<PAGE>
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended February 29, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ____________.
Commission file number: 0-4957
EDUCATIONAL DEVELOPMENT CORPORATION
(Name of small business issuer in its charter)
Delaware 73-0750007
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10302 East 55th Place, Tulsa, Oklahoma 74146-6515
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (918) 622-4522
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.20 par value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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
------ ------
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $19,253,467.
As of May 13, 1996, 5,224,298 shares of common stock were outstanding.
The aggregate market value of the voting shares held by non-affiliates of the
registrant, based on 3,908,639 shares (total outstanding less shares held by all
officers, directors and 401K Plan) extended at the closing market price on May
13, 1996, of these shares traded on the Nasdaq National Market, was
approximately $43,995,029.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated Document
---------------------
All information under the caption "Election of Directors" and "Compliance With
Section 16(a)" in the Company's definitive Proxy Statement to be filed in
connection with the Annual Meeting of Shareholders to be held July 25, 1996.
All information under the caption "Executive Compensation" in the Company's
definitive Proxy Statement to be filed in connection with the Annual Meeting of
Shareholders to be held July 25, 1996.
All information under the caption "Voting Securities and Principal Holders
Thereof" in the Company's definitive Proxy Statement to be filed in connection
with the Annual Meeting of Shareholders to be held July 25, 1996.
Location in Form 10-KSB
-----------------------
Part III - Item 9(a) and Item 9(c)
Part III - Item 10
Part III - Item 11
NOTE: Part III - Item 13 is located at pages 12 to 15 herein.
2
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
FORM 10-KSB ANNUAL REPORT
FOR THE YEAR ENDED FEBRUARY 29, 1996
PART 1
------
Item 1. DESCRIPTION OF BUSINESS
- ------- -----------------------
Educational Development Corporation ("EDC" or the "Company"), a Delaware
corporation with its principal office in Tulsa, Oklahoma, is engaged in three
major activities. Its Publishing Division distributes books and some
educational materials to book stores, toy stores, specialty stores and other
retail outlets. The Home Business Division distributes books through
independent consultants who hold book showings in individual homes and through
book fairs, fund raisers and directs sales. The Library Services Division
distributes books to public and school libraries. This Division distributes
titles published by EDC as well as numerous other publishers.
The Company was incorporated on August 23, 1965. The Company's original
corporate name was Tutor Tapes International Corporation of Delaware. Its name
was changed to International Teaching Tapes, Inc. on November 24, 1965, and
changed again to the present name on June 24, 1968.
(a) Significant Events During Fiscal Year 1996
------------------------------------------
Effective February 29, 1996 the Company discontinued and wrote off all the
assets of its School Division which distributed classroom instructional
materials, testing services and microcomputer systems for the management of
instruction in the classroom. The Company anticipates that the liquidation will
be completed during fiscal year 1997 through the disposal of the remaining
assets. It is unknown what proceeds, if any, might be received from this
liquidation.
Management made the decision to discontinue the School Division in order to
reallocate time and resources to its Home Business Division and Publishing
Division, which experienced growth in sales for FY 1996 of 116% and 25%
respectively.
(b) General Development of Business
-------------------------------
During Fiscal Year (FY) 1996, the Company operated primarily three
divisions: Publishing, Home Business, and Library Services. The Publishing
Division markets books to book, toy and specialty stores, as well as to school
and public libraries. The Home Business Division distributes books through
independent consultants who hold book showings in individual homes, and through
book fairs, fund raisers and direct sales. The Library Services Division markets
books to libraries.
3
<PAGE>
Net Sales for each of the three divisions were as follows:
<TABLE>
<CAPTION>
NET SALES BY DIVISION
-----------------------------------------------------------------
FY 1996 FY 1995 FY 1994
-------------------- -------------------- -------------------
Percent Percent Percent
($ M ) of Total ($ M ) of Total ($ M ) of Total
--------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Publishing $ 8,191.1 42.5 $ 6,536.9 52.9 $5,269.1 66.6
Home Business 9,516.0 49.4 4,390.4 35.5 1,641.4 20.7
Lib. Serv 1,546.4 8.1 1,426.0 11.6 1,003.7 12.7
--------- ----- --------- ----- -------- -----
$19,253.5 100.0 $12,353.3 100.0 $7,914.2 100.0
========= ===== ========= ===== ======== =====
</TABLE>
As the table above indicates, while both the Publishing Division and
Library Division experienced increases in net sales during fiscal years 1995 and
1996, these divisions percentage of total sales declined. This was caused by the
increase in sales from the Home Business Division. The Company sees this trend
continuing as the Home Business Division continues to grow at a greater rate
than the other two divisions. The Company is evaluating the long term potential
for the Library Division, taking into consideration the market competition and
availability of governmental funding for the schools.
(c) Financial Information about Industry Segments
---------------------------------------------
Marketing and distribution of books to the retail trade, including book
stores, toy stores, specialty stores and other retail outlets as well as school
and public libraries, is the principal industry segment in which the Company is
engaged. Reference is made to the financial information contained elsewhere in
this report for financial results of the Company's operations.
(d) Narrative Description of Business
---------------------------------
(i) Publishing Division
The principal product of both the Publishing Division and Home Business
Division is a line of children's books produced in the United Kingdom by Usborne
Publishing Limited. The Company is the United States distributor of these books.
The Company currently offers approximately 800 different titles. The Company
considers the political risk of importing books from the United Kingdom to be
negligible as the two countries have maintained excellent relations for many
years. There likewise is little economic risk in importing books from the United
Kingdom as the Company pays for the books in U.S. dollars and is not directly
subject to any currency fluctuations. There is risk of physical loss of the
books should an accident occur while the books are in transit, which could cause
the Company some economic loss due to lost sales should the supply of some
titles run out in the event of a lost shipment. The Company considers this to be
highly unlikely as this type of loss has yet to occur.
There is some risk involved in having approximately 92% of net sales from
the Usborne line. The Company has an excellent working relationship with its
foreign supplier Usborne Publishing Limited and can foresee no reason for this
to change. Management believes that the Usborne line of books are the best
available books of their type and has no plans to sell any other line.
(ii) Home Business Division
The Home Business Division markets the Usborne line of approximately 800
titles through a combination of direct sales, home parties, fund raisers and
book fairs sold through a network marketing system.
(iii) Library Services Division
The Library Services Division distributes books to public and school
libraries. Titles distributed include the Usborne titles as well as titles
published by numerous other publishers.
(iv) Research and Development
The Company did not incur any research and development expenses during
the last three fiscal years.
4
<PAGE>
(v) Marketing
(a) Publishing Division
The Publishing Division markets through commissioned trade
representatives who call on book, toy and specialty stores; and through
marketing by telephone to the trade as well as to school and public libraries.
The Publishing Division contributed 42.5% to the Company's net sales in FY 1996
compared to 52.9% in FY 1995. This Division markets to approximately 12,000
book, toy and specialty stores and public and school libraries. Significant
orders have been received from major book chains. During the current fiscal year
the division continued to make inroads into mass merchandising outlets such as
drug, department and discount stores.
(b) Home Business Division
The Home Business Division markets through commissioned consultants
using a combination of direct sales, home parties, fund raisers and book fairs.
The division had 6,050 consultants in 50 states at February 29, 1996.
(c) Library Services Division
The Library Services Division markets through commissioned school and
library representatives who call on school and public libraries. Titles are
offered from 20 different publishers as well as the Company's own titles.
(vii) Competition
(a) Publishing Division
The Publishing Division faces strong competition from large U.S. and
international companies which have much larger financial resources. Industry
sales are over $2.3 billion annually. Publishing Division's sales are less than
1/2 of 1% of industry sales. Competitive factors include product quality, price
and deliverability. Management believes it can compete well in these areas.
(b) Home Business Division
The Home Business Division faces stiff competition from several other
direct selling companies which have larger financial resources. Management
believes its superior product line will enable this Division to be highly
competitive in this area.
(c) Library Services Division
The Library Services Division encounters competition from many other
publishers and distributors in the marketing of books to public and school
libraries. The Company believes that by its policy of offering titles of the
Company's own line, including making certain of these titles exclusive to its
sales force, plus offering the titles of twenty other publishers, it has an
advantage over those publishers who offer only a single line. Federal and State
funding cuts to schools affect the availability of funds to the school
libraries. The Company is unable to estimate the effect of these funding cuts
on the division's future sales to school libraries, because the magnitude of
funding cuts has yet to be determined by Congress.
5
<PAGE>
(viii) Seasonality
(a) Publishing Division
The level of shipments of the Company's books is greatest in the Fall
while retailers are stocking up for Holiday sales.
(b) Home Business Division
The level of sales for Home Business Division is greatest during the
Fall as individuals prepare for the Holiday season.
(c) Library Services Division
The level of shipments for this Division is greatest during early Fall
as school libraries prepare for the current term.
(ix) Government Funding
Local, state and Federal funds are important to the Library Services
Division. In many cities and states in which the Company does business, school
funds have been severely cut.
(x) Trademarks, Copyrights and Patents
The Company has eight to twelve registered copyrights and trademarks
which have 10 year durations expiring at various dates through the year 2001.
The Company considers the registered copyrights and trademarks which it owns and
has licenses to use to be very important to the development of the goodwill of
its business and to the acceptance of its products. It has expended and is
continuing to expend money and effort in protecting and preserving its rights
thereunder.
(xi) Employees
As of May 1, 1996, the Company had 52 full-time employees and 31 part-
time employees. The Company believes its relations with its employees to be
good.
Item 2. DESCRIPTION OF PROPERTIES
- ------- -------------------------
The Company moved its operations and executive offices on March 1, 1986,
to 10302 E. 55th PL, Tulsa, Oklahoma. The Company leases approximately 80,400
square feet of office and warehouse space under a 5 year renewable lease which
expires February 28, 1999.
The Company's operating facility is maintained in good condition and is
adequately insured. Equipment items are well maintained and in good operating
condition consistent with the requirement of the Company's business. The
Company believes that its operating facility meets both its present need and its
needs for future expansion.
Item 3. LEGAL PROCEEDINGS
- ------- -----------------
The Company is not a party to any material pending legal proceedings.
6
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
On February 12, 1996 the Company mailed to all stockholders of record at
February 5, 1996 a Proxy Statement and Notice of Special Meeting of stockholders
to be held March 13, 1996. The purpose of the special meeting was to consider
and vote upon a proposal to approve an amendment to the Corporation's Restated
Certificate of Incorporation increasing the number of authorized shares of
Common Stock, par value $.20 per share, from 3,000,000 to 6,000,000.
The amendment was approved by the stockholders with 1,653,141 shares voting
for the amendment, 42,078 shares voting against the amendment and 588,128 shares
abstaining. The Company then announced a two-for-one stock split on the
Company's outstanding Common Stock, effective and payable to stockholders of
record at April 1, 1996.
PART II
-------
Item 5. MARKET FOR COMMON EQUITY AND RELATED
- ------- ------------------------------------
STOCKHOLDER MATTERS
-------------------
The common stock of EDC is traded on the Nasdaq National Market
(symbol--EDUC). The high and low closing quarterly common stock quotations
for fiscal years 1996 and 1995, as reported by the National Association of
Securities Dealers, Inc., as adjusted for the two-for-one stock split, were
as follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
Period High Low High Low
- --------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
1st Qtr.. 7-9/16 5-5/8 3-7/16 2-11/16
2nd Qtr.. 9 5-1/2 4-3/16 2-7/8
3rd Qtr.. 11-7/8 7-1/2 7-1/4 4
4th Qtr.. 13-1/8 8-15/16 8-1/4 5-3/8
</TABLE>
The number of shareholders of record of EDC's common stock at May 13, 1996 was
1032.
No dividends were paid in fiscal years 1996 and 1995.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
- ------- ---------------------------------------
PLAN OF OPERATION
-----------------
(a) General
-------
Certain statements contained in this Management Discussion and Analysis are
not based on historical facts, but are forward-looking statements that are based
upon numerous assumptions about future conditions that may ultimately prove to
be inaccurate. Actual events and results may materially differ from anticipated
results described in such statements. The Company's ability to achieve such
results is subject to certain risks and uncertainties. Such risks and
uncertainties include but are not limited to, product prices, continued
availability of capital and financing, and other factors affecting the Company's
business that may be beyond its control.
FY 1996 vs FY 1995
- ------------------
The Publishing Division's sales increased 25% in FY 1996 over FY 1995.
This increase can be attributable to an increase in volume and an increase in
market penetration. Orders continue to increase in size with larger quantities
per order as well as multiple titles being ordered. The rack program continues
to increase with 201 new racks placed during FY 1996 in bookstores throughout
the country. The Division now has 2383 racks in place in bookstores. The Company
offers special pricing with the purchase of a display rack. This rack is 6 feet
tall with a 21" x 21" base and 5 adjustable shelves. The racks hold
approximately 220 books and offer the retail merchant an excellent method of
displaying many of the Company's titles. These racks serve as a marketing tool
for retail merchants. The telemarketing staff opened 609 new accounts during FY
1996 vs 811 new accounts in FY 1995. Management expects sales for FY 1997 to
increase over FY 1996.
7
<PAGE>
The Home Business Division's sales increased 116% in FY 1996 compared with
FY 1995. This is due to a 147% increase in the number of independent
consultants distributing the books. The Division continued to offer new and
exciting consultant incentive programs during FY 1996, including several travel
contests. These programs combined with various specials offered during the year
helped attract and retain consultants. The Division continued to hold several
training seminars during the year to train supervisors and to exchange ideas
with other supervisors. Management expects sales for FY 1997 to increase over
FY 1996.
The Library Services Division's sales increased 8% in FY 1996 compared
with FY 1995. Management believes this increase was due primarily to increased
market penetration by the commissioned sales force. The Division now represents
20 other publishers in addition to the Usborne line of titles. Management
continues to evaluate the entire range of publishers it represents in order to
find the right blend of titles to offer the schools. Sales in the Library
Division continue to increase yearly over the previous year, but the percentage
of total net sales produced by the Library Division declined in fiscal year 1996
when compared with fiscal year 1995. As discussed earlier, competition in this
market is very competitive and subject to the availability of governmental
funding. The Company is evaluating the long term potential for this Division,
taking into consideration the market competition and availability of
governmental funding for the schools. Management expects sales for FY 1997 to
increase over FY 1996.
FY 1995 vs FY 1994
- ------------------
The Publishing Division's sales increased 24% in FY 1995 over FY 1994. This
increase was attributable to an increase in volume and an increase in market
penetration. Orders continue to increase in size with larger quantities per
order as well as multiple titles being ordered. The rack program continues to
increase with 266 new racks placed during FY 1995 in bookstores throughout the
country. The telemarketing staff opened 811 new accounts during FY 1995 vs 1,004
new accounts in FY 1994.
The Home Business Division's sales increased 167% in FY 1995 compared with
FY 1994. This was due to a 110% increase in the number of independent
consultants distributing the books. The Division continued to offer new and
exciting consultant incentive programs during FY 1995, including several travel
contests. These programs combined with various specials offered during the year
helped attract and retain consultants. The Division continued to hold several
training seminars during the year to train supervisors and to exchange ideas
with other supervisors.
The Library Services Division's sales increased 42% in FY 1995 compared with
FY 1994. Management believes this increase was due primarily to increased
market penetration by the commissioned sales force. The Division now represents
20 other publishers in addition to the Usborne line of titles. Management
continues to evaluate the entire range of publishers it represents in order to
find the right blend of titles to offer the schools.
FY 1996 vs FY 1995
- ------------------
Cost of sales increased 45% for FY 1996 over FY 1995. Cost of sales as a
percent of gross sales was 27.1% in FY 1996 compared with 27.3% in FY 1995.
Cost of goods as a percentage of gross sales fluctuates depending upon the mix
of products sold during a given year. Management believes that its cost of
goods sold will be approximately 28% of gross sales for FY 1997.
Operating and selling expenses increased 40% for FY 1996 over FY 1995. As a
percent of gross sales these costs were 10.8% in FY 1996 compared to 11.2% in FY
1995. Sales incentives increased 167% in the Home Business Division as a result
of the increase in sales. Management expects operating and selling expense to
be 10% - 12% of sales for FY 1997.
Other assets declined from $132,380 at February 28, 1995 to $5,102 at
February 29, 1996. This decline was attributed to usage of miscellaneous
operating supplies and to the write off of other assets applicable to
discontinued operations.
8
<PAGE>
Sales commissions increased 101% during FY 1996 over FY 1995. As a percent
of gross sales, these costs were 12.8% in FY 1996 compared with 9.3% in FY 1995.
Sales commission as a percentage of gross sales is determined by the product mix
being sold, as the commission rates vary with the product being sold and the
Division which makes the sale. The increase in sales by the Home Business
Division, which has a higher commission percentage, resulted in higher
commission cost.
General and administrative costs increased 20.5% in FY 1996 compared with FY
1995. As a percentage of gross sales, these costs were 3.1% in FY 1996 versus
3.7% in FY 1995. General and administrative costs are not always directly
affected by sales, so comparison of these costs as a percentage of sales can be
misleading. Salaries increased 23% as additional staff was added in the
financial and administrative areas.
Interest expense increased $287,897 during FY 1996 compared with FY 1995.
As a percentage of gross sales, interest expense was 1% in FY 1996 and
negligible in FY 1995. This increase was due primarily to the increased
borrowing levels during FY 1996 and a higher average interest rate.
FY 1995 vs FY 1994
- ------------------
Cost of sales increased 49% for FY 1995 over FY 1994. Cost of sales as a
percent of gross sales was 27.3% in FY 1995 compared with 27.6% in FY 1994.
Cost of goods as a percentage of gross sales fluctuates depending upon the mix
of products sold during a given year.
Operating and selling expenses increased 34.4% for FY 1995 over FY 1994. As
a percent of gross sales these costs were 11.2% in FY 1995 compared to 12.6% in
FY 1994. Travel costs increased 96% as the Home Business Division sponsored
several consultant travel contests throughout the year.
Sales commissions increased 117% during FY 1995 over FY 1994. As a percent
of gross sales, these costs were 9.3% in FY 1995 compared with 6.5% in FY 1994.
Sales commission as a percentage of gross sales is determined by the product mix
being sold, as the commission rates vary with the product being sold and the
Division which makes the sale. The increase in sales by the Home Business
Division, which has a higher commission percentage, resulted in higher
commission cost.
General and administrative costs increased 24.7% in FY 1995 compared with FY
1994. As a percentage of gross sales, these costs were 3.7% in FY 1995 versus
4.5% in FY 1994. General and administrative costs are not always directly
affected by sales, so comparison of these costs as a percentage of sales can be
misleading.
Interest expense decreased 66% during FY 1995 compared with FY 1994. As a
percentage of gross sales, interest expense was negligible in FY 1995 and in FY
1994. This decline was due primarily to the decreased borrowing levels during
FY 1995.
(b) Financial Position
------------------
Working capital increased 4% at fiscal year end 1996 over fiscal year end
1995. Higher inventory levels (addressed fully in Liquidity and Capital
Resources), partially offset by higher payables and current debt, was the
principal contributor to the increase in working capital. The Company pays
interest on its bank promissory note from current cash flows. The Company plans
to reduce it's inventory levels during fiscal year 1997 by streamlining it's
purchasing procedures and reducing the minimum reorder cutoff quantity.
Management expects its financial position to continue to improve during FY 1997
and to have increased working capital at fiscal year end 1997.
(c) Liquidity and Capital Resources
-------------------------------
9
<PAGE>
Management believes the Company's liquidity at February 29, 1996, to be
adequate. There are no known demands, commitments, events or uncertainties that
would result in a material change in the Company's liquidity during FY 1997.
Capital expenditures are expected to be less than $750,000 in FY 1997. These
expenditures would consist primarily of software and hardware enhancements to
the Company's existing data processing equipment, leasehold improvements, and
additions to the warehouse shipping system.
Effective June 30, 1994 the Company signed a Fourth Amendment to Credit and
Security Agreement with State Bank which provided a $1,300,000 line of credit.
The line of credit was evidenced by a promissory note in the amount of
$1,300,000 payable June 30, 1995. The note was collateralized by substantially
all of the assets of the Company. During the first quarter of fiscal year 1996
this revolving credit agreement was amended, increasing the line to $3,000,000.
During the second quarter of fiscal year 1996 this revolving credit agreement
was amended, increasing the line to $3,750,000. $1,750,000 of the amended
revolving credit agreement expired October 25, 1995 and the remaining $2,000,000
was to expire June 30, 1996. The note bore interest at a prime plus 1%, payable
monthly.
Effective September 25, 1995 the Company signed a Restated Credit and
Security Agreement with State Bank which provides a $6,000,000 line of credit
which replaced the agreements referred to above. The line of credit is
evidenced by a promissory note in the amount of $6,000,000 payable June 30,
1996. The note bears interest at prime plus 1/2%, payable monthly (8.75% at
February 29, 1996) and is collateralized by substantially all of the assets of
the Company. Payments are made from current cash flows. At February 29, 1996 the
Company had available $180,000 under this credit agreement.
The Company obtained and uses the credit facility to fund routine
operations. Payments are made from current cash flows. The Company is
negotiating to renew this facility when it matures June 30, 1996. The Company
believes its borrowing capacity under this line to be adequate for the next
several years.
The Company used cash in operating activities during FY 1996. Accounts
receivable increased in FY 1996 over FY 1995. The Company offered several
promotions during FY 1996 with extended payment terms. The Company expects to
realize the cash flow from these promotions during the early part of FY 1997.
The Company has placed renewed emphasis on collection efforts and the tightening
of credit controls in order to maintain cash flows.
Inventories increased during FY 1996 over FY 1995 as the Company continues
its efforts to maintain inventory in sufficient quantities to support increased
sales as well as meet the six to eight month resupply requirements of its major
supplier. The Company expects inventory to increase in moderate levels each year
as its principal supplier continues to add new titles to the product line.
The amount due the Company's principal supplier is the main component of
accounts payable. Accounts payable during FY 1996 and FY 1995 increased
moderately as purchases from its major supplier increased. Accounts payable
should continue to increase moderately each year as purchases from its major
supplier increase. Management expects cash flows from operating activities to
increase in the foreseeable future.
Cash used in investing activities increased in FY 1996 as the Company added
a new computer system and enhanced the warehouse's shipping system. The Company
anticipates cash flows used in investing activities to decline during FY 1997.
Net cash provided by financing activities increased in FY 1996 as the
Company borrowed under its credit line to meet inventory purchase obligations.
10
<PAGE>
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The information required by this item begins at page F-1, following
page 17 hereof.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
- ------- ---------------------------------------------
ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
There have been no disagreements on any matter of accounting principles
or practices or financial statement disclosure within the twenty-four months
prior to February 29, 1996.
PART III
--------
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
- ------- ----------------------------------------------------
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
-------------------------------------------------------
ACT OF THE REGISTRANT
---------------------
(a) Identification of Directors
---------------------------
The information required by this item is furnished by incorporation by
reference to all information under the caption "Election of Directors" in the
Company's definitive Proxy Statement to be filed in connection with the annual
Meeting of Shareholders to be held on July 25, 1996.
(b) Identification of Executive Officers
------------------------------------
The following information is furnished with respect to each of the
executive officers of the Company, each of whom is elected by and serves at the
pleasure of the Board of Directors.
Office
Name Office Held Since Age
---- ------ ---------- ---
Randall W. White Chairman of the Board, 1986 54
President and Treasurer
Kathleen M. Hannagan Senior Vice President 1992 47
W. Curtis Fossett Controller and 1989 50
Corporate Secretary
(c) Compliance With Section 16 (a) of the Exchange Act
--------------------------------------------------
The information required by this item is furnished by incorporation by
reference to all information under the caption "Compliance With Section 16 (a)"
in the Company's definitive Proxy Statement to be filed in connection with the
Annual Meeting of Shareholders to be held on July 25, 1996.
11
<PAGE>
Item 10. EXECUTIVE COMPENSATION
- -------- ----------------------
The information required by this item is furnished by incorporation by
reference to all information under the caption "Executive Compensation" in the
Company's definitive Proxy Statement to be filed in connection with the Annual
Meeting of Shareholders to be held on July 25, 1996.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- -------- ---------------------------------------------------
MANAGEMENT
----------
The information required by this item is furnished by incorporation by
reference to all information under the caption "Voting Securities and Principal
Holders Thereof" in the Company's definitive Proxy Statement to be filed in
connection with the Annual Meeting of Shareholders to be held on July 25, 1996.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
There are no relationships or related transactions required to be
disclosed.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
- -------- --------------------------------
(a) The following documents are filed as part of this
report:
1. Financial Statements Page
-------------------- ----
Independent Auditors' Report F-1
Balance Sheets - February 29, 1996 and
February 28, 1995 F-2
Statements of Earnings - Years ended
February 29, 1996, February 28, 1995
and 1994 F-3
Statements of Changes in Shareholders' Equity -
Years ended February 29, 1996,
February 28, 1995 and 1994 F-4
Statements of Cash Flows -
Years ended February 29, 1996,
February 28, 1995 and 1994 F-5
Notes to Financial Statements F-6-F-13
2. Exhibits
3.1 Restated Certificate of Incorporation of the Company dated
April 26, 1968, Certificate of Amendment there to dated
June 21, 1968 and By-Laws of the Company are incorporated
herein by reference to Exhibit 1 to Registration Statement
on Form 10 (File No. 0-4957).
12
<PAGE>
3.2 Certificate of Amendment of Restated Certificate of Incorporation
of the Company dated August 27, 1977 and By-Laws of the Company as
amended are incorporated herein by reference to Exhibits 20.1 and
20.2 to Form 10-K for fiscal year ended February 28, 1981 (File No.
0-4957).
3.3 Certificate of Amendment of Restated Certificate of Incorporation
of the Company dated November 17, 1986, is incorporated herein by
reference to Exhibit 3.3 to Form 10-K for fiscal year ended
February 28, 1987 (File No. 0-4957).
*3.4 Certificate of Amendment of Restated Certificate of Incorporation
of the Company dated March 22, 1996.
4.1 Specimens of Common Stock Certificates are incorporated herein by
reference to Exhibits 3.1 and 3.2 to Registration Statement on Form
10-K (File No. 0-4957).
10.1 Educational Development Corporation Incentive Stock Option Plan of
1981, is incorporated herein by reference to Exhibit 10.9 to Form
10-K for fiscal year ended February 28, 1982 (File No. 0-4957).
10.2 Agreement by and among the Company, Usborne Publishing Ltd., and
Hayes Books, Inc., dated May 17, 1983, is incorporated herein by
reference to Exhibit 10.16 to Form 10-K for fiscal year ended
February 29, 1984 (File No. 0-4957).
10.3 Settlement Agreement dated August 7, 1986, by and between the
Company and Hayes Publishing Ltd., Cyril Hayes Books, Inc.
(formerly named Hayes Books, Inc.), and Cyril Hayes is incorporated
herein by reference to Exhibit 10.1 to Form 8-K dated August 7,
1986 (File No. 0-4957).
10.4 Usborne Agreement-Contractual agreement by and between the Company
and Usborne Publishing Limited dated November 25, 1988, is
incorporated herein by reference to Exhibit 10.12 to Form 10-K
dated February 28, 1989 (File No. 0-4957).
10.5 Party Plan-Contractual agreement by and between the Company and
Usborne Publishing Limited dated March 14, 1989, is incorporated
herein by reference to Exhibit 10.13 to Form 10-K dated February
28, 1989 (File No. 0-4957).
10.6 Loan Agreement dated January 18, 1990, by and between the Company
and State Bank & Trust, N.A., Tulsa, OK (formerly WestStar Bank,
N.A., Bartlesville, OK), is incorporated herein by reference to
Exhibit 10.11 to Form 10-K dated February 28, 1990 (File No.
0-4957).
13
<PAGE>
10.7 Lease Agreement by and between the Company and James D. Dunn dated
March 1, 1991, is incorporated herein by reference to Exhibit 10.12 to
Form 10-K dated February 28, 1991 (File No. 0-4957).
10.8 Agreement for Exchange of Contract Rights and Securities by and
between the Company and Robert D. Berryhill dated October 1, 1990, is
incorporated herein by reference to Exhibit 10.1 to Form 10-K dated
February 28, 1991 (File No. 0-4957).
10.9 Amendment dated January 1, 1992 to Usborne Agreement - Contractual
agreement by and between the Company and Usborne Publishing Limited is
incorporated herein by reference to Exhibit 10.13 to Form 10K dated
February 29, 1992 (File No. 0-4957).
10.10 First Amendment dated January 31, 1992 to Loan Agreement between the
Company and State Bank & Trust, N.A., Tulsa, OK, (formally WestStar
Bank, N.A., Bartlesville, OK,) is incorporated herein by reference to
Exhibit 10.14 to Form 10-K dated February 29, 1992 (File No. 0-4957).
10.11 Educational Development Corporation 1992 Incentive Stock Option Plan
is incorporated herein by reference to Exhibit 4(c) to Registration
Statement on Form S-8 (File No. 33-60188)
10.12 Second Amendment dated June 30, 1992 to Loan Agreement between the
Company and State Bank & Trust, N.A., Tulsa, OK, (formally WestStar
Bank, N.A., Bartlesville, OK,) is incorporated herein by reference to
Exhibit 10.12 to Form 10-KSB dated February 28, 1994 (File No.
0-4957).
10.13 Third Amendment dated June 30, 1993 to Loan Agreement between the
Company and State Bank & Trust, N.A., Tulsa, OK, (formally WestStar
Bank, N.A., Bartlesville, OK,) is incorporated herein by reference to
Exhibit 10.13 to Form 10-KSB dated February 28, 1995 (File No.
0-4957).
10.14 Fourth Amendment dated June 30, 1994 to Loan Agreement between the
Company and State Bank & Trust, N.A, Tulsa, OK, is incorporated herein
by reference to Exhibit 10.13 to Form 10-KSB dated February 28, 1995
(File No. 0-4957).
10.15 Fifth Amendment dated March 13, 1995 to Loan Agreement between the
Company and State Bank & Trust, N.A., Tulsa, OK, is incorporated
herein by reference to Exhibit 10.13 to Form 10-KSB dated February 28,
1995 (File No. 0-4957).
10.16 Sixth Amendment dated March 27, 1995 to Loan Agreement between the
Company and State Bank & Trust, N.A., Tulsa, OK, is incorporated
herein by reference to Exhibit 10.13 to Form 10-KSB dated February 28,
1995 (File No. 0-4957).
14
<PAGE>
10.17 Seventh Amendment dated April 27, 1995 to Loan Agreement between the
Company and State Bank & Trust, N.A., Tulsa, OK, is incorporated
herein by reference to Exhibit 10.13 to Form 10-KSB dated February 28,
1995 (File No. 0-4957).
10.18 Amendment dated February 28, 1995 to the Lease Agreement by and
between the Company and James D. Dunn, is incorporated herein by
reference to Exhibit 10.13 to Form 10-KSB dated February 28, 1995
(File No. 0-4957).
*10.19 Eighth Amendment Dated July 27, 1995 to Loan Agreement between the
Company and State Bank & Trust, N.A., Tulsa, OK.
*10.20 Restated Loan Agreement dated September 25, 1995 between the Company
and State Bank & Trust, N.A., Tulsa, OK.
*11. Earnings per share computation.
*23. Independent Auditors' Consent
- -------------------
*Filed Herewith
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
15
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(b) 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.
EDUCATIONAL DEVELOPMENT CORPORATION
Date: May 29, 1996 By /s/ W. Curtis Fossett
------------------------------------
W. Curtis Fossett
Principal Financial
and Accounting 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
registrant and in the capacities and on the date indicated.
Date: May 29, 1996 /s/ Randall W. White
------------------------------------
Randall W. White
Chairman of the Board
President, Treasurer and
Director
May 29, 1996 /s/ Robert D. Berryhill
------------------------------------
Robert D. Berryhill, Director
May 29, 1996 /s/ G. Dean Cosgrove
------------------------------------
G. Dean Cosgrove, Director
May 29, 1996 /s/ James F. Lewis
------------------------------------
James F. Lewis, Director
May 29, 1996 /s/ John M. Lare
------------------------------------
John M. Lare, Director
May 29, 1996 By /s/ W. Curtis Fossett
------------------------------------
W. Curtis Fossett
Principal Financial
and Accounting Officer
16
<PAGE>
[LETTERHEAD OF DELOITTE & TOUCHE LLP APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Educational Development Corporation:
We have audited the accompanying balance sheets of Educational Development
Corporation as of February 29, 1996 and February 28, 1995, and the related
statements of earnings, shareholders' equity and cash flows for each of the
three years in the period ended February 29, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at February 29, 1996 and
February 28, 1995, and the results of its operations and its cash flows for each
of the three years in the period ended February 29, 1996 in conformity with
generally accepted accounting principles.
As discussed in Note 6 to the financial statements, the Company changed its
method of accounting for income taxes effective March 1, 1993 to conform with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
Deloitte & Touche LLP
May 6, 1996
Tulsa, Oklahoma
F-1
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
BALANCE SHEETS
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 215,963 $ 328,925
Accounts receivable, less allowances for doubtful
accounts and sales returns 2,591,384 1,743,894
Inventories - Net 11,776,138 6,588,744
Prepaid expenses 333,396 169,303
Income taxes receivable 352,323 -
Deferred income taxes 168,300 257,000
------------- --------------
Total current assets 15,437,504 9,087,866
PROPERTY AND EQUIPMENT - Net 815,362 364,212
INVENTORIES - Net - 80,920
OTHER ASSETS - Net 5,102 132,380
------------- --------------
$ 16,257,968 $ 9,665,378
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations $ 5,820,000 $ 7,673
Accounts payable 3,215,691 3,004,279
Accrued salaries and commissions 270,864 171,678
Other current liabilities 219,525 123,204
Accrued test scoring - 18,241
Income taxes payable - 67,699
------------- --------------
Total current liabilities 9,526,080 3,392,774
LONG-TERM OBLIGATIONS - 1,000,000
COMMITMENTS
SHAREHOLDERS' EQUITY:
Common stock, $.20 par value; Authorized 6,000,000 shares;
Issued 5,398,240 and 2,344,120 shares; outstanding
5,191,498 and 2,258,247 shares 1,079,648 468,824
Capital in excess of par value 4,391,339 4,569,125
Retained earnings 1,788,343 309,629
------------- --------------
7,259,330 5,347,578
Less treasury stock, at cost (527,442) (74,974)
------------- --------------
6,731,888 5,272,604
------------- --------------
$ 16,257,968 $ 9,665,378
============= ==============
</TABLE>
See notes to financial statements.
F-2
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF EARNINGS
YEARS ENDED FEBRUARY 29, 1996, FEBRUARY 28, 1995, AND FEBRUARY 28, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
GROSS SALES $29,795,017 $20,504,729 $13,537,614
Less discounts and allowances (10,541,550) (8,151,472) (5,623,416)
----------- ----------- -----------
Net sales 19,253,467 12,353,257 7,914,198
COST OF SALES 8,083,221 5,587,402 3,741,776
----------- ----------- -----------
Gross margin 11,170,246 6,765,855 4,172,422
----------- ----------- -----------
OPERATING EXPENSES:
Operating and selling 3,211,355 2,289,725 1,703,470
Sales commissions 3,824,500 1,899,317 874,894
General and administrative 920,786 764,351 613,049
Interest 297,849 9,952 29,273
----------- ----------- -----------
8,254,490 4,963,345 3,220,686
----------- ----------- -----------
OTHER INCOME 2,279 59,137 11,614
----------- ----------- -----------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE
FOR INCOME TAXES 2,918,035 1,861,647 963,350
INCOME TAXES 1,112,700 698,000 332,000
----------- ----------- -----------
EARNINGS FROM CONTINUING OPERATIONS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE FOR INCOME TAXES 1,805,335 1,163,647 631,350
DISCONTINUED OPERATIONS, NET OF TAX:
Earnings (loss) from operations (25,637) 8,139 (27,699)
Loss on disposal (300,984) - -
----------- ----------- -----------
(326,621) 8,139 (27,699)
----------- ----------- -----------
EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE FOR INCOME TAXES 1,478,714 1,171,786 603,651
CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR
INCOME TAXES - - 290,000
----------- ----------- -----------
NET EARNINGS $ 1,478,714 $ 1,171,786 $ 893,651
=========== =========== ===========
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
Primary and fully diluted:
Earnings from continuing operations before
cumulative effect of accounting change for income taxes $ 0.34 $ 0.22 $ 0.13
Discontinued operations (0.06) - (0.01)
Cumulative effect of accounting change for income taxes - - 0.06
----------- ----------- -----------
Net earnings $ 0.28 $ 0.22 $ 0.18
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING -
Primary and fully diluted 5,338,834 5,223,490 5,029,620
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED FEBRUARY 29, 1996, FEBRUARY 28, 1995 AND FEBRUARY 28, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
(PAR VALUE $.20 PER SHARE) RETAINED
------------------------------
NUMBER OF CAPITAL IN EARNINGS
SHARES EXCESS OF (ACCUMULATED
ISSUED AMOUNT PAR VALUE DEFICIT)
<S> <C> <C> <C> <C>
BALANCE, MARCH 1, 1994 2,319,120 $ 463,824 $4,445,517 $(1,755,808)
Exercise of options at $0.625/share 10,000 2,000 4,250 -
Net earnings - - - 893,651
---------- ---------- ---------- -----------
BALANCE, FEBRUARY 28, 1994 2,329,120 465,824 4,449,767 (862,157)
Exercise of options at $1.875/share 10,000 2,000 16,750 -
Exercise of options at $0.625/share 5,000 1,000 2,125 -
Sales of treasury stock - - 100,483 -
Net earnings - - - 1,171,786
---------- ---------- ---------- -----------
BALANCE, FEBRUARY 28, 1995 2,344,120 468,824 4,569,125 309,629
Exercise of options at $6.25/share 25,000 5,000 151,250 -
Exercise of options at $3.00/share 5,000 1,000 14,000 -
Exercise of options at $2.75/share 30,000 6,000 76,500 -
Exercise of options at $1.875/share 15,000 3,000 25,125 -
Exercise of options at $1.25/share 15,000 3,000 15,750 -
Exercise of options at $0.50/share 265,000 53,000 79,500 -
Issuance of treasury stock - - (87) -
Purchase of treasury stock - - - -
Sales of treasury stock - - - -
Net earnings - - - 1,478,714
Effect of two-for-one
stock split (Note 9) 2,699,120 539,824 (539,824) -
---------- ---------- ---------- -----------
BALANCE, FEBRUARY 29, 1996 5,398,240 $1,079,648 $4,391,339 $ 1,788,343
========== ========== ========== ===========
<CAPTION>
TREASURY STOCK SHARE-
-----------------------------
NUMBER OF HOLDERS'
SHARES AMOUNT EQUITY
<S> <C> <C> <C>
BALANCE, MARCH 1, 1994 96,299 $ (84,076) $3,069,457
Exercise of options at $0.625/share - - 6,250
Net earnings - - 893,651
-------- --------- ----------
BALANCE, FEBRUARY 28, 1994 96,299 (84,076) 3,969,358
Exercise of options at $1.875/share - - 18,750
Exercise of options at $0.625/share - - 3,125
Sales of treasury stock (10,426) 9,102 109,585
Net earnings - - 1,171,786
-------- --------- ----------
BALANCE, FEBRUARY 28, 1995 85,873 (74,974) 5,272,604
Exercise of options at $6.25/share - - 156,250
Exercise of options at $3.00/share - - 15,000
Exercise of options at $2.75/share - - 82,500
Exercise of options at $1.875/share - - 28,125
Exercise of options at $1.25/share - - 18,750
Exercise of options at $0.50/share - - 132,500
Issuance of treasury stock (100) 87 -
Purchase of treasury stock 22,575 (523,048) (523,048)
Sales of treasury stock (4,977) 70,493 70,493
Net earnings - - 1,478,714
Effect of two-for-one
stock split (Note 9) 103,371 - -
-------- --------- ----------
BALANCE, FEBRUARY 29, 1996 206,742 $(527,442) $6,731,888
======== ========= ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 29, 1996, FEBRUARY 28, 1995, AND FEBRUARY 28, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,478,714 $ 1,171,786 $ 893,651
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Cumulative effect of accounting change - - (290,000)
Depreciation and amortization 126,697 147,431 110,197
Deferred income taxes 88,700 (113,000) 146,000
Provision for doubtful accounts and sales returns 1,250,900 1,143,500 1,086,100
Provision for obsolete inventories - 118,100 145,000
Changes in assets and liabilities:
Accounts and income taxes receivable (2,450,713) (1,567,653) (1,350,746)
Inventories (5,106,474) (3,320,267) (613,955)
Prepaid expenses and other assets (36,815) (111,285) (19,979)
Accounts payable and accrued expenses 320,979 1,964,348 347,685
----------- ----------- -----------
Total adjustments (5,806,726) (1,738,826) (439,698)
----------- ----------- -----------
Net cash provided by (used in) operating
activities (4,328,012) (567,040) 453,953
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (577,847) (273,129) (61,745)
----------- ----------- -----------
Net cash used in investing activities (577,847) (273,129) (61,745)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit agreement 11,820,000 2,040,000 2,080,000
Payments under revolving credit agreement (7,000,000) (1,040,000) (2,430,000)
Principal payments on capital lease obligations (7,673) (40,925) (36,516)
Cash received from exercise of stock options 64,952 21,875 6,250
Cash received from sale of stock 70,493 109,585 -
Cash paid to acquire treasury stock (154,875) - -
----------- ----------- -----------
Net cash provided by (used in) financing
activities 4,792,897 1,090,535 (380,266)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (112,962) 250,366 11,942
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 328,925 78,559 66,617
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 215,963 $ 328,925 $ 78,559
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 264,462 $ 7,691 $ 30,974
=========== =========== ===========
Cash paid for income taxes $ 1,259,022 $ 836,500 $ 5,800
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 1996, FEBRUARY 28, 1995 AND FEBRUARY 28, 1994
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Educational Development Corporation (the "Company")
distributes books and publications through its Publishing, Library Services
and Home Business Divisions. The Company is the United States ("U.S.")
distributor of books and related matters, published primarily in England,
to book, toy and gift stores, libraries and home educators. The Company is
also involved in the production and publishing of new book titles. The
English publishing company is the primary vendor of the Company. The
Company sells to its customers, located throughout the U.S., primarily on
standard credit terms.
ESTIMATES - The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on hand
and cash on deposit in banks.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out ("FIFO") method.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost and
depreciated and amortized using the straight-line method over the estimated
useful lives of the related assets.
PRODUCT ACQUISITION COSTS - Costs incurred in updating educational testing
methods were capitalized as product acquisition costs. Amortization was
computed over the useful lives of the related products, generally ten
years, using the straight-line method. At February 28, 1995, product
acquisition costs of $60,000, which is net of accumulated amortization of
$122,000, are included in other assets.
INCOME TAXES - Effective March 1, 1993, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," ("SFAS No. 109") on a prospective basis. SFAS No. 109
requires that deferred income taxes are recorded for temporary differences
between the financial reporting and tax basis of the Company's assets and
liabilities and for operating loss and tax credit carryforwards.
INCOME RECOGNITION - Sales are recorded primarily when products are
shipped, or in some cases when payment has been received and an order is
shippable. At the time sales are recognized for certain products under
specified conditions, allowances for returns are recorded based on prior
experience.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - The computation of
earnings per common and common equivalent share is based on the weighted
average shares of common stock outstanding and, when the effect is
dilutive, common stock equivalents attributable to stock options and stock
warrants.
F-6
<PAGE>
NEW ACCOUNTING STANDARDS - The Company plans to adopt the provisions of
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" in fiscal 1997. The Company has not determined the effect of
adopting SFAS No. 121. In October 1995, the Financial Accounting Standards
Board issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS
No. 123 establishes a fair value method and disclosure standards for stock-
based employee compensation arrangements, such as stock purchase plans and
stock options. As allowed by SFAS No. 123, the Company will continue to
follow the provisions of Accounting Principles Board Opinion No. 25 for
such stock-based compensation arrangements and disclose the pro forma
effects of applying SFAS No. 123 for fiscal 1996 and fiscal 1997 in the
1997 financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS - SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments" requires disclosure regarding the fair
value of financial instruments for which it is practical to estimate that
value. For cash and cash equivalents, accounts receivable, and accounts
payable, the carrying amount approximates fair value because of the short
maturity of those instruments. The fair value of the Company's long-term
debt is estimated to approximate carrying value based on the borrowing
rates currently available to the Company for bank loans with similar terms
and average maturities.
RECLASSIFICATIONS - Reclassifications were made to 1994 and 1995 balances
to conform with the 1996 presentation.
2. DISCONTINUED OPERATIONS
Effective February 29, 1996, the Company discontinued its School Division.
The Company anticipates that the liquidation of the division will be
completed during fiscal 1997 through the disposition of remaining assets of
the division. The remaining assets of this division were written off at
February 29, 1996. Accordingly, the operating results of the School
Division are segregated and reported as discontinued operations in the
accompanying statements of earnings for the three years in the period ended
February 29, 1996.
The condensed statements of operations relating to the discontinued School
Division operations for each of the three years in the period ended
February 29, 1996 are presented below:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Gross sales $ 43,085 $ 136,521 $ 106,989
Less discounts and allowances (5,030) (9,871) (5,154)
-------- --------- ---------
Net sales 38,055 126,650 101,835
Cost of sales 8,271 (41,852) (25,451)
-------- --------- ---------
Gross margin 46,326 84,798 76,384
Operating expenses (87,963) (114,659) (153,083)
-------- --------- ---------
Loss before income taxes (41,637) (29,861) (76,699)
Income tax benefit 16,000 38,000 49,000
-------- --------- ---------
Earnings (loss) from operations $(25,637) $ 8,139 $ (27,699)
======== ========= =========
</TABLE>
F-7
<PAGE>
The estimated loss on disposal of $300,984, which is net of income tax
benefits of $169,000, includes the write-off of inventory, supplies and
other assets.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1995
<S> <C> <C>
Book inventory $12,077,238 $6,616,744
School division inventory - 354,020
----------- ----------
12,077,238 6,970,764
Reserve for obsolescence (301,100) (301,100)
----------- ----------
11,776,138 6,669,664
Less noncurrent school division - (80,920)
inventory - net ----------- ----------
$11,776,138 $6,588,744
=========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1995
<S> <C> <C>
Computer equipment $ 733,036 $ 423,230
Warehouse and office equipment 337,111 244,630
Furniture, fixtures and other 86,267 43,841
---------- ---------
1,156,414 711,701
Less accumulated depreciation and (341,052) (347,489)
amortization ---------- ---------
$ 815,362 $ 364,212
========== =========
</TABLE>
Depreciation expense was $126,697, $109,086 and $70,953 for the fiscal
years ended 1996, 1995, and 1994, respectively.
F-8
<PAGE>
5. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1995
<S> <C> <C>
Note payable to bank $ 5,820,000 $1,000,000
Capital lease obligations on equipment with gross and net book
values at February 28, 1995 of - 7,673
$138,689 and $27,738 ----------- ----------
5,820,000 1,007,673
Current maturities of long-term (5,820,000) (7,673)
obligations ----------- ----------
Long-term portion of obligations $ - $1,000,000
=========== ==========
</TABLE>
At February 29, 1996, the note payable to bank was under a $6,000,000
revolving credit agreement with interest payable monthly at prime plus 0.5%
(8.75% at February 29, 1996), collateralized by substantially all assets of
the Company. The revolving credit note matures on June 30, 1996. The
agreement contains provisions that require the maintenance of specified
financial ratios, restrict transactions with related parties, prohibit
mergers or consolidation, prohibit declaration of dividends, disallow
additional debt, and limit the amount of compensation, salaries,
investments, capital expenditures and leasing transactions. The Company is
in compliance with or has obtained waivers for all restrictive financial
covenants. The Company intends to renew the bank agreement or obtain other
financing upon maturity.
For each of the three years in the period ended February 29, 1996, the
highest amount of short-term borrowings, the average amount of borrowings
under these short-term notes, and the weighted average interest rates are
as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994
<S> <C> <C> <C>
Notes payable to bank:
Largest amount borrowed $5,820,000 $1,000,000 $580,000
Average amount borrowed 3,183,333 199,714 208,300
Weighted average interest rate 9.4 % 8.4 % 7.2 %
</TABLE>
6. INCOME TAXES
As stated in Note 1, effective March 1, 1993, the Company adopted SFAS No.
109 on a prospective basis. The cumulative effect of adopting SFAS No. 109
was $290,000, which is recorded as a change in method of accounting for
income taxes in the 1994 statement of earnings. The primary component of
the cumulative effect is the recognition of net operating loss
carryforwards as required by SFAS No. 109.
F-9
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and
operating loss and tax credit carryforwards. The tax effects of significant
items comprising the Company's net deferred tax asset as of February 29,
1996 and February 28, 1995 are as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1995
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 50,300 $ 80,000
Inventories 118,000 118,000
Amortization of assets not currently deductible - 48,000
Expenses deducted on the cash basis for income tax purposes - 25,000
-------- --------
168,300 271,000
Deferred tax liability -
Property and equipment - 14,000
-------- --------
Net deferred tax asset $168,300 $257,000
======== ========
</TABLE>
Management has determined that no valuation allowance is necessary to
reduce the value of deferred tax assets as it is more likely than not that
such assets are realizable.
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994
<S> <C> <C> <C>
Income tax expense on continuing operations:
Current $ 1,078,000 $ 771,000 $ 153,000
Deferred 34,700 (73,000) 179,000
------------ ------------ ------------
1,112,700 698,000 332,000
Income tax benefit on discontinued operations:
From operations (16,000) (38,000) (49,000)
Loss on disposal (169,000) - -
------------ ------------ ------------
Total income tax expense $ 927,700 $ 660,000 $ 283,000
============ ============ ============
</TABLE>
The following reconciles the Company's expected income tax expense on
continuing operations utilizing statutory tax rates to the actual tax
expense:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994
<S> <C> <C> <C>
Tax expense at Federal statutory rate $ 992,000 $633,000 $328,000
State income tax, net of Federal tax 114,700 74,000 38,000
benefit
Other 6,000 (9,000) (34,000)
---------- -------- --------
$1,112,700 $698,000 $332,000
========== ======== ========
</TABLE>
F-10
<PAGE>
7. EMPLOYEE BENEFIT PLAN
The Company has a profit sharing plan which incorporates the provisions of
Section 401(k) of the Internal Revenue Code. The 401(k) plan covers
substantially all employees meeting specific age and length of service
requirements. Matching contributions from the Company are discretionary and
amounted to $22,708, $17,783 and $12,187 in fiscal years 1996, 1995, and
1994, respectively.
8. COMMITMENTS
The Company leases its office and warehouse facilities under a
noncancelable operating lease which expires in February 1999. Future
minimum rental commitments at February 29, 1996 are payable as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR LEASE
<S> <C>
1997 $186,967
1998 186,967
1999 186,967
--------
Total minimum lease payments $560,901
========
</TABLE>
Total rent expense was approximately $185,000, $119,000, and $94,000 for
the fiscal years ended 1996, 1995, and 1994, respectively.
At February 29, 1996, the Company had outstanding commitments to purchase
inventory from its primary vendor totaling approximately $540,000.
On May 1, 1996, the Company entered into a lease to expand the office and
warehouse facilities. The new lease expires in February 1999 and increases
monthly lease commitments by $3,250.
9. CAPITAL STOCK, STOCK OPTIONS AND WARRANTS
On December 20, 1995, the Company's Board of Directors declared a two-for-
one split of the Company's common stock in the form of a stock dividend for
shareholders of record as of April 1, 1996. On March 13, 1996, in a special
meeting of the stockholders, an increase in the number of authorized shares
from 3,000,000 to 6,000,000 was approved. A total of 2,699,120 shares of
common stock were issued in connection with the split related to shares
outstanding at February 29, 1996. The stated par value of each share was
not changed from $.20. A total of $539,824 was reclassified from the
Company's capital in excess of par value account to the Company's common
stock account. Accordingly, earnings per share, weighted average shares of
common stock outstanding and the stock option information for prior periods
presented have been restated to reflect the stock split.
In October 1981, the Board of Directors adopted an Incentive Stock Option
Plan which expired in 1991; accordingly, no additional options will be
granted under the 1981 Plan.
In June 1992, the Board of Directors adopted the 1992 Incentive Stock
Option Plan. A total of 1,000,000 stock options are authorized to be
granted under the 1992 Plan.
F-11
<PAGE>
Options granted under either of the two Incentive Stock Option Plans,
collectively the "Incentive Plan," are exercisable up to ten years from the
date of grant. Options outstanding at February 29, 1996 expire in 2003
through 2005.
During the three years ended February 29, 1996, the activity relating to
stock options under the Incentive Plan was as follows (after effect of the
two-for-one stock split):
<TABLE>
<CAPTION>
OUTSTANDING OUTSTANDING EXERCISE
BEGINNING EXERCISED/ END OF PRICE AGGREGATE
YEAR OF YEAR GRANTED CANCELED YEAR PER SHARE PRICE
<S> <C> <C> <C> <C> <C> <C>
1994 620,000 180,000 (20,000) 780,000 $0.25 to $1.50 $433,750
1995 780,000 156,000 (30,000) 906,000 $0.25 to $3.125 $899,375
1996 906,000 10,000 (710,000) 206,000 $1.50 to $6.25 $521,250
</TABLE>
Of the 710,000 option shares exercised in fiscal 1996, 660,000 shares with
a total option price of $368,173 were exercised by the transfer to the
Company of 28,596 outstanding shares held by the option holders.
Additionally, at February 1992, options to purchase 80,000 shares of the
Company's common stock were outstanding. These options were issued to
directors and a stockholder who were not officers of the Company at
exercise prices of $0.25-$.625. During August 1992, 40,000 of these options
were exercised at an option price of $.625 per share, and the Company
simultaneously reacquired the common stock issued at a net cost to the
Company of $7,500. During February 1996, 20,000 of these options were
exercised at an option price of $0.25. At February 29, 1996, 20,000 of
these options to purchase common stock at a price of $0.25 per share
through September 1996 remain outstanding.
10. SUPPLEMENTARY INFORMATION
The activity in the allowances for doubtful accounts receivable, sales
returns and inventory valuation for each of the three years in the period
ended February 29, 1996 is as follows:
Doubtful accounts receivable:
<TABLE>
<CAPTION>
BALANCE AT AMOUNTS AMOUNTS BALANCE
BEGINNING CHARGED TO CHARGED TO AT END
YEAR OF YEAR EXPENSE RESERVE OF YEAR
<S> <C> <C> <C> <C>
1994 $108,000 $ 45,400 $ (78,400) $ 75,000
1995 75,000 58,000 (28,000) 105,000
1996 105,000 60,000 (38,000) 127,000
Sales returns:
<CAPTION>
BALANCE AT AMOUNTS AMOUNTS BALANCE
BEGINNING CHARGED TO CHARGED TO AT END
YEAR OF YEAR EXPENSE RESERVE OF YEAR
<S> <C> <C> <C> <C>
1994 $ 66,000 $1,040,700 $(1,040,700) $ 66,000
1995 66,000 1,085,500 (1,050,500) 101,000
1996 101,000 1,190,900 (1,190,900) 101,000
</TABLE>
F-12
<PAGE>
Inventory valuation:
<TABLE>
<CAPTION>
BALANCE AT AMOUNTS AMOUNTS BALANCE
BEGINNING CHARGED TO CHARGED TO AT END
YEAR OF YEAR EXPENSE RESERVE OF YEAR
<S> <C> <C> <C> <C>
1994 $ 88,000 $ 145,000 $ (50,000) $183,000
1995 183,000 118,100 - 301,100
1996 301,100 - - 301,100
</TABLE>
Charges to certain expense accounts in continuing operations for each of
the three years in the period ended February 29, 1996 are shown below:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1995 1994
<S> <C> <C> <C>
Maintenance and repairs $ 53,157 $ 24,545 $ 25,365
Taxes other than payroll and income 12,143 10,553 16,263
taxes
Advertising costs 170,573 107,565 101,525
</TABLE>
* * * * * *
F-13
<PAGE>
EXHIBIT 3.4
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/25/1996
960085222 - 629508
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
EDUCATIONAL DEVELOPMENT CORPORATION
TO THE SECRETARY OF STATE OF THE STATE OF DELAWARE:
The undersigned Delaware corporation, for the purpose of amending its
Restated Certificate of Incorporation as filed on April 29, 1968, and lastly
amended on December 8, 1986, as provided by Section 242 of the General
Corporation Law of the State of Delaware, hereby certifies:
1. That the name of the Corporation is:
EDUCATIONAL DEVELOPMENT CORPORATION
2. The date of filing of its original Certificate of Incorporation with
the Secretary of State was August 23, 1965, which was restated and
amended on April 29, 1968, and subsequently amended June 24, 1968,
August 29, 1977 and December 8, 1986.
3. That Article Fourth is hereby amended to read in its entirety as
follows:
"FOURTH: The aggregate number of shares of all classes
of stock which the corporation shall have authority to issue
is 6,000,000 shares, each of the shares having a par value of
$0.20, all of which shares shall be Common Stock."
4. All other provisions of the Restated Certificate of Incorporation not
amended hereby shall remain unchanged and in full force and effect.
This Amendment to the Restated Certificate of Incorporation was set forth
in a resolution duly adopted by the Board of Directors which declares the
adoption of the Amendment to be advisable and which ordered that the Amendment
be considered by the stockholders of the Corporation entitled to vote thereon by
written consent to action in lieu of a special meeting.
Such Amendment was duly adopted in accordance with Section 228 and 242 of
the General Corporation Law of the State of Delaware by the consent of the
holders of a majority of the issued and outstanding shares of capital stock of
the Corporation.
<PAGE>
IN WITNESS WHEREOF, said EDUCATIONAL DEVELOPMENT CORPORATION has caused its
corporate seal to be affixed hereto and the Amendment to be signed by its
President and Secretary this 22nd day of March, 1996.
EDUCATIONAL DEVELOPMENT CORPORATION
ATTEST:
By: /s/ W. Curtis Fossett By: /s/ Randall W. White
------------------------------ ------------------------------
W. Curtis Fossett, Secretary Randall W. White, President
[CORPORATE SEAL]
STATE OF OKLAHOMA )
) SS.
COUNTY OF TULSA )
BEFORE ME, a Notary Public in and for said State, on this 22nd day of
March, 1996, the undersigned officer personally appeared Randall W. White and
W. Curtis Fossett, known personally to me to be the President and the Secretary,
respectively, of the above named corporation, and that they, as such officers,
being authorized to do so, executed the foregoing instrument for the purposes
therein contained, by signed the name of the corporation by themselves as such
officers.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Cheryl B. Creekmore
------------------------------
Notary Public
My Commission expires:
2-16-99
- ------------------------------
[SEAL]
-2-
<PAGE>
EXHIBIT 10.19
EIGHTH AMENDMENT TO
CREDIT AND SECURITY AGREEMENT
-----------------------------
THIS EIGHTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT by and between
EDUCATIONAL DEVELOPMENT CORPORATION, as borrower (the "Company"), and STATE BANK
& TRUST, N.A., Tulsa, Oklahoma, as lender (the "Bank"), is entered into
effective as of the 27th day of July, 1995.
WITNESSETH:
WHEREAS, pursuant to the Credit and Security Agreement dated as of
January 18, 1990 (the "Original Credit Agreement"), WestStar Bank, N.A.,
Bartlesville, Oklahoma (the "Original Lender") extended a One Million Three
Hundred Thousand Dollar ($1,300,000) revolving line of credit (the "Revolving
Credit Loans") to the Company upon the terms and conditions therein set forth,
the Revolving Credit Loans being secured by the Collateral defined and described
in Section 7.1 of the Original Credit Agreement and in the Security Agreement
and Assignment more particularly described therein;
WHEREAS, pursuant to the First Amendment to Credit and Security
Agreement dated as of January 31, 1992 between the Original lender and the
Company (the "First Amendment"), the credit facility pursuant to which Revolving
Credit Loans were made available to the Company was extended to June 30, 1992;
WHEREAS, effective as of June 30, 1992, the Original Lender assigned,
transferred and endorsed to the order of the Bank the Original Credit Agreement,
the First Amendment, the Security Agreement and Assignment, the Replacement Note
and all other Loan Documents described in or contemplated by the Original Credit
Agreement, as amended by the First Amendment;
WHEREAS, pursuant to the Second Amendment to Credit and Security
Agreement dated as of June 30, 1992, between the Bank and the Company (the
"Second Amendment"), the credit facility pursuant to which the Revolving Credit
Loans were made available to the Company was transferred to the Bank, as lender,
and extended to June 30, 1993;
WHEREAS, pursuant to the Third Amendment to Credit and Security
Agreement dated as of June 30, 1993, the aforesaid credit facility was extended
and renewed to June 30, 1994;
WHEREAS, pursuant to the Fourth Amendment to Credit and Security
Agreement dated as of June 30, 1994, the aforesaid credit facility was extended
and renewed to June 30, 1995;
WHEREAS, pursuant to the Fifth Amendment to Credit and Security
Agreement dated as of March 13, 1995, the aforesaid credit facility was
increased to $1,800,000 and was renewed and extended to June 30, 1996; and
WHEREAS, pursuant to the Sixth Amendment to Credit and Security
Agreement dated as of March 27, 1995, the aforesaid credit facility was
increased to $2,000,000;
WHEREAS, pursuant to the Seventh Amendment to Credit and Security
Agreement dated as of April 27, 1995, the aforesaid credit facility was
increased to $3,000,000, the $1,000,000 increase being for a period of six (6)
months until October 26, 1995;
WHEREAS, the Company has requested the Bank to increase the Revolving
Credit Loans commitment from $3,000,000 to $3,750,000 for a period of six (6)
months until October 26, 1995, such increase to be evidenced by a $1,750,000
replacement revolving credit note more particularly described in paragraph 1
hereof below; and
<PAGE>
WHEREAS, subject to the terms, provisions and conditions hereinafter
set forth the Bank is willing to so amend and modify the Revolving Credit Loan
facility established pursuant to the Original Credit Agreement, the First
Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the
Fifth Amendment, the Sixth Amendment and the Seventh Amendment (collectively the
"Credit Agreement").
NOW, THEREFORE, for good and valuable consideration and for the
extension and amendment of the Credit Agreement, the Company and the Bank hereby
agree as follows:
1. The line of credit for the Revolving Credit Loans shall be
increased by an additional $750,000 to the maximum principal amount of
$3,750,000 for six (6) months until October 26, 1995, and evidenced by that
certain additional replacement Revolving Credit Note of even date herewith in
the original principal amount of One Million Seven Hundred Fifty Thousand
Dollars ($1,750,000) payable to the order of the Bank and bearing interest at a
variable annual rate equal from day to day to Chase Prime Rate (as therein
defined) plus one percentage point (1%). A true and correct copy of the
additional replacement Revolving Credit Note is annexed hereto as Exhibit A and
made a part hereof (the "Additional Revolver Note"). The Additional Replacement
Revolver Note replaces that certain $1,000,000 Additional Revolver Note more
particularly described and defined in the Seventh Amendment dated as of April
27, 1995.
2. The Loan Request, Certification and Confirmatory Security
Agreement annexed hereto as Exhibit B hereto shall be used in lieu of such form
referred to in paragraph 2 of the Seventh Amendment.
3. All references in the Credit Agreement to "$3,000,000" shall be
replaced by references to "$3,750,000", including, without limitation, Sections
2.1 and 2.4 thereof, for the period of time from the date hereof until October
26, 1995.
4. The remaining terms, provisions and conditions set forth in the
Credit Agreement shall remain in full force and effect. The Company restates,
confirms and ratifies the warranties, covenants and representations set forth
therein and further represents to the Bank that no default or event of default
exists under the Credit Agreement as of the date hereof. The Company further
confirms, grants and regrants to and in favor of the Bank, as secured party, a
continuous and continuing first and prior security interest in all of the items
and types of Collateral more particularly described in Section 7.1 of the
Original Credit Agreement and in Section 2 of the Restated Security Agreement
and Assignment dated as of even date herewith as continuing security for all
Indebtedness, including the $2,000,000 Sixth Replacement Note described and
defined in the Sixth Amendment and the $1,750,000 Additional Replacement
Revolver Note described and defined herein.
5. The term "Notes" as defined in Section 1.14 of the Credit
Agreement shall include the Sixth Replacement Note (described and defined in the
Sixth Amendment) and the Additional Replacement Revolver Note, respectively.
6. The Company agrees to pay the Bank's legal fees incurred in
connection with the negotiation, preparation and closing of this Eighth
Amendment.
-2-
<PAGE>
IN WITNESS WHEREOF, this Eighth Amendment is executed and delivered to
the Bank in Tulsa, Oklahoma by the undersigned duly authorized corporate officer
of the Company, which officer has full power and authority to do so on behalf
and in the name of the Company by virtue of all necessary corporate action of
the Board of Directors of the Company, effective as of the 27th day of July,
1995.
EDUCATIONAL DEVELOPMENT
CORPORATION
ATTEST:
By_____________________ By___________________________________
Secretary Randall White, President
[SEAL]
"Company"
STATE BANK & TRUST, N.A.
By______________________________________
Dennis Colvard, Vice President
"Bank"
-3-
<PAGE>
EXHIBIT B
LOAN REQUEST, CERTIFICATION AND
CONFIRMATORY SECURITY AGREEMENT
-------------------------------
________________, 19___
STATE BANK & TRUST, N.A.
4500 South Garnett
Tulsa, Oklahoma 74146
Gentlemen:
Pursuant to the provisions of the Credit and Security Agreement dated as of
January 18, 1990, as amended as of January 31, 1992, June 30, 1992, as of June
30, 1993, as of June 30, 1994, as of March 13, 1995, as of March 27, 1995, as of
April 27, 1995 and as of July 27, 1995, respectively (collectively the "Credit
Agreement"), the undersigned "Company" hereby (i) confirms and ratifies your
continuing first and prior security interest in and to all of its present and
future accounts, contract rights, general intangibles, inventory, instruments,
documents and chattel paper (including proceeds and products thereof) described
or referred to in the Credit Agreement; (ii) applies to you for a loan in the
amount shown hereinbelow; (iii) certifies that no Event of Default or Default
under the Credit Agreement has occurred and is continuing as of the date hereof
or exists or would continue to exist but for the lapse of time or notice, or
both; (iv) represents and warrants to you that the representations, covenants
and warranties set forth or referred to in the Credit Agreement are true and
correct on and as of this date and that Company has been in strict and
continuing compliance with the borrowing base provisions of the Credit Agreement
since the date of the last Loan Request submitted to you; and (v) certifies to
you the accuracy of the following information concerning the Borrowing Base of
the Company:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Total Company Accounts per last certificate $______________
2. Plus: New Invoices generated by Companies $______________
3. Less: Collections and Credit Memos $______________
4. Total Company Accounts as of _______________ $______________
5. Less:
(a) Invoices over 90 days past due $______________
(b) COD Invoices $______________
(c) Contra Accounts $______________
(d) Freight Invoices/Late Charges $______________
(e) Foreign Accounts $______________
(f) Due From Affiliates/Officers, Employees $______________
(g) Other Ineligibles $______________
(Specify) ____________________________
(h) Total Ineligibles (Sum of a thru g) $______________
6. Eligible Accounts (Line 4 less Line 5 h) $______________
7. Account Borrowing Base (Line 6 x .65) $______________
8. Total Eligible Inventories $______________
9. Inventory Borrowing Base (Line 8 x .35) $______________
10. Borrowing Base (Line 7 plus Line 9) $______________
11. Revolving Loan Balance (Sixth Replacement Note
plus Additional Revolver Note) $______________
12. Plus: Advance requested $______________
OR
13. Less: Additional Payment $______________
14. New Aggregate Revolving Credit Loan Balance
(Line 11 plus Line 12 or less Line 13,
but not to exceed the lesser of Line 10
or $3,750,000) $______________
</TABLE>
EDUCATIONAL DEVELOPMENT
CORPORATION
By___________________________________
(Title)
<PAGE>
EXHIBIT A
---------
REVOLVING CREDIT NOTE
---------------------
$1,750,000 Tulsa, Oklahoma
July 27, 1995
FOR VALUE RECEIVED, the undersigned (the "Maker") promises to pay to the
order of STATE BANK & TRUST, N.A. (the "Payee"), at the Payee's main banking
office in Tulsa, Oklahoma, the principal sum of ONE MILLION SEVEN HUNDRED FIFTY
THOUSAND AND NO/100 DOLLARS ($1,750,000), or so much thereof as shall have been
advanced by Payee to Maker and remains unpaid, on October 26, 1995, together
with interest thereon from the date funds are initially advanced hereon on the
unpaid balances of principal from time to time outstanding, at the variable
annual rate of interest hereinafter specified, which interest is payable in
monthly installments due and payable on the last day of each calendar month
commencing July 31, 1995, and at final maturity on October 26, 1995.
The rate of interest payable upon the indebtedness evidenced by this note
shall be a variable annual rate of interest equal from day to day to Chase Prime
Rate of interest, as hereinafter defined, plus one percentage point (1%). Chase
Prime Rate of interest shall be effective with respect to this note as of the
date upon which any change in such rate of interest shall occur. Interest shall
be computed on the basis of a year of 360 days but assessed only for the actual
number of days elapsed.
For the purposes of this note Chase Prime Rate shall mean, as of the date
upon which such rate of interest is to be determined, the rate of interest
established by the management of Chase Manhattan Bank (National Association),
New York, New York as its prime rate for the purpose of pricing loans made by it
in which such term is a factor in determination of the applicable annual rate of
interest. Such annual rate of interest may not be at any time the lowest rate
of interest being charged by Chase Manhattan Bank (National Association) for
loans made or administered by it.
All parties (maker, endorsers, sureties, guarantors and all others now or
hereafter liable for payment of the indebtedness evidenced by this note) waive
presentment and diligence in collection and agree that without notice to, and
without discharging the liability of any party, this note may be extended or
renewed from time to time and for any term or terms by agreement between the
holder of this note and any of such parties and all parties shall remain liable
on each such extension or renewal.
If the principal or any installment of interest due upon this note is not
paid as and when the same becomes due and payable (whether by extension,
acceleration or otherwise), or any party now or hereafter liable (directly or
indirectly) for payment of this note makes an assignment for benefit of
creditors, becomes insolvent, has an order for relief under the United States
Bankruptcy Code, as amended, entered against it, or any receiver, trustee,
custodian or like officer is appointed to take custody, possession or control of
any property of any such party, the holder hereof may, without notice, declare
all of the unpaid balance hereof to be immediately due and payable. Such right
of acceleration is cumulative and in addition to any other right or rights of
acceleration under the Credit and Security Agreement between the Maker and
WestStar Bank, N.A., Bartlesville, Oklahoma dated January 18, 1990, as amended
by that certain First Amendment to Credit and Security Agreement dated as of
January 31, 1992, as further amended by that certain Second Amendment to Credit
and Security Agreement dated as of June 30, 1992, as further amended and
extended by that certain Third Amendment to Credit and Security Agreement
between Maker and Payee dated as of June 30, 1993, as further extended by that
certain Fourth Amendment to Credit and Security Agreement dated as of June 30,
1994, as further
<PAGE>
Revolving Credit Note
July 27, 1995
Page Two
amended, increased and extended by that certain Fifth Amendment to Credit and
Security Agreement dated as of March 13, 1995, as further amended and increased
by that certain Sixth Amendment to Credit and Security Agreement dated as of
March 27, 1995, as further amended and increased by that certain Seventh
Amendment to Credit and Security Agreement dated as of April 27, 1995, and as
further amended and increased by that certain Eighth Amendment to Credit and
Security Agreement dated as of even date herewith (collectively the "Credit
Agreement") and any other writing now or hereafter evidencing or securing
payment of any of the indebtedness evidenced hereby. After maturity, whether by
acceleration, extension or otherwise, this note shall bear interest at a
variable annual rate equal to Chase Prime Rate plus five percentage points (5%).
Maker and all other parties liable hereon shall pay all reasonable attorney fees
and all court costs and other costs and expenses of collection incurred by the
holder hereof.
This is the Additional Replacement Revolver Note defined in the Eighth
Amendment to Credit and Security Agreement and is a replacement for that
$1,000,000 Additional Revolver Note described and defined in the Seventh
Amendment to Credit and Security Agreement. Reference is made to the Credit
Agreement and to the Security Agreement and Assignment dated January 18, 1990,
as amended and restated by the Restated Security Agreement and Assignment dated
as of even date herewith, for the provisions with respect to acceleration,
description of collateral securing payment of the indebtedness evidenced hereby,
rights and remedies in respect thereof and other matters. This note is executed
and delivered to the order of the Payee in Tulsa, Oklahoma, by the undersigned
duly authorized corporate officer of the Maker pursuant to all necessary
corporate action and shall be governed by and construed in accordance with the
laws of the State of Oklahoma.
EDUCATIONAL DEVELOPMENT
CORPORATION
By____________________________________
Randall White, President
"Maker"
Due: October 26, 1995
<PAGE>
EXHIBIT 10.20
RESTATED
CREDIT AND SECURITY AGREEMENT
-----------------------------
THIS RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT dated effective as of
the ______ day of September, 1995, is entered into by EDUCATIONAL DEVELOPMENT
CORPORATION, a Delaware corporation whose address is 10302 East 55th Place,
Tulsa, Oklahoma 74146, (the "Company"), and STATE BANK & TRUST, N.A., whose
address is 4500 South Garnett Avenue, Tulsa, Oklahoma 74146 (the "Bank").
WITNESSETH:
WHEREAS, the Bank (initially its assignor and predecessor in interest) and
the Company entered into a Credit and Security Agreement dated as of January 18,
1990, as amended, extended and modified from time to time, including most
recently the Eighth Amendment to Credit and Security Agreement dated as of July
27, 1995 pursuant to which the revolving line of credit extended by the Bank to
the Company was in the maximum principal amount of $3,750,000 until October 26,
1995 (collectively the "Existing Credit Agreement") and thereafter reduced to
$2,000,000 until the stated maturity date of June 30, 1996; and
WHEREAS, the Company has applied to the Bank to increase and modify its
existing revolving line of credit to the maximum principal amount outstanding at
any one time not in excess of SIX MILLION DOLLARS ($6,000,000), the proceeds of
which are to be used for the Company's general corporate and working capital
purposes; and the Bank is willing to extend such revolving line of credit to the
Company subject to the terms, limitations and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Bank agree as
follows:
ARTICLE I
---------
DEFINITIONS
-----------
The terms defined in this Article I (except as otherwise expressly provided
in this Agreement) for all purposes shall have the following meanings:
1.1 "Business Day" shall mean a day other than a Saturday, Sunday or a day
upon which national banks in the State of Oklahoma are closed to business
generally.
1.2 "Closing Date" shall mean the effective date of this Agreement.
1.3 "Event of Default" shall mean any of the events specified in Section
8.1 of this Agreement; any "Default" shall mean any event, which together with
any lapse of time or giving of any notice, or both, would constitute an Event of
Default.
1.4 "GAAP" shall mean generally accepted accounting principles applied on
a consistent basis, set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or statements of
the Financial Accounting Standards Board and/or in such other statements by such
other entity as the Bank may approve, which are applicable in the circumstances
as to the date in question, and the requisite that such principles be applied on
a consistent basis shall mean that the accounting principles observed in a
current period are comparable in all material respects to those applied in the
preceding period except as stated
<PAGE>
in the financial statements or notes thereto. Unless otherwise indicated herein,
all accounting terms will be defined according to GAAP.
1.5 "Indebtedness" shall mean and include any and all: (i) indebtedness,
obligations and liabilities of Company to the Bank pursuant to the terms of this
Agreement, including the obligations of the Company as evidenced by the Note and
all lawful interest and other charges and all court costs, reasonable attorneys'
fees and other collection costs or charges incurred with respect thereto and any
and all future revolving credit loan advances made hereunder, including that
certain letter of credit issued (and renewed from time to time) by the Bank on
behalf of the Company to Usborne, as beneficiary; (ii) costs and expenses paid
or incurred by the Bank in enforcing or attempting to enforce collection of any
Indebtedness and in preserving, enforcing or realizing upon or attempting to
preserve, enforce or realize upon any collateral or security for any
Indebtedness, including interest on all sums so expended by the Bank from the
date of such expenditure at an annual rate equal to the applicable Default Rate
as defined in Section 8.2 hereof; and (iii) sums expended by the Bank in curing
any Event of Default or Default of Company under the terms of this Agreement or
any other security agreement or other writing evidencing or securing the payment
of the Note together with interest on the amount of each such expenditure from
the respective dates thereof at an annual rate equal to the Default Rate.
1.6 "Laws" shall mean all statutes, laws, ordinances, regulations, orders,
writs, injunctions, or decrees of the United States, any state or commonwealth,
any municipality, and foreign country, any territory or possession, or any
Tribunal.
1.7 "Lien" shall mean any mortgage, pledge, security interest, purchase
money security interest, encumbrance, lien or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement or other similar form of public notice
under the Laws of any jurisdiction).
1.8 "Loan Documents" shall mean this Agreement, the Note, the Security
Agreement and all other documents, instruments and certificates to be executed
by or on behalf of the Company pursuant to the terms of this Agreement.
1.9 "Loans" shall mean the Revolving Credit Loans made from time to time
by the Bank pursuant to Section 2.1 of this Agreement.
1.10 "Material Adverse Effect" shall mean any set of circumstances or
events which (i) prevents, will prevent, or may reasonably be expected to
prevent the Company from performing its obligations (including, without
limitation, payment obligations hereunder) under the Loan Documents or (ii) will
or may reasonably be expected to cause a Default or an Event of Default.
1.11 "Net Capital Expenditures" shall mean the gross amount of all
expenditures made and obligations incurred by Company and its Subsidiaries, if
any, for the purchase or acquisition of capital assets (i.e., equipment, land,
buildings and other "property used in the trade or business" of Company and its
Subsidiaries as defined in Section 1231(b) of the Internal Revenue Code of 1986,
as amended) less "allowable recoveries" and excluding capitalized labor costs.
Allowable recoveries shall mean credit received by Company and its Subsidiaries
against the purchase price of capital assets or cash payments or equivalent
value received for capital assets which are being replaced, essentially in each
case as part of the transaction in which the acquisition of the capital asset
occurs and which are received by the Company within 120 days from the date on
which the expenditure is made or obligations incurred for the acquisition of the
related capital asset.
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<PAGE>
1.12 "Note" shall mean the promissory note described and defined in
Section 2.2 of this Agreement as the Revolving Credit Note, together with each
and every extension, renewal, modification, substitution, replacement and change
in form thereof which may be from time to time and for any term or terms
effected.
1.13 "Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a government
or any department, agency or political subdivision thereof.
1.14 "Prime Rate" shall mean the annual rate of interest published in the
Money Rates Column of the Southwest Edition of the Wall Street Journal from time
to time as the prime rate.
1.15 "Subsidiaries" shall include any corporation in which the Company owns
or controls (directly or indirectly) in the aggregate fifty percent (50%) or
more of the outstanding capital stock.
1.16 "Taxes" shall mean all taxes, assessments, fees or other charges or
levies from time to time or at any time imposed by any laws or by any Tribunal.
1.17 "Tribunal" shall mean any municipal, state, commonwealth, federal,
foreign, territorial or other sovereign, governmental entity, governmental
department, court, commission, board, bureau, agency or instrumentality.
ARTICLE II
----------
TERMS AND CONDITIONS OF
-----------------------
REVOLVING CREDIT LOANS
----------------------
2.1 Revolving Credit Loans. The Bank agrees, upon the terms and subject
to the conditions hereinafter set forth, to make loans ("Revolving Credit
Loans") to the Company from the Closing Date until June 30, 1996, in such
amounts as may from time to time be requested by the Company so long as the
aggregate principal amount of all Revolving Credit Loans outstanding and unpaid
at any time does not exceed the lesser of the Borrowing Base (hereinafter
defined) or $6,000,000.
2.2 Revolving Credit Note. On the Closing Date the Company shall execute
and deliver to the order of the Bank its Revolving Credit Note, the form of
which is annexed hereto as Exhibit A and made a part hereof, in the original
principal amount of $6,000,000, dated as of the Closing Date, and bearing
interest (from and including September 1, 1995) payable monthly on the last day
of each calendar month commencing September 30, 1995, on unpaid balances of
principal from time to time outstanding at a variable annual rate equal from day
to day to the Prime Rate plus one-half of one percentage point (0.5%) (the
"Revolving Credit Note").
2.3 Revolving Credit - Advances, Payments. Each Revolving Credit Loan
requested by the Company from the Bank shall be made on the form of Loan
Request, Certification and Confirmatory Security Agreement annexed hereto as
Exhibit B (the "Loan Request"). The Company may submit such a loan request from
time to time to the Bank on any Business Day but not more frequently than once
per calendar week. Such loan request shall establish the Company's Borrowing
Base as of the date on which it is submitted to the Bank. The Company may
however, submit a Loan Request on any Business Day, provided that such Loan
Request shall not cause the aggregate principal amount of all Revolving Credit
Loans outstanding and unpaid to exceed the Borrowing Base as established by the
Loan Request and as supported by the most
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<PAGE>
recent Monthly Reports submitted by the Company to the Bank in compliance with
the provisions of Section 4.5 below.
Each such Loan Request shall constitute the Company's continuing
representation to the Bank that the Company is in compliance with all of the
Borrowing Base provisions of Sections 2.4 hereof. Each such Loan Request shall
be presented at the offices of the Bank, and, subject to strict compliance with
the provisions of Sections 2.3, 2.4, 2.8 and 4.5 hereof, each such loan
requested by the Company from the Bank shall be advanced by the Bank not later
than the second (2nd) Business Day immediately following the Bank's actual
receipt of such request. All advances made by the Bank shall be deposited to
account #502-71-56 of the Company with the Bank. The Company may from time to
time make prepayments of principal without premium or penalty, provided that
interest on the amount prepaid, accrued to the prepayment date, shall be paid on
such prepayment date. The Company may reborrow subject to the limitations and
conditions for Revolving Credit Loans contained herein. On or before the fifth
(5th) day of each month Bank shall mail, telecopy or hand deliver invoices
evidencing Company's interest obligation for the immediately preceding calendar
month at the address set forth above by first class mail (or by telecopy #918-
663-4509). Such invoice shall be deemed received by Company (unless sent by
telecopy) upon the earlier of actual receipt thereof or two (2) Business Days
after deposit in the United States mail by Bank.
All Revolving Credit Loans made by the Bank and all payments or prepayments
of principal and interest thereon made by the Company shall be recorded by the
Bank in its records, and such records shall be presumptive evidence as to the
respective amount owing on the Note. Any payments or prepayments on the
Revolving Credit Note received by the Bank after 2:00 o'clock P.M. (applicable
current time in Tulsa, Oklahoma) shall be deemed to have been made on the next
succeeding Business Day. All outstanding principal of and accrued interest on
the Notes not previously paid hereunder shall be due and payable at final
maturity on June 30, 1996.
2.4 Borrowing Base. The Company will not request or accept the proceeds
of any Revolving Credit Loan or advance hereunder at any time when the amount
thereof, together with the unpaid amount of all other Revolving Credit Loans
then outstanding shall exceed the "Borrowing Base." As used herein the term
"Borrowing Base" shall mean an amount equal to the lesser of (i) the sum of (a)
sixty-five percent (65%) of the uncollected amount of Eligible Accounts (as
hereinafter defined) at book value held by and due and owing to Company as shown
by the books and records thereof plus (b) thirty-five percent (35%) of the
amount of Eligible Inventories of the Company, the respective amounts of which
Eligible Accounts and Eligible Inventories will be determined as of a date not
more than ten (10) days prior to the date on which the amount of the Borrowing
Base is determined, or (ii) the lesser of $6,000,000 or the maximum principal
amount of Revolving Credit Loans to which Usborne, as herein defined, has
subordinated pursuant to the Subordination Agreement referenced herein.
2.5 Variance from Borrowing Base. Any Revolving Credit Loan shall be
conclusively presumed to have been made to the Company by the Bank under the
terms and provisions hereof and shall be secured by all of the collateral and
security described or referred to herein, whether or not such loan conforms in
all respects to the terms and provisions hereof. It is contemplated that the
Bank may from time to time (for the convenience of the Company or for other
reasons) make loan advances which would cause the total amount of Revolving
Credit Loans to exceed the amount of the Borrowing Base or permit the inclusion
of ineligible accounts or ineligible inventory in the determination of the
Borrowing Base. No such variance, change or departure shall prevent any such
loan or loans from being secured by the collateral and security herein created
or intended to be created. The Borrowing Base is established for administrative
purposes and shall not in any manner limit the extent or scope of the collateral
and security herein granted to Eligible Accounts, Eligible Inventory or to the
Indebtedness within the amount of the Borrowing Base.
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<PAGE>
2.6 Eligible Account. For the purposes of this Agreement, an "Eligible
Account" shall mean an Account (as defined in Article 9 of the Oklahoma Uniform
Commercial Code) which meets the following standards until the same is collected
in full:
(a) The Account is owned by and payable to Company and represents a
sum of money (exclusive of interest, late charges or carrying charges)
unconditionally due and owing to Company from an account debtor ("Account
Debtor") thereof for services rendered or goods sold or leased by Company
to such Account Debtor in the ordinary course of business and which
services or goods have been accepted by the Account Debtor and do not
remain unpaid for a period in excess of ninety (90) days beyond the earlier
of the invoice date or the first due date of such Account and if the
aggregate accounts of any one Account Debtor constitute more than fifteen
percent (15%) of the total accounts of the Company at any one time, the
amount of all such accounts thereof in excess of fifteen percent (15%)
shall be deemed automatically ineligible for Borrowing Base purposes except
only for those pre-approved account debtors specifically listed on Schedule
I annexed hereto (the "Approved Debtors");
(b) The Account is not a contra account and is not otherwise subject
to any dispute, set-off, recoupment, counterclaim or other claim which
would reduce the amount to be paid by the Account Debtor to Company and the
Account Debtor has not received or requested permission to pay the same in
deferred installments;
(c) None of such Accounts shall result from the sale or lease of any
goods held by Company on consignment including, without limitation, goods
held on consignment for Usborne Publishing Limited ("Usborne");
(d) The Account Debtor is a Person (including a partnership of which
all partners are residents of the continental United States of America)
domiciled in, a resident of or duly organized under and in good standing
pursuant to the laws of one of the states of the United States of America
or the District of Columbia;
(e) The Account Debtor has not ceased business, made an assignment for
the benefit of creditors or attempted to make a composition with its
creditors and no trustee, receiver, liquidator, conservator, custodian or
like officer has been appointed to take custody, possession or control of
the Account Debtor or any substantial portion of the assets in general of
such Account Debtor. The Account Debtor has not become or been adjudged to
be insolvent, requested or consented to the appointment of any receiver,
trustee, custodian, liquidator or like officer or become subject to the
control or supervision of any court or other governmental body or officer
for the purpose of liquidating its assets, winding up its affairs or for
the purpose of any financial reorganization, rehabilitation or other relief
under any law or statute now or hereafter in force affording relief to
debtors from their obligations;
(f) Company has in its possession and under its control shipping
tickets, bills of lading, invoices, delivery receipts and other written
business records and memoranda sufficient to document and verify Company's
accounts and the amount thereof and to enforce collection thereof;
(g) The Account Debtor has neither attempted to return the goods, the
sale of which created or gave rise to the Account, nor refused to accept
the goods, nor attempted to revoke any acceptance thereof or requested any
allowance in adjustment with respect to such goods, nor made partial
payment on a specific invoice which is being disputed;
-5-
<PAGE>
(h) The Bank shall not have notified Company in writing that the
Account or the Account Debtor is unsatisfactory for reasons deemed by the
Bank in good faith to be valid reasons for rejecting such Account or
Account Debtor;
(i) The Account is not evidenced by any promissory note, trade
acceptance, negotiable instrument or judgment and does not constitute
Chattel Paper (as defined in Article 9 of the Oklahoma Uniform Commercial
Code);
(j) All claims required to be filed in any public office or with any
public officer in connection with the Account have been duly filed with and
accepted by the appropriate public office or officer;
(k) The Account Debtor is neither a parent, Subsidiary nor a
corporate affiliate of the Company nor a corporation, partnership or other
entity controlled directly or indirectly by the Company or the Guarantors,
nor a foreign country or alien corporation with whom the Company does
export business;
(l) The Account Debtor is neither a director, officer nor an employee
of the Company or a member of the family of any director or officer of any
of the Company or any proprietorship or partnership owned in whole or in
part by any such director or officer of any of the Company or by any member
of the family of any such person; and
(m) The Account is not subject to the federal statutes prohibiting
assignment of claims against the United States of America.
The above specifications with respect to the term "Eligible Account" are special
specifications adopted for the purpose of determining the Borrowing Base and the
designation of such specifications shall not be interpreted or implied to limit
the security interest granted to the Bank to such Eligible Accounts.
2.7 Eligible Inventory. For the purposes of computing the Borrowing Base,
Eligible Inventory shall mean Inventory (as defined in Article 9 of the Oklahoma
Uniform Commercial Code), including (without limitation) all educational books,
kits, programs and supplies as well as all work in progress and finished goods
of whatever nature or type owned by the Company and held for resale to its
customers in the ordinary course of business, and (i) in which the Bank holds a
first and prior perfected security interest and (ii) concerning which the Bank
has not received any notice of a purchase money security interest claimed by any
manufacturer, vendor or supplier of Company. The value assigned to each item of
Inventory shall be the cost of such item of Inventory to the Company, exclusive
of any transportation, handling or other charges incurred in acquiring such
items, less a reasonable reserve for obsolescence. The Bank's receipt of any
notice of a purchase money security interest (whether asserted pursuant to (S)9-
312 of the Uniform Commercial Code or otherwise) shall automatically render all
such inventory covered or purportedly covered thereby ineligible for inclusion
in the Borrowing Base and the Bank shall have no obligation hereunder to advance
funds against any of such Inventory or Accounts resulting from the sale thereof
unless such asserted purchase money security interest therein is expressly
subordinated to the Indebtedness as evidenced by the Revolving Credit Note.
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<PAGE>
ARTICLE III
-----------
CONDITIONS PRECEDENT TO LOANS
-----------------------------
3.1 Conditions Precedent to Initial Revolving Credit Loan. The obligation
of the Bank to make the initial Revolving Credit Loan is subject to the
satisfaction of the following conditions on or prior to the Closing Date (in
addition to the other terms and conditions set forth herein):
(a) No Default. There shall exist no Event of Default or Default on
the Closing Date.
(b) Representations and Warranties. The representations, warranties
and covenants set forth herein shall be true and correct on and as of the
Closing Date, with the same effect as though made on and as of the Closing
Date.
(c) Certificate. The Company shall have delivered to the Bank a
Certificate, dated as of the Closing Date, and signed by the President and
Secretary thereof certifying (i) to the matters covered by the conditions
specified in subparagraphs (a) and (b) of this Section 3.1, (ii) that the
Company has performed and complied with all agreements and conditions
required to be performed or complied with by them prior to or on the
Closing Date, (iii) to the name and signature of each officer of the
Company authorized to execute and deliver this Agreement, the Security
Agreement, the Notes and any other notes, certificates or writings and to
borrow under this Agreement, and (iv) to such other matters in connection
with this Agreement which the Bank shall determine to be advisable. The
Bank may conclusively rely on such Certificate until it receives notice in
writing to the contrary.
(d) Proceedings. All corporate proceedings and resolutions of the
Company taken in connection with the transactions contemplated by this
Agreement and all documents incidental thereto shall be satisfactory in
form and substance to the Bank and its counsel; and the Bank shall have
received certified copies of the Company's Articles of Incorporation, By-
Laws and Certificate of Good Standing from the Company's state of
incorporation. The Bank shall also have received copies of all documents,
or other evidence which the Bank or its legal counsel may reasonably
request in connection with said transactions, and copies of records and all
corporate proceedings and resolutions in connection therewith, in form and
substance satisfactory to the Bank and its legal counsel.
(e) Loan Documents. The Company shall have delivered or caused to be
delivered the Note, this Agreement, the Security Agreement, applicable
financing statements and the other Loan Documents to the Bank dated as of
the Closing Date, appropriately executed, with all blanks appropriately
filled.
(f) Key Man Life Insurance Policy. The Company shall have delivered
to the Bank assignments of key man life insurance policy, designating the
Bank as assignee of all proceeds thereof in the aggregate amount of
$500,000 on the life of Randall White, which certificate of insurance and
the assignment thereof shall be in form and substance satisfactory to the
Bank and its legal counsel.
(g) UCC Terminations and Other Information. The Bank shall have
received acceptable UCC termination statements from Borrower's existing
lenders claiming a security interest in any of the Collateral and such
other information, documents and assurances as shall be reasonable
requested by the Bank or its legal counsel or, only insofar as Usborne is
concerned, an amendment Subordination Agreement between Usborne and
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<PAGE>
the Bank dated as of May 9, 1991, is entered into satisfactory in form and
content to the Bank and its legal counsel subordinating the asserted
purchase money security interest of Usborne to the Bank's security interest
in and liens against the Collateral securing the Indebtedness.
3.2 Conditions Precedent to Additional Revolving Credit Loans. The Bank
shall not be obligated to make any Revolving Credit Loan after the initial
Revolving Credit Loan (i) if at such time any Event of Default shall have
occurred or any Default shall have occurred and be continuing; (ii) if any of
the representations, warranties and covenants contained in this Agreement shall
be false or untrue in any material respect on the date of such loan, as if made
on such date; or (iii) unless the Borrower shall have provided to the Bank a
Revolving Loan Request duly executed by authorized officers and in proper form,
establishing that the Borrowing Base will support the additional Revolving
Credit Loan being requested and such other information as shall be requested by
the Bank in support thereof, all in conformity with Section 2.3 hereof. Each
request by the Borrower for a Revolving Credit Loan (whether initial or
thereafter) shall constitute a continuing representation by the Borrower to the
Bank that there is not at the time of such request an Event of Default or a
Default, and that all representations, warranties and covenants in this
Agreement are true and correct on and as of the date of each such Loan Request.
From and after the Bank's receipt of notice of any claimed or asserted purchase
money security interest in any of the Collateral (as hereinafter defined)
pursuant to the applicable provisions of the Oklahoma Uniform Commercial Code by
any vendor or supplier of the Company, the Bank shall have no further obligation
hereunder to advance any Revolving Credit Loans to the Company and its lending
commitment hereunder shall be automatically extinguished without any notice
whatsoever to the Company.
ARTICLE IV
----------
AFFIRMATIVE COVENANTS
---------------------
From the date hereof, and so long as this Agreement is in effect (by
extension, amendment or otherwise) the Company covenants and agrees with the
Bank and until payment in full of all Indebtedness and the performance of all
other obligations of the Company, under this Agreement, unless the Bank shall
otherwise consent in writing:
4.1 Payment of Taxes and Claims. The Company will pay and discharge or
cause to be paid and discharged all lawful Taxes imposed upon the income or
profits of the Company or upon any property, real, personal or mixed, or upon
any part thereof, belonging to the Company before the same shall be in default;
provided, however, that the Company shall not be required to pay and discharge
or to cause to be paid or discharged any such Tax, assessment or claim so long
as the validity thereof shall be contested in good faith by appropriate
proceedings, and adequate book reserves shall be established with respect
thereto; further, provided, that in each event the Company shall pay such Tax,
charge or claim before any property subject thereto shall become subject to a
execution or Lien.
4.2 Maintenance of Corporate Existence. The Company will do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence, rights and franchises of the Company and its Subsidiaries
and continue to conduct and operate the business of the Company and its
Subsidiaries substantially as conducted and operated during the present. The
Company will become and remain qualified to conduct business in each
jurisdiction where the nature of the business or the ownership of property by
the Company may require such qualification and shall remain in good standing
with the Oklahoma Tax Commission and the Oklahoma Employment Security
Commission.
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<PAGE>
4.3 Insurance/Bonding. The Company will maintain adequate insurance
coverage by reputable insurance companies or associations in such form and
against such hazards as is customarily carried by companies in the same or
similar businesses, including, without limitation, comprehensive general
liability insurance, broad form property damage coverage, automotive liability
insurance and worker's compensation insurance in amounts satisfactory to the
Bank.
4.4 Financial Statements, Reports and Field Audits. The Company shall
maintain standard systems of accounting in accordance with GAAP, and the Company
and its Parent shall furnish to the Bank, as soon as practicable after each
calendar month, and in any event within forty-five (45) days thereafter, copies
of:
(i) Balance sheets of the Company at the end of such month, and
(ii) Statements of income and surplus of the Company for such month,
all in such reasonable detail as may be requested by the Bank and certified to
be true and correct by the President or chief financial officer of the Company
(such certification to be a part of the monthly borrowing base certification
submitted by the Company).
The Company shall also furnish to the Bank as soon as practicable after the
end of each fiscal year of the Company, and in any event within one hundred
twenty (120) days thereafter, financial statements for the Company and the
annual audit thereof. Such financial statements shall be prepared by a reputable
and independent firm of certified public accountants of recognized standing
selected by the Company and acceptable to the Bank. Such firm shall issue a
report and an unqualified opinion prepared in conformity with GAAP and otherwise
satisfactory in form and content to the Bank.
Bank shall be entitled to conduct field audits of the Company during each
fiscal year, the cost of which shall be borne solely by the Bank.
4.5 Monthly Account and Inventory Reports. Within forty-five (45) days
of each calendar month end, the Company will deliver to the Bank schedules
(certified to be true and correct by the President or chief financial officer of
the Company as a part of the monthly borrowing base certification) showing, as
of the close of business on the last Business Day of the immediately preceding
calendar month (i) the name and current mailing address of the Company's Account
Debtors and others with like obligations payable to the Company, (ii) the
amounts due and owing to the Company from each Account Debtor thereof, (iii)
"aging" of each Account dating from the date of first invoice and shown by
categories, as follows:
One day to and including thirty days,
Thirty-one days to and including sixty days,
Sixty-one days to and including ninety days, and
Over ninety days,
(iv) any modification of the customary due date of any Account, (v) the amount
of all obligations of the Company and to whom such obligations are owed
(excluding obligations to the Bank), (vi) "aging" of each such obligation as set
forth in (iii) above, and (vii) or modification of the due date of such
obligations.
Within forty-five (45) days of each calendar month end, the Company shall
deliver to the Bank schedules of inventory (itemized pursuant to the Company's
monthly statements) indicating the value at which such inventory is carried on
the books and records of the Company as of the close of business on the last
Business Day of the immediately preceding calendar month, which
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<PAGE>
value shall be determined according to the perpetual method of inventory
accounting and, additionally, the Company will promptly notify the Bank of any
material reduction in the market value of any of such inventory. Such Monthly
Account Reports and Monthly Inventory Reports described in this Section 4.5 are
collectively referred to herein as the "Monthly Reports".
The Company will not open or establish any office, storage yard, warehouse
or other shipping or holding facility other than at Company's business address
of 10302 East 55th Place in Tulsa, Oklahoma (except only for certain book
binding operations in the State of Illinois) without obtaining the Bank's prior
written consent and executing such additional or supplemental security
agreements and/or financing statements as the Bank and its legal counsel deem
necessary to perfect or more fully perfect its security interest therein. The
Company represents to the Bank that all of its inventories are and will continue
to be located at its current business location in Tulsa, Oklahoma as described
above.
4.6 Requested Information/Inspection. With reasonable promptness, the
Company will give the Bank such other data and information as from time to time
may be reasonably requested by the Bank. The Company will permit any
representatives of the Bank to visit and inspect any of the properties of the
Company, to examine all books of account, records, reports and other papers, to
make copies and extracts thereof, and to discuss the Company's financial affairs
and accounts with its officers at all such reasonable times and as often as may
be reasonably requested to, among other things, enable the Bank to conduct field
audits of the Company.
4.7 Notice of Default. Immediately upon the happening of any condition or
event which constitutes a Default or an Event of Default or any default or event
of default under any other loan or financing or security agreement, the Company
will give the Bank a written notice thereof specifying the nature and period of
existence thereof and what action the Company is taking and propose to take with
respect thereto.
4.8 Notice of Litigation. Immediately upon becoming aware of the
existence of any action, suit or proceeding at law or in equity before any
Tribunal, an adverse outcome in which would materially impair the right of the
Company or any of its Subsidiaries to carry on their respective businesses
substantially as now conducted, or would materially and adversely affect
Company's or any Subsidiary's condition (financial or otherwise), the Company
will give the Bank a written notice specifying the nature thereof and what
action the Company is taking and propose to take with respect thereto.
4.9 Purposes. The Company is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System) and no part of the proceeds
of any Loan made hereunder will be used to purchase or carry any margin stock or
to extend credit to others for the purpose of purchasing or carrying margin
stock.
4.10 Maintenance of Employee Benefit Plans. The Company will maintain and
cause each of its Subsidiaries to maintain, each employee benefit plan as to
which it may have any liability or responsibility in compliance with the
Employee's Retirement and Income Security Act, as amended from time to time
("ERISA") and all other Laws applicable thereto.
4.11 Compliance with Fair Labor Standards Act. Company shall comply at all
times will all minimum wage, overtime requirements and other statutory and
regulatory provisions of the Fair Labor Standards Act, 29 U.S.C. (S) 206-207
("FLSA") and shall promptly and fully pay all salaries, wages and other
remuneration to its officers and employees covered by FLSA as they become due.
Company shall comply with the provisions of FLSA in all respects including
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<PAGE>
(without limitation) FLSA (S)15(a)(1) in connection with introduction of any
goods into interstate commerce and Company shall promptly notify the Bank in
writing of any violation of or non-compliance with FLSA.
4.12 Payment of Indebtedness and Accounts Payable. The Company hereby
agrees to pay, when due and owing, all Indebtedness, whether or not evidenced by
the Notes. Company also agrees to pay its accounts payable obligations and trade
creditors and suppliers, including (without limitation) Usborne Publishing
Limited ("Usborne"), in accordance with the terms of such account arrangements
and, in any event, Company shall maintain its accounts with Usborne in such
manner as to avoid the filing of any purchase money security interest by Usborne
in any inventory sold thereby to Company unless fully and expressly subordinated
to the Bank's security interest therein in form and content acceptable to the
Bank and its legal counsel.
ARTICLE V
---------
NEGATIVE COVENANTS
------------------
The Company covenants and agrees with the Bank that from the date hereof
and so long as this Agreement is in effect (by extension, amendment or
otherwise) and until payment in full of all Indebtedness and the performance of
all other obligations of the Company under this Agreement, unless the Bank shall
otherwise consent in writing:
5.1 Limitation on Liens. The Company will not create or suffer to exist
any Lien upon any of its accounts, inventories, equipment, instruments,
documents, chattel paper or general intangibles (as those terms are defined in
Article 9 of the Oklahoma Uniform Commercial Code) except (i) Liens in favor of
the Bank, (ii) deposits to secure payment of workmen's compensation,
unemployment insurance and other similar benefits and Liens for property taxes
not yet due or (iii) liens existing on the date hereof as set forth on Exhibit C
annexed hereto.
5.2 Disposition of Assets. The Company will not sell, lease, transfer or
otherwise dispose of assets unless such sale or disposition shall be in the
ordinary course of business and for a full and fair consideration, except for
assets which in the good faith judgment of the Company is no longer useful or of
productive value or which may be advantageously surrendered, sold or otherwise
disposed of by the Company without constituting or creating a Material Adverse
Effect.
5.3 Merger, Consolidation and Acquisition. Except for internal
reorganization, merger or consolidation between or among the Company and its
respective Subsidiaries only, the Company will not merge or consolidate with or
into any other Person; or permit any other Person to consolidate with or merge
into it or acquire all or substantially all of the assets or properties or
capital stock of any other Person or adopt or effect any plan of reorganization,
recapitalization, liquidation or dissolution.
5.4 Articles of Incorporation and By-Laws. The Company will not amend,
alter, modify or restate its Articles of Incorporation or By-Laws in any way
which would in any manner constitute a Material Adverse Effect.
5.5 Limitation on Other Indebtedness. During any fiscal year thereof the
Company will not create, incur, assume, become or be liable in any manner in
respect of, or suffer to exist, any indebtedness whether evidenced by a note,
bond, debenture, letter of credit, lease financing or similar or other
obligation in the aggregate in excess of $250,000 or accept any deposits or
advances of any kind, except (i) trade payables and current indebtedness (other
than for borrowed money) incurred in, and deposits and advances accepted in, the
ordinary course of business and (ii) Indebtedness created pursuant to this
Agreement.
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5.6 Dividends, Stock Redemptions and Stock Sales. The Company will not
declare or pay or become obligated to declare or pay any dividends on, or apply
or become obligated to apply any of its properties or assets to the purchase,
redemption or other retirement of, or set apart any sum for the payment of any
dividends on, for the purchase, redemption or retirement of, or make any other
distribution, by reduction or retirement of, or make any other distribution, by
reduction of capital or otherwise, in respect of, any shares of any class of
capital stock of the Company.
5.7 Loans to Affiliates, Subsidiaries or Insiders. The Company will not
make, guarantee or endorse any loans (howsoever evidenced) to any of its
respective corporate officers, directors or stockholders or to any of its
respective corporate affiliates or Subsidiaries in excess of or in addition to
such loans or indebtedness currently outstanding, which existing loans and
indebtedness are described on Exhibit D annexed hereto.
5.8 Net Capital Expenditures. Company will not, nor will Company permit
any Subsidiary thereof to, make Net Capital Expenditures in any fiscal year
commencing on or after March 1, 1995, in excess of $250,000 in the aggregate
during such fiscal year.
5.9 Current Ratio. Company will not at any time permit its Current Ratio
(Current Liabilities shall include the Revolving Credit Loans) to be less than
1.5 to 1 until maturity hereof.
5.10 Debt to Worth Ratio. Company will not at any time permit its Debt to
Tangible Net Worth ratio to be greater than 1.3 to 1 through the maturity
hereof.
5.11 Contingent Liabilities; Advances. The Company will not, nor will it
permit any Subsidiary, either directly or indirectly, to (i) guarantee, become
surety for, discount, endorse, agree (contingently or otherwise) to purchase,
repurchase or otherwise acquire or supply or advance funds in respect of, or
otherwise become or be contingently liable upon the indebtedness, obligation or
liability of any Person, (ii) guarantee the payment of any dividends or other
distributions upon the stock of any corporation, (iii) discount or sell with
recourse or for less than the face value thereof, any of its notes receivable,
accounts receivable or chattel paper; (iv) loan, agree to loan, or advance money
to any Person in an aggregate amount of $25,000 or more at any time; or (v)
enter into any agreement for the purchase or other acquisition of any goods,
products, materials or supplies, or for the making of any shipments or for the
payment of services, if in any such case payment therefor is to be made
regardless of the non-delivery of such goods, products, materials or supplies or
the non-furnishing of the transportation of services; provided, however that the
foregoing shall not be applicable to endorsement of negotiable instruments
presented to or deposited with a bank for collection or deposit in the ordinary
course of business.
5.12 Limitation on Investments. The Company will not, nor will it permit
any Subsidiary to, make any investment in any Person, except for investments
which consist of:
(a) trade or customer accounts receivable for inventory sold or services
rendered in the ordinary course of business;
(b) obligations issued or guaranteed as to principal and interest by the
United States of America and having a maturity of not more than one
year from the date of acquisition;
(c) certificates of deposit issued by the Bank or any other bank organized
under the laws of the United States of America or any state thereof,
the payment of which is insured by the Federal Deposit Insurance
Corporation;
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<PAGE>
(d) repurchase agreements secured by any one or more of the foregoing; and
(e) Investments existing on the date hereof which are described on Exhibit
E attached hereto.
5.13 Other Agreements. The Company will not, nor will it permit any
Subsidiary to, enter into or permit to exist any agreement (i) which would cause
an Event of Default or a Default hereunder; or (ii) which contains any provision
which would be violated or breached by the performance of Company's obligations
hereunder or under any of the other Loan Documents.
ARTICLE VI
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Bank to enter into this Agreement and to make the Loans to
the Company under the provisions hereof, and in consideration thereof, the
Company represents, warrants and covenants that:
6.1 Organization and Qualification. The Company is duly organized and
validly existing under and pursuant to the Laws of the State of Delaware and is
in good standing thereunder. The Company is duly licensed and in good standing
as a foreign corporation in Oklahoma and all other states in which the nature of
the business transacted or the property owned is such as to require licensing or
qualification as such. The Company is in good standing with the Oklahoma Tax
Commission and the Oklahoma Employment Security Commission.
6.2 Financial Statements. The financial statements of the Company
heretofore furnished to the Bank are complete and correct and prepared in
accordance with GAAP, and fairly present the financial condition of the Company
as of the dates indicated and for the periods involved and show all of their
material liabilities, direct and contingent. As of the date of the latest of
those financial statements there were no contingent liabilities, liabilities for
Taxes, unusual forward or long-term commitments or unrealized or anticipated
losses from any unfavorable commitments which are substantial in amount in
relation to the financial condition of the Company, except as referred to or
reflected or provided for in the latest of said financial statements. Since the
date of the latest of said financial statements, there has been no material
adverse change in the business, condition or operations of the Company or any of
its Subsidiaries.
6.3 Corporate Authorization. The Board of Directors of the Company has
duly and validly authorized the execution and delivery of this Agreement, the
Note and the other Loan Documents and the performance of their respective terms.
No consent of the respective stockholders of the Company is required as a
prerequisite to the validity and enforceability of this Agreement, the Notes or
any other Loan Document contemplated herein.
6.4 Collateral Unencumbered. No financing statement or other writing is
or shall be on file in any public filing or recording office covering (or
purporting to create, confirm, establish or maintain any lien, security
interest, purchase money security interest, conditional title, levy, attachment,
consignment or other encumbrance upon) any property of the Company or that of
any of its Subsidiaries which would constitute "Inventory," "Equipment,"
"Accounts," "Contract Rights", "Chattel Paper", "Instruments" or "General
Intangibles" (as such terms are defined in Article 9 of the Oklahoma Uniform
Commercial Code) or proceeds or products thereof, except those in favor of the
Bank or Usborne (but only if and to the extent fully subordinated to the Bank's
security interest).
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<PAGE>
6.5 Litigation. There is no action, suit, investigation or proceedings
pending or, to the knowledge of Company threatened against the Company or any
properties or rights thereof before any Tribunal, which involves the possibility
of any final judgment or liability which may result in any material adverse
change in Company's business or its financial condition. The Company is not
subject to any litigation, injunction, temporary restraining order or other
order or decree issued by any court or Tribunal concerning the validity,
legality or effectiveness of Company's proposed revolving line of credit with
the Bank as contemplated hereby.
6.6 Conflicting Agreements and Other Matters. Neither the Company nor any
Subsidiary is in default in the performance of any obligation, covenant, or
condition in any agreement to which it is a party or by which it is bound.
Neither the Company nor any Subsidiary is a party to any contract or agreement
or subject to any charter or other corporate restriction which materially and
adversely affects its business, property or assets, or financial condition.
Neither the Company nor any Subsidiary is a party to or otherwise subject to any
contract or agreement which restricts or otherwise affects the right or ability
of the Company to execute the Loan Documents or the performance of any of their
respective terms. Neither the execution nor delivery of any of the Loan
Documents, nor fulfillment of nor compliance with their respective terms and
provisions will conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in any violation of, or
result in the creation of any Lien upon any of the properties or assets of the
Company or any Subsidiary pursuant to, or require any consent, approval or other
action by or any notice to or filing with any Tribunal (other than routine
filings after the Closing Date with the Securities and Exchange Commission, any
securities exchange and/or state blue sky authorities) pursuant to, the charter
or By-Laws of the Company or any Subsidiary, any award of any arbitrator, or any
agreement, instrument or Law to which the Company or any Subsidiary is subject.
6.7 Purposes. Neither the Company nor any Subsidiary is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System)
and no part of the proceeds of any borrowing hereunder will be used to purchase
or carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock. If requested by the Bank, the Company
will furnish to the Bank a statement in conformity with the requirements of
Federal Reserve Form U-1, referred to in Regulation U, to the foregoing effect.
Neither the Company nor any agent acting on its behalf has taken or will take
any action which might cause this Agreement or the Notes to violate any
regulation of the Board of Governors of the Federal Reserve System (including
Regulations G, T, U and X) or to violate any securities laws, state or federal,
in each case as in effect now or as the same may hereafter be in effect.
6.8 Compliance with Applicable Laws. The Company and each Subsidiary are
in compliance with all Laws, ordinances, rules, regulations and other legal
requirements applicable to them and the business conducted by them, the
violation of which could or would have a material adverse effect on their
business or condition, financial or otherwise. Neither the ownership of any
capital stock of the Company or any of its Subsidiaries, nor any continued role
of any Person in the management or other affairs of the Company or any of its
Subsidiaries (i) results or could result in the Company's noncompliance with any
Laws, ordinances, rules, regulations and other legal requirements applicable to
the Company or its Subsidiaries, or (ii) could or would have a material adverse
effect on the business or condition, financial or otherwise, of the Company and
its Subsidiaries.
6.9 Possession of Franchises and Licenses. The Company and each Subsidiary
possess all franchises, certificates, licenses, permits and other authorizations
from governmental political subdivisions or regulatory authorities, free from
burdensome restrictions, that are necessary in any
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<PAGE>
material respect for the ownership, maintenance and operation of their
respective properties and assets, and neither the Company nor any Subsidiary is
in violation of any thereof in any material respect.
6.10 Leases. The Company and each Subsidiary enjoy peaceful and undisturbed
possession of all leases necessary in any material respect for the operation of
their respective properties and assets, none of which contains any unusual or
burdensome provisions which might materially affect or impair the operation of
such properties and assets. All such leases are valid and subsisting and are in
full force and effect.
6.11 Taxes. The Company and each Subsidiary have filed all Federal, state
and other income tax returns which are required to be filed and have paid all
Taxes, as shown on said returns, and all Taxes due or payable without returns
and all assessments received to the extent that such Taxes or assessments have
become due. All Tax liabilities of the Company and the Subsidiaries are
adequately provided for on the books of the Company and the Subsidiaries,
including interest and penalties. No income tax liability of a material nature
has been asserted by taxing authorities for Taxes in excess of those already
paid.
6.12 Disclosure. Neither this Agreement nor any other Loan Document or
writing furnished to the Bank by or on behalf of the Company in connection
herewith contains any untrue statement of a material fact nor do such Loan
Documents and writings, taken as a whole, omit to state a material fact
necessary in order to make the statements contained herein and therein not
misleading. There is no fact known to the Company which materially adversely
affects or in the future may materially adversely affect the business, property,
or assets, or financial condition of the Company or any Subsidiary which has not
been set forth in this Agreement, in the Loan Documents or in other documents
furnished to the Bank by or on behalf of the Company prior to the date hereof in
connection with the transactions contemplated hereby.
6.13 Subsidiaries. Exhibit G attached hereto states the name of each of
the Subsidiaries, if any, its jurisdiction of incorporation, and the percentage
of stock owned by the Company and each other Subsidiary if any.
6.14 Investment Company Act Representation. Neither the Company nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
6.15 ERISA. Since the effective date of Title IV of ERISA, no Reportable
Event has occurred with respect to any Plan. For the purposes of this section
the term "Reportable Event" shall mean an event described in Section 4043(b) of
ERISA. For the purposes hereof the term "Plan" shall mean any plan subject to
Title IV of ERISA and maintained for employees of the Company or any Subsidiary,
or of any member of a controlled group of corporations, as the term "controlled
group of corporations" is defined in Section 1563 of the Internal Revenue Code
of 1986, as amended (the "Code"), of which the Company is a part. Each Plan
established or maintained by the Company is in material compliance with the
applicable provisions of ERISA, and the Company has filed all reports required
by ERISA and the Code to be filed with respect to each Plan. The Company has met
all requirements with respect to funding Plans imposed by ERISA or the Code.
Since the effective date of Title IV of ERISA there have not been any nor are
there now existing any events or conditions that would permit any Plan to be
terminated under circumstances which would cause the lien provided under Section
4068 of ERISA to attach to the assets of the Company or any Subsidiary. The
value of each Plan's benefits guaranteed under Title IV of ERISA on the date
hereof does not exceed the value of such Plan's assets allocable to such
benefits on the date hereof.
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<PAGE>
6.16 Fiscal Year. The fiscal year of the Company ends February 28.
ARTICLE VII
-----------
COLLATERAL AND SECURITY FOR INDEBTEDNESS
----------------------------------------
7.1 Creation of Continuing Security Interest. To secure the payment of
all Indebtedness, howsoever and whensoever created hereunder, as and when the
same shall become due and payable (whether by extension, renewal, acceleration
or otherwise), the Company hereby grants, mortgages, pledges, hypothecates and
assigns to the Bank a continuing and continuous first and prior security
interest in and to all of the following (the "Collateral"):
(a) All accounts (including contract rights) (as defined in Article 9
of the Oklahoma Uniform Commercial Code) now owned by the Company and which
may be owned, held, created or acquired by the Company at any time
hereafter until this Agreement shall be terminated (as provided herein) and
thereafter until all Indebtedness shall be fully paid and discharged;
(b) All inventory (as such term is defined in Article 9 of the
Oklahoma Uniform Commercial Code) including, without limitation, all
educational books, programs, kits and supplies and work in progress and
goods in process now owned or created by Company and which may be owned,
held, created or acquired by Company at any time hereafter until this
Agreement shall be terminated (as provided herein) and thereafter until all
Indebtedness shall be fully paid and discharged;
(c) All books, records, ledgers, journals, delivery receipts, sales
memoranda, shipping tickets, correspondence and other written records, data
and memoranda of the Company relating to any and all of their respective
present or future accounts, contract rights, and/or inventory;
(d) All general intangibles, instruments, documents and chattel paper
now owned or hereafter owned, acquired or created by Company;
(e) All demand deposits, time deposits or certificates of deposit with
the Bank including (without limitation) the Collection Account; and
(f) All proceeds and products of all of the items and types of
Collateral described above;
which security interests shall be more fully evidenced by that certain Restated
Security Agreement and Assignment dated as of even date herewith (the "Security
Agreement").
7.2 Collection of Accounts. Until otherwise provided herein, the Company
at its own expense, will diligently attempt to collect upon all sums due the
Company upon its accounts and contract rights. Although the Bank does not
contemplate immediate efforts on its part to effect direct collection of any
such accounts, the Bank shall, however, upon the occurrence of a Default or an
Event of Default, be entitled at any time and from time to time to make or
attempt to make direct collection of any one or more or all accounts or contract
rights of the Company, and the Company will from time to time and as often as
requested by the Bank, promptly execute and deliver to the Bank one or more
specific written assignments of any one or more accounts or contract rights the
Bank may select or designate, assigning the same to the Bank. Such assignments
shall be upon such form or forms the Bank may hereafter regularly employ for the
purpose of evidencing the assignment to it, as collateral or security, of one or
more specific
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<PAGE>
accounts or contract rights. In each instance in which the Bank may elect
hereunder to effect direct collection of any one or more accounts or contract
rights of the Company, the Bank shall also be entitled to take possession of all
books and records of the Company relating to such account(s) or contract
right(s) and the Company will not in any manner take or suffer any action to be
taken to hinder, delay or interfere with the Bank's attempts to effect
collection.
7.3 Lockbox Agreement. Upon five (5) days' prior written notice to the
Company, the Bank shall have the right, at the Bank's sole option, to require
that the Company proceed to immediately establish and maintain a special lock
box account with the Bank ("Collection Account") for and on behalf of the Bank
and Company shall execute all such agreements, signature cards, resolutions and
other documents as is customary for the establishment of such an account with
the Bank. The Company shall thereafter direct all Account Debtors thereof to
remit all accounts payable to the Company to the Collection Account, concerning
which the Company shall have no access or rights of withdrawal with respect to
such Collection Account. Upon effecting such five (5) days' notice to the
Company, Bank will be authorized and empowered by the Company to notify any such
Account Debtors of the lockbox arrangement and to verify the notification
process utilized by the Company. All net collected funds in any Collection
Account shall be applied by the Bank on Friday of each calendar week (or the
next succeeding Business Day if Friday is a day other than a Business Day) to
the indebtedness evidenced by the Note in the order as specified in Section 2.2
above and may be reborrowed by the Company pursuant to the provisions of this
Agreement. The Bank shall be entitled and is hereby authorized by the Company
to apply all such lockbox funds to the payment of accrued interest on the Note
to the date of such payment and the balance, if any, in reduction of the
outstanding principal balance of the Note. All funds on deposit in the
Collection Account shall be continuously pledged to the Bank as security for all
Indebtedness and shall constitute part of the Collateral described in Section
7.1 hereof. Notwithstanding the foregoing, the Bank is hereby absolved from all
liability for failure to enforce collection of any such payments or collection
of instruments of payment directed to the Collection Account, for failure to
apply any proceeds in accordance with this Section 7.3, and from all other
responsibility in connection therewith, except the responsibility to account to
the Company for funds actually received.
7.4 Additional Documents or Instruments. The Company will from time to
time and as often as the Bank may request, execute and deliver to the Bank such
financing statements, additional and supplemental security agreements and other
reports, certificates, data and writings the Bank may request to evidence,
perfect, more fully evidence or perfect or evaluate the Bank's continuing
security interest in the collateral and security referred to herein.
ARTICLE VIII
------------
EVENTS OF DEFAULT
-----------------
8.1 Events of Default. If any one or more of the following events (herein
called "Events of Default") shall occur and be continuing for any reason
whatsoever (and whether such occurrence shall be voluntary or involuntary or
come about or be effected by operation of Law or otherwise):
(a) The Company shall fail to pay any principal or interest upon the
Note or any other note issued or purportedly issued hereunder or any other
Indebtedness incurred or created or purportedly incurred or created
hereunder or pursuant hereto within five (5) days after the same shall
become due and payable (whether by extension, renewal, acceleration or
otherwise); or
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<PAGE>
(b) The Company shall fail to duly observe, perform or comply with any
covenant or agreement contained in this Agreement and such default or
breach shall not have been cured or remedied the earlier of thirty (30)
days after the Company shall know (or should have known) of its occurrence
(except that such grace or curative periods shall neither be deemed
applicable to the payment provisions hereof nor the default provisions of
subparagraph (a) hereof); or
(c) Any representation or warranty of the Company made herein or in
any writing furnished in connection with or pursuant to this Agreement
shall have been false or misleading in any material respect on the date
when made; or
(d) The Company shall default in the payment of principal or of
interest on any other obligation for money borrowed or received as an
advance (or any obligation under any conditional sale or other title
retention agreement or any obligation issued or assumed as full or partial
payment for property whether or not secured by purchase money Lien or any
obligation under notes payable or drafts accepted representing extensions
of credit) beyond any grace period provided with respect thereto, or shall
default in the performance of any other agreement, term or condition
contained in any agreement under which such obligation is created (or if
any other default under any such agreement shall occur and be continuing
beyond any period of grace provided with respect thereto) if the effect of
such default is to cause, or to permit, the holder or holders of such
obligation (or a trustee on behalf of such holder or holders) to cause such
obligation to become due prior to its date of maturity; or
(e) Any of the following: (i) Company or any of its Subsidiaries,
shall make an assignment for the benefit of creditors, become insolvent or
admit in writing their inability to pay their debts generally as they
become due; or (ii) an order for relief under the United States Bankruptcy
Code, as amended, shall be entered against a Company and shall remain in
effect and unstayed for thirty (30) days; or (iii) Company or any
Subsidiary shall petition or apply to any Tribunal for the appointment of a
trustee, custodian, receiver or liquidator of Company or any Subsidiary or
of any substantial part of the assets of Company or any Subsidiary or shall
commence any proceedings relating to a Company or any Subsidiary under any
bankruptcy, reorganization, compromise, arrangement, insolvency,
readjustment of debts, dissolution, or liquidation Law of any jurisdiction,
whether now or hereafter in effect; or (iv) any petition or application
shall be filed, or any such proceedings shall be commenced, against Company
or any Subsidiary and Company or any Subsidiary by any act shall indicate
its approval thereof, consent thereto or acquiescence therein, or an order,
judgment or decree shall be entered appointing any such trustee, receiver
or liquidator, or approving the petition in any such proceedings, and such
order, judgment or decree shall remain unstayed and in effect for more than
thirty (30) days; or (v) any order, judgment or decree shall be entered in
any proceedings against Company or any Subsidiary decreeing the dissolution
of Company or Subsidiary and such order, judgment or decree shall remain
unstayed and in effect for more than thirty (30) days; or (vi) any order,
judgment or decree shall be entered in any proceedings against Company or
any Subsidiary decreeing a split-up of Company or Subsidiary which requires
the divestiture of a substantial part of the assets of Company or
Subsidiary and such order, judgment or decree shall remain unstayed and in
effect for more than thirty (30) days; or (vii) any final judgment on the
merits for the payment of money in excess of $10,000 shall be outstanding
against Company or any Subsidiary, and such judgment shall remain unstayed
and in effect and unpaid for more than thirty (30) days; or (viii) any
default by Company under any real property lease agreement to which Company
is a party or by which it is bound that constitutes a Material Adverse
Effect; or (ix) Company shall fail to make timely payment or deposit of any
material amount of tax required to be withheld by
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<PAGE>
Company and paid to or deposited to or to the credit of the United States
of America pursuant to the provisions of the Internal Revenue Code of 1986,
as amended, in respect of any and all wages and salaries paid to employees
of Company; or
(f) Any material vacancies shall occur in the executive management of
Company and the same shall not be filled with a replacement reasonably
satisfactory to the Bank (in its good faith judgment) within thirty (30)
days of the occurrence of such vacancy(ies); or
(g) Any Reportable Event described in Section 6.14 hereof which the
Bank determines in good faith might constitute grounds for the termination
of a Plan therein described or for the appointment by the appropriate
United States District Court of a trustee to administer any such Plan shall
have occurred and be continuing thirty (30) days after written notice to
such effect shall have been given to the Company by the Bank, or any such
Plan shall be terminated, or a trustee shall be appointed by a United
States District Court to administer any such Plan or the Pension Benefit
Guaranty Corporation shall institute proceedings to terminate any such Plan
or to appoint a trustee to administer any such Plan;
then, and in every such event, the Bank may declare the principal of and
interest on all Indebtedness of the Company hereunder to be immediately due and
payable, without presentment, demand, protest, notice of protest, or other
notice of any kind, all of which are hereby expressly waived by the Company.
8.2 Interest After Default. All past due obligations or Indebtedness of
the Company to the Bank, whether principal, interest, costs or expenses, shall
bear interest at a variable annual rate equal from day to day to Chase Prime
Rate plus four and one-half percentage points (4 1/2%) during such period of
delinquency until paid, but not higher than the then applicable highest federal
or state lawful rate (the "Default Rate").
8.3 Remedies. If any one or more Events of Default shall occur and be
continuing, the Bank may, without any period of grace, proceed to protect and
enforce all or any of the rights with respect thereto contained in this
Agreement or any other Loan Documents, or may proceed to enforce payment of
Indebtedness due or enforce any other legal or equitable rights or exercise any
other legal or equitable remedies, or cure or remedy any default by Company for
the purpose of preserving its assets and properties. All rights, remedies or
powers conferred upon the Bank shall be cumulative and not exclusive of any
other rights, remedies or powers available. No delay or omission to exercise any
right, remedy or power, shall impair any such right, remedy or power, or shall
be construed to be a waiver of any Event of Default or an acquiescence therein.
Any such right, remedy or power may by exercised from time to time,
independently or concurrently, and as often as shall be deemed expedient. No
waiver of any Event of Default shall extend to any subsequent Event of Default.
No single or partial exercise of any right, remedy or power shall preclude other
or further exercise thereof. The Company covenant that if an Event of Default
shall happen and be continuing they will pay costs of court and other out-of-
pocket expenses and fees paid or incurred by the Bank in collecting the amounts
due pursuant to this Agreement, including attorneys' fees, together with
interest on amounts so expended from the respective dates of each expenditure at
an annual rate equal to the Default Rate.
ARTICLE IX
----------
MISCELLANEOUS
-------------
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<PAGE>
9.1 Notices. Unless otherwise provided herein, all notices, requests,
consents and demands shall be in writing and shall be mailed, postage prepaid,
to the respective addresses specified herein, or, as to either party, to such
other address as may be designated by it by written notice to the other party.
All notices, requests, consents and demands hereunder will be effective when
mailed by certified or registered mail, postage prepaid, addressed as aforesaid.
9.2 Place of Payment. All sums payable hereunder shall be paid at the
Bank's principal banking office in Tulsa, Oklahoma, or at such other place as
the Bank shall notify Company in writing, in immediately available funds
constituting lawful currency of the United States of America. If any interest
or principal falls due on other than a Business Day, then such due date shall be
extended to the next succeeding Business Day, and such extension of time will in
such case be included in computing interest, if any, in connection with such
payment.
9.3 Waivers and Consents. Company may take any action prohibited in this
Agreement, or omit to perform any act required herein to be performed by it,
upon receipt by the Bank of the written request of Company, and receipt by
Company of the subsequent written consent thereto by the Bank.
9.4 Survival of Agreements. All covenants, agreements, representations
and warranties made herein shall survive the execution and the delivery of this
Agreement and the other Loan Documents. All statements contained in any
certificate or other instrument delivered by the Company hereunder shall be
deemed to constitute representations and warranties made by the Company.
9.5 Parties in Interest. All covenants and agreements contained in this
Agreement, the Note and the other Loan Documents shall bind and inure to the
benefit of the respective successors and assigns of the parties hereto.
9.6 Governing Law. This Agreement and all Loan Documents shall be deemed
to have been made under the Laws of the State of Oklahoma and shall be construed
and enforced in accordance with and governed by the Laws of the State of
Oklahoma. Without excluding any other jurisdiction, the Company expressly
agrees and stipulates that the courts of Oklahoma will have jurisdiction over
all proceedings in connection herewith. The Company agrees that for purposes of
enforcement of the Bank's rights and remedies pertaining to the Note and the
other Loan Documents, venue and personal jurisdiction are proper in courts
situated in Tulsa County, Oklahoma.
9.7 Maximum Interest Rate. Regardless of any provision herein or in any
of the Loan Documents, the Bank shall never be entitled to receive, collect or
apply, as interest on the Indebtedness any amount in excess of the maximum rate
of interest permitted to be charged by then applicable federal or state Law,
and, in the event the Bank shall ever receive, collect or apply, as interest,
any such excess, such amount which would be excessive interest shall be applied
to the reduction of principal; and, if the principal is paid in full, then any
remaining excess shall forthwith be paid to the Company.
9.8 Participations. The Company recognizes and acknowledges that the Bank
reserves the right to sell concurrently herewith participating interests in the
Note to one or more financial institutions (the "Participants") and to appoint
an agent for the Bank and such Participants in order to administer the Loan
Documents, advances and payments, the collateral and all other matters and/or
obligations set forth herein or in the other Loan Documents contemplated hereby
(the "Agent"). The Company shall thereafter supply the Participants with the
same information and reports communicated to the Bank, whether written or oral.
The Company hereby acknowledges that each Participant shall be deemed a holder
of the Note to the extent of its participation, and
-20-
<PAGE>
the Company hereby waives its rights, if any, to offset amounts owing to the
Company from the Bank against Participant's participation interest in the Note.
9.9 Legal Fees/Expenses of Bank. The Company agrees to pay all expenses
and costs incurred by the Bank, including, without limitation, the legal fees of
counsel for the Bank in connection with the negotiation, preparation and closing
of this transaction and any extension, renewal, amendment or refinancing
thereof. The Company agrees that all such fees and expenses shall be paid
regardless of whether or not the transactions provided for in this Agreement are
eventually closed and regardless of whether any sums are advanced to the Company
by the Bank.
9.10 Releases/Waivers. Upon full payment and satisfaction of the Loans
evidenced by the Note and interest thereon together with any other obligations
or duties hereunder, the parties hereto shall thereupon automatically each be
fully, finally and forever released and discharged from any further claim,
liability or obligation in connection with such Loans and all transactions
relating thereto.
9.11 Headings. The headings in this Agreement are for convenience of
reference only and shall not constitute a part of the text hereof nor alter or
otherwise affect the meaning hereof.
9.12 Severability. The unenforceability or invalidity as determined by a
Tribunal of competent jurisdiction, of any provision or provisions of this
Agreement shall not render unenforceable or invalid any other provision or
provisions hereof.
9.13 Full Agreement. This Agreement and the other Loan Documents contain
the full agreement of the parties and supersede all negotiations and agreements
prior to the date hereof.
9.14 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument.
9.15 Waiver of Jury Trial. Company hereby expressly waives any right to a
trial by jury in any action or proceeding to enforce or defend any rights
hereunder or under the notes, the security agreement or any other instrument,
document, agreement or amendment delivered (or which in the future may be
delivered) in connection herewith or arising from any banking or lending
relationship existing in connection herewith. Company agrees that any such
action or proceeding shall be tried before a court and not before a jury.
IN WITNESS WHEREOF, the parties hereto have caused this Restated Revolving
Credit and Security Agreement to be duly executed and delivered in Tulsa,
Oklahoma, as of the day and year first above written.
EDUCATIONAL DEVELOPMENT
CORPORATION, a Delaware corporation
By___________________________________
Randall White, President
"Company"
STATE BANK & TRUST, N.A.
-21-
<PAGE>
By_____________________________________________________
Dennis Colvard, Vice President
"Bank"
-22-
<PAGE>
SCHEDULE I
(List of Pre-Approved Account
Debtors re concentration limits per Section 2.6(a))
1. Waldenbooks
2. Barnes & Noble
3. Discovery Toys
4. Epcot Center
5. Toys-R-Us
6. Service Merchandise
The Accounts of the above listed account-debtors of Borrower shall not become
ineligible solely by virtue of any portion thereof remaining unpaid for a period
in excess of ninety (90) days to the extent such Account Debtors are complying
with the agreed payment terms with Borrower. The Bank shall be provided with
written notice of the agreed payment terms for each such pre-approved Account
Debtor prior to inclusion of any such Accounts thereof in Borrower's Loan
Request (Exhibit B) for borrowing base provisions.
<PAGE>
EXHIBIT C
---------
Existing Liens
1. Roselius Computer Corp. (assigned to The First National Bank of Midwest
City) - Lease Agreement No. 12356 re computer, processing and printing
equipment listed therein. Filing #603337 in Tulsa County, Oklahoma and
#N04573 in Oklahoma County, Oklahoma.
2. Usborne Publishing Ltd. re consignment of present and future listed books -
filing #598083 in Tulsa County, Oklahoma and filing #010740 and 021326 in
Oklahoma County, Oklahoma.
<PAGE>
EXHIBIT D
---------
EDUCATIONAL DEVELOPMENT CORPORATION
Notes Receivable
Officers, Directors and Shareholders
September 18, 1994
NONE
<PAGE>
EXHIBIT E
Investments
NONE
<PAGE>
EXHIBIT F
Existing Leases
1. Commerical Lease and Deposit Receipt dated January 22, 1986 between James
D. Dunn, as lessor, and the Company, as lessee, covering the premises
located at 10302 East 55th Place, which lease expires on ________________.
2. Equipment Lease Agreement dated November 6, 1989 between Roselius Computer
Corporation, as lessor, and the Company, as lessee, covering computer
equipment, which lease has an initial term of 36 months.
<PAGE>
EXHIBIT G
Subsidiaries
NONE
<PAGE>
EXHIBIT A
---------
REVOLVING CREDIT NOTE
---------------------
$6,000,000 Tulsa, Oklahoma
September 18, 1995
FOR VALUE RECEIVED, the undersigned (the "Maker") promises to pay to the
order of STATE BANK & TRUST, N.A. (the "Payee"), at the Payee's main banking
office in Tulsa, Oklahoma, the principal sum of SIX MILLION AND NO/100 DOLLARS
($6,000,000), or so much thereof as shall have been advanced by Payee to Maker
and remains unpaid, on June 30, 1996, together with interest thereon from the
date funds are initially advanced hereon on the unpaid balances of principal
from time to time outstanding, at the variable annual rate of interest
hereinafter specified, which interest is payable in monthly installments due and
payable on the last day of each calendar month commencing September 30, 1995,
and at final maturity on June 30, 1996.
The rate of interest payable upon the indebtedness evidenced by this note
shall be a variable annual rate of interest equal from day to day to Prime Rate
of interest, as hereinafter defined, plus one-half of one percentage point
(.050%). Prime Rate of interest shall be effective with respect to this note as
of the date upon which any change in such rate of interest shall occur.
Interest shall be computed on the basis of a year of 360 days but assessed only
for the actual number of days elapsed.
For the purposes of this note Prime Rate shall mean, as of the date upon
which such rate of interest is to be determined, the prime rate of interest
published in the Money Rates column of the Wall Street Journal (Southwest
Edition) or a similar rate as determined by Payee if such rate ceases to be
published.
All parties (maker, endorsers, sureties, guarantors and all others now or
hereafter liable for payment of the indebtedness evidenced by this note) waive
presentment and diligence in collection and agree that without notice to, and
without discharging the liability of any party, this note may be extended or
renewed from time to time and for any term or terms by agreement between the
holder of this note and any of such parties and all parties shall remain liable
on each such extension or renewal.
If the principal or any installment of interest due upon this note is not
paid as and when the same becomes due and payable (whether by extension,
acceleration or otherwise), or any party now or hereafter liable (directly or
indirectly) for payment of this note makes an assignment for benefit of
creditors, becomes insolvent, has an order for relief under the United States
Bankruptcy Code, as amended, entered against it, or any receiver, trustee,
custodian or like officer is appointed to take custody, possession or control of
any property of any such party, the holder hereof may, without notice, declare
all of the unpaid balance hereof to be immediately due and payable. Such right
of acceleration is cumulative and in addition to any other right or rights of
acceleration under the Restated Credit and Security Agreement between the Maker
and the Payee dated as of even date herewith (the "Credit Agreement") and any
other writing now or hereafter evidencing or securing payment of any of the
indebtedness evidenced hereby. After maturity, whether by acceleration,
extension or otherwise, this note shall bear interest at a variable annual rate
equal to Prime Rate plus four and one-half percentage points (4.5%). Maker and
all other parties liable hereon shall pay all reasonable attorney fees and all
court costs and other costs and expenses of collection incurred by the holder
hereof.
This is the Revolving Credit Note defined in the Credit Agreement.
Reference is made to the Credit Agreement and to the Security Agreement and
Assignment dated January 18, 1990, as amended and restated from time to time,
including that certain Restated Security Agreement
<PAGE>
Revolving Credit Note
Page Two
and Assignment dated as of even date herewith, for the provisions with respect
to acceleration, description of collateral securing payment of the indebtedness
evidenced hereby, rights and remedies in respect thereof and other matters.
This note is executed and delivered to the order of the Payee in Tulsa,
Oklahoma, by the undersigned duly authorized corporate officer of the Maker
pursuant to all necessary corporate action and shall be governed by and
construed in accordance with the laws of the State of Oklahoma.
EDUCATIONAL DEVELOPMENT
CORPORATION
By_____________________________________________
Randall White, President
"Maker"
Due: June 30, 1996
<PAGE>
EXHIBIT B
---------
LOAN REQUEST, CERTIFICATION AND
CONFIRMATORY SECURITY AGREEMENT
-------------------------------
________________, 19___
STATE BANK & TRUST, N.A.
4500 South Garnett
Tulsa, Oklahoma 74146
Gentlemen:
Pursuant to the provisions of the Restated Credit and Security Agreement
dated as of September 18, 1995 (the "Credit Agreement"), the undersigned
"Company" hereby (i) confirms and ratifies your continuing first and prior
security interest in and to all of its present and future accounts, contract
rights, general intangibles, inventory, instruments, documents and chattel paper
(including proceeds and products thereof) described or referred to in the Credit
Agreement; (ii) applies to you for a loan in the amount shown hereinbelow; (iii)
certifies that no Event of Default or Default under the Credit Agreement has
occurred and is continuing as of the date hereof or exists or would continue to
exist but for the lapse of time or notice, or both; (iv) represents and warrants
to you that the representations, covenants and warranties set forth or referred
to in the Credit Agreement are true and correct on and as of this date and that
Company has been in strict and continuing compliance with the borrowing base
provisions of the Credit Agreement since the date of the last Loan Request
submitted to you; (v) certifies to you the accuracy of the following information
concerning the Borrowing Base of the Company; (vi) and further certifies to you
the accuracy and completeness of the financial reports and Monthly Reports
annexed hereto as required by Sections 4.4 and 4.5 of the Credit Agreement:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Total Company Accounts per last certificate $______________
2. Plus: New Invoices generated by Companies $______________
3. Less: Collections and Credit Memos $______________
4. Total Company Accounts as of _______________ $______________
5. Less:
(a) Invoices over 90 days past due $______________
(b) COD Invoices $______________
(c) Contra Accounts $______________
(d) Freight Invoices/Late Charges $______________
(e) Foreign Accounts $______________
(f) Due From Affiliates/Officers, Employees $______________
(g) Other Ineligibles $______________
(Specify) __________________________
(h) Total Ineligibles (Sum of a thru g) $______________
6. Eligible Accounts (Line 4 less Line 5 h) $______________
7. Account Borrowing Base (Line 6 x .65) $______________
8. Total Eligible Inventories $______________
9. Inventory Borrowing Base (Line 8 x .35) $______________
10. Borrowing Base (Line 7 plus Line 9) $______________
11. Revolving Loan Balance $______________
12. Plus: Advance requested $______________
OR
13. Less: Additional Payment $______________
14. New Aggregate Revolving Credit Loan Balance $______________
(Line 11 plus Line 12 or less Line 13,
but not to exceed the lesser of Line 10 $_____________
or $6,000,000 per (S) 2.4 of the Credit Agreement)
</TABLE>
EDUCATIONAL DEVELOPMENT
CORPORATION
By____________________________________
(Title)
"Company"
<PAGE>
EXHIBIT 11
EDUCATIONAL DEVELOPMENT CORPORATION
EARNINGS PER SHARE COMPUTATION (B)
YEARS ENDED FEBRUARY 29, 1996,
FEBRUARY 28, 1995, AND FEBRUARY 28, 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Earnings from continuing operations
before cumulative effect of accounting
change for income $1,805,335 $1,163,647 $ 631,350
taxes (a)
Discontinued operations, net of tax (a):
Earnings (loss) from operations (25,637) 8,139 (27,699)
Loss on disposal (300,984) - -
---------- ---------- ----------
(326,621) 8,139 (27,699)
---------- ---------- ----------
Earnings before cumulative effect of
accounting change
for income taxes (a) 1,478,714 1,171,786 603,651
Cumulative effect of accounting change
for income
taxes (a) - - 290,000
---------- ---------- ----------
Net earnings (a) $1,478,714 $1,171,786 $ 893,651
========== ========== ==========
Weighted average number of common
shares outstanding 4,553,658 4,474,520 4,461,022
Add common share equivalents 785,176 748,970 568,598
---------- ---------- ----------
Weighted average number of common and
common
equivalent shares outstanding 5,338,834 5,223,490 5,029,620
Add common share equivalents to compute
fully diluted
earnings per share 10,590 18,812 14,126
---------- ---------- ----------
5,349,424 5,242,302 5,043,746
========== ========== ==========
Earnings (loss) per share (a):
Earnings from continuing operations
before cumulative
effect of accounting change for $ 0.34 $ 0.22 $ 0.13
income taxes
Discontinued operations (0.06) - (0.01)
Cumulative effect of accounting
change for income
taxes - - 0.06
---------- ---------- ----------
Net earnings per share $ 0.28 $ 0.22 $ 0.18
========== ========== ==========
</TABLE>
(a) Agrees to the related amounts shown on the statements of earnings.
(b) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB No.
15 because it results in dilution of less than 3% or is antidilutive.
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-60188 of Educational Development Corporation on Form S-8 of our report
dated May 6, 1996, which report is unqualified and includes an explanatory
paragraph describing the change in the method of accounting for income taxes in
fiscal 1994, appearing in this Annual Report on Form 10-KSB of Educational
Development Corporation for the year ended February 29, 1996.
Deloitte & Touche LLP
May 23, 1996
Tulsa, Oklahoma
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
10KSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 215,963
<SECURITIES> 0
<RECEIVABLES> 2,819,384
<ALLOWANCES> 228,000
<INVENTORY> 11,776,138
<CURRENT-ASSETS> 15,437,504
<PP&E> 1,156,414
<DEPRECIATION> 341,052
<TOTAL-ASSETS> 16,257,968
<CURRENT-LIABILITIES> 9,526,080
<BONDS> 0
<COMMON> 1,079,648
0
0
<OTHER-SE> 5,652,240
<TOTAL-LIABILITY-AND-EQUITY> 16,257,968
<SALES> 19,253,467
<TOTAL-REVENUES> 19,253,467
<CGS> 8,083,221
<TOTAL-COSTS> 15,116,797
<OTHER-EXPENSES> 860,786
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 297,849
<INCOME-PRETAX> 2,918,035
<INCOME-TAX> 1,112,700
<INCOME-CONTINUING> 1,805,335
<DISCONTINUED> (326,621)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,478,714
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
