<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
-------------------
FORM 10-K/A
AMENDMENT NO. 1
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______
Commission file number 1-6981
NATIONAL EDUCATION CORPORATION
------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-2774428
-------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2601 MAIN STREET
IRVINE, CALIFORNIA 92614
------------------ -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 474-9400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
Common Stock, New York Stock Exchange
$.01 par value Pacific Stock Exchange
6 1/2% Convertible Subordinated New York Stock Exchange
Debentures Due 2011 Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
================================================================================
Page 1 of 15
<PAGE> 2
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the registrant's voting stock held by
nonaffiliates of the registrant as of February 28, 1997, based on the closing
price for such Common Stock on the New York Stock Exchange on such date, was
$418,930,510.
The number of shares of registrant's Common Stock outstanding as of
February 28, 1997, was 35,647,483.
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference to this Form 10-K/A
Amendment No. 1.
Cover Page 2
<PAGE> 3
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
(a) Executive Officers of the Company.
The following table provides information regarding executive officers
of the Company, including their ages as of February 28, 1997:
<TABLE>
<CAPTION>
Name, Age and Title Five-Year Business Experience
- ------------------- -----------------------------
<S> <C>
David C. Jones (75) Chairman of the Board since July 1989. Acting Chief Executive
Chairman of the Board Officer from July 1989 to April 1990. Consultant and lecturer
since July 1982. Chairman of the Joint Chiefs of Staff from June
1978 through June 1982. Member of the Board of Directors of SRA
International, Inc., an information technology company. Chairman
of the Board of Advisors of the National Civilian Community Corps.
Member of the Board of Advisors of TF Purifiner, Inc.
Sam Yau (48) President, Chief Executive Officer and a Director of the Company
President and Chief since May 1995. Chief Operating Officer of Advacare, Inc., a
Executive Officer medical management company, from May 1993 to November 1994. Senior
Vice President of Finance and Administration for Archive
Corporation (now part of Seagate Technologies, Inc.), a computer
storage (tape) company, from May 1987 to May 1993. Director of
Steck-Vaughn Publishing Corporation and Powerwave, Inc.
Philip C. Maynard (42) Vice President, Secretary and General Counsel since February 1994.
Vice President, Secretary and General Counsel of Orchids Paper Products Company from February
General Counsel 1993 through January 1994. Chief Executive Officer and Director of
McClellan Development from April 1989 to May 1992; Principal and
Director until February 1993. General Partner of Urland, Morello,
Dunn & Maynard law practice from February 1985 to April 1989.
Keith K. Ogata (42) Vice President, Chief Financial Officer and Treasurer since April
Vice President, Chief 1991. Vice President and Treasurer from April 1989 to April 1991.
Financial Officer and Treasurer since January 1987.
Treasurer
</TABLE>
- 1 -
<PAGE> 4
(b) Directors of the Company.
In addition to Messrs. Yau and Jones discussed under Executive
Officers above, the following table provides information regarding all other
members of the Board of Directors, including each person's age as of February
28, 1997. Titles are as officers of the Company unless otherwise indicated.
<TABLE>
<CAPTION>
Business Experience During Last Director
Name and Age Five Years and Other Directorships Since
- ------------ ---------------------------------- --------
<S> <C> <C>
Richard C. Blum (61) Chairman of Richard C. Blum & Associates, L.P., a 1987
(term expires 1998) merchant banking firm. Vice Chairman of URS
Corporation and Director of Sumitomo Bank of
California, Shaklee Corporation, Northwest Airlines
Corporation and C.B. Commercial Holdings, Inc.
Special foreign advisor to Shanghai International
Trust and Investment Company (China).
David Bonderman (54) Managing General Partner of TPG Partners, L.P., an 1993
(term expires 1999) investment partnership, from December 1993 to the
present. Indirect managing general partner of
various investment partnerships from August 1992 to
December 1993. Vice President and Chief Operating
Officer of Keystone, Inc. (formerly Robert M. Bass
Group, Inc.) from July 1983 to August 1992.
Director of Bell & Howell Holdings Company, Carr
Realty Corporation, Continental Airlines, Inc.,
Washington Mutual, Inc. and Denbury Resources, Inc.
David R. Dukes (53) Co-Chairman of Ingram Micro Inc., a personal 1995
(term expires 1997) computer products wholesaler, since January 1993,
and President of Ingram Micro Inc. from September
1989 to January 1993. Chief Executive Officer of
Ingram Alliance-Reseller Company since its
formation in July 1994.
Leonard W. Jaffe (78) Vice Chairman of the Board since July 1989. 1976
(term expires 1997) Private investor and consultant. Director of
Steck-Vaughn Publishing Corporation since May 1993.
Michael R. Klein (54) Partner, Wilmer, Cutler & Pickering law firm since 1991
(term expires 1999) 1974. Chairman of Realty Information Group, Inc.
since 1987. Director of Steck-Vaughn Publishing
Corporation since May 1993. Director of Perini
Corporation since January 1997.
Paul B. MacCready (71) Chairman of the Board, AeroVironment, Inc. 1992
(term expires 1998) Director of MacNeal-Schwendler Corporation.
</TABLE>
- 2 -
<PAGE> 5
<TABLE>
<S> <C> <C>
Frederic V. Malek (60) Chairman of Thayer Capital Partners since April 1984
(term expires 1997) 1993. Director of CB Commercial Real Estate Group,
Inc., and Co-Chairman from April 1989 through
October 1996. Vice Chairman of Northwest Airlines
from June 1990 through December 1991. President of
Northwest Airlines from September 1989 through June
1990. Prior to 1989, President of Marriott Hotels
and Resorts. Director of Automatic Data
Processing, Inc., FPL Group, Inc., various
PaineWebber Mutual Funds, American Management
Systems, Inc., Manor Care, Inc., Intrav, Inc.,
Northwest Airlines, Inc., and Choice Hotels, Inc.
John J. McNaughton (74) Founder of the Company. President and Chairman of 1954
(term expires 1999) the Board from 1954 to 1980 and Chairman of the
Board from 1954 until retirement in 1988. Director
of Intervisual Books International. Owner of
McNaughton Farms.
William D. Walsh (66) General Partner of Sequoia Associates, an 1987
(term expires 1997) investment partnership. Chairman of the Boards of
Champion Road Machinery Ltd., Newell Industrial
Corporation, Newell Manufacturing Corporation,
Clayton Group Inc. and Golden Valley Produce, LLC.
Director of URS Corporation, Newcourt Credit Group,
Inc., Consolidated Freightways Corporation and
Crown Vantage, Inc. Director of Basic Vegetable
Products Corporation. Member of the Visiting
Committee for Harvard Law School and the Committee
on University Resources for Harvard University.
Member of the Board of Trustees, Fordham
University. Trustee for the Neurosciences Research
Foundation at Scripps University.
</TABLE>
(c) Compliance with Section 16(a) of the Exchange Act.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC") and the New York Stock Exchange. Officers, directors and stockholders
owning more than 10% are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the fiscal year
ended December 31, 1996, all filing requirements were complied with applicable
to its officers, directors, and greater than 10% beneficial owners.
- 3 -
<PAGE> 6
ITEM 11. EXECUTIVE COMPENSATION.
(a) Executive Compensation and Other Information.
The following tables disclose the cash compensation paid and stock
options granted to the Company's four executive officers.
TABLE I
SUMMARY COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
NUMBER OF ALL OTHER
RESTRICTED SECURITIES COMPEN-
STOCK UNDERLYING SATION
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS AWARDS OPTIONS (2)
- --------------------------- ---- ---------- ----- ------ ------- ---
<S> <C> <C> <C> <C> <C> <C>
Sam Yau 1996 $ 350,000 $ 262,500 $ 0 0 $ 6,200
President and Chief Executive 1995 $ 285,386 $ 218,750 $ 120,000 1,100,000 $ 0
Officer (from May 8, 1995)
Keith K. Ogata 1996 $ 195,049 $ 116,400 $ 0 0 $ 6,200
Vice President, 1995 $ 184,842 $ 148,812 $ 0 96,000 $ 6,000
Chief Financial Officer 1994 $ 171,789 $ 0 $ 0 23,000 $ 6,000
and Treasurer
Philip C. Maynard 1996 $ 143,667 $ 85,800 $ 0 0 $ 5,429
Vice President, Secretary and 1995 $ 133,547 $ 127,750 $ 0 60,000 $ 4,765
General Counsel (from 1994 $ 112,019 $ 0 $ 0 10,000 $ 0
February 1, 1994)
David C. Jones 1996 $ 89,000 $ 0 $ 15,000 2,000 $ 0
Chairman of the Board 1995 $ 96,861 $ 0 $ 26,865 12,000 $ 0
1994 $ 104,000 $ 0 $ 0 7,000 $ 0
- ---------------
</TABLE>
(1) Amounts shown include cash and noncash compensation earned and received
by executive officers as well as amounts earned but deferred at the
election of these officers under the Company's 401(k) Retirement Plan.
(2) Consists of matching contributions made by the Company on behalf of such
officers to the Company's 401(k) Retirement Plan.
- 4 -
<PAGE> 7
TABLE II
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (10 YEARS) (3)
- ------------------------------------------------------------------------ --------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE EXPIR-
UNDERLYING GRANTED TO PRICE ATION
OPTIONS EMPLOYEES IN (PER DATE
NAME (1) GRANTED FISCAL YEAR SHARE) (M/D/Y) 5% 10%
- -------- ------- ----------- ------ ------- -- ---
<S> <C> <C> <C> <C> <C> <C>
David C. Jones 2,000 (2) .72% $10.375 2/13/06 $13,050 $33,070
- ----------------
</TABLE>
(1) Messrs. Yau, Ogata and Maynard were not granted any options in 1996.
(2) These options are exercisable in full one year from the date of grant and
become exercisable in full after a change of control of the Company.
(3) In accordance with Instruction 6 to Item 402(c) of Regulation S-K
promulgated under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, stock price appreciation has
been calculated using a base price of the per share exercise price for
each option, which exercise price equals the average closing price for
the Company's Common Stock for the ten trading days prior to the date of
grant. Annual 5% and 10% appreciation represents the following per share
increases: from $10.375 per share to $16.90 (5%) and $26.91 (10%).
TABLE III
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS OPTIONS AT
SHARES AT DECEMBER 31, 1996 DECEMBER 31, 1996 (1)
ACQUIRED ON VALUE ---------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sam Yau 0 $ 0 863,891 236,109 $10,582,665 $ 2,892,335
Keith K. Ogata 42,250 $424,256 104,656 42,250 $ 1,107,632 $ 466,650
Philip C. Maynard 8,750 $143,578 41,250 20,000 $ 412,422 $ 230,625
David C. Jones 0 $ 0 56,750 13,250 $ 632,138 $ 133,625
- ----------------
</TABLE>
(1) Based upon the difference between the closing price on the New York Stock
Exchange on December 31, 1996 of $15.25 and the option exercise price.
(b) Severance Benefits and Employment Arrangements.
Pursuant to Company policy, in the event any executive officer's (but
not including Mr. Jones') employment is terminated without cause or after a
change of control, that executive officer would be entitled to
- 5 -
<PAGE> 8
continuation of his salary and fringe benefits for one year or, at that
executive's option, a lump sum payment equal to one year's salary. As of
February 28, 1997, the lump sum payments would be $203,700 to Mr. Ogata and
$150,150 to Mr. Maynard. Termination benefits available to Mr. Yau, the
Company's President and Chief Executive Officer, are discussed below.
On March 1, 1995, the Board of Directors engaged Mr. Yau as a
consultant to conduct an assessment of the strategic position of the Company
and its principal operating units. On May 8, 1995, following completion of Mr.
Yau's study and his report to the Board, the Company entered into an Executive
Employment Agreement with Mr. Yau, naming him President, Chief Executive
Officer and a Director of the Company. The Agreement provides for a term of
three years at a base salary not less than $350,000 per year (Mr. Yau's 1997
salary is $367,500). Mr. Yau will be entitled to earn an annual bonus based
upon achievement of financial and other goals established annually by the
Compensation Committee of the Board of Directors. Mr. Yau's targeted bonus is
75% of his annual salary; however, Mr. Yau's bonus may be less or more than the
targeted amount based on achievement of the established goals. Mr. Yau will
also receive all Company benefits that historically have been made available to
the Company's Chief Executive Officer. The Agreement may be terminated at any
time by the Company with or without cause; however, if the Company terminates
the Agreement without cause, or Mr. Yau is terminated following a change in
control of the Company, Mr. Yau will be entitled to two years' continuation of
base salary, bonus and benefits.
As incentive compensation to Mr. Yau, and in order to align Mr. Yau's
compensation interests directly and significantly with the interests of the
stockholders, the Compensation and Option Committee of the Board (the
"Compensation Committee"), at a meeting held March 17, 1995, granted to Mr. Yau
an option to purchase 500,000 shares of Common Stock at $3.00 per share, the
closing price for the Company's Common Stock as reported by the New York Stock
Exchange ("NYSE") on that date. The option vests monthly in pro-rata
increments over 36 months, beginning June 1, 1995, and remains exercisable for
ten years following March 17, 1995. The Compensation Committee also granted
Mr. Yau the right to purchase, and Mr. Yau purchased on May 24, 1995, 240,000
shares of Common Stock from the Company at $3.00 per share, the closing price
for the Company's Common Stock on the Compensation Committee meeting date. The
purchase price was paid by Mr. Yau with the proceeds of an interest-bearing
loan from the Company, secured by the Common Stock purchased by Mr. Yau, but
with full recourse to Mr. Yau. The loan bears interest at 7.12% annually.
Interest on the loan is payable annually, and twenty-five percent of Mr. Yau's
annual bonus must be applied to payment of principal. Otherwise, principal
will be due on the earlier of Mr. Yau's disposition of the Common Stock, ninety
days following Mr. Yau's termination of employment from the Company, or May 1,
2001. The principal balance on the loan as of February 28, 1997, is $500,003.
In general, Mr. Yau was restricted from selling or otherwise disposing of the
shares prior to January 1, 1997. In addition, for each of the 240,000 shares
of Common Stock purchased by Mr. Yau pursuant to the foregoing right, Mr. Yau
received an option to purchase 2 1/2 shares of Common Stock at the same price
of $3.00 per share. One-third of the options vested when the average closing
price for the Company's Common Stock over a four week period ("Average Stock
Price") equaled or exceeded $6.00 per share (September 7, 1995), one-third
vested when the Average Stock Price equaled or exceeded $9.00 per share
(February 21, 1996), and the final one-third vested when the Average Stock
Price equaled or exceeded $12.00 per share (April 30, 1996). The options
remain exercisable through May 1, 2005.
On July 27, 1995, on approval from the Compensation Committee and in
order to align the compensation interests of Messrs. Ogata and Maynard directly
and significantly with the interests of the stockholders, Mr. Ogata purchased
30,000 shares and Mr. Maynard purchased 20,000 shares of the Company's Common
Stock at $5.25 per share, the closing price for the Company's Common Stock on
that day. Each executive paid the purchase price for his stock with the
proceeds of an interest-bearing loan from the Company, secured by the Common
Stock purchased by such executive, but with full recourse to the executive.
Each executive's loan bears interest at 6.76% annually. Interest on each loan
is payable annually, and twenty-five percent of each executive's annual bonus
must be applied to payment of principal. Otherwise, principal will be due on
the earlier of the executive's disposition of the Common Stock, ninety days
following the executive's termination of employment from the Company, or May 1,
2001. Mr. Ogata's loan was paid in full in 1996; the principal balance on Mr.
Maynard's loan as of February 28, 1997, is $51,412. In addition, for each
share of Common Stock purchased by each executive, that executive received an
option to purchase two shares of Common Stock at the price of $5.2875 per share
(the average closing price of the Company's Common Stock for the ten trading
days immediately preceding and including July 27, 1995).
- 6 -
<PAGE> 9
One-third of the options vested when the Average Stock Price equaled or
exceeded $6.00 per share (September 7, 1995), one-third vested when the Average
Stock Price equaled or exceeded $9.00 per share (February 21, 1996), and the
final one-third vested when the Average Stock Price equaled or exceeded $12.00
per share (April 30, 1996). The options remain exercisable until July 26,
2005.
(c) Supplemental Executive Retirement Plan.
The Company has a Supplemental Executive Retirement Plan (the "SERP")
for its executive officers and subsidiary presidents designated by the
Compensation and Option Committee. The SERP currently has thirteen
participants including Messrs. Yau, Ogata and Maynard. A participant in the
SERP will receive lifetime retirement income in the amount of 60% of the
average earnings (as defined in the SERP) of the participant (reduced by the
amount of a participant's primary social security benefits) multiplied by a
percentage based on the participant's number of years of credited service under
the SERP. The credited service percentage for executive officers is 10% after
the sixth year and increases 10% per year thereafter until it reaches 100% at
15 years of credited service.
The estimated credited years of service and credited service
percentage for the current participating executive officers as of February 28,
1997, are as follows: Mr. Yau - 1 year (0%), Mr. Ogata - 11 years (60%) and
Mr. Maynard - 3 years (0%). Based on historical compensation levels and
continued employment to age 65, approximate annual retirement benefits would
be: Mr. Yau - $350,300, Mr. Ogata - $147,700 and Mr. Maynard - $129,200. A
reduced retirement benefit is provided to a participant who elects to receive
benefits after age 60 and prior to age 65.
The SERP provides for a death benefit of between two and three times
the average earnings of a participant, and a surviving spouse and minor
children also receive certain benefits under the SERP. The SERP provides for
disability benefits of up to 60% of a participant's average earnings. In
addition to the severance benefits noted in the preceding section, if a
participant's employment with the Company terminates within two years of a
change of control of the Company, a participant is entitled to a cash sum equal
to the present value of full retirement benefits without regard to years of
service completed. As of February 28, 1997, the approximate amounts would be:
Mr. Yau - $2,129,000, Mr. Ogata - $854,500 and Mr. Maynard - $668,700.
The following Table IV presents information regarding estimated annual
benefits payable under the SERP upon retirement at age 65 (normal retirement
age under the SERP) in specified compensation and years of service
classifications:
TABLE IV
PENSION PLAN TABLE (1)
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------
REMUNERATION 3 6 9 12 15
- ------------ --- --- --- ---- ----
<S> <C> <C> <C> <C> <C>
$ 125,000 $ 0 $ 7,500 $ 30,000 $ 52,500 $ 75,000
$ 150,000 $ 0 $ 9,000 $ 36,000 $ 63,000 $ 90,000
$ 175,000 $ 0 $ 10,500 $ 42,000 $ 73,500 $ 105,000
$ 200,000 $ 0 $ 12,000 $ 48,000 $ 84,000 $ 120,000
$ 225,000 $ 0 $ 13,500 $ 54,000 $ 94,500 $ 135,000
$ 250,000 $ 0 $ 15,000 $ 60,000 $ 105,000 $ 150,000
$ 300,000 $ 0 $ 18,000 $ 72,000 $ 126,000 $ 180,000
$ 400,000 $ 0 $ 24,000 $ 96,000 $ 168,000 $ 240,000
$ 450,000 $ 0 $ 27,000 $ 108,000 $ 189,000 $ 270,000
$ 500,000 $ 0 $ 30,000 $ 120,000 $ 210,000 $ 300,000
- ----------------
</TABLE>
(1) Estimated benefits shown before reduction for social security
benefits.
- 7 -
<PAGE> 10
(d) Compensation Committee Interlocks and Insider Participation.
The Compensation and Option Committee is comprised of Messrs. Walsh
(Chairman), Blum, Jaffe and Malek. There are no interlocking relationships
between any executive officers of the Company and any entity whose Directors or
executive officers serve on the Company's Board or Compensation and Option
Committee.
Mr. Blum is the Chairman of Richard C. Blum & Associates, L.P. ("RCBA
L.P.") and is a substantial shareholder of Richard C. Blum & Associates, Inc.
("RCBA Inc."). Mr. Blum, RCBA L.P. and RCBA Inc. are deemed beneficial owners
of more than 5% of the Company's outstanding Common Stock (see "Common Stock
Ownership" above). In the past, RCBA L.P. has provided consulting and
investment banking services on behalf of the Company, including its
subsidiaries, on a variety of strategic issues relating to enhancement of
stockholder values. For example, RCBA L.P. was actively involved in the public
offering of one of the Company's subsidiaries, Steck-Vaughn Publishing
Corporation, in 1993, for which it was paid a fee of $393,000. RCBA L.P. did
not provide compensable services for the Company in 1996.
(e) Directors' Fees and Benefits.
The Company pays each of its Directors who is not an employee of the
Company an annual fee of $15,000. Pursuant to the Company's Amended and
Restated 1991 Directors' Stock Option and Award Plan, such annual fee is paid
in the form of Common Stock of the Company, valued at the fair market value of
such Common Stock (in addition, $15,000 of the Chairman of the Board's annual
salary is paid in Common Stock of the Company rather than in cash). In
addition, each Director who is not an employee of the Company receives $1,500
for each Board meeting attended. Nonemployee Directors serving on the
Executive Committee receive an additional $6,000 each year, but do not receive
compensation for attending Executive Committee meetings. Nonemployee Directors
serving on Board committees other than the Executive Committee receive $1,000
for each committee meeting attended (unless the committee meeting is in
conjunction with a Board meeting, in which case the Director receives $500 per
committee meeting attended). Mr. Jaffe receives an additional $6,000 for
serving as Vice Chairman of the Board and $6,000 for serving as Chairman of the
Executive Committee; in addition, Mr. Jaffe receives a monthly automobile
allowance of $500 (for an aggregate of $6,000 during 1996). Other committee
chairmen receive an additional $3,000 each year. All Directors are entitled to
a $2,500 annual financial planning allowance.
Under a supplemental benefit plan, the Company accrues a retirement
benefit for each eligible Director equal to the Director's fees received for
that year, subject to a maximum annual accrual of $25,000 for 1991 and future
years, and a maximum annual accrual of $15,000 for 1990 and prior years (the
"Retirement Accrual"); however, any Director failing to attend in a calendar
year at least 50% of the aggregate number of meetings of the Board and of
committees on which he serves does not receive any Retirement Accrual for such
year. Each Director's Retirement Accrual vests at 20% per year starting from
when a Director first joins the Company's Board, and fully vests after five
years of service on the Board. Upon retirement from the Board, each Director
will be paid monthly installments totalling $25,000 annually until his vested
Retirement Accrual is exhausted; however, if his vested Retirement Accrual is
less than $125,000, it will be paid over five years. If a Director dies prior
to retirement, his beneficiary will receive the greater of $15,000 per year for
ten years or the Director's retirement benefit. If a Director becomes disabled
prior to retirement, the Company will pay him the retainer through the end of
the elected term and thereafter will pay retirement benefits.
All of the Directors of the Company are eligible to participate in the
supplemental benefit plan, except Messrs. Yau and McNaughton. Mr. McNaughton
receives annual retirement payments from the Company based on his prior service
as an executive officer of the Company. See "Executive Compensation and Other
Information-Transactions with Directors" below.
Under the Amended and Restated 1991 Directors' Stock Option and Award
Plan, each eligible Director receives an initial stock option at fair market
value to purchase 5,000 shares of the Company's Common Stock. The initial
option vests and first becomes exercisable in two equal annual installments of
2,500 shares each, commencing one year from the date of grant. In addition, at
the first regular Board meeting each calendar year through the year 2001, each
eligible Director receives a stock option at fair market value, exercisable in
full one
- 8 -
<PAGE> 11
year from the date of grant, to purchase 2,000 shares of the Company's Common
Stock; however, a Director does not receive the annual option grant in the
first year following receipt of the initial 5,000 share option grant if he
received the initial grant at a meeting later than the first regular Board
meeting of the prior calendar year.
All of the Directors of the Company are eligible to participate in the
Amended and Restated 1991 Directors' Stock Option and Award Plan, except Mr.
Yau. Mr. McNaughton became an eligible Director as of February 1, 1994.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The following table sets forth information as of February 28, 1997
(unless otherwise noted) concerning the shares of the Company's Common Stock
beneficially owned by (i) each beneficial owner of more than 5% of the
outstanding shares of Common Stock; (ii) each Director of the Company; (iii)
the Chief Executive Officer and the four most highly compensated other
executive officers; and (iv) all current Directors and executive officers of
the Company as a group. Except as otherwise noted, each beneficial owner
listed has sole investment and voting power (or shares such powers with his or
her spouse) of the shares indicated. Beneficial ownership includes any shares
the individual has the right to acquire within 60 days following February 28,
1997, through the exercise of any stock option or other right. As of February
28, 1997, there were 35,647,483 issued and outstanding shares of Common Stock
of the Company, not including treasury shares or shares issuable on exercise of
options or conversion of debentures.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR AMOUNT AND NATURE PERCENT
ENTITY OR NUMBER OF POSITION WITH OF BENEFICIAL OF
PERSONS IN GROUP THE COMPANY OWNERSHIP (1) CLASS
- ----------------- ---------------------------- ----------------- -------
<S> <C> <C>
Westport Asset Management, Inc. 4,856,700 (2) 13.6%
Denver Investment Advisors LLC 4,521,975 (3) 12.7%
Richard C. Blum & Associates, L.P. 2,603,305 (4) 7.3%
and Richard C. Blum & Associates, Inc.
Richard C. Blum Director 2,625,471 (5) 7.4%
David Bonderman Director 73,841 (6) *
David R. Dukes Director 4,617 *
Leonard W. Jaffe Director 27,326 *
David C. Jones Chairman of the Board 95,201 *
Michael R. Klein Director 27,326 *
Paul B. MacCready Director 15,326 *
Frederic V. Malek Director 36,379 (7) *
John J. McNaughton Director 31,544 *
William D. Walsh Director 24,240 *
Sam Yau President, Chief Executive
Officer and Director 1,189,906 3.3%
Philip C. Maynard Vice President, Secretary
and General Counsel 68,443 *
Keith K. Ogata Vice President, Chief Financial
Officer and Treasurer 162,906 *
All Current Directors and Executive Officers
as a Group (13 persons) 4,382,526 (1) 11.9%
- ----------------
</TABLE>
* Less than 1%.
- 9 -
<PAGE> 12
(1) The shares listed in the table include the following stock options
exercisable on or within 60 days after February 28, 1997: Mr. Blum -
15,000 shares; Mr. Bonderman - 9,000 shares; Mr. Dukes - 2,500 shares;
Mr. Jaffe - 15,744 shares; Mr. Jones - 63,750 shares; Mr. Klein - 13,000
shares; Mr. MacCready - 11,000 shares; Mr. Malek - 15,744 shares; Mr.
McNaughton - 9,000 shares; Mr. Walsh - 15,744 shares; Mr. Yau -919,447
shares; Mr. Maynard - 47,500 shares; Mr. Ogata - 121,906 shares; and all
Directors and officers as a group - 1,259,335 shares.
The shares listed in the table also include the following debentures
convertible into Common Stock of the Company: (a) 4,000 shares issuable
on conversion of 6 1/2% Convertible Subordinated Debentures due 2011 (the
"Company Debentures") owned by Mr. Jaffe; (c) 4,000 shares issuable on
conversion of Company Debentures owned by Mr. Jones; and (d) 6,000 shares
issuable on conversion of Company Debentures owned by Mr. Ogata. All
current Directors and officers as a group hold Company Debentures
convertible into an aggregate of 14,000 shares.
(2) According to a Schedule 13G dated February 13, 1997, and filed with the
SEC, Westport Asset Management, Inc., 253 Riverside Avenue, Westport,
Connecticut 06880 ("Westport") has sole voting and dispositive power over
318,400 shares and shared voting and dispositive power over 4,538,300
shares. From the Schedule 13G, it appears that the 4,538,300 shares are
held in discretionary accounts managed by Westport, while the 318,400
shares are beneficially owned by officers and stockholders of Westport.
Westport disclaims beneficial ownership of such shares and disclaims the
existence of a group.
(3) According to a Schedule 13G dated February 10, 1997, and filed with the
Securities and Exchange Commission ("SEC"), Denver Investment Advisors
LLC, 1225 17th Street, 26th Floor, Denver, Colorado 80202 has sole voting
power over 2,989,775 shares and sole dispositive power over 4,521,975
shares.
(4) Richard C. Blum & Associates, L.P. ("RCBA L.P."), 909 Montgomery Street,
Suite 400, San Francisco, California 94133, holds 15,478 shares directly
and is the sole general partner in the following partnerships, which hold
the specified number of shares: (a) BK Capital Partners II, L.P.,
355,601 shares; (b) BK Capital Partners III, L.P., 425,700 shares; (c) BK
Capital Partners IV, L.P., 20,900 shares; and (d) BK-NEC, L.P., 368,556
shares. In addition, RCBA L.P. is investment adviser to The Common Fund,
which holds 1,417,070 shares. Richard C. Blum & Associates, Inc. ("RCBA
Inc."), also at 909 Montgomery Street, Suite 400, San Francisco,
California 94133, is the sole general partner of RCBA L.P. RCBA L.P. and
RCBA Inc. each disclaims beneficial ownership of all securities reported
in the table, except to the extent of its pecuniary interest therein.
(5) Mr. Blum, the Chairman of the Board and substantial shareholder of RCBA
Inc., directly owns 22,166 shares (including 15,000 shares issuable upon
the exercise of stock options). Of the securities listed in the table,
2,603,305 shares also are reported in the table as indirectly owned by
RCBA L.P. and RCBA Inc. (see fn. 4 above). Mr. Blum disclaims beneficial
ownership of all securities reported in the table except to the extent of
his pecuniary interest therein.
(6) Includes 60,515 shares held by Bonderman Family Limited Partnership, of
which Mr. Bonderman is the general partner.
(7) Excludes Mr. Malek's 1.308% interest in BK Capital Partners II, L.P.,
which owns 355,601 shares of Common Stock (see fn. 4 above).
- 10 -
<PAGE> 13
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions with Directors.
In 1996, Mr. McNaughton received retirement payments totalling
$44,498. Effective February 1, 1994, Mr. McNaughton became eligible to receive
fees paid to nonemployee Directors of the Company. Mr. McNaughton will
continue to receive the retirement payments noted above for the remainder of
his life.
From March 1, 1995, to May 8, 1995, Mr. Yau provided consulting
services to the Company, reporting directly to the Board of Directors. For
those consulting services, Mr. Yau was paid an amount equal to a pro-rata
portion of his annual base salary provided for under his Executive Employment
Agreement. See "Severance Benefits and Employment Arrangements" above.
See also Item 11, "Executive Compensation--Compensation Committee
Interlocks and Insider Participation" for additional information regarding
transactions with directors.
- 11 -
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
NATIONAL EDUCATION CORPORATION Date
By: /s/ SAM YAU April 8, 1997
-----------------------------------
Sam Yau
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Date
By: /s/ SAM YAU April 8, 1997
-----------------------------------
Sam Yau
Director, President and Chief
Executive Officer
(Principal Executive Officer)
By: /s/ KEITH K. OGATA April 8, 1997
-------------------------------
Keith K. Ogata, Vice President,
Chief Financial Officer and
Treasurer (Principal Financial
Officer)
By: /s/ GLEN E. MEDWID April 8, 1997
------------------------------
Glen E. Medwid, Corporate
Controller (Principal
Accounting Officer)
- 12 -
<PAGE> 15
Date
By: /s/ RICHARD C. BLUM April 11, 1997
-----------------------------
Richard C. Blum, Director
By: /s/ DAVID BONDERMAN April 9, 1997
-----------------------------
David Bonderman, Director
By: /s/ DAVID R. DUKES April 9, 1997
-----------------------------
David R. Dukes, Director
By: /s/ LEONARD W. JAFFE April 11, 1997
-----------------------------
Leonard W. Jaffe, Director
By: /s/ DAVID C. JONES April 8, 1997
-----------------------------
David C. Jones, Director
By: /s/ MICHAEL R. KLEIN April 8, 1997
-----------------------------
Michael R. Klein, Director
By: /s/ PAUL B. MACCREADY April 8, 1997
-----------------------------
Paul B. MacCready, Director
By: /s/ FREDERIC V. MALEK April 9, 1997
-----------------------------
Frederic V. Malek, Director
By: /s/ JOHN J. MCNAUGHTON April 11, 1997
-----------------------------
John J. McNaughton, Director
By: /s/ WILLIAM D. WALSH April 8, 1997
-----------------------------
William D. Walsh, Director
- 13 -
