities of any series, the
Company may execute, and upon Company Order the Trustee shall authenticate and
deliver, temporary Securities which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the officers executing such Securities may determine, as
evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of that series to be prepared without unreasonable delay.
After the preparation of definitive Securities of such series, the temporary
Securities of such series shall be exchangeable for definitive Securities of
such series upon surrender of the temporary Securities of such series at the
office or agency of the Company in a Place of Payment for that series, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities of any series, the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor one or more definitive
Securities of the same series, of any authorized denominations and of like tenor
and aggregate principal amount. Until so exchanged, the temporary Securities of
any series shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities of such series and tenor.
SECTION 305. REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency of the Company in a Place of Payment being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is hereby
appointed "Security Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided.
-29-
Upon surrender for registration of transfer of any Security of a series at
the office or agency of the Company in a Place of Payment for that series, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
the same series, of any authorized denominations and of like tenor and aggregate
principal amount.
At the option of the Holder, Securities of any series may be exchanged for
other Securities of the same series, of any authorized denominations and of like
tenor and aggre gate principal amount, upon surrender of the Securities to be
exchanged at such office or agency. Whenever any Securities are so surrendered
for exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or its attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906 or 1107 not involving any transfer.
If the Securities of any series (or of any series and specified tenor) are
to be redeemed in part, the Company shall not be required (A) to issue, register
the transfer of or exchange any Securities of that series (or of that series and
specified tenor, as the case may be) during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of any
such Securities selected for redemption under Section 1103 and ending at the
close of business on the day of such mailing, or (B) to register the transfer of
or exchange any Security so selected for redemption in whole or in part, except
the unredeemed portion of any Security being redeemed in part.
The provisions of Clauses (1), (2), (3) and (4) below shall apply only to
Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global Security
or a nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
-30-
(2) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and
no transfer of a Global Security in whole or in part may be registered, in
the name of any Person other than the Depositary for such Global Security or
a nominee thereof unless (A) such Depositary (i) has notified the Company
that it is unwilling or unable to continue as Depositary for such Global
Security or (ii) has ceased to be a clearing agency registered under the
Exchange Act, (B) there shall have occurred and be continuing an Event of
Default with respect to such Global Security or (C) there shall exist such
circumstances, if any, in addition to or in lieu of the foregoing as have
been specified for this purpose as contemplated by Section 301.
(3) Subject to Clause (2) above, any exchange of a Global Security for
other Securities may be made in whole or in part, and all Securities issued
in exchange for a Global Security or any portion thereof shall be registered
in such names as the Depositary for such Global Security shall direct.
(4) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Section, Section 304, 306, 906 or
1107 or otherwise, shall be authenticated and delivered in the form of, and
shall be, a Global Security, unless such Security is registered in the name
of a Person other than the Depositary for such Global Security or a nominee
thereof.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of the same series and of like tenor and principal amount and
bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of the same series and of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be
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imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee) connected therewith.
Every new Security of any series issued pursuant to this Section in lieu
of any destroyed, lost or stolen Security shall constitute an original
additional contractual obli gation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of that series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Except as otherwise provided as contemplated by Section 301 with respect
to any series of Securities, interest on any Security which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be paid
to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest.
Any interest on any Security of any series which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities of such series (or their
respective Predecessor Securities) are registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid
on each Security of such series and the date of the proposed payment, and
at the same time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money
when deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this Clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days
prior to the date of the proposed payment and not less than 10 days after
the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date and,
in the name and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor to be given to each Holder of Securities of such series in the
manner set forth in Section 106, not less than 10 days
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prior to such Special Record Date. Notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor having been so
mailed, such Defaulted Interest shall be paid to the Persons in whose
names the Securities of such series (or their respective Predecessor
Securities) are registered at the close of business on such Special Record
Date and shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest on the
Securities of any series in any other lawful manner not inconsistent with
the requirements of any securities exchange on which such Securities may
be listed, and upon such notice as may be required by such exchange, if,
after notice given by the Company to the Trustee of the proposed payment
pursuant to this Clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
Subject to the provisions of Section 1402, in the case of any Security (or
any part thereof) which is converted after any Regular Record Date and on or
prior to the next succeeding Interest Payment Date (other than any Security the
principal of (or premium, if any, on) which shall become due and payable,
whether at Stated Maturity or by declaration of acceleration prior to such
Interest Payment Date), interest whose Stated Maturity is on such Interest
Payment Date shall be payable on such Interest Payment Date notwithstanding such
conversion and such interest (whether or not punctually paid or duly provided
for) shall be paid to the Person in whose name that Security (or any one or more
Predecessor Securities) is registered at the close of business on such Regular
Record Date. Except as otherwise expressly provided in the immediately preceding
sentence or in Section 1402, in the case of any Security (or any part thereof)
which is converted, interest whose Stated Maturity is after the date of
conversion of such Security (or such part thereof) shall not be payable.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of and any premium and
(subject to Section 307) any interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
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SECTION 309. CANCELLATION.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly cancelled by it. The Company may at any time deliver to
the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and may deliver to the Trustee (or to any other Person for delivery
to the Trustee) for cancellation any Securities previously authenticated
hereunder which the Company has not issued and sold, and all Securities so
delivered shall be promptly cancelled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities cancelled as provided
in this Section, except as expressly permitted by this Indenture. All cancelled
Securities held by the Trustee shall be disposed of by the Trustee in its
customary manner.
SECTION 310. COMPUTATION OF INTEREST.
Except as otherwise specified as contemplated by Section 301 for
Securities of any series, interest on the Securities of each series shall be
computed on the basis of a 360-day year of twelve 30-day months.
SECTION 311. CUSIP NUMBERS.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; PROVIDED that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Company will promptly notify
the Trustee of any change in the "CUSIP" numbers.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall upon Company Request cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange of
Securities herein expressly provided for), and the Trustee, at the expense of
the Company, shall execute proper instru ments acknowledging satisfaction and
discharge of this Indenture, when
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(1) either
(A) all Securities theretofore authenticated and delivered (other than
(i) Securities which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 306 and (ii) Securities for
whose payment money has theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within
one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited or
caused to be deposited with the Trustee as trust funds in trust for the
purpose money in an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the Trustee
for cancellation, for principal and any premium and interest to the date
of such deposit (in the case of Securities which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authen ticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive such satisfaction and discharge.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying
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Agent) as the Trustee may determine, to the Persons entitled thereto, of the
principal and any premium and interest for whose payment such money has been
deposited with the Trustee.
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein with respect to Securities of any
series, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) default in the payment of any interest upon any Security of that
series when it becomes due and payable, and continuance of such default for a
period of 30 days; or
(2) default in the payment of the principal of or any premium on any
Security of that series at its Maturity; or
(3) default in the deposit of any sinking fund payment, when and as due by
the terms of a Security of that series; or
(4) default in the performance, or breach, of any covenant or warranty of
the Company in this Indenture (other than a covenant or warranty a default in
whose performance or whose breach is elsewhere in this Section specifically
dealt with or which has expressly been included in this Indenture solely for
the benefit of series of Securities other than that series), and continuance
of such default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in principal amount of
the Outstanding Securities of that series a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(5) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary case
or proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company under any applicable Federal or State law, or
appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator
or other similar official of the Company or of any substantial part of its
property, or ordering the winding up or
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liquidation of its affairs, and the continuance of any such decree or order
for relief or any such other decree or order unstayed and in effect for a
period of 90 consecutive days; or
(6) the commencement by the Company of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency, reorganization
or other similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by it to the entry of a decree or order
for relief in respect of the Company in an involuntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or insolvency
case or proceeding against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under any applicable Federal or
State law, or the consent by it to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or
of any substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due, or the taking of
corporate action by the Company in furtherance of any such action; or
(7) any other Event of Default provided with respect to Securities of that
series.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than an Event of Default specified in
Section 501(5) or 501(6)) with respect to Securities of any series at the time
Outstanding occurs and is continuing, then in every such case the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Securities
of that series may declare the principal amount of all the Securities of that
series (or, if any Securities of that series are Original Issue Discount
Securities, such portion of the principal amount of such Securities as may be
specified by the terms thereof) to be due and payable immediately, by a notice
in writing to the Company (and to the Trustee if given by Holders), and upon any
such declaration such principal amount (or specified amount) shall become
immediately due and payable. If an Event of Default specified in Section 501(5)
or 501(6) with respect to Securities of any series at the time Outstanding
occurs, the principal amount of all the Securities of that series (or, if any
Securities of that series are Original Issue Discount Securities, such portion
of the principal amount of such Securities as may be specified by the terms
thereof) shall automatically, and without any declaration or other action on the
part of the Trustee or any Holder, become immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a major-
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ity in principal amount of the Outstanding Securities of that series, by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if
(1) the Company has paid or deposited with the Trustee a sum sufficient to
pay
(A) all overdue interest on all Securities of that series,
(B) the principal of (and premium, if any, on) any Securities of that
series which have become due otherwise than by such declaration of
acceleration and any interest thereon at the rate or rates prescribed
therefor in such Securities,
(C) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate or rates prescribed therefor in such
Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all Events of Default with respect to Securities of that series, other
than the non- payment of the principal of Securities of that series which
have become due solely by such declaration of acceleration, have been cured
or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(1) default is made in the payment of any interest on any Security when
such interest becomes due and payable and such default continues for a period
of 30 days, or
(2) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and any premium and interest and, to the extent that
payment of such interest shall be legally en forceable, interest on any overdue
principal and premium and on any overdue interest, at the rate or rates
prescribed therefor in such Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
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If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem necessary to protect
and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of any judicial proceeding relative to the Company (or any other
obligor upon the Securities), its property or its creditors, the Trustee shall
be entitled and empowered, by intervention in such proceeding or otherwise, to
take any and all actions authorized under the Trust Indenture Act in order to
have claims of the Holders and the Trustee allowed in any such proceeding. In
particular, the Trustee shall be authorized to collect and receive any moneys or
other property payable or deliverable on any such claims and to distribute the
same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator
or other similar official in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; PROVIDED, HOWEVER,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disburse ments and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Securities in respect of which such judgment has been
recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of
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such money on account of principal or any premium or interest, upon presentation
of the Securities and the notation thereon of the payment if only partially paid
and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 607;
SECOND: To the payment of the amounts then due and unpaid for principal of
and any premium, if any, and interest on the Securities in respect of which
or for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable
on such Securities for principal and any premium, if any, and interest,
respectively; and
THIRD: To the Company.
SECTION 507. LIMITATION ON SUITS.
No Holder of any Security of any series shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securi ties of that series shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity satisfactory to it against the costs, expenses and liabilities to
be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.
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SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST AND TO CONVERT.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of and any premium and (subject to Section 307)
interest on such Security on the respective Stated Maturities expressed in such
Security (or, in the case of redemption, on the Redemption Date), to convert
such Securities in accordance with Article Fourteen and to institute suit for
the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Securities to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee subject to the limitations contained
in this Indenture or by the Holders, as the case may be.
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SECTION 512. CONTROL BY HOLDERS.
The Holders of a majority in principal amount of the Outstanding
Securities of any series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the
Securities of such series, PROVIDED that
(1) such direction shall not be in conflict with any rule of law or with
this Indenture, and
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction or this Indenture.
SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may on behalf of the Holders of all the
Securities of such series waive any past default hereunder with respect to such
series and its consequences, except a default
(1) in the payment of the principal of or any premium or interest on any
Security of such series, or
(2) in respect of a covenant or provision hereof which under Article Nine
cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 514. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs
(including legal fees and expenses) against any such party litigant, in the
manner and to the extent provided in the Trust Indenture Act; PROVIDED that
neither this Section nor the Trust Indenture Act shall be deemed to authorize
any court to require such an undertaking or to make such an assessment in any
suit instituted by the Company or in any suit for the enforcement of the right
to convert any Security in accordance with Article Fourteen.
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SECTION 515. WAIVER OF USURY, STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
The duties and responsibilities of the Trustee shall be as provided by the
Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
SECTION 602. NOTICE OF DEFAULTS.
If a default occurs hereunder with respect to Securities of any series,
the Trustee shall give the Holders of Securities of such series notice of such
default as and to the extent provided by the Trust Indenture Act; PROVIDED,
HOWEVER, that in the case of any default of the character specified in Section
501(4) with respect to Securities of such series, no such notice to Holders
shall be given until at least 30 days after the occurrence thereof. For the
purpose of this Section, the term "default" means any event which is, or after
notice or lapse of time or both would become, an Event of Default with respect
to Securities of such series.
SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601:
(1) the Trustee may conclusively rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document (whether in its original or facsimile form)
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believed by it to be genuine and to have been signed or presented by the
proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order, and any
resolution of the Board of Directors shall be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith
on its part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel of its own selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any
of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity satisfactory to it
against the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney at the expense of the Company and shall
incur no liability or additional liability of any kind by reason of such
inquiry or investigation;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;
(8) the Trustee shall not be liable for any error of judgment made in good
faith by a Responsible Officer, unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts;
(9) the Trustee shall not be liable for any action taken, suffered, or
omitted to be taken by it in good faith and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon it by
this Indenture;
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(10) the Trustee shall not be deemed to have notice of any Default or
Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact such
a default is received by the Trustee at the Corporate Trust Office of the
Trustee, and such notice references the Securities and this Indenture; and
(11) the rights, privileges, protections, immunities and benefits given to
the Trustee, including, without limitation, its right to be indemnified, are
extended to, and shall be enforceable by, the Trustee in each of its
capacities hereunder, and to each agent, custodian and other Person employed
to act hereunder.
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and neither the Trustee nor any Authenticating Agent assumes any responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Securities. Neither the Trustee nor
any Authenticating Agent shall be accountable for the use or application by the
Company of Securities or the proceeds thereof.
SECTION 605. MAY HOLD SECURITIES AND ACT AS TRUSTEE UNDER OTHER INDENTURES.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
Subject to the limitations imposed by the Trust Indenture Act, nothing in
this Indenture shall prohibit the Trustee from becoming and acting as trustee
under other indentures under which other securities, or certificates of interest
of participation in other securities, of the Company are outstanding in the same
manner as if it were not Trustee hereunder.
SECTION 606. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
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SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees
(1) to pay to the Trustee as agreed upon in writing from time to time
reasonable compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as shall be determined by a court of competent
jurisdiction to have been caused by its own negligence or willful misconduct;
and
(3) to fully indemnify the Trustee for, and to hold it harmless against,
any and all loss, liability, claim, damage or expense incurred without
negligence or willful misconduct on its part, arising out of or in connection
with the acceptance or admini stration of the trust or trusts hereunder,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers
or duties hereunder.
The benefits of this Section shall survive the termination of this
Indenture and the resignation or removal of the Trustee.
SECTION 608. CONFLICTING INTERESTS.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture. To the extent
permitted by such Act, the Trustee shall not be deemed to have a conflicting
interest by virtue of being a trustee under this Indenture with respect to
Securities of more than one series.
SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be one (and only one) Trustee hereunder with
respect to the Securities of each series, which may be Trustee hereunder for
Securities of one or more other series. Each Trustee shall be a Person that is
eligible pursuant to the Trust Indenture Act to act as such and has a combined
capital and surplus of at least $50,000,000. If any such Person publishes
reports of condition at least annually, pursuant to law or to the requirements
of its supervising or examining authority, then for the purposes of this Section
and to the extent permitted by the Trust Indenture Act, the combined capital and
surplus of such Person shall be deemed to be its combined capital and surplus as
set forth in its most
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recent report of condition so published. If at any time the Trustee with respect
to the Securities of any series shall cease to be eligible in accordance with
the provisions of this Section, it shall resign immediately in the manner and
with the effect hereinafter specified in this Article.
SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
No resignation or removal of the Trustee and no appointment of a successor
Trustee pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the applicable
requirements of Section 611.
The Trustee may resign at any time with respect to the Securities of one
or more series by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee required by Section 611 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition at the expense of the
Company any court of competent jurisdiction for the appointment of a successor
Trustee with respect to the Securities of such series.
The Trustee may be removed at any time with respect to the Securities of
any series by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series, delivered to the Trustee and to the
Company. If the instrument of acceptance by a successor Trustee required by
Section 611 shall not have been delivered to the Trustee within 30 days after
the giving of such notice of resignation, the removed Trustee may petition at
the expense of the Company any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
If at any time:
(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and shall
fail to resign after written request therefor by the Company or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall
be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (A) the Company by a Board Resolution may remove the
Trustee with respect to all Securities, or (B) subject to Section 514, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee with respect to all
Securities and the appointment of a successor Trustee or Trustees.
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If the Trustee shall resign, be removed or become incapable of acting, or
if a vacancy shall occur in the office of Trustee for any cause, with respect to
the Securities of one or more series, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee or Trustees with respect to the Securities
of that or those series (it being understood that any such successor Trustee may
be appointed with respect to the Securities of one or more or all of such series
and that at any time there shall be only one Trustee with respect to the
Securities of any particular series) and shall comply with the applicable
requirements of Section 611. If, within one year after such resignation, removal
or incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series shall be appointed by Act of the Holders
of a majority in principal amount of the Outstanding Securities of such series
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 611, become the successor Trustee
with respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee with respect
to the Securities of any series shall have been so appointed by the Company or
the Holders and accepted appointment in the manner required by Section 611, any
Holder who has been a bona fide Holder of a Security of such series for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee
with respect to the Securities of such series.
The Company shall give notice of each resignation and each removal of the
Trustee with respect to the Securities of any series and each appointment of a
successor Trustee with respect to the Securities of any series to all Holders of
Securities of such series in the manner provided in Section 106. Each notice
shall include the name of the successor Trustee with respect to the Securities
of such series and the address of its Corporate Trust Office.
SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
In case of the appointment hereunder of a successor Trustee with respect
to all Securities, every such successor Trustee so appointed shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder.
In case of the appointment hereunder of a successor Trustee with respect
to the Securities of one or more (but not all) series, the Company, the retiring
Trustee and each successor Trustee with respect to the Securities of one or more
series shall execute and deliver an indenture supplemental hereto wherein each
successor Trustee shall accept such appointment and which (1) shall contain such
provisions as shall be necessary or desirable
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to transfer and confirm to, and to vest in, each successor Trustee all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates, (2) if the retiring Trustee is not retiring with respect to all
Securities, shall contain such provisions as shall be deemed necessary or
desirable to confirm that all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of that or those series as to
which the retiring Trustee is not retiring shall continue to be vested in the
retiring Trustee, and (3) shall add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facili tate the administration
of the trusts hereunder by more than one Trustee, it being understood that
nothing herein or in such supplemental indenture shall constitute such Trustees
co- trustees of the same trust and that each such Trustee shall be trustee of a
trust or trusts hereunder separate and apart from any trust or trusts hereunder
administered by any other such Trustee; and upon the execution and delivery of
such supplemental indenture the resignation or removal of the retiring Trustee
shall become effective to the extent provided therein and each such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Trustee with respect
to the Securities of that or those series to which the appointment of such
successor Trustee relates; but, on request of the Company or any successor
Trustee, such retiring Trustee shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring Trustee hereunder
with respect to the Securities of that or those series to which the appointment
of such successor Trustee relates.
Upon request of any such successor Trustee, the Company shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor Trustee all such rights, powers and trusts referred to in the
first or second preceding paragraph, as the case may be.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
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SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee may appoint an Authenticating Agent or Agents with respect to
one or more series of Securities which shall be authorized to act on behalf of
the Trustee to authenticate Securities of such series issued upon original issue
and upon exchange, registra tion of transfer or partial redemption thereof or
pursuant to Section 306, and Securities so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent
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which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 106 to all Holders of Securities
of the series with respect to which such Authenticating Agent will serve. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authen ticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 607.
If an appointment with respect to one or more series is made pursuant to
this Section 614, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternative
certificate of authentication in the following form:
This is one of the Securities of the series designated therein referred to
in the within- mentioned Indenture.
Citibank, N.A.,
AS TRUSTEE
By......................................,
AS AUTHENTICATING AGENT
By.......................................
AUTHORIZED OFFICER
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ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.
The Company will furnish or cause to be furnished to the Trustee
(1) semi-annually, not later than 15 days after the Regular Record Date, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders of Securities of each series as of such Regular
Record Date, as the case may be, and
(2) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such
list is furnished;
EXCLUDING from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.
The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights and privileges of the Trustee, shall be as provided by the Trust
Indenture Act.
Every Holder of Securities, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company nor the Trustee nor any
agent of either of them shall be held accountable by reason of any disclosure of
information as to names and addresses of Holders made pursuant to the Trust
Indenture Act.
SECTION 703. REPORTS BY TRUSTEE.
The Trustee shall transmit to Holders such reports concerning the Trustee
and its actions under this Indenture as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant thereto.
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Reports so required to be transmitted at stated intervals of not more than
12 months shall be transmitted no later than July 1 in each calendar year,
commencing with the first July 1 after the first issuance of Securities pursuant
to this Indenture.
A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which any
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when any Securities are listed on any stock exchange or
delisted therefrom.
SECTION 704. REPORTS BY COMPANY.
The Company shall file with the Trustee and the Commission, and transmit
to Holders, such information, documents and other reports, and such summaries
thereof, as may be required pursuant to the Trust Indenture Act at the times and
in the manner provided pursuant to the Trust Indenture Act; PROVIDED that any
such information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the
Trustee within 15 days after the same is so required to be filed with the
Commission.
Delivery of such reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, and the Company shall not permit any Person to consolidate with
or merge into the Company or convey, transfer or lease its properties and assets
substantially as an entirety to the Company, unless:
(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets substantially
as an entirety to any Person, the Person formed by such consolidation or into
which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall be a corporation, partnership or trust,
shall be organized and validly existing under the laws of the United States
of America, any State thereof or the District of Columbia and shall expressly
assume, by an
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indenture supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the principal of
and any premium and interest on all the Securities and the performance or
observance of every covenant of this Indenture on the part of the Company to
be performed or observed and the conversion rights shall be provided for in
accordance with Article Fourteen, if applicable, or as otherwise specified
pursuant to Section 301, by supplemental indenture satisfactory in form to
the Trustee, executed and delivered to the Trustee, by the Person (if other
than the Company) formed by such consolidation or into which the Company
shall have been merged or by the Person which shall have acquired the
Company's assets;
(2) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Company or any Subsidiary as
a result of such transaction as having been incurred by the Company or such
Subsidiary at the time of such transaction, no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of
Default, shall have happened and be continuing;
(3) if, as a result of any such consolidation or merger or such
conveyance, transfer or lease, properties or assets of the Company or any
Restricted Subsidiary would become subject to a Lien which would not be
permitted by this Indenture, the Company or such successor Person, as the
case may be, shall take such steps as shall be necessary effec tively to
secure the Securities equally and ratably with (or prior to) all indebtedness
secured thereby; and
(4) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with
this Article and that all conditions precedent herein provided for relating
to such transaction have been complied with.
SECTION 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any conveyance, transfer or lease of the properties and
assets of the Company substantially as an entirety in accordance with Section
801, the successor Person formed by such consolidation or into which the Company
is merged or to which such conveyance, transfer or lease is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under this Indenture with the same effect as if such successor Person
had been named as the Company herein, and thereafter, except in the case of a
lease, the predecessor Person shall be relieved of all obligations and covenants
under this Indenture and the Securities.
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ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company herein and
in the Securities; or
(2) to add to the covenants of the Company for the benefit of the Holders
of all or any series of Securities (and if such covenants are to be for the
benefit of less than all series of Securities, stating that such covenants
are expressly being included solely for the benefit of such series) or to
surrender any right or power herein conferred upon the Company; or
(3) to add any additional Events of Default for the benefit of the Holders
of all or any series of Securities (and if such additional Events of Default
are to be for the benefit of less than all series of Securities, stating that
such additional Events of Default are expressly being included solely for the
benefit of such series); or
(4) to add to or change any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the issuance of
Securities in bearer form, registrable or not registrable as to principal,
and with or without interest coupons, or to permit or facilitate the issuance
of Securities in uncertificated form; or
(5) to add to, change or eliminate any of the provisions of this Indenture
in respect of one or more series of Securities, PROVIDED that any such
addition, change or elimination (A) shall neither (i) apply to any Security
of any series created prior to the execution of such supplemental indenture
and entitled to the benefit of such provision nor (ii) modify the rights of
the Holder of any such Security with respect to such provision or (B) shall
become effective only when there is no such Security Outstanding; or
(6) to secure the Securities; or
(7) to establish the form or terms of Securities of any series as
permitted by Sections 201 and 301; or
(8) to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee with respect to the Securities of one or more series and
to add to or change any of the provisions of this Indenture as shall be
necessary to provide for or
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facilitate the administration of the trusts hereunder by more than one
Trustee, pursuant to the requirements of Section 611; or
(9) to make provision with respect to the conversion rights of Holders
pursuant to the requirements of Article Fourteen, including providing for the
conversion of the securities into any security (other than the Common Stock
of the Company) or property of the Company; or
(10) to cure any ambiguity, to correct or supplement any provision herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising under
this Indenture, PROVIDED that such action pursuant to this Clause (10) shall
not adversely affect the interests of the Holders of Securities of any series
in any material respect; or
(11) to supplement any of the provisions of the Indenture to such extent
as shall be necessary to permit or facilitate the defeasance and discharge of
any series of Securities pursuant to Articles Four and Thirteen, provided
that any such action shall not adversely affect the interests of the Holders
of Securities of such series or any other series of Securities in any
material respect.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of a majority in principal amount of the
Outstanding Securities of each series affected by such supplemental indenture,
by Act of said Holders delivered to the Company and the Trustee, the Company,
when authorized by a Board Resolution, and the Trustee may enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders of
Securities of such series under this Indenture; PROVIDED, HOWEVER, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any installment of
principal of or interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or reduce the amount of the principal of an Original
Issue Discount Security or any other Security which would be due and payable
upon a declaration of acceleration of the Maturity thereof pursuant to
Section 502, or change any Place of Payment where, or the coin or currency in
which, any Security or any premium or interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment on or
after the Stated Maturity thereof (or, in the case of redemption, on or after
the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required for
any waiver (of compliance with certain
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provisions of this Indenture or certain defaults hereunder and their
consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section 513 or Section
1010, except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent
of the Holder of each Out standing Security affected thereby; PROVIDED,
HOWEVER, that this clause shall not be deemed to require the consent of any
Holder with respect to changes in the references to "the Trustee" and
concomitant changes in this Section and Section 1010, or the deletion of this
proviso, in accordance with the requirements of Sections 611 and 901(8), or
(4) if applicable, make any change that adversely affects the right to
convert any security as provided in Article Fourteen or pursuant to Section
301 (except as permitted by Section 901(9)) or decrease the conversion rate
or increase the conversion price of any such security.
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Sections 601 and 603) shall be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such supplemental indenture
is authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
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SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 906. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities of any series authenticated and delivered after the execution
of any supplemental indenture pursuant to this Article may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Company shall so
determine, new Securities of any series so modified as to conform, in the
opinion of the Trustee and the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities of such series.
ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay the principal of and any premium
and interest on the Securities of that series in accordance with the terms of
the Securities and this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in each Place of Payment for any series of
Securities an office or agency where Securities of that series may be presented
or surrendered for pay ment, where Securities of that series may be surrendered
for registration of transfer or exchange, where Securities of that series may be
surrendered for conversion and where notices and demands to or upon the Company
in respect of the Securities of that series and this Indenture may be served.
The Company will give prompt written notice to the Trustee of the location, and
any change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities of one or more series may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; PROVIDED,
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HOWEVER, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in each Place of
Payment for Securities of any series for such purposes. The Company will give
prompt written notice to the Trustee of any such designation or rescission and
of any change in the location of any such other office or agency.
SECTION 1003. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it will, on or before each due date of the
principal of or any premium or interest on any of the Securities of that series,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal and any premium and interest so becoming due
until such sums shall be paid to such Persons or otherwise disposed of as herein
provided and will promptly notify the Trustee of its action or failure so to
act.
Whenever the Company shall have one or more Paying Agents for any series
of Securities, it will, prior to each due date of the principal of or any
premium or interest on any Securities of that series, deposit with a Paying
Agent a sum sufficient to pay such amount, such sum to be held as provided by
the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the
Company will promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent for any series of Securities
other than the Trustee to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent will (1) comply with the provisions of
the Trust Indenture Act applicable to it as a Paying Agent and (2) during the
continuance of any default by the Company (or any other obligor upon the
Securities of that series) in the making of any payment in respect of the
Securities of that series, upon the written request of the Trustee, forthwith
pay to the Trustee all sums held in trust by such Paying Agent for payment in
respect of the Securities of that series.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of or any premium or
interest on any Security of any series and remaining unclaimed for two years
after such principal, premium or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for
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payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in each Place of Payment, notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such publication, any unclaimed balance of such money then
remaining will be repaid to the Company.
SECTION 1004. STATEMENT BY OFFICERS AS TO DEFAULT.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and, if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.
SECTION 1005. EXISTENCE.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; PROVIDED, HOWEVER, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors, or the principal executive officer and principal financial
officer of the Company acting jointly, shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
that the loss thereof is not disadvantageous in any material respect to the
Holders.
SECTION 1006. MAINTENANCE OF PROPERTIES.
The Company will cause all properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; PROVIDED, HOWEVER, that
nothing in this Section shall prevent the Company from discontinuing the
operation or maintenance of any of such properties if such discontinuance is, in
the judgment of the Company, desirable in the conduct of its business or the
business of any Subsidiary and not disadvantageous in any material respect to
the Holders.
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SECTION 1007. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary, and (2)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; PROVIDED,
HOWEVER, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim (i) whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings or (ii) if the failure to pay or discharge would not
have a material adverse effect on the assets, business, operations, properties
or condition (financial or otherwise) of the Company and its Subsidiaries taken
as a whole.
SECTION 1008. LIMITATION ON LIENS.
The Company will not issue, incur, create, assume or guarantee, and will
not permit any Restricted Subsidiary to issue, incur, create, assume or
guarantee, any debt for borrowed money secured by a mortgage, security interest,
pledge, lien, charge or other encumbrance ("mortgages") upon any Principal
Property of the Company or any Restricted Subsidiary or upon any shares of stock
or indebtedness of any Restricted Subsidiary (whether such Principal Property,
shares or indebtedness are now existing or owned or hereafter created or
acquired) without in any such case effectively providing concurrently with the
issuance, incurrence, creation, assumption or guarantee of any such secured
debt, or the grant of a mortgage with respect to any such indebtedness, that the
Securities (together with, if the Company shall so determine, any other
indebtedness of or guarantee by the Company or such Restricted Subsidiary
ranking equally with the Securities) shall be secured equally and ratably with
(or, at the option of the Company, prior to) such secured debt. The foregoing
restriction, however, will not apply to:
(1) mortgages on property existing at the time of acquisition thereof
by the Company or any Subsidiary, provided that such mortgages were in
existence prior to the contemplation of such acquisitions;
(2) mortgages on property, shares of stock or indebtedness or other
assets of any corporation existing at the time such corporation becomes a
Restricted Subsidiary, provided that such mortgages are not incurred in
anticipation of such corporation becoming a Restricted Subsidiary;
(3) mortgages on property, shares of stock or indebtedness existing at
the time of acquisition thereof by the Company or a Restricted Subsidiary
or mortgages thereon to secure the payment of all or any part of the
purchase price thereof, or mortgages on property, shares of stock or
indebtedness to secure any indebtedness for borrowed money incurred prior
to, at the time of or within 270 days after, the latest of the acquisition
thereof, or, in the case of property, the completion of construction, the
completion of improvements, or the commencement of substantial commercial
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operation of such property for the purpose of financing all or any part of
the purchase price thereof, such construction, or the making of such
improvements;
(4) mortgages to secure indebtedness owing to the Company or to a
Restricted Subsidiary:
(5) mortgages existing at the date of this Indenture;
(6) mortgages on property of a corporation existing at the time such
corporation is merged into or consolidated with the Company or a
Restricted Subsidiary or at the time of a sale, lease or other disposition
of the properties of a corporation as an entirety or substantially as an
entirety to the Company or a Restricted Subsidiary, provided that such
mortgage was not incurred in anticipation of such merger or consolidation
or sale, lease or other disposition;
(7) mortgages in favor of the United States or any State, territory or
possession thereof (or the District of Columbia), or any department,
agency, instrumentality or political subdivision of the United States or
any State, territory or possession thereof (or the District of Columbia),
to secure partial, progress, advance or other payments pursuant to any
contract or statute or to secure any indebtedness incurred for the purpose
of financing all or any part of the purchase price or the cost of
constructing or improving the property subject to such mortgages;
(8) mortgages created in connection with the acquisition of assets or
a project financed with, and created to secure, a Nonrecourse Obligation;
(9) extensions, renewals, refinancings or replacements of any mortgage
referred to in the foregoing clauses (1), (2), (3), (4), (5), (6), (7) and
(8) provided, however, that any mortgages permitted by any of the
foregoing clauses (1), (2), (3), (4), (5), (6), (7) and (8) shall not
extend to or cover any property of the Company or such Restricted
Subsidiary, as the case may be, other than the property, if any, specified
in such clauses and improvements thereto, and provided further that any
refinancing or replacement of any mortgages permitted by the foregoing
clauses (7) and (8) shall be of the type referred to in such clauses (7)
or (8), as the case may be.
Notwithstanding the restrictions set forth in the preceding paragraph, the
Company or any Restricted Subsidiary will be permitted to issue, incur, create,
assume or guarantee debt secured by a mortgage which would otherwise be subject
to such restrictions, without equally and ratably securing the Securities,
provided that after giving effect thereto, the aggregate amount of all debt so
secured by mortgages (not including mortgages permitted under clauses (1)
through (9) above) does not exceed 15% of the Consolidated Net Tangible Assets
of the Company as most recently determined on or prior to such date.
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SECTION 1009. LIMITATIONS ON SALE AND LEASEBACK TRANSACTIONS.
The Company will not, nor will it permit any Restricted Subsidiary to,
enter into any Sale and Leaseback Transaction with respect to any Principal
Property, other than any such transaction involving a lease for a term of not
more than three years or any such transaction between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries, unless: (1) the
Company or such Restricted Subsidiary would be entitled to incur indebtedness
secured by a mortgage on the Principal Property involved in such transaction at
least equal in amount to the Attributable Debt with respect to such Sale and
Leaseback Transaction, without equally and ratably securing the Securities,
pursuant to Section 1008; or (2) the Company shall apply an amount equal to the
greater of the net proceeds of such sale or the Attributable Debt with respect
to such Sale and Leaseback Transaction within 180 days of such sale to either
(or a combination of) the retirement (other than mandatory retirement, mandatory
prepayment or sinking fund payment or by a payment at maturity) of debt for
borrowed money of the Company or a Restricted Subsidiary that matures more than
12 months after the creation of such indebtedness or the purchase, construction
or development of other comparable property.
SECTION 1010. WAIVER OF CERTAIN COVENANTS.
Except as otherwise specified as contemplated by Section 301 for
Securities of such series, the Company may, with respect to the Securities of
any series, omit in any particular instance to comply with any term, provision
or condition set forth in Article Eight or in Sections 1005 to 1009 inclusive,
or in any covenant provided pursuant to Section 301(19), 901(2) or 901(7) for
the benefit of the Holders of such series if before the time for such compliance
the Holders of at least a majority in principal amount of the Outstanding
Securities of such series shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such term,
provision or condition, but no such waiver shall extend to or affect such term,
provision or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such term, provision or condition shall remain in
full force and effect.
SECTION 1011. CALCULATION OF ORIGINAL ISSUE DISCOUNT.
The Company shall file with the Trustee promptly at the end of each
calendar year (i) a written notice specifying the amount of original issue
discount (including daily rates and accrual periods), if any, accrued on
Outstanding Securities as of the end of such year and (ii) such other specific
information relating to such original issue discount as may then be relevant
under the Internal Revenue Code of 1986, as amended from time to time.
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ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. APPLICABILITY OF ARTICLE.
Securities of any series which are redeemable before their Stated Maturity
shall be redeemable in accordance with their terms and (except as otherwise
specified as contemplated by Section 301 for such Securities) in accordance with
this Article.
SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities shall be evidenced by
a Board Resolution or in another manner specified as contemplated by Section 301
for such Securities. In case of any redemption at the election of the Company of
less than all the Securities of any series (including any such redemption
affecting only a single Security), the Company shall, at least 60 days prior to
the Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the
principal amount of Securities of such series to be redeemed and, if applicable,
of the tenor of the Securities to be redeemed. In the case of any redemption of
Securities prior to the expiration of any restriction on such redemption
provided in the terms of such Securities or elsewhere in this Indenture, the
Company shall furnish the Trustee with an Officers' Certificate evidencing
compliance with such restriction.
SECTION 1103. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
If less than all the Securities of any series are to be redeemed (unless
all the Securities of such series and of a specified tenor are to be redeemed or
unless such redemption affects only a single Security), the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities of such series
not previously called for redemption, by such method as the Trustee shall deem
fair and appropriate and which may provide for the selection for redemption of a
por tion of the principal amount of any Security of such series, PROVIDED that
the unredeemed portion of the principal amount of any Security shall be in an
authorized denomination (which shall not be less than the minimum authorized
denomination) for such Security. If less than all the Securities of such series
and of a specified tenor are to be redeemed (unless such redemption affects only
a single Security), the particular Securities to be redeemed shall be selected
not more than 60 days prior to the Redemption Date by the Trustee, from the
Outstanding Securities of such series and specified tenor not previously called
for redemption in accordance with the preceding sentence.
If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed (so
far as may be) to be the portion selected for
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redemption. Securities which have been converted during a selection of
Securities to be redeemed shall be treated by the Trustee as Outstanding for the
purpose of such selection.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption as aforesaid and, in case of any Securities selected for
partial redemption as aforesaid, the principal amount thereof to be redeemed.
The provisions of the two preceding paragraphs shall not apply with
respect to any redemption affecting only a single Security, whether such
Security is to be redeemed in whole or in part. In the case of any such
redemption in part, the unredeemed portion of the principal amount of the
Security shall be in an authorized denomination (which shall not be less than
the minimum authorized denomination) for such Security.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 1104. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at its address appearing in the
Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price (including accrued interest, if any),
(3) if less than all the Outstanding Securities of any series consisting
of more than a single Security are to be redeemed, the identification (and,
in the case of partial redemption of any such Securities, the principal
amounts) of the particular Securities to be redeemed and, if less than all
the Outstanding Securities of any series consisting of a single Security are
to be redeemed, the principal amount of the particular Security to be
redeemed,
(4) that on the Redemption Date the Redemption Price will become due and
payable upon each such Security to be redeemed and, if applicable, that
interest thereon will cease to accrue on and after said date,
(5) the place or places where each such Security is to be surrendered for
payment of the Redemption Price,
(6) if applicable, the conversion price, that the date on which the right
to convert the principal of the Securities or the portions thereof to be
redeemed will terminate will be
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the Business Day prior to the Redemption Date and the place or places where
such Securities may be surrendered for conversion,
(7) that the redemption is for a sinking fund, if such is the case, and
(8) the applicable CUSIP Numbers.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall be irrevocable.
SECTION 1105. DEPOSIT OF REDEMPTION PRICE.
Prior to any Redemption Date, the Company shall deposit with the Trustee
or with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 1003) an amount of money
sufficient to pay the Redemption Price of, and (except if the Redemption Date
shall be an Interest Payment Date) accrued interest on, all the Securities which
are to be redeemed on that date.
If any Security called for redemption is converted, any money deposited
with the Trustee or with a Paying Agent or so segregated and held in trust for
the redemption of such Security shall (subject to the right of any Holder of
such Security to receive interest as provided in the last paragraph of Section
307) be paid to the Company on Company Request, or if then held by the Company,
shall be discharged from such trust.
SECTION 1106. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; PROVIDED, HOWEVER, that, unless otherwise specified as
contemplated by Section 301, installments of interest whose Stated Maturity is
on or prior to the Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such at the
close of business on the relevant Record Dates according to their terms and the
provisions of Section 307.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and any premium shall, until paid, bear
interest from the Redemption Date at the rate prescribed therefor in the
Security.
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SECTION 1107. SECURITIES REDEEMED IN PART.
Any Security which is to be redeemed only in part shall be surrendered at
a Place of Payment therefor (with, if the Company or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or its attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Security without service
charge, a new Security or Securities of the same series and of like tenor, of
any authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Security so surrendered.
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. APPLICABILITY OF ARTICLE.
The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of any series except as otherwise specified as
contemplated by Section 301 for such Securities.
The minimum amount of any sinking fund payment provided for by the terms
of any Securities is herein referred to as a "mandatory sinking fund payment",
and any payment in excess of such minimum amount provided for by the terms of
such Securities is herein referred to as an "optional sinking fund payment". If
provided for by the terms of any Securities, the cash amount of any sinking fund
payment may be subject to reduction as provided in Section 1202. Each sinking
fund payment shall be applied to the redemption of Securities as provided for by
the terms of such Securities.
SECTION 1202. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES.
The Company (1) may deliver Outstanding Securities of a series (other than
any previously called for redemption) and (2) may apply as a credit Securities
of a series which have been redeemed either at the election of the Company
pursuant to the terms of such Securities or through the application of permitted
optional sinking fund payments pursuant to the terms of such Securities, in each
case in satisfaction of all or any part of any sinking fund payment with respect
to any Securities of such series required to be made pursuant to the terms of
such Securities as and to the extent provided for by the terms of such
Securities; PROVIDED that the Securities to be so credited have not been
previously so credited. The Securities to be so credited shall be received and
credited for such purpose by the Trustee at the Redemption Price, as specified
in the Securities so to be redeemed, for redemption through operation of the
sinking fund and the amount of such sinking fund payment shall be reduced
accordingly.
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SECTION 1203. REDEMPTION OF SECURITIES FOR SINKING FUND.
Not less than 60 days prior to each sinking fund payment date for any
Securities, the Company will deliver to the Trustee an Officers' Certificate
specifying the amount of the next ensuing sinking fund payment for such
Securities pursuant to the terms of such Securities, the portion thereof, if
any, which is to be satisfied by payment of cash and the portion thereof, if
any, which is to be satisfied by delivering and crediting Securities pursuant to
Section 1202 and will also deliver to the Trustee any Securities to be so
delivered. Not less than 30 days prior to each such sinking fund payment date,
the Trustee shall select the Securities to be redeemed upon such sinking fund
payment date in the manner specified in Section 1103 and cause notice of the
redemption thereof to be given in the name of and at the expense of the Company
in the manner provided in Section 1104. Such notice having been duly given, the
redemption of such Securities shall be made upon the terms and in the manner
stated in Sections 1106 and 1107.
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE.
The Company may elect, at its option at any time, to have Section 1302 or
Section 1303 applied to any Securities or any series of Securities, as the case
may be, designated pursuant to Section 301 as being defeasible pursuant to such
Section 1302 or 1303, in accordance with any applicable requirements provided
pursuant to Section 301 and upon compliance with the conditions set forth below
in this Article. Any such election shall be evidenced by a Board Resolution or
in another manner specified as contemplated by Section 301 for such Securities.
SECTION 1302. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise of its option (if any) to have this Section
applied to any Securities or any series of Securities, as the case may be, the
Company shall be deemed to have been discharged from its obligations with
respect to such Securities as provided in this Section on and after the date the
conditions set forth in Section 1304 are satisfied (hereinafter called
"Defeasance"). For this purpose, such Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by such
Securities and to have satisfied all its other obligations under such Securities
and this Indenture insofar as such Securities are concerned (and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging the
same), subject to the following which shall survive until otherwise terminated
or discharged hereunder: (1) the rights of Holders of such Securities to
receive, solely from the trust fund described in Section 1304 and as more fully
set forth in such Section, payments in respect of the
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principal of and any premium and interest on such Securities when payments are
due, (2) the Company's obligations with respect to such Securities under
Sections 304, 305, 306, 1002 and 1003, (3) the rights, powers, trusts, duties
and immunities of the Trustee hereunder and (4) this Article. Subject to
compliance with this Article, the Company may exercise its option (if any) to
have this Section applied to any Securities notwithstanding the prior exercise
of its option (if any) to have Section 1303 applied to such Securities.
SECTION 1303. COVENANT DEFEASANCE.
Upon the Company's exercise of its option (if any) to have this Section
applied to any Securities or any series of Securities, as the case may be, (1)
the Company shall be released from its obligations under Section 801(3),
Sections 1006 through 1009, inclusive, and any covenants provided pursuant to
Section 301(19), 901(2) or 901(7) for the benefit of the Holders of such
Securities and (2) the occurrence of any event specified in Sections 501(4)
(with respect to any of Section 801(3), Sections 1006 through 1009, inclusive,
and any such covenants provided pursuant to Section 301(19), 901(2) or 901(7))
shall be deemed not to be or result in an Event of Default, in each case with
respect to such Securities as provided in this Section on and after the date the
conditions set forth in Section 1304 are satisfied (hereinafter called "Covenant
Defeasance"). For this purpose, such Covenant Defeasance means that, with
respect to such Securities, the Company may omit to comply with and shall have
no liability in respect of any term, condition or limitation set forth in any
such specified Section (to the extent so specified in the case of Section
501(4)), whether directly or indirectly by reason of any reference elsewhere
herein to any such Section or by reason of any reference in any such Section to
any other provision herein or in any other document, but the remainder of this
Indenture and such Securities shall be unaffected thereby.
SECTION 1304. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of Section 1302
or Section 1303 to any Securities or any series of Securities, as the case may
be:
(1) The Company shall irrevocably have deposited or caused to be deposited
with the Trustee (or another trustee which satisfies the requirements
contemplated by Section 609 and agrees to comply with the provisions of this
Article applicable to it) as trust funds in trust for the purpose of making
the following payments, specifically pledged as security for, and dedicated
solely to, the benefits of the Holders of such Securities, (A) money in an
amount, or (B) U.S. Government Obligations which through the scheduled
payment of principal and interest in respect thereof in accordance with their
terms will provide, not later than one day before the due date of any
payment, money in an amount, or (C) a combination thereof, in each case
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to
the Trustee, to pay and discharge, and which shall be applied by the Trustee
(or any such other qualifying trustee) to pay and discharge, the principal of
and any premium and interest on such Securities on the respective Stated
Maturities, in accordance with the terms of this Indenture and such
Securities. As used
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herein, "U.S. Government Obligation" means (x) any security which is (i) a
direct obligation of the United States of America for the payment of which
the full faith and credit of the United States of America is pledged or (ii)
an obligation of a Person controlled or supervised by and acting as an agency
or instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case (i) or (ii), is not callable
or redeemable at the option of the issuer thereof, and (y) any depositary
receipt issued by a bank (as defined in Section 3(a)(2) of the Securities
Act) as custodian with respect to any U.S. Government Obligation which is
specified in Clause (x) above and held by such bank for the account of the
holder of such depositary receipt, or with respect to any specific payment of
principal of or interest on any U.S. Government Obligation which is so
specified and held, PROVIDED that (except as required by law) such custodian
is not authorized to make any deduction from the amount payable to the holder
of such depositary receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of
principal or interest evidenced by such depositary receipt.
(2) In the event of an election to have Section 1302 apply to any
Securities or any series of Securities, as the case may be, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of this instrument, there has
been a change in the applicable Federal income tax law, in either case (A) or
(B) to the effect that, and based thereon such opinion shall confirm that,
the Holders of such Securities will not recognize gain or loss for Federal
income tax purposes as a result of the deposit, Defeasance and discharge to
be effected with respect to such Securities and will be subject to Federal
income tax on the same amount, in the same manner and at the same times as
would be the case if such deposit, Defeasance and discharge were not to
occur.
(3) In the event of an election to have Section 1303 apply to any
Securities or any series of Securities, as the case may be, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of such Securities will not recognize gain or loss for Federal income
tax purposes as a result of the deposit and Covenant Defeasance to be
effected with respect to such Securities and will be subject to Federal
income tax on the same amount, in the same manner and at the same times as
would be the case if such deposit and Covenant Defeasance were not to occur.
(4) The Company shall have delivered to the Trustee an Officer's
Certificate to the effect that neither such Securities nor any other
Securities of the same series, if then listed on any securities exchange,
will be delisted as a result of such deposit.
(5) No event which is, or after notice or lapse of time or both would
become, an Event of Default with respect to such Securities or any other
Securities shall have occurred and be continuing at the time of such deposit
or, with regard to any such event specified in Sections 501(5) and (6), at
any time on or prior to the 90th day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until after such
90th day).
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(6) Such Defeasance or Covenant Defeasance shall not cause the Trustee to
have a conflicting interest within the meaning of the Trust Indenture Act
(assuming all Securities are in default within the meaning of such Act).
(7) Such Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under, any other agreement or
instrument to which the Company is a party or by which it is bound.
(8) Such Defeasance or Covenant Defeasance shall not result in the trust
arising from such deposit constituting an investment company within the
meaning of the Investment Company Act unless such trust shall be registered
under such Act or exempt from registration thereunder.
(9) The Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Defeasance or Covenant Defeasance have been
complied with.
SECTION 1305. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE
HELD IN TRUST; MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section 1003, all money
and U.S. Government Obligations (including the proceeds thereof) deposited with
the Trustee or other qualifying trustee (solely for purposes of this Section and
Section 1306, the Trustee and any such other trustee are referred to
collectively as the "Trustee") pursuant to Section 1304 in respect of any
Securities shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and this Indenture, to the payment, either
directly or through any such Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Holders of such
Securities, of all sums due and to become due thereon in respect of principal
and any premium and interest, but money so held in trust need not be segregated
from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of Outstanding Securities.
Anything in this Article to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
money or U.S. Government Obligations held by it as provided in Section 1304 with
respect to any Securities which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect the Defeasance or Covenant Defeasance, as
the case may be, with respect to such Securities.
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SECTION 1306. REINSTATEMENT.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with this Article with respect to any Securities by reason of any
order or judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, then the obligations under this
Indenture and such Securities from which the Company has been discharged or
released pursuant to Section 1302 or 1303 shall be revived and reinstated as
though no deposit had occurred pursuant to this Article with respect to such
Securities, until such time as the Trustee or Paying Agent is permitted to apply
all money held in trust pursuant to Section 1305 with respect to such Securities
in accordance with this Article; PROVIDED, HOWEVER, that if the Company makes
any payment of principal of or any premium or interest on any such Security
following such reinstatement of its obligations, the Company shall be subrogated
to the rights (if any) of the Holders of such Securities to receive such payment
from the money so held in trust.
ARTICLE FOURTEEN
CONVERSION OF SECURITIES
SECTION 1401. APPLICABILITY OF ARTICLE.
The provisions of this Article shall be applicable to the Securities of
any series which are convertible into shares of Common Stock of the Company, and
the issuance of such shares of Common Stock upon the conversion of such
Securities, except as otherwise specified as contemplated by Section 301 for the
Securities of such series.
SECTION 1402. EXERCISE OF CONVERSION PRIVILEGE.
In order to exercise a conversion privilege, the Holder of a Security of a
series with such a privilege shall surrender such Security to the Company at the
office or agency maintained for that purpose pursuant to Section 1002,
accompanied by a duly executed conversion notice to the Company substantially in
the form set forth in Section 206 stating that the Holder elects to convert such
Security or a specified portion thereof. Such notice shall also state, if
different from the name and address of such Holder, the name or names (with
address) in which the certificate or certificates for shares of Common Stock
which shall be issuable on such conversion shall be issued. Securities
surrendered for conversion shall (if so required by the Company or the Trustee)
be duly endorsed by or accompanied by instruments of transfer in forms
satisfactory to the Company and the Trustee duly exe cuted by the registered
Holder or its attorney duly authorized in writing; and Securities so surrendered
for conversion (in whole or in part) during the period from the close of
business on any Regular Record Date to the opening of business on the next
succeeding Interest Payment Date (excluding Securities or portions thereof
called for redemption during such period) shall also be accompanied by payment
in funds acceptable to the Company of an amount equal to the interest payable on
such Interest Payment Date on the principal amount
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of such Security then being converted, and such interest shall be payable to
such registered Holder notwithstanding the conversion of such Security, subject
to the provisions of Section 307 relating to the payment of Defaulted Interest
by the Company. As promptly as practicable after the receipt of such notice and
of any payment required pursuant to a Board Resolution and, subject to Section
303, set forth, or determined in the manner provided, in an Officers'
Certificate, or established in one or more indentures supplemental hereto
setting forth the terms of such series of Security, and the surrender of such
Security in accordance with such reasonable regulations as the Company may
prescribe, the Company shall issue and shall deliver, at the office or agency at
which such Security is surrendered, to such Holder or on its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such Security (or specified portion thereof), in
accordance with the provisions of such Board Resolution, Officers' Certificate
or supplemental indenture, and cash as provided therein in respect of any
fractional share of such Common Stock otherwise issuable upon such conversion.
Such conversion shall be deemed to have been effected immediately prior to the
close of business on the date on which such notice and such payment, if
required, shall have been received in proper order for conversion by the Company
and such Security shall have been surrendered as aforesaid (unless such Holder
shall have so surrendered such Security and shall have instructed the Company to
effect the conversion on a particular date following such surrender and such
Holder shall be entitled to convert such Security on such date, in which case
such conversion shall be deemed to be effected immediately prior to the close of
business on such date) and at such time (or, in the case of Securities being
redeemed, on the Business Day immediately prior to the Redemption Date) the
rights of the Holder of such Security as such Security Holder shall cease and
the person or persons in whose name or names any certificate or certificates for
shares of Common Stock of the Company shall be issuable upon such conversion
shall be deemed to have become the Holder or Holders of record of the shares
represented thereby. Except as set forth above and subject to the final
paragraph of Section 307, no payment or adjustment shall be made upon any
conversion on account of any interest accrued on the Securities (or any part
thereof) surrendered for conversion or on account of any dividends on the Common
Stock of the Company issued upon such conversion.
In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to or on the order of the Holder thereof, at the expense of the Company,
a new Security or Securities of the same series, of authorized denominations, in
aggregate principal amount equal to the unconverted portion of such Security.
SECTION 1403. NO FRACTIONAL SHARES.
No fractional share of Common Stock of the Company shall be issued upon
conversions of Securities of any series. If more than one Security shall be
surrendered for conversion at one time by the same Holder, the number of full
shares which shall be issuable upon conversion shall be computed on the basis of
the aggregate principal amount of the Securities (or specified portions thereof
to the extent permitted hereby) so surrendered. If, except for the provisions of
this Section 1403, any Holder of a Security or Securities would
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be entitled to a fractional share of Common Stock of the Company upon the
conversion of such Security or Securities, or specified portions thereof, the
Company shall pay to such Holder an amount in cash equal to the current market
value of such fractional share computed, (i) if such Common Stock is listed or
admitted to unlisted trading privileges on a national securities exchange, on
the basis of the last reported sale price regular way on such exchange on the
last trading day prior to the date of conversion upon which such a sale shall
have been effected, or (ii) if such Common Stock is not at the time so listed or
admitted to unlisted trading privileges on a national securities exchange, on
the basis of the average of the bid and asked prices of such Common Stock in the
over-the-counter market, on the last trading day prior to the date of
conversion, as reported by the National Quotation Bureau, Incorporated or
similar organization if the National Quotation Bureau, Incorporated is no longer
reporting such information, or if not so available, the fair market price as
determined by the Board of Directors. For purposes of this Section, "trading
day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday other than
any day on which the Common Stock is not traded on the Nasdaq National Market
System, or if the Common Stock is not traded on the Nasdaq National Market
System, on the principal exchange or market on which the Common Stock is traded
or quoted.
SECTION 1404. ADJUSTMENT OF CONVERSION PRICE.
The conversion price of Securities of any series that is convertible into
Common Stock of the Company shall be adjusted for any stock dividends, stock
splits, reclassifications, combinations or similar transactions in accordance
with the terms of the supplemental indenture or Board Resolutions setting forth
the terms of the Securities of such series.
Whenever the conversion price is adjusted, the Company shall compute the
adjusted conversion price in accordance with terms of the applicable Board
Resolution or supplemental indenture and shall prepare an Officers' Certificate
setting forth the adjusted conversion price and showing in reasonable detail the
facts upon which such adjustment is based, and such certificate shall forthwith
be filed at each office or agency maintained for the purpose of conversion of
Securities pursuant to Section 1002 and, if different, with the Trustee. The
Company shall forthwith cause a notice setting forth the adjusted conversion
price to be mailed, first class postage prepaid, to each Holder of Securities of
such series at its address appearing on the Security Register and to any
conversion agent other than the Trustee.
SECTION 1405. NOTICE OF CERTAIN CORPORATE ACTIONS.
In case:
(1) the Company shall declare a dividend (or any other distribution) on
its Common Stock payable otherwise than in cash out of its retained earnings
(other than a dividend for which approval of any shareholders of the Company
is required); or
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(2) the Company shall authorize the granting to the holders of its Common
Stock of rights, options or warrants to subscribe for or purchase any shares
of capital stock of any class or of any other rights (other than any such
grant for which approval of any shareholders of the Company is required); or
(3) of any reclassification of the Common Stock of the Company (other than
a subdivision or combination of its outstanding shares of Common Stock, or of
any consolidation, merger or share exchange to which the Company is a party
and for which approval of any shareholders of the Company is required), or of
the sale of all or substantially all of the assets of the Company; or
(4) of the voluntary or involuntary dissolution, liquidation or winding up
of the Company;
then the Company shall cause to be filed with the Trustee, and shall cause to be
mailed to all Holders at their last addresses as they shall appear in the
Securities Register, at least 20 days (or 10 days in any case specified in
Clause (1) or (2) above) prior to the applicable record date hereinafter
specified, a notice stating (i) the date on which a record is to be taken for
the purpose of such dividend, distribution, rights, options or warrants, or, if
a record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights, options or
warrants are to be determined, or (ii) the date on which such reclassification,
consolidation, merger, share exchange, sale, dissolution, liquidation or winding
up is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, share exchange, sale, dissolution,
liquidation or winding up. If at any time the Trustee shall not be the
conversion agent, a copy of such notice shall also forthwith be filed by the
Company with the Trustee.
SECTION 1406. RESERVATION OF SHARES OF COMMON STOCK.
The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of Securities, the full number of shares of
Common Stock of the Company then issuable upon the conversion of all outstanding
Securities of any series that has conversion rights.
SECTION 1407. PAYMENT OF CERTAIN TAXES UPON CONVERSION.
The Company will pay any and all taxes that may be payable in respect of
the issue or delivery of shares of its Common Stock on conversion of Securities
pursuant hereto. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of its Common Stock in a name other than that of the Holder
of the Security or Securities to be converted, and no such issue or delivery
shall be made unless and until the person requesting such issue has paid to the
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Company the amount of any such tax, or has established, to the satisfaction of
the Company, that such tax has been paid.
SECTION 1408. NONASSESSABILITY.
The Company covenants that all shares of its Common Stock which may be
issued upon conversion of Securities will upon issue in accordance with the
terms hereof be duly and validly issued and fully paid and nonassessable.
SECTION 1409. EFFECT OF CONSOLIDATION OR MERGER ON CONVERSION PRIVILEGE.
In case of any consolidation of the Company with, or merger of the Company
into or with any other Person, or in case of any sale of all or substantially
all of the assets of the Company, the Company or the Person formed by such
consolidation or the Person into which the Company shall have been merged or the
Person which shall have acquired such assets, as the case may be, shall execute
and deliver to the Trustee a supplemental indenture providing that the Holder of
each Security then outstanding of any series that is convertible into Common
Stock of the Company shall have the right, which right shall be the exclusive
conversion right thereafter available to said Holder (until the expiration of
the conversion right of such Security), to convert such Security into the kind
and amount of shares of stock or other securities or property (including cash)
receivable upon such consolidation, merger or sale by a holder of the number of
shares of Common Stock of the Company into which such Security might have been
converted immediately prior to such consolidation, merger or sale, subject to
compliance with the other provisions of this Indenture, such Security and such
supplemental indenture. Such supplemental indenture shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in such Security. The above provisions of this Section
shall similarly apply to successive consolidations, mergers or sales. It is
expressly agreed and understood that anything in this Indenture to the contrary
notwithstanding, if, pursuant to such merger, consolidation or sale, holders of
outstanding shares of Common Stock of the Company do not receive shares of
common stock of the surviving corporation but receive other securities, cash or
other property or any combination thereof, Holders of Securities shall not have
the right to thereafter convert their Securities into common stock of the
surviving corporation or the corporation which shall have acquired such assets,
but rather, shall have the right upon such conversion to receive the other
securities, cash or other property receivable by a holder of the number of
shares of Common Stock of the Company into which the Securities held by such
holder might have been converted immediately prior to such consolidation, merger
or sale, all as more fully provided in the first sentence of this Section 1409.
Anything in this Section 1409 to the contrary notwithstanding, the provisions of
this Section 1409 shall not apply to a merger or consolidation of another
corporation with or into the Company pursuant to which both of the following
conditions are applicable: (i) the Company is the surviving corporation and (ii)
the outstanding shares of Common Stock of the Company are not changed or
converted into any other securities or property (including cash) or changed in
number or character or reclassified pursuant to the terms of such merger or
consolidation.
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As evidence of the kind and amount of shares of stock or other securities
or property (including cash) into which Securities may properly be convertible
after any such consolidation, merger or sale, or as to the appropriate
adjustments of the conversion prices applicable with respect thereto, the
Trustee shall be furnished with and may accept the certificate or opinion of an
independent certified public accountant with respect thereto; and, in the
absence of bad faith on the part of the Trustee, the Trustee may conclusively
rely thereon, and shall not be responsible or accountable to any Holder of
Securities for any provision in conformity therewith or approved by such
independent certified accountant which may be contained in said supplemental
indenture.
SECTION 1410. DUTIES OF TRUSTEE REGARDING CONVERSION.
Neither the Trustee nor any conversion agent shall at any time be under
any duty or responsibility to any Holder of Securities of any series that is
convertible into Common Stock of the Company to determine whether any facts
exist which may require any adjustment of the conversion price, or with respect
to the nature or extent of any such adjustment when made, or with respect to the
method employed, whether herein or in any supplemental indenture, any
resolutions of the Board of Directors or written instrument executed by one or
more officers of the Company provided to be employed in making the same. Neither
the Trustee nor any conversion agent shall be accountable with respect to the
validity or value (or the kind or amount) of any shares of Common Stock of the
Company, or of any securities or property, which may at any time be issued or
delivered upon the conversion of any Securities and neither the Trustee nor any
conversion agent makes any representation with respect thereto. Subject to the
provisions of Section 601, neither the Trustee nor any conversion agent shall be
responsible for any failure of the Company to issue, transfer or deliver any
shares of its Common Stock or stock certificates or other securities or property
upon the surrender of any Security for the purpose of conversion or to comply
with any of the covenants of the Company contained in this Article Fourteen or
in the applicable supplemental indenture, resolutions of the Board of Directors
or written instrument executed by one or more duly authorized officers of the
Company.
SECTION 1411. REPAYMENT OF CERTAIN FUNDS UPON CONVERSION.
Any funds which at any time shall have been deposited by the Company or on
its behalf with the Trustee or any other paying agent for the purpose of paying
the principal of, and premium, if any, and interest, if any, on any of the
Securities (including, but not limited to, funds deposited for the sinking fund
referred to in Article Twelve and funds deposited pursuant to Article Thirteen
hereof) and which shall not be required for such purposes because of the
conversion of such Securities as provided in this Article Fourteen shall after
such conversion be repaid to the Company by the Trustee upon the Company's
written request.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
SCHOLASTIC CORPORATION
By................................
Attest:
...........................
Authorized Officer
CITIBANK, N.A.,
By................................
Attest:
......................................
Authorized Officer
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STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the ..... day of January, 2002, before me personally came _________, to
me known, who, being by me duly sworn, did depose and say that [he/she] is
[position] of [organization], one of the corporations described in and which
executed the foregoing instrument; that [he/she] knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation; and that [he/she] signed [his/her] name thereto by like authority.
..............................
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the .... day of January, 2002, before me personally came
..........................., to me known, who, being by me duly sworn, did
depose and say that [he/she] is [position] of [organization], one of the
corporations described in and which executed the foregoing instrument; that
[he/she] knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by authority of the
Board of Directors of said corporation; and that [he/she] signed [his/her] name
thereto by like authority.
..............................
..............................
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