<PAGE>
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended February 29, 2000
[ ] TRANSITION REPORT PURSUANT TO 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
(Exact name of registrant as specified 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)
Registrant's telephone number: (918) 622-4522
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.20 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No___
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of April 18, 2000, 4,076,752 shares of common stock were
outstanding. The aggregate market value of the voting shares held by non-
affiliates of the registrant, based on 2,947,978 shares (total outstanding less
shares held by all officers, directors and 401(k) Plan) extended at the closing
market price on April 18, 2000, of these shares traded on the Nasdaq National
Market, was approximately $8,797,872.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Annual Report, to the
extent not set forth herein, is incorporated herein by reference from the
registrant's definitive proxy statement relating to the annual meeting of
stockholders to be held on June 22, 2000.
1
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
FACTORS AFFECTING FORWARD LOOKING STATEMENTS.......................................................... 3
PART I
Item 1. Business.................................................................................... 3
Item 2. Properties.................................................................................. 6
Item 3. Legal Proceedings........................................................................... 6
Item 4. Submission of Matters to a Vote of Security Holders......................................... 6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................... 6
Item 6. Selected Financial Data..................................................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................. 11
Item 8. Financial Statements and Supplementary Data................................................. 11
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 11
PART III
Item 10. Directors and Executive Officers of the Registrant.......................................... 11
Item 11. Executive Compensation...................................................................... 12
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 12
Item 13. Certain Relationships and Related Transactions.............................................. 12
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................ 13
</TABLE>
2
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EDUCATIONAL DEVELOPMENT CORPORATION
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED FEBRUARY 29, 2000
FACTORS AFFECTING FORWARD LOOKING STATEMENTS
- --------------------------------------------
This annual Report on Form 10-K contains certain "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1993, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Certain statements contained in "Item 7 - 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. Although Educational Development
Corporation believes that the expectations reflected by such forward looking
statements are reasonable based on information currently available to the
Company, no assurances can be given that such exceptions will prove to have been
correct.
PART 1
------
Item 1. BUSINESS
- ------ --------
(a) General Development of Business
-------------------------------
Educational Development Corporation ("EDC" or the "Company"), a Delaware
corporation with its principal office in Tulsa, Oklahoma, is the exclusive trade
publisher of a line of children's books produced in the United Kingdom by
Usborne Publishing Limited.
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.
During Fiscal Year ("FY") 2000 the Company operated two divisions: Home
Business Division ("Usborne Books at Home" or "UBAH") and Publishing Division.
The Home Business Division distributes books through independent consultants who
hold book showings in individual homes, and through book fairs and direct sales.
The Home Business Division also distributes these titles to school and public
libraries. The Publishing Division markets books to bookstores, toy stores,
specialty stores and other retail outlets.
Significant Events During Fiscal Year 2000
------------------------------------------
There were no significant events during fiscal year 2000.
(b) Financial Information about Industry Segments
---------------------------------------------
See part II, Item 8 - Financial Statements and Supplementary Data
3
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(c) Narrative Description of Business
---------------------------------
(i) General
The principal product of both the Home Business Division and Publishing
Division is a line of children's books produced in the United Kingdom by Usborne
Publishing Limited. The Company is the sole United States trade publisher of
these books. The Company currently offers approximately 1,000 different titles.
The Company also distributes a product called "Usborne Kid Kits". These Kid
Kits take an Usborne book and combine it with specially selected items and/or
toys which complement the information contained in the book. The Kid Kits are
packaged in a reusable vinyl bag. Presently 61 different Kid Kits are
available.
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. Likewise there is little direct economic risk to the
Company 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 be depleted 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 all sales tied to one source - Usborne
Publishing Limited. 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 currently has no plans to sell any other line.
(ii) Industry Segments
(a) Home Business Division
The Home Business Division markets the Usborne line of approximately
1,000 titles and 61 Kid Kits through a combination of direct sales, home parties
and book fairs sold through a network marketing system. The Division also sells
to school and public libraries.
(b) Publishing Division
The Publishing Division distributes the Usborne line to bookstores,
toy stores, specialty stores and other retail outlets utilizing an inside
telephone sales force as well as independent field sales representatives.
(iii) Research and Development
During fiscal year 2000 the Company spent approximately $120,000 in
development of a new product, "Make Reading Fun", a fully interactive reading
and phonics program. The Company expects to begin sales of this product during
the second quarter of FY 2001.
(iv) Marketing
(a) Home Business Division
The Home Business Division markets through commissioned consultants
using a combination of direct sales, home parties and book fairs. The division
had approximately 3,600 consultants in 50 states at February 29, 2000.
4
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(b) Publishing Division
The Publishing Division markets through commissioned trade
representatives who call on book, toy, specialty stores and other retail
outlets; and through marketing by telephone to the trade. This Division markets
to approximately 12,000 book, toy and specialty stores. Significant orders have
been received from major book chains. During fiscal year 2000 the division
continued to make further inroads into mass merchandising outlets such as drug,
department and discount stores.
(v) Competition
(a) Home Business Division
The Home Business Division faces significant competition from several
other direct selling companies which have more financial resources. 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. Management believes its
superior product line will enable this Division to be highly competitive in its
market area.
(b) Publishing Division
The Publishing Division faces strong competition from large U.S. and
international companies which have more financial resources. Industry sales of
juvenile paperbacks are over $660 million annually. The Publishing Division's
sales are approximately 1.2% of industry sales. Competitive factors include
product quality, price and deliverability. Possible funding cuts to schools
would not impact the Publishing Division as it does not sell to this market.
Management believes this Division can compete well in its market area.
(vi) Seasonality
(a) Home Business Division
The level of sales for Home Business Division is greatest during the
Fall as individuals prepare for the Holiday season.
(b) Publishing Division
The level of shipments of the Company's books is greatest in the Fall
while retailers are stocking up for Holiday sales.
(vii) Government Funding
Local, state and Federal funds are important to the Home Business
Division but not to the Publishing Division. In many cities and states in which
the Company does business, school funds have been severely cut, which impacts
sales to school libraries.
(viii) Trademarks, Copyrights and Patents
(none)
(ix) Employees
As of April 1, 2000, the Company had 62 full-time employees and 1
part-time employee. The Company believes its relations with its employees to be
good.
5
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Item 2. PROPERTIES
- ------ ----------
The Company is located at 10302 E. 55th PL, Tulsa, Oklahoma. The
Company leases approximately 80,400 square feet of office and warehouse space
under a five year renewable lease which expires June 30, 2004.
The Company's operating facility is well 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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
There were no matters submitted during the fourth quarter of the
fiscal year covered by this report to a vote of security holders of the Company.
PART II
-------
Item 5. MARKET FOR REGISTRANT'S 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 2000 and 1999, as reported by the National Association of
Securities Dealers, Inc., were as follows:
<TABLE>
<CAPTION>
2000 1999
------------------ --------------------
Period High Low High Low
- ------ ---- --- ---- ---
<S> <C> <C> <C> <C>
1st Qtr... 2.75 2.375 5.625 4.375
2nd Qtr... 3.0 2.50 4.375 2.625
3rd Qtr... 4.969 3.0 2.875 2.1875
4th Qtr... 4.0 2.625 3.0 2.1875
</TABLE>
The number of shareholders of record of EDC's common stock at April 18, 2000 was
1184.
The Company paid a $0.02 per share annual dividend during fiscal year 2000 and
fiscal year 1999. The Company will pay a $0.02 annual dividend during fiscal
year 2001.
6
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Item 6. SELECTED FINANCIAL DATA
- ------ -----------------------
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28 (29)
---------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales $16,851,261 $16,671,385 $19,343,362 $21,239,507 $19,253,467
----------- ----------- ----------- ----------- -----------
Earnings From Continuing
Operations (1) $ 1,079.028 $ 1,297,493 $ 1,704,568 $ 1,630,088 $ 1,805,335
----------- ----------- ----------- ----------- -----------
Net Earnings $ 1,079,028 $ 1,297,493 $ 1,704,568 $ 1,630,088 $ 1,478,714
----------- ----------- ----------- ----------- -----------
Earnings From Continuing
Operations Per Common Share
Basic $ .25 $ .26 $ .33 $ .31 $ .40
----------- ----------- ----------- ----------- -----------
Diluted $ .24 $ .26 $ .32 $ .31 $ .34
----------- ----------- ----------- ----------- -----------
Net Earnings Per Common Share
Basic $ .25 $ .26 $ .33 $ .31 $ .33
----------- ----------- ----------- ----------- -----------
Diluted $ .24 $ .26 $ .32 $ .31 $ .28
----------- ----------- ----------- ----------- -----------
Total Assets $12,340,022 $12,339,594 $13,597,500 $13,365,369 $16,422,068
----------- ----------- ----------- ----------- -----------
Cash Dividends Declared
Per Common Share $ .02 $ .02 $ .01 -- --
----------- ----------- ----------- ----------- -----------
</TABLE>
(1) Effective February 29, 1996 the Company discontinued its School Division.
The operating results of the School Division were reported as discontinued
operations in 1996 and 1995.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(a) Results of Operations
---------------------
FY 2000
- -------
The Home Business Division's net sales increased slightly during FY 2000
when compared with FY 1999. The months of January and February 2000 were
especially strong when compared with the same two months last year. During the
past two years, this division has experienced sales declines which the Company
believes was primarily due to a reduction in the compensation structure made in
October 1996. This change was not well received by the field sales force. In
June 1997 and May 1998 the Company made enhancements to the compensation
program. The Company believes its compensation program is competitive with
industry leaders. The division will offer during FY 2001 new and exciting
incentive programs as well as several travel contests and regional training
seminars throughout the country. The Company believes these programs will help
attract new consultants as well as retain existing consultants. The Home
Business Division has also introduced a leadership skills program for
supervisors. The Home Business Division's fourth National Seminar will be held
in June 2000. Management is hopeful that the current year increase in net sales
indicates that recent improvements in the compensation programs have brought a
halt to the two year decline in net sales.
7
<PAGE>
The Publishing Division's net sales increased 2.1% in FY 2000 when compared
with FY 1999. Increased volumes and increased market penetration contributed to
the increase in net sales. The Company has an aggressive in-house telephone
sales force which maintains contact with over 12,000 customers. During FY 2000
the telesales force opened up 675 new accounts compared with 637 new accounts
opened in FY 1999. The Company offers two display racks to assist stores in
displaying the Company's products. One is a six-foot rack with five adjustable
shelves which can hold approximately 220 titles. The second rack is a four-sided
rack with three levels which will hold between 50 and 60 of the Company's Kid
Kits. There were 3,307 of these attractive racks in retail stores throughout
the country at the end of FY 2000 compared with 3,098 at the end of FY 1999.
National chains continue to dominate the bookstore market, resulting in fewer
independent bookstores. The closing of these independent bookstores, an
important market to the Company, has a negative impact on sales. To counter
this, the Company last year restructured sales and marketing coverage on the
national chains in order to increase market share. Independent toy retailers
have also experienced increased competition from national chains, resulting in
lower sales in this market segment. The gift market has considerable potential
for the Company and the Company continues to develop its presence in this
segment of the book market. The Company attends many major national trade shows
throughout the country to further enhance product visibility. For these reasons
management is optimistic that the Publishing Division can maintain its market
share.
Cost of sales increased 3.9% for FY 2000 when compared with FY 1999. Cost
of sales as a percentage of gross sales was 26.2% in FY 2000 versus 26.0% for FY
1999. Cost of sales as a percentage of gross sales fluctuates with the mix of
products sold during a given year. Management believes its percentage of cost
of sales in FY 2001 will remain consistent with FY 2000.
Operating and selling expenses increased 3.4% during FY 2000 when compared
with FY 1999. As a percent of gross sales, these costs were 12.1% for FY 2000
compared with 12.0% in FY 1999. Higher freight costs, the result of increases
in sales and an increase in rates by the delivery carrier, contributed to
increased operating and selling costs for both the Publishing Division and the
Home Business Division. Increased credit card fees in the Home Business
Division, the direct result of increased sales, also contributed to the increase
in operating and selling expenses. Management expects operating and selling
expenses to be approximately 11% to 13% of gross sales in FY 2001.
Sales commissions declined 1.3% during FY 2000 when compared with FY 1999.
As a percentage of gross sales, these costs were 12.3% in FY 2000 compared to
12.8% for FY 1999. Sales commissions as a percentage of gross sales is
determined by the product mix sold and the division that makes the sale. While
net sales in the Publishing Division increased during FY 2000, the Division's
commission expense decreased 45%, the result of the changing sales market from
independent bookstores to the national chains. Offsetting this decline in
commission expense was an increase in sales commission expense in the Home
Business Division, the result of an increase in sales and a higher commission
structure than offered in the Publishing Division.
General and administrative expenses increased less than 1.0% during FY 2000
when compared with FY 1999. As a percentage of gross sales, these expenses were
6.1% and 6.3% for FY 2000 and FY 1999 respectively. General and administrative
expenses are not always directly affected by sales, so comparison of these
expenses as a percentage of gross sales can be misleading. An increase in
depreciation expense in the MIS department contributed to the increase in
general and administrative expenses.
Interest expense declined 52.9% in FY 2000 when compared with FY 1999. As
a percentage of gross sales, interest expense was 0.2% in FY 2000 versus 0.4%
for FY 1999. The decrease in interest expense during FY 2000 was the result of
lower borrowing levels due to improved cash flows during the year.
8
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FY 1999
- -------
The Home Business Division's sales decreased 17.3% during FY 1999 when
compared with FY 1998. The Company believed this decrease was primarily the
result of a reduction in the compensation structure, which was effective October
1, 1996, and was not well received by the field sales force. The compensation
structure was enhanced in June 1997 and the downturn in sales was slowed. In
May 1998 the Company made additional enhancements to the compensation structure.
The new program created an additional level of compensation and was designed to
encourage participation at all levels of the organization. Several travel
contests were conducted and regional training seminars were held throughout the
country. The Home Business Division's third National Seminar was held in June
1999.
The Publishing Division's net sales decreased 9.4% in FY 1999 when compared
with FY 1998. This decline in net sales was attributed to changing market
conditions. National chains increasingly dominate the bookstore market, which
in turn has resulted in fewer independent bookstores. The closings of these
independent bookstores, an important market for the Company, have led to lower
sales. The Company restructured sales and marketing coverage on the national
chains in order to increase market share. Independent toy retailers have also
experienced increased competition from national discount chains, resulting in
lower sales in this market segment. An increase in the number of front list
titles increased sales opportunities in FY 2000. The gift market has
considerable potential for the Company and the Company increased its gift trade
show schedule by 50% to take advantage of this opportunity. The Company's
aggressive in-house telephone sales force maintained contact with over 11,000
customers. During FY 1999 the telesales force opened up 637 new accounts
compared with 525 during FY 1998. The Company offered two display racks to
assist stores in displaying the Company's products. One is a six-foot rack with
five adjustable shelves which can hold approximately 220 titles. The second rack
is a four-sided rack with three levels which will hold between 50 and 60 of the
Kid Kits. There were 3,098 of these attractive racks in retail stores
throughout the country at the end of FY 1999 compared with 3,000 in FY 1998. The
Company attends several major national trade shows throughout the year to
further enhance product visibility.
Cost of sales decreased 13.5% for FY 1999 compared with FY 1998. Cost of
sales as a percentage of gross sales was 26.0% for FY 1999 versus 26.1% for FY
1998. Cost of sales as a percentage of gross sales fluctuates depending upon
the mix of products sold during a given year.
Operating and selling expenses decreased 8.0% during FY 1999 when compared
with FY 1998. As a percent of gross sales, these costs were 12.0% for FY 1999
and 11.4% for FY 1998. Contributing to the decrease in operating and selling
expenses were lower credit card fees and reduced sales incentives in the Home
Business Division, both the direct result of decreased sales in the Home
Business Division. In addition, payroll and benefit costs related to selling
and operating expenses declined due to a decrease in headcount.
Sales commissions decreased 12.9% for FY 1999 compared with FY 1998. As a
percentage of gross sales, these costs were 12.8% in FY 1999 compared to 12.8%
for FY 1998. Sales commissions as a percentage of gross sales is determined by
the product mix sold, as the commission rates vary with the product being sold
and the division which makes the sale. The Home Business Division had a higher
commission percentage and the lower sales in this division contributed to the
decrease in FY 1999 sales commissions. The revised marketing plan which went
into effect in June 1997 for the Home Business Division partially offset the
decrease in sales commissions. Effective May 1, 1998 management added a
recruiting bonus program in the Home Business Division which resulted in
increased commission expense for FY 1999, offset by a decline in total
commission expense as a result of decreased sales.
9
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General and administrative expenses increased 4.9% during FY 1999 when
compared with FY 1998. As a percentage of gross sales, these expenses were 6.3%
and 5.2% for FY 1999 and FY 1998 respectively. General and administrative
expenses are not always directly affected by sales, so comparison of these
expenses as a percentage of gross sales can be misleading. Contributing to the
increase in general and administrative expenses were increased salaries and
benefits, primarily to existing employees.
Interest expense declined 38.3% in FY 1999 compared with FY 1998. As a
percentage of gross sales, interest expense was 0.4% in FY 1999 versus 0.5% for
FY 1998. The decrease in interest expense during FY 1999 was the result of
lower borrowing levels due to improved cash flows during the year.
(b) Financial Position
------------------
Working capital was $7.6 million for fiscal year end 2000 and $8.7 million
for fiscal year end 1999. Increases in payables and short-term bank debt
contributed to the decrease in working capital at fiscal year end 2000. The
Company pays interest on its bank promissory note monthly from current cash
flows. Management expects its financial position to remain strong and to
increase working capital during the next fiscal year.
(c) Liquidity and Capital Resources
-------------------------------
Management believes the Company's liquidity at February 29, 2000, 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 fiscal year
2001. Capital expenditures are expected to be less than $750,000 in fiscal year
2001. 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, 1999 the Company signed a Restated Credit and Security
Agreement with State Bank which provides a $3,500,000 line of credit. The line
of credit is evidenced by a promissory note in the amount of $3,500,000 payable
June 30, 2000. The note bears interest at the Wall Street Journal prime
floating rate minus 0.25% payable monthly (8.5% at February 29, 2000). The note
is collateralized by substantially all of the assets of the Company. At
February 29, 2000 the Company had $1,278,000 in borrowings. Available credit
under the revolving credit agreement was $2,222,000 at February 29, 2000.
The Company obtained and uses the credit facility to fund routine
operations. Payments are made from current cash flows. The Company plans to
renew this facility when it matures June 30, 2000. The Company believes its
borrowing capacity under this line to be adequate for the next several years.
The Company generated cash from operating activities during fiscal year
2000. Accounts receivable increased during fiscal year 2000, the result of
higher sales in the Publishing Division. The Company plans to continue to
maximize its collection efforts in order to maintain cash flows.
Inventory levels increased 1.0% from fiscal year end 1999 to fiscal year
end 2000, the result of the Company's continued efforts of monitoring inventory
levels to ensure that adequate inventory is on hand to support sales as well as
to meet the six to eight month resupply requirements of its principal supplier.
The Company expects inventory levels to increase moderately each year as new
titles are added to the product line.
The major component of accounts payable is the amount due the Company's
principal supplier. Increases and decreases in inventory levels directly affect
the level of accounts payable. Also the timing of the purchases and the payment
terms offered by the suppliers affect the year end levels of accounts payable.
As inventory levels increase moderately each year, the Company expects accounts
payable will also increase moderately each year. Management anticipates cash
flows from operating activities to increase in the foreseeable future.
10
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Cash used in investing activities during fiscal year 2000 was primarily for
additional computer equipment and software and additions to the warehouse flow
rack shipping system.
The short-term bank loan increased during fiscal year 2000 as the Company
continued its stock buyback program.
During the year the Company continued the stock buyback program by
purchasing 874,087 shares of its common stock at a cost of $2,516,232. The
Company paid a divided of $0.02 per share or $86,311.
(d) New Accounting Standards
------------------------
Recent pronouncements of the Financial Accounting Standards Board, which
are not required to be adopted at this date, include SFAS No 133, "Accounting
for Derivative Instruments and Hedging Activities," which establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires that all derivatives be recognized as either assets or liabilities
in the statement of financial position and be measured at fair value. SFAS No.
133 is effective for the Company beginning March 1, 2001. The Company is
currently evaluating SFAS No. 133, but does not expect its adoption will have a
material impact on its consolidated financial statements.
(e) Year 2000 Matters
-----------------
The Company encountered only minor problems with the date change from 1999
to 2000 and experienced no business disruptions. The total costs involved in
preparation for the year 2000 date change was $45,000, comprised of $40,000
software costs and $5,000 labor costs.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
The Company does not have any material market risk.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The information required by this Item 8 begins at page F-1, following
page 17 hereof.
Item 9. 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, 2000.
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
(a) Identification of Directors
---------------------------
The information required by this Item 10 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 June 22, 2000.
11
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(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.
<TABLE>
<CAPTION>
Office
Name Office Held Since Age
---- ------ ---------- ---
<S> <C> <C> <C>
Randall W. White Chairman of the Board, 1986 58
President and Treasurer
W. Curtis Fossett Controller and 1989 54
Corporate Secretary
Michael L. Puhl* Vice President - Operations 1998 44
</TABLE>
*The prior business experience for those executive officers who have
been employed by the Company for less than five years is as follows:
Michael L. Puhl joined EDC on September 3, 1996. Prior to that he was
Controller of the Aftermarket Division of Mark IV Industries. During that time
he was in charge of all accounting functions of the combined Purolater/Dayco
Aftermarket sales division. Prior to being appointed as controller of the
Aftermarket Division, he was Vice President/Finance of Purodenso, a joint
venture between Purolater Products and Nippondenso LTD of Japan.
(c) Compliance With Section 16 (a) of the Exchange Act
--------------------------------------------------
The information required by this Item 10 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 June 22, 2000.
Item 11. EXECUTIVE COMPENSATION
- ------- ----------------------
The information required by this Item 11 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 June 22, 2000.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------- ---------------------------------------------------
MANAGEMENT
----------
The information required by this Item 12 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 June
22, 2000.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The information required by this Item 13 is furnished by incorporation
by reference to all information under the caption "Transactions with Management
and Others" in the Company's definitive Proxy Statement to be filed in
connection with the Annual Meeting of Shareholders to be held on June 22, 2000.
12
<PAGE>
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, 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 28, 1999
and 1998 F-2
Statements of Earnings - Years ended
February 28, 1999, 1998 and 1997 F-3
Statements of Shareholders' Equity -
Years ended February 28, 1999, 1998 and 1997 F-4
Statements of Cash Flows -
Years ended February 28, 1999,
1998 and 1997 F-5
Notes to Financial Statements F-6-F-14
Schedules have been omitted as such information is either not
required or is included in the financial statements.
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).
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).
13
<PAGE>
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).
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 10-K dated February 29, 1992 (File No. 0-
4957).
14
<PAGE>
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 10.14 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 10.15 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 10.16 to Form
10-KSB dated February 28, 1995 (File No. 0-4957).
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 10.17 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 10.18 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, is
incorporated herein by reference to Exhibit 10.19 to Form
10-KSB dated February 29, 1996 (File No. 0-4957).
15
<PAGE>
10.20 Restated Loan Agreement dated September 25, 1995 between the
Company and State Bank & Trust, N.A., Tulsa, OK, is
incorporated herein by reference to Exhibit 10.20 to Form 10-
KSB dated February 29, 1996 (File No. 0-4957).
10.21 Restated Loan Agreement dated June 10, 1996 between the
Company and State Bank & Trust, N.A., Tulsa, OK, is
incorporated herein by reference to Exhibit 10.21 to Form
10-K dated February 28, 1997 (File No. 0-4957).
10.22 First Amendment dated June 30, 1997 to Restated Loan Agreement
between the Company and State Bank & Trust, N.A., Tulsa, OK,
is incorporated herein by reference to Exhibit 10.22 to Form
10-K dated February 28, 1998 (File No. 0-4957).
10.23 Second Amendment dated June 30, 1998 to Restated Loan
Agreement between the Company and State Bank & Trust, N.A.,
Tulsa, OK, is incorporated herein by reference to Exhibit
10.23 to Form 10-K dated February 28, 1999 (File No. 0-4957).
*10.24 Restated Loan Agreement dated June 30, 1999 between the
Company and State Bank & Trust, N.A., Tulsa, OK.
*10.25 Lease agreement by and between the Company and James D. Dunn
dated July 1, 1999.
*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.
16
<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 12, 2000 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 12, 2000 /s/ Randall W. White
----------------------------------
Randall W. White
Chairman of the Board
President, Treasurer and
Director
May 12, 2000 /s/ Robert D. Berryhill
----------------------------------
Robert D. Berryhill, Director
May 12, 2000 /s/ Dean Cosgrove
----------------------------------
G. Dean Cosgrove, Director
May 12, 2000 /s/ James F. Lewis
----------------------------------
James F. Lewis, Director
May 12, 2000 /s/ John M. Lare
----------------------------------
John M. Lare, Director
May 12, 2000 /s/ W. Curtis Fossett
----------------------------------
W. Curtis Fossett
Principal Financial
and Accounting Officer
17
<PAGE>
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, 2000 and February 28, 1999, and the related
statements of earnings, shareholders' equity and cash flows for each of the
three years in the period ended February 29, 2000. 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 auditing standards generally accepted
in the United States of America. 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, 2000 and
February 28, 1999, and the results of its operations and its cash flows for each
of the three years in the period ended February 29, 2000 in conformity with
accounting principles generally accepted in the United States of America.
Tulsa, Oklahoma
April 4, 2000
F-1
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
BALANCE SHEETS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 2000 1999
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 214,321 $ 210,931
Accounts receivable, less allowances for doubtful accounts and
sales returns $209,466 (2000) and $189,556 (1999) 2,020,454 1,842,616
Inventories - Net 8,364,096 8,486,674
Prepaid expenses and other assets 220,381 220,032
Income taxes receivable - 55,077
Deferred income taxes 137,700 121,800
----------- -----------
Total current assets 10,956,952 10,937,130
INVENTORIES 1,280,000 1,060,000
PROPERTY AND EQUIPMENT - Net 85,270 342,464
DEFERRED INCOME TAXES 17,800 -
----------- -----------
$12,340,022 $12,339,594
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 1,278,000 $ 756,000
Accounts payable 1,681,601 1,095,771
Accrued salaries and commissions 258,123 243,030
Other current liabilities 102,966 149,115
Income tax payable 46,923 -
----------- -----------
Total current liabilities 3,367,613 2,243,916
DEFERRED INCOME TAXES - 56,300
COMMITMENTS
SHAREHOLDERS' EQUITY:
Common stock, $0.20 par value; Authorized 6,000,000 shares;
Issued 5,429,240 shares;
Outstanding 4,167,389 (2000) and 4,873,254 (1999) shares 1,085,848 1,085,848
Capital in excess of par value 4,410,066 4,410,066
Retained earnings 7,259,141 6,266,424
----------- -----------
12,755,055 11,762,338
Less treasury stock, at cost (3,782,646) (1,722,960)
----------- -----------
8,972,409 10,039,378
----------- -----------
$12,340,022 $12,339,594
=========== ===========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF EARNINGS
YEARS ENDED FEBRUARY 29, 2000, FEBRUARY 28, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
GROSS SALES $26,613,943 $25,889,212 $ 29,764,345
Less discounts and allowances (9,762,682) (9,217,827) (10,420,983)
----------- ----------- ------------
Net sales 16,851,261 16,671,385 19,343,362
COST OF SALES 6,984,387 6,724,539 7,771,311
----------- ----------- ------------
Gross margin 9,866,874 9,946,846 11,572,051
----------- ----------- ------------
OPERATING EXPENSES:
Operating and selling 3,224,442 3,118,179 3,389,317
Sales commissions 3,266,733 3,308,551 3,797,145
General and administrative 1,634,027 1,619,635 1,543,348
Interest 45,401 96,427 156,149
----------- ----------- ------------
8,170,603 8,142,792 8,885,959
----------- ----------- ------------
OTHER INCOME 51,757 117,339 127,376
----------- ----------- ------------
EARNINGS BEFORE INCOME TAXES 1,748,028 1,921,393 2,813,468
INCOME TAXES 669,000 623,900 1,108,900
----------- ----------- ------------
NET EARNINGS $ 1,079,028 $ 1,297,493 $ 1,704,568
=========== =========== ============
BASIC AND DILUTED EARNINGS
PER SHARE:
Basic $ 0.25 $ 0.26 $ 0.33
=========== =========== ============
Diluted $ 0.24 $ 0.26 $ 0.32
=========== =========== ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND EQUIVALENT SHARES
OUTSTANDING:
Basic 4,364,608 5,036,574 5,216,076
=========== =========== ============
Diluted 4,426,836 5,098,167 5,338,188
=========== =========== ============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED FEBRUARY 29, 2000, FEBRUARY 28, 1999 AND 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
(par value $.20 per share)
-------------------------------
Number of Capital in
Shares Excess of Retained
Issued Amount Par Value Earnings
<S> <C> <C> <C> <C>
BALANCE, MARCH 1, 1997 5,424,240 $1,084,848 $4,403,242 $3,418,431
Issuance of treasury stock - - 324 -
Purchases of treasury stock - - - -
Sales of treasury stock - - - -
Dividends paid ($0.01/share) - - - (52,176)
Net earnings - - - 1,704,568
------------- ----------- ----------- ----------
BALANCE, FEBRUARY 28, 1998 5,424,240 1,084,848 4,403,566 5,070,823
Exercise of options at $1.50/share 5,000 1,000 6,500 -
Issuance of treasury stock - - - -
Purchases of treasury stock - - - -
Sales of treasury stock - - - -
Dividends paid ($0.02/share) - - - (101,892)
Net earnings - - - 1,297,493
------------- ----------- ----------- ----------
BALANCE, FEBRUARY 28, 1999 5,429,240 1,085,848 4,410,066 6,266,424
Issuance of treasury stock - - - -
Purchases of treasury stock - - - -
Sales of treasury stock - - - -
Dividends paid ($0.02/share) - - - (86,311)
Net earnings - - - 1,079,028
------------- ----------- ----------- ----------
BALANCE, FEBRUARY 29, 2000 5,429,240 $1,085,848 $4,410,066 $7,259,141
============= =========== =========== ==========
<CAPTION>
Treasury Stock
----------------------------
Number of Shareholders'
Shares Amount Equity
<S> <C> <C> <C>
BALANCE, MARCH 1, 1997 223,543 $ (633,476) $ 8,273,045
Issuance of treasury stock (700) 2,069 2,393
Purchases of treasury stock 15,900 (85,364) (85,364)
Sales of treasury stock (46,641) 223,739 223,739
Dividends paid ($0.01/share) - - (52,176)
Net earnings - - 1,704,568
--------- ----------- -----------
BALANCE, FEBRUARY 28, 1998 192,102 (493,032) 10,066,205
Exercise of options at $1.50/share - - 7,500
Issuance of treasury stock (400) 1,240 1,240
Purchases of treasury stock 376,832 (1,277,186) (1,277,186)
Sales of treasury stock (12,548) 46,018 46,018
Dividends paid ($0.02/share) - - (101,892)
Net earnings - - 1,297,493
--------- ----------- -----------
BALANCE, FEBRUARY 28, 1999 555,986 (1,722,960) 10,039,378
Issuance of treasury stock (200) 600 600
Purchases of treasury stock 874,087 (2,516,232) (2,516,232)
Sales of treasury stock (168,022) 455,946 455,946
Dividends paid ($0.02/share) - - (86,311)
Net earnings - - 1,079,028
--------- ----------- -----------
BALANCE, FEBRUARY 29, 2000 1,261,851 $(3,782,646) $ 8,972,409
========= =========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,079,028 $ 1,297,493 $ 1,704,568
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 299,179 308,805 296,803
Loss on disposal 1,199 535 -
Deferred income taxes (90,000) (7,200) 100,900
Provision for doubtful accounts and sales returns 984,575 1,277,201 862,900
Recovery of obsolete inventory reserve - - (150,913)
Stock issued for awards 600 1,240 2,393
Changes in assets and liabilities:
Accounts and income taxes receivable (1,107,336) (995,790) (885,224)
Inventories (97,422) 855,556 (202,860)
Prepaid expenses and other assets (349) (124,353) (25,378)
Accounts payable, accrued salaries and
commissions,
and other current liabilities 554,774 (1,072,379) (522,029)
Income tax payable 46,923 - -
----------- ----------- -----------
Total adjustments 592,143 243,615 (523,408)
----------- ----------- -----------
Net cash provided by operating activities 1,671,171 1,541,108 1,181,160
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (43,184) (56,166) (43,963)
----------- ----------- -----------
Net cash used in investing activities (43,184) (56,166) (43,963)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit agreement 6,899,000 7,000,000 8,484,900
Payments under revolving credit agreement (6,377,000) (7,120,000) (9,618,900)
Cash received from exercise of stock options - 7,500 -
Cash received from sale of stock 455,946 46,018 223,739
Cash paid to acquire treasury stock (2,516,232) (1,277,186) (85,364)
Dividends paid (86,311) (101,892) (52,176)
----------- ----------- -----------
Net cash used in financing activities (1,624,597) (1,445,560) (1,047,801)
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,390 39,382 89,396
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 210,931 171,549 82,153
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 214,321 $ 210,931 $ 171,549
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 41,251 $ 98,482 $ 164,519
=========== =========== ===========
Cash paid for income taxes $ 657,000 $ 779,000 $ 935,000
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
EDUCATIONAL DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Educational Development Corporation (the "Company")
distributes books and publications through its Publishing and Usborne Books
at Home Divisions. The Company is the United States ("U.S.") trade publisher
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 Company's primary supplier. 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 accounting principles generally accepted in the United States
of America 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.
Accounts Receivable - Accounts receivable at February 29, 2000 and February
28, 1999, include approximately $151,000 and $148,000, respectively, due from
directors of the Company.
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. Estimated useful lives range from two to
five years.
During the fourth quarter of fiscal year 2000, the Company changed the
estimated life on certain property and equipment. This resulted in an
increase in depreciation expense in the fourth quarter of approximately
$30,000. Management expects that the book value of the property and
equipment on hand as of February 29, 2000 will be fully depreciated by the
end of the first quarter of fiscal year 2001.
Income Taxes - The Company records deferred income taxes for temporary
differences between the financial reporting and tax bases of the Company's
assets and liabilities and for operating loss and tax credit carryforwards.
Income Recognition - Sales are recorded when products are shipped. At the
time sales are recognized for certain products under specified conditions,
allowances for returns are recorded based on prior experience.
Advertising Costs - The Company expenses advertising costs as incurred.
F-6
<PAGE>
Earnings Per Share - Basic earnings per share ("EPS") is computed by dividing
net income by the weighted average number of common shares outstanding during
the period. Diluted EPS is based on the combined weighted average number of
common shares outstanding and dilutive potential common shares issuable which
include, where appropriate, the assumed exercise of options. In computing
diluted EPS the Company has utilized the treasury stock method.
The following reconciles the diluted earnings per share:
<TABLE>
<CAPTION>
Year Ended
February 29, Year Ended February 28,
-----------------------
2000 1999 1998
<S> <C> <C> <C>
Diluted Earnings Per Share:
Net earnings applicable to common shareholders $1,079,028 $1,297,493 $1,704,568
========== ========== ==========
Shares:
Weighted average shares outstanding - basic 4,364,608 5,036,574 5,216,076
Assumed exercise of options 62,228 61,593 122,112
---------- ---------- ----------
Weighted average shares outstanding - diluted 4,426,836 5,098,167 5,338,188
========== ========== ==========
Diluted Earnings Per Share $ 0.24 $ 0.26 $ 0.32
========== ========== ==========
</TABLE>
Fair Value of Financial Instruments - 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 note payable to bank is estimated to approximate carrying value
based on the borrowing rates currently available to the Company for bank
loans with similar terms and maturities.
Long-Lived Asset Impairment - The Company reviews the value of long-lived
assets and certain identifiable intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable based on estimated future cash flows.
Stock-Based Compensation - The Company accounts for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."
Compensation cost for stock options, if any, is measured as the excess of the
quoted market price of the Company's stock at the date of grant over the
amount an employee must pay to acquire the stock. The Company has adopted the
disclosure requirements of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation."
New Accounting Standards - SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that all derivatives be recognized as either assets or liabilities in the
statement of financial position and be measured at fair value. SFAS No. 133
is effective for the Company beginning March 1, 2001. The Company is
currently evaluating SFAS No. 133, but does not expect its adoption will have
a material impact on its financial statements.
Reclassifications - Reclassifications were made to certain 1999 balances to
conform with the 2000 presentation.
F-7
<PAGE>
2. INVENTORIES
Inventories consist of the following:
February 29, February 28,
2000 1999
Current:
Book inventory $8,487,828 $8,610,406
Reserve for obsolescence (123,732) (123,732)
---------- ----------
Inventories net - current $8,364,096 $8,486,674
========== ==========
Inventories - non-current $1,280,000 $1,060,000
========== ==========
The Company occasionally purchases book inventory in quantities in excess
of what will be sold within the normal operating cycle due to minimum order
requirements of the Company's primary supplier. These amounts are included
in non-current inventory.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
February 29, February 28,
2000 1999
Computer equipment $ 838,075 $ 802,899
Warehouse and office equipment 476,324 471,438
Furniture, fixtures and other 101,335 101,335
----------- -----------
1,415,734 1,375,672
Less accumulated depreciation and amortization (1,330,464) (1,033,208)
----------- -----------
$ 85,270 $ 342,464
=========== ===========
4. NOTE PAYABLE
The note payable to bank is under a $3,500,000 revolving credit agreement,
with interest payable monthly at prime minus .25% (8.5% and 7.75% at February
29, 2000 and February 28, 1999, respectively), collateralized by
substantially all assets of the Company, maturing on June 30, 2000. At
February 29, 2000 and February 28, 1999, the Company had $1,278,000 and
$756,000, respectively, in borrowings under the revolving credit agreement.
Available credit under the revolving credit agreement was $2,222,000 at
February 29, 2000. The agreement contains provisions that require the
maintenance of specified financial ratios, restrict transactions with related
parties, prohibit mergers or consolidation, 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 covenants. The Company intends to renew the bank
agreement or obtain other financing upon maturity.
F-8
<PAGE>
For each of the three years in the period ended February 29, 2000, 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>
Year Ended
February 29, Year Ended February 28,
----------------------------
2000 1999 1998
<S> <C> <C> <C>
Note payable to bank:
Largest amount borrowed $1,369,000 $2,306,000 $2,860,000
Average amount borrowed 650,702 1,343,549 1,766,813
Weighted average interest rate 8.0% 8.3% 8.5%
</TABLE>
5. INCOME TAXES
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 assets and liabilities as of
February 29, 2000 and February 28, 1999 are as follows:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
<S> <C> <C>
Current:
Deferred tax assets:
Allowance for doubtful accounts $ 42,300 $ 34,600
Inventories 72,000 48,300
Expenses deducted on the cash basis for income tax purposes 23,400 23,400
Change in accounting method - 15,500
-------- --------
Deferred tax asset $137,700 $121,800
======== ========
Noncurrent:
Deferred tax asset - Property and equipment $ 17,800 $ -
Deferred tax liability - Property and equipment - (56,300)
-------- --------
Deferred tax asset (liability) $ 17,800 $(56,300)
======== ========
</TABLE>
Management has determined that no valuation allowance is necessary to reduce
the deferred tax assets as it is more likely than not that such assets are
realizable.
F-9
<PAGE>
The components of income tax expense are as follows:
February 29, February 28,
-----------------------
2000 1999 1998
Current:
Federal $645,200 $536,500 $ 856,900
State 113,800 94,600 151,100
-------- -------- ----------
759,000 631,100 1,008,000
Deferred:
Federal (76,500) (6,100) 85,800
State (13,500) (1,100) 15,100
-------- -------- ----------
(90,000) (7,200) 100,900
-------- -------- ----------
Total income tax expense $669,000 $623,900 $1,108,900
======== ======== ==========
The following reconciles the Company's expected income tax expense utilizing
statutory tax rates to the actual tax expense:
<TABLE>
<CAPTION>
Year Ended
February 29, Year Ended February 28,
--------------------------
2000 1999 1998
<S> <C> <C> <C>
Tax expense at federal statutory rate $594,000 $653,000 $ 957,000
State income tax, net of federal tax benefit 70,000 66,000 116,000
Other 5,000 (95,100) 35,900
-------- -------- ----------
$669,000 $623,900 $1,108,900
======== ======== ==========
</TABLE>
6. 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 $33,477, $27,291 and $27,113 in fiscal years 2000, 1999 and 1998,
respectively.
7. COMMITMENTS
The Company leases its office and warehouse facilities under a noncancelable
operating lease which expires in June 2004. Total rent expense related to
these facilities was $232,980 in fiscal 2000 and $225,960, in both fiscal
1999 and 1998.
Future minimum lease payments are as follows:
Year Ending
February 28,
2001 $ 240,000
2002 240,000
2003 240,000
2004 240,000
2005 80,000
----------
$1,040,000
==========
F-10
<PAGE>
At February 29, 2000, the Company had outstanding commitments to purchase
inventory from its primary vendor totaling approximately $1,868,000.
8. CAPITAL STOCK, STOCK OPTIONS AND WARRANTS
In June 1992, the Board of Directors adopted the 1992 Incentive Stock Option
Plan "Incentive Plan." A total of 1,000,000 stock options are authorized to
be granted under the 1992 Plan.
Options granted under the Incentive Plan vest at date of grant and are
exercisable up to ten years from the date of grant. The exercise price on
options granted is equal to the market price at the date of grant. Options
outstanding at February 29, 2000 expire in 2003 through 2009.
A summary of the status of the Company's Incentive Plan as of February 29,
2000 and February 28, 1999 and 1998 and changes during the years ended on
those dates is presented below:
<TABLE>
<CAPTION>
2000 1999 1998
----------------------- ------------------------ -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of Year 490,000 $ 3.51 328,500 $ 3.06 309,800 $ 3.79
Granted 40,000 2.50 171,700 4.34 140,600 4.03
Exercised/canceled (22,600) (3.77) (10,200) (2.77) (121,900) (6.02)
------- ------ ------- ------ -------- ------
Outstanding at End of Year 507,400 $ 3.42 490,000 $ 3.51 328,500 $ 3.06
======= ====== ======= ====== ======== ======
</TABLE>
The following table summarizes information about stock options outstanding at
February 29, 2000:
<TABLE>
<CAPTION>
Number
Range of Outstanding Weighted
Exercise at February 29, Average Remaining Weighted Average
Prices 2000 Contractual Life (Years) Exercise Price
------ ---- ----------------------- --------------
<S> <C> <C> <C>
$1.375 - $1.50 79,000 3 $1.41
$ 2.50 55,000 9 2.50
$ 3.13 100,000 4 3.13
$ 3.81 21,500 8 3.81
$ 4.00 116,700 7 4.00
$ 4.63 135,200 8 4.63
------- --- -----
507,400 6 $3.42
======= === =====
</TABLE>
All options outstanding are exercisable at February 29, 2000.
F-11
<PAGE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its Incentive Plan. Accordingly, no compensation cost has
been recognized for its Incentive Plan. Had compensation cost for the
Company's Incentive Plan been determined based on the fair value at the grant
dates for awards under the Incentive Plan consistent with the method
prescribed by SFAS No. 123, the Company's net earnings and earnings per share
for the years ended February 29, 2000 and February 28, 1999 and 1998 would
have been reduced to the pro forma amounts indicated below:
<TABLE>
2000 1999 1998
<S> <C> <C> <C>
Net earnings - as reported $1,079,028 $1,297,493 $1,704,568
========== ========== ==========
Net earnings - pro forma $1,038,582 $1,104,347 $1,636,618
========== ========== ==========
Earnings per share - as reported:
Basic $ 0.25 $ 0.26 $ 0.33
========== ========== ==========
Diluted $ 0.24 $ 0.26 $ 0.32
========== ========== ==========
Earnings per share - pro forma:
Basic $ 0.24 $ 0.22 $ 0.31
========== ========== ==========
Diluted $ 0.24 $ 0.22 $ 0.31
========== ========== ==========
</TABLE>
The fair value of options granted under the Incentive Plan was estimated on
the date of grant using the Black-Scholes option-pricing model. The
following assumptions were used for options granted in 2000; no dividend
yield, expected volatility of 45%, risk free interest rate of 5.7% and
expected lives of ten years; the following assumptions were used for options
granted in 1999; no dividend yield, expected volatility of 50%, risk free
interest rate of 5.06% and expected lives of four years; 1998, no dividend
yield, expected volatility of 54%, risk free interest rate of 6.2% and
expected lives of four years.
9. 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, 2000 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>
1998 $ 91,900 $ 60,000 $ (10,200) $141,700
1999 141,700 66,000 (119,144) 88,556
2000 88,556 52,000 (32,090) 108,466
Sales returns:
Balance at Amounts Amounts Balance
Beginning Charged to Charged to at End
Year of Year Expense Reserve of Year
<S> <C> <C> <C> <C>
1998 $101,000 $ 802,900 $ (802,900) $101,000
1999 101,000 1,211,201 (1,211,201) 101,000
2000 101,000 932,575 (932,575) 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>
1998 $301,100 $ - $(150,913) $150,187
1999 150,187 33,545 (60,000) 123,732
2000 123,732 - - 123,732
</TABLE>
Charges to certain expense accounts for each of the three years in the period
ended February 29, 2000 are shown below:
<TABLE>
<CAPTION>
Year Ended
February 29, Year Ended February 28,
------------------------
2000 1999 1998
<S> <C> <C> <C>
Maintenance and repairs $27,043 $33,515 $30,919
Taxes other than payroll and income taxes 30,110 31,079 30,093
Advertising costs 69,001 51,730 83,865
</TABLE>
10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended February 29, 2000 and February 28, 1999:
<TABLE>
<CAPTION>
Basic Diluted
Earnings Earnings
Net Sales Gross Margin Net Earnings Per Share Per Share
<S> <C> <C> <C> <C> <C>
2000
First quarter $ 4,122,100 $2,395,600 $ 290,300 $0.06 $0.06
Second quarter 4,202,500 2,397,400 313,600 0.07 0.07
Third quarter 5,012,800 3,029,400 419,800 0.10 0.10
Fourth quarter 3,513,861 2,044,474 55,328 0.02 0.01
----------- ---------- ---------- ----- -----
Total year $16,851,261 $9,866,874 $1,079,028 $0.25 $0.24
=========== ========== ========== ===== =====
1999
First quarter $ 4,160,700 $2,484,200 $ 350,000 $0.07 $0.07
Second quarter 3,950,400 2,253,900 307,000 0.06 0.06
Third quarter 5,453,700 3,391,000 537,600 0.11 0.11
Fourth quarter 3,106,585 1,817,746 102,893 0.02 0.02
----------- ---------- ---------- ----- -----
Total year $16,671,385 $9,946,846 $1,297,493 $0.26 $0.26
=========== ========== ========== ===== =====
</TABLE>
F-13
<PAGE>
11. BUSINESS SEGMENTS
The Company has two reportable segments: Publishing and Usborne Books at
Home ("UBAH"). These reportable segments are business units that offer
different methods of distribution to different types of customers. They are
managed separately based on the fundamental differences in their
operations. The Publishing Division markets its products to retail
accounts, which include book, school supply, toy and gift stores and
museums, through commissioned sales representatives, trade and specialty
wholesalers and an internal telesales group. The UBAH Division markets its
product line through a network of independent sales consultants through a
combination of direct sales, home shows and book fairs. The UBAH Division
also distributes to school and public libraries.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
segment performance based on operating profits of the segments which is
defined as segment net sales reduced by direct cost of sales and direct
expenses. Corporate expenses, including interest and depreciation, and
income taxes are not allocated to the segments. The Company's assets are
not allocated on a segment basis.
Information by industry segment for the years ended February 29, 2000 and
February 28, 1999 and 1998 is set forth below:
<TABLE>
<CAPTION>
Publishing UBAH Other Total
<S> <C> <C> <C> <C>
2000
Net sales to external customers $7,960,891 $ 8,890,370 $ - $16,851,261
Earnings before income taxes 2,811,887 2,181,300 (3,245,159) 1,748,028
1999
Net sales to external customers $7,794,702 $ 8,876,683 $ - $16,671,385
Earnings before income taxes 2,848,749 2,365,204 (3,292,560) 1,921,393
1998
Net sales to external customers $8,604,096 $10,739,266 $ - $19,343,362
Earnings before income taxes 3,309,603 2,894,612 (3,390,747) 2,813,468
* * * * * *
</TABLE>
F-14
<PAGE>
EXHIBIT 10.24
RESTATED
CREDIT AND SECURITY AGREEMENT
-----------------------------
THIS RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT dated effective as of
the thirtieth (30th) day of June, 1999, 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, whose
address is 4500 South Garnett Avenue, Tulsa, Oklahoma 74146 (the "Bank").
WITNESSETH:
WHEREAS, the Company has applied to the Bank to extend and renew for twelve
(12) months its existing revolving line of credit established pursuant to that
certain Restated Credit and Security Agreement dated as of June 10, 1996, as
amended by the First Amendment thereto dated as of June 30, 1997, and the Second
Amendment thereto dated as of June 30, 1998 (collectively the "Current Credit
Agreement") in the maximum principal amount outstanding at any one time not in
excess of THREE MILLION FIVE HUNDRED THOUSAND DOLLARS ($3,500,000), including
extension of the maturity date to June 30, 2000, 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 in the financial statements or notes thereto.
Unless otherwise indicated herein, all accounting terms will be defined
according to GAAP.
<PAGE>
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.
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,
-2-
<PAGE>
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, 2000, 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 $3,500,000.
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 $3,500,000, dated as of the Closing Date, and bearing
interest payable monthly on the last day of each calendar month commencing July
30, 1999, on unpaid balances of principal from time to time outstanding at a
variable annual rate equal from day to day to the Prime Rate (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 recent Monthly Reports submitted by
the Company to the Bank in compliance with the provisions of Section 4.5 below.
-3-
<PAGE>
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 Note not previously paid hereunder shall be due and payable at final
maturity on June 30, 2000.
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 $3,500,000 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.
-4-
<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 twenty
percent (20%) of the total accounts of the Company at any one time, the
amount of all such accounts thereof in excess of twenty percent (20%) shall
be deemed automatically ineligible for Borrowing Base purposes;
(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 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.
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):
-6-
<PAGE>
(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 Note 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 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
-7-
<PAGE>
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.
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
-8-
<PAGE>
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 controller 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 controller 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 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)
-9-
<PAGE>
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
(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 Note. 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
-10-
<PAGE>
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, 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 $500,000 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.
5.6 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.
---------
-11-
<PAGE>
5.7 Net Capital Expenditures. Company will not, nor will Company permit
------------------------
any Subsidiary thereof to, make Net Capital Expenditures in any fiscal year in
excess of $500,000 in the aggregate during such fiscal year.
5.8 Current Ratio. Company will not at any time permit its Current Ratio
-------------
(Current Liabilities shall include the Revolving Credit Loans) to be less than
1.0 to 1 until maturity hereof.
5.9 Debt to Worth Ratio. Company will not at any time permit its Debt to
-------------------
Tangible Net Worth ratio to be greater than 1.7 to 1 through the maturity
hereof.
5.10 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.
5.11 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;
(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.
-
5.12 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.
-12-
<PAGE>
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 Note 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).
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
-13-
<PAGE>
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 Note 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
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.
-14-
<PAGE>
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.
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
-15-
<PAGE>
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 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
-16-
<PAGE>
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
(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
-17-
<PAGE>
(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 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
-18-
<PAGE>
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 percentage points (4.0%) 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
-------------
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.
-19-
<PAGE>
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 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
-20-
<PAGE>
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 Note, 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
By__________________________________________
Dennis Colvard, Vice President
"Bank"
-21-
<PAGE>
EXHIBIT A
---------
REVOLVING CREDIT NOTE
---------------------
$3,500,000 Tulsa, Oklahoma
June 30, 1999
FOR VALUE RECEIVED, the undersigned (the "Maker") promises to pay to the
order of STATE BANK & TRUST (the "Payee"), at the Payee's main banking office in
Tulsa, Oklahoma, the principal sum of THREE MILLION FIVE HUNDRED THOUSAND AND
NO/100 DOLLARS ($3,500,000), or so much thereof as shall have been advanced by
Payee to Maker and remains unpaid, on June 30, 2000, 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, 1999, and at final maturity on June 30, 2000.
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. 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 percentage points (4.0%). 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 and
constitutes an extension and renewal of that certain $3,500,000 Revolving Credit
Note dated June 30, 1998.
<PAGE>
Reference is made to the Credit Agreement and to the Security Agreement and
Assignment dated as of June 10, 1996 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, 2000
2
<PAGE>
EXHIBIT B
---------
LOAN REQUEST, CERTIFICATION AND
CONFIRMATORY SECURITY AGREEMENT
-------------------------------
___________, 19__
STATE BANK & TRUST
4500 South Garnett
Tulsa, Oklahoma 74146
Gentlemen:
Pursuant to the provisions of the Restated Credit and Security Agreement
dated as of June 30, 1999, as amended and extended from time to time (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 laspe 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:
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 $3,500,000 per (S) 2.4 of the Credit Agreement)
EDUCATIONAL DEVELOPMENT
CORPORATION
By_____________________
(Title)
"Company"
<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
June 30, 1999
NONE
<PAGE>
EXHIBIT E
---------
Investments
NONE
<PAGE>
EXHIBIT F
---------
Existing Leases
1. Commercial 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>
EDUCATIONAL DEVELOPMENT CORPORATION
CERTIFICATE
-----------
THE UNDERSIGNED do hereby certify that we are, respectively, the duly
elected and acting President and Secretary of EDUCATIONAL DEVELOPMENT
CORPORATION, a Delaware corporation (the "Corporation"), and as such are
authorized to execute and deliver this Certificate on behalf of the Corporation,
and we further certify as follows:
1. The Articles of Incorporation of the Corporation, as in effect on the
date hereof, have not been amended or modified since June 10, 1996, and remain
in full force and effect to and including the date hereof.
2. The By-Laws of the Corporation, in effect on the date hereof, have not
been amended or modified since June 10, 1996, and remain in full force and
effect to and including the date hereof.
3. Attached hereto as Exhibit A is a true and correct copy of the
---------
Resolutions duly and regularly adopted by the Board of Directors of the
Corporation which Resolutions have not been revoked, modified, amended or
rescinded and remain in full force and effect to and including the date hereof.
4. The individuals named below are duly elected, qualified and acting
officers of the Corporation (to and including the date hereof), holding the
respective offices or positions shown below opposite their names, and the
signatures shown below opposite their names and offices are their genuine
signatures:
NAME OFFICE SIGNATURE
---- ------ ---------
Randall White President _____________________
Curtis Fossett Secretary/Controller _____________________
5. No Event of Default or Default as specified in Article VIII of the
Restated Credit and Security Agreement dated as of June 30, 1999 (the "Credit
Agreement") between the Corporation and State Bank & Trust (the "Bank") exists
as of the date hereof.
6. The representations, covenants and warranties set forth in the Credit
Agreement are true and correct as of the date hereof.
7. The Corporation has performed and complied with all agreements and
conditions required to be performed and complied with by it under or pursuant to
the Credit Agreement on or prior to the date hereof.
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands and the seal of the
Corporation on this 30th day of June, 1999.
__________________________________
Randall White, President
EDUCATIONAL DEVELOPMENT
CORPORATION
__________________________________
Curtis Fossett, Secretary
EDUCATIONAL DEVELOPMENT
CORPORATION
[SEAL]
2
<PAGE>
EXHIBIT A
---------
RESOLUTIONS OF THE BOARD OF DIRECTORS
OF EDUCATIONAL DEVELOPMENT CORPORATION
FURTHER RESOLVED, that the Corporation be, and it is hereby authorized and
empowered to extend and renew in the maximum principal amount of Three Million
Five Hundred Thousand and No/100 Dollars ($3,500,000) until June 30, 2000, its
existing revolving line of credit with State Bank & Trust, Tulsa, Oklahoma (the
"Bank") upon the terms and conditions of the Credit Agreement, which such
borrowings will be evidenced by the $3,500,000 Revolving Credit Note described
and defined in the Credit Agreement from the Corporation and payable to the
order of the Bank (the "Revolving Credit Note" annexed as Exhibit A to the
Credit Agreement), copies of which Credit Agreement and Revolving Credit Note
have been submitted to and reviewed by this Board of Directors;
FURTHER RESOLVED, that the form, terms and provisions of the Credit
Agreement, the Revolving Credit Note and all other Loan Documents and exhibits
attached to or referenced in the Credit Agreement, are hereby approved and that
the president, any vice president and the secretary of the Corporation be and
each of them hereby is singly authorized, empowered and directed in the name and
on behalf of the Corporation to execute and deliver the Credit Agreement, the
Revolving Credit Note and all other Loan Documents as described therein or in
the Credit Agreement, all in substantially the form attached hereto with such
changes and insertions therein or additions thereto as the officer executing the
same may approve, such approval to be conclusively evidenced by execution and
delivery thereof;
FURTHER RESOLVED, that the president, any vice president and the
controller/secretary of the Corporation be, and each of them hereby is singly
authorized, directed and empowered for and on behalf and in the name of the
Corporation to borrow from the Bank such amount or amounts of money and request
loans as may be made available to the Corporation from the Bank pursuant to the
Credit Agreement, as amended, at this time or any other time and to extend or
renew any loan or loans or any installment of principal or interest thereof, or
any other indebtedness or obligation owing thereunder to the Bank; and
FURTHER RESOLVED, that the president, any vice president, the
controller/secretary and the assistant secretary be, and each of them hereby is,
singly authorized, empowered and directed from time to time to execute, attest
and deliver, in the name and on behalf of the Corporation and under its seal,
any and all security agreements, assignments and financing statements, as well
as all loan requests, monthly reports, documents, certificates, instruments,
reports, supplemental agreements and papers as each or all of them may deem
necessary or advisable in order to grant and perfect any and all security
interests in the collateral and security described in the Credit Agreement, as
amended, and to carry out and consummate the purposes and intent of the
foregoing resolutions, and each of them, and to fully perform and effectuate the
provisions of the Credit Agreement, the $3,500,000 Revolving Credit Note and any
and all other related documents, certificates or instruments.
<PAGE>
REVOLVING CREDIT NOTE
---------------------
$3,500,000 Tulsa, Oklahoma
June 30, 1999
FOR VALUE RECEIVED, the undersigned (the "Maker") promises to pay to the
order of STATE BANK & TRUST (the "Payee"), at the Payee's main banking office in
Tulsa, Oklahoma, the principal sum of THREE MILLION FIVE HUNDRED THOUSAND AND
NO/100 DOLLARS ($3,500,000), or so much thereof as shall have been advanced by
Payee to Maker and remains unpaid, on June 30, 2000, 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, 1999, and at final maturity on June 30, 2000.
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. 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 percentage points (4.0%). 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 and
constitutes an extension and renewal of that certain $3,500,000 Revolving Credit
Note dated June 30, 1998. Reference is made to the Credit Agreement and to the
Security Agreement and Assignment dated as of June 10, 1996 for the provisions
with respect to acceleration, description of collateral securing
<PAGE>
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, 2000
2
<PAGE>
EXHIBIT 10.25
"This is a legally binding Contract; if not understood seek advice from an
attorney."
COMMERCIAL/INDUSTRIAL LEASE (GROSS)
THIS LEASE is entered into by and between Landlord and Tenant and upon approval
by both Landlord and Tenant, as evidenced by their signatures hereto, a valid
and binding Lease shall exist, the terms and conditions of which are as follows:
1. DEFINITIONS AND BASIC PROVISIONS. The following definitions and basic
provisions shall be construed as follows when used elsewhere in this Lease:
a) Effective Date: The Effective Date shall be the latest date for
approval by all parties as indicated below.
b) Landlord: James D. Dunn
c/o
Address P.O. 4770, Tulsa, OK 74159
Phone No. 918-747-2000 Fax No. 918-747-1325
c) Tenant: Educational Development Corporation
c/o Randall White
Address 10302 East 55th Place, Tulsa, OK 74146
Phone No. 918-622-4522 Fax No. 1-800-747-4509
d) Third Party Guarantor: N/A Guarantor Agreement attached hereto as
Exhibit
c/o
Address
Phone No. Fax No.
e) Leased Premises: Approximately 80,405 sq.ft. gross leasable area, Suite
------
No. N/A in the building located at 10302 East 55/th/ Place in Tulsa County
--- ----------------- -----
Oklahoma, such premises being shown and outlined on the plan attached
hereto as Exhibit N/A.
---
f) Project: N/A
g) Lease Term: A period of five (5) years commencing on July 1, 1999
-------------- ------------
("Commencement Date") and ending on June 30, 2004 ("Expiration Date").
-------------
h) Base Rental: A total of $1,200,000.00 payable in monthly installments
-------------
in advance as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
From To Monthly Rate
----------------------------------------------------------------------------------------------------------
Years 1-5 July 1, 1999 June 30, 2004 $20,000.00
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Years
----------------------------------------------------------------------------------------------------------
Year
----------------------------------------------------------------------------------------------------------
Year
----------------------------------------------------------------------------------------------------------
Year
----------------------------------------------------------------------------------------------------------
</TABLE>
i) Prepaid Rental: $20,000.00 representing payment of rental for the first
month of the Lease Term.
j) Security Deposit: $7,000.00 transferred from previous lease and is not
applicable towards the last month's rent.
k) Use: Educational Development Corporation administration, sales &
warehouse Tenant, as evidenced by his signature below, has determined and
represents that the stated use is consistent with all local, State and
Federal regulations applicable to said use.
l) Legal Use. Tenant shall use the Leased Premises only for the Use stated
and for no other purposes. Tenant shall not use, nor permit the use of,
anything in the Leased Premises (I) which would violate any of the
agreements of the Lease, (ii) for any unlawful purpose or in any unlawful
manner, or (iii) that would substantially increase cost of the Landlord's
insurance.
m) Tenant's Public Liability Insurance Limits
$1,000,000 combined single limit bodily injury and property
damage as described in paragraph 8(c).
2. GRANTING CLAUSE. Landlord hereby covenants and warrants that it has
rightful possession to, and hereby leases, lets, and demises unto Tenant,
together with all improvements, appurtenances, easements, and privileges
thereunto belonging, the Leased Premises for the Permitted Use, together with
on-site parking, if any.
________ __________
Page 1 of 6 Tenant Landlord
<PAGE>
3. PAYMENT OF RENT/ADDITIONAL RENT. Tenant agrees to pay to Landlord the total
minimum base rental, with such monthly installments to be paid in advance, on or
before the first day of each calendar month during the term, without demand.
Tenant shall pay the first monthly installment as "prepaid-rental" concurrently
with the execution of this Lease. The rent for a portion of the calendar month
during which rent might begin to accrue or terminate shall be prorated. Tenant's
covenant to pay rent shall be independent of every other covenant set forth in
this Lease, and Tenant shall have no right of deduction or setoff whatsoever.
All rents herein provided for shall be paid to Landlord at the Landlord's
address or at such other place as shall be designated by Landlord, in writing,
furnished to Tenant at least ten (10) days prior to the next ensuing rent
payment due date.
4. LATE PAYMENT OF RENT. Any rents received on the 11th day after the due
date, or thereafter, shall be assessed the maximum late fee amount allowable by
law.
5. GENERAL PROVISIONS.
a) Possession. Unless otherwise agreed to in writing, possession shall be
delivered on the Commencement Date of this Lease. If Landlord is unable to
deliver possession of the premises at the commencement hereof, Landlord
shall not be liable for any damage caused thereby, nor shall this lease be
void or voidable, but Tenant shall not be liable for any rent until
possession is delivered. Tenant may terminate this lease if possession is
not delivered within 5 days of the commencement of the term hereof.
-
b) Assignment, Subletting, and Encumbering. This Lease shall not be
assigned, sublet, or transferred by Tenant without Landlord's prior written
consent. Tenant shall not sublet, or offer or advertise for subletting, the
Leased Premises, or any portion thereof, without the prior written consent
of Landlord. Any assignment or subletting shall not relieve Tenant of its
obligations hereunder or release Tenant from the further performance of all
covenants herein contained.
c) Estoppel Certificate. Tenant shall, at any time so requested, execute
and deliver to Landlord such estoppel certificates as Landlord shall
reasonably require, stating length of Tenant's lease, amount of rent,
deposits, and other terms.
d) Subordination. This Lease shall be subject and subordinate, at all
times, to the lien of existing mortgages and of mortgages which hereafter
may be made on the Leased Premises. Tenant will execute and deliver such
further instruments subordinating this Lease to the lien of any such
mortgages as may be desired by Landlord.
e) Rules and Regulations. Tenant agrees to observe and comply with the
Rules and Regulations presently existing and such other and further
reasonable rules and regulations as Landlord may, from time to time, adopt,
a copy of which is attached to this Lease as Exhibit N/A.
f) Toxic or Hazardous Materials. Tenant shall not store, use, or dispose
of any toxic or hazardous materials in, on, or about the Premises, without
the prior written consent of Landlord. Tenant, at its sole cost, will
comply with all laws relating to Tenant's storage, use, and disposal of
hazardous or toxic materials.
g) Holding Over. In the event Tenant remains In possession of the Premises
after the expiration or termination of the Lease, Tenant shall occupy the
premises as a Tenant from month-to-month at 150% of the rental due for the
last full calendar month during the term of the Lease and subject to all
other provisions and obligations of the Lease applicable to a month-to-
month tenancy.
h) Signs. Landlord retains the right to approve any and all exterior signs.
See attached Exhibit N/A "Sign Criteria", if any.
i) Destruction of Premises. In the event of a partial destruction of the
building in which the Leased Premises are contained, during the term,
Landlord shall make any repairs that can be made under existing
governmental regulations within one hundred and twenty (120) days of such
destruction, but such partial destruction shall not terminate this Lease,
except that Tenant shall be entitled to a proportionate reduction of rent
while repairs are being made, based upon the extent to which the making of
such repairs shall interfere with the business of Tenant on the Premises.
If repairs cannot be made within one hundred and twenty (120) days, this
Lease may be terminated, at the option of either party, by delivering
written notice.
j) Right of Entry. Landlord reserves the right, for itself, and its
employees, or contractors, and Tenant covenants to permit Landlord, or its
agents, employees, or contractors to enter any and all portions of the
Leased Premises at any time; provided, that Landlord shall give Tenant
reasonable notice prior to any entry for the purpose of showing the space
to prospective tenants.
During the progress of any repairs or other work, Landlord may keep and
store on the Leased Premises all necessary materials, tools, and equipment,
and Landlord shall, in no event, be liable for disturbance, inconvenience,
annoyance, loss of business, or other damage to Tenant, or any assignee, or
sublessee under the Lease, by making such repairs or performing any such
work on or in the Leased Premises, or due to bringing materials, supplies,
and equipment into or through the Premises during the course of such work.
Tenant shall permit Landlord at any time within sixty (60) days prior
to expiration of this lease to place upon the premises the usual "For
Lease" or "For Sale" signs, and permit persons desiring to lease or
purchase the same to inspect the premises thereafter.
k) Condemnation. If the Leased Premises is totally condemned by any
lawful authority under the power of eminent domain, or shall, during the
continuance of the Lease, be totally destroyed by the action of public
authorities, then this Lease and the term leased shall terminate, and
Tenant shall be liable for rent only up to the date of such termination.
l) Quiet Enjoyment. Landlord grants to Tenant, in exchange for continued
payment of rent and performance of each and every covenant hereof, the
right to peacefully and quietly hold, occupy, and enjoy the Leased Premises
throughout the term. Further, Tenant shall not commit any waste upon the
premises, or any nuisance or act which may disturb the quiet enjoyment of
any tenant.
6. MAINTENANCE.
a) Landlord. Landlord shall maintain and make necessary replacement
of the roof, exterior walls, floor slabs, parking lot and other common
facilities of the building.
b) Tenant. Tenant shall keep the Leased Premises neat and clean and
in such repair, order, and condition as received on Commencement Date
(or Occupancy Date, whichever is earliest) or may be put in during the
term hereof, reasonable use and wear and damage by fire or by
unavoidable casualty excepted. Tenant shall maintain (including
necessary replacement) all fixtures and equipment relating to plumbing,
electrical, heating, ventilation, air conditioning (HVAC). Tenant shall
maintain (including necessary replacement) exterior doors, windows, and
all plate
________ __________
Page 2 of 6 Tenant Landlord
<PAGE>
glass, floor covering, carpet, paint, wallpaper, and other coverings.
Unless otherwise provided in paragraph 7 below, Tenant is responsible
for cleaning the parking lot (including sweeping and snow and ice
removal) and providing lawn and landscaping maintenance. Tenant shall
not damage or abuse the Leased Premises, nor shall Tenant permit the
damage or abuse of the Leased Premises. Tenant shall not overload the
floor and shall abide by Landlord's instructions with respect to care
and avoidance of abuse.
c) Utilities. Tenant shall be responsible for arranging, and
contracting in its own name if necessary, all utility services
necessary for the operation of the Property, including establishment
of any required deposits, and payment of any and all utility charges
incurred during the term. Such utility charges shall include water,
natural gas, telephone, cable television, sanitary sewer, electricity
and storm water management fees. Tenant shall also be responsible for
the maintenance of any on-site sewage disposal system (septic tank,
etc.). Further, in the event of any interruption of utility services,
the Landlord shall neither be responsible for, nor shall any rent be
abated due to, such interruption.
7. COMMON AREA MAINTENANCE (CAM). In addition to monthly rental obligations,
Tenant shall pay a monthly sum identified in Paragraph 1(n) for the provision of
common area maintenance, including, but not limited to: exterior lighting;
parking lot and sidewalks (repair, including necessary replacement, sweeping,
striping, snow and ice removal); landscape and lawn maintenance (mowing,
watering, plant replacements); janitorial service to common hallways, and
applicable insurance and utilities charges, including storm water management
fees if any. Such monthly CAM payment shall be adjusted annually based upon the
actual total annual CAM expense allocated proportionately to Tenant, based upon
the floor area rented by Tenant in relation to the total gross leasable floor
area of the project or building served by the common area.
8. TAXES, INDEMNITY AND INSURANCE.
a) Taxes. Landlord pays all ad valorem taxes, special assessments, and bond
indentures based on base year of 1992. If taxes increase above base year
during the term of lease because of increase rate or valuation,
proportionate share of increase shall be paid by Tenant, or if single
Tenant, Tenant shall pay total increase, upon presentation of paid tax
receipt(s) by Landlord.
b) Indemnity, Liability, and Loss or Damage. Tenant agrees to defend,
indemnify, and hold Landlord harmless from any loss, cost, or expense,
whatsoever, resulting from (1) personal injury, loss of life, or loss of
property relating to the use and occupancy by Tenant, or (2) from damage
to, or destruction of, the Project structure, or any part thereof, or of
any abutting real property caused by, or attributable to, the negligent act
or acts, or omission or omissions to act, of Tenant, or caused by, or
attributable to, the Tenant's failure to perform its obligations under this
Lease. Likewise, Landlord agrees to defend, indemnify, and hold Tenant
harmless from any loss, whatsoever, resulting from personal injury, loss of
life or property relating to the use of Landlord and use and occupancy by
other Tenants, or caused by, or attributable to, the negligent act or acts,
omission or omissions to act, of Landlord, or caused by, or attributable
to, Landlord's failure to perform its obligations under this Lease.
c) Tenants Insurance. Tenant shall procure, keep in force, and pay for
comprehensive public liability insurance, in amounts reasonably required by
Landlord, with reputable, responsible, licensed companies, indemnifying
Landlord and Tenant against all claims and demands for injury to, or death
of, persons, or damage to property, which may be claimed to have occurred
on the Leased Premises. Certificates of the same shall be provided to the
Landlord. Further, Tenant shall insure all of Tenant's contents.
d) Landlord's Insurance. Landlord agrees to insure the Leased Premises for
fire, casualty, and public liability. In the event that Tenant's occupancy
or use of the Leased Premises results in any increase in cost of Landlord's
fire and casualty or public liability insurance, Tenant shall reimburse
Landlord for such increase as additional rent. Further, if cost of
Landlord's fire and casualty or public liability insurance increases above
base year rate during the term of the lease, a proportionate share of such
increase shall be paid by Tenant, or if a single Tenant, Tenant shall pay
total increase.
9. LANDLORD'S LIEN. In consideration of the mutual benefits arising under this
Lease, Tenant hereby grants to Landlord a lien and security interest in and
on all property Tenant now, or hereafter, may place in or upon the
Premises, and the property shall be, and remain, subject to such lien and
security interest of Landlord for payment of all rental and other sums
agreed to be paid by Tenant. The lien and security interest shall be in
addition to and cumulative of the Landlord's liens existing or to exist
under statute, in law, or in equity, none of which are waived by Landlord.
The provisions of this paragraph relating to the lien and security interest
shall constitute a Security Agreement under the Uniform Commercial Code, so
that Landlord shall have, and may enforce, a security interest on all
property of Tenant now, or hereafter, placed in or on the Premises,
including, but not limited to, all fixtures, machinery, equipment,
furnishings, and other articles of personal property now, or hereafter,
placed in or upon the Premises by Tenant. Landlord may, at its election at
any time, file a copy or memorandum of this Lease as a financing statement.
Landlord, as secured party, shall be entitled to all rights and remedies
afforded a secured party under the Uniform Commercial Code, which rights
and remedies shall be in addition to and cumulative of the Landlord's liens
and rights provided by law, or by the other terms and provisions of this
Lease.
10. ADDITIONS AND ALTERATIONS. Tenant shall not make any additions, alterations
or improvements to the Leased Premises without the prior written consent of
the Landlord. At Landlord's option, any and all additions, alterations and
improvements to the Leased Premises, including built-ins, shall belong to
the Landlord.
11. BREACH AND DEFAULT. This Lease may be deemed by Landlord as being in
default if any of the following occur:
a) Tenant fails to make any payment of rent, or any other amount due, and
such failure continues for fifteen (15) days after the payment due date;
b) Tenant fails to keep in force insurance as required by Paragraph 8(c) of
the Lease and such failure continues for ten (10) days after written notice
to Tenant;
c) Tenant materially breaches any other covenant and the same shall not
have been cured within ten (10) days after notice thereof by Landlord;
d) Tenant files any voluntary petition in bankruptcy, or for corporate
reorganization, or any similar relief, or if any involuntary petition in
bankruptcy shall be filed against the Tenant;
e) A receiver is appointed for Tenant or Tenant's property by any Court;
f) Tenant makes an assignment for benefit of creditors;
g) Tenant abandons or vacates the Leased Premises during the term hereof;
h) Tenant fails to operate its business in material compliance with all
applicable laws;
________ __________
Page 3 of 6 Tenant Landlord
<PAGE>
i) Tenant transfers a portion, or all, of its assets to another entity or
individual without written notification and consent of the Landlord.
12. LANDLORD'S REMEDIES. Upon the occurrence of any event of default by Tenant,
and the failure by Tenant to remedy such default within the time permitted by
Landlord, Tenant hereby grants the Landlord the following rights:
a) To change the locks, exclude Tenant from the Leased Premises, re-enter
----------------------------------------------------------------------
Leased Premises and enforce security against Tenant's entry.
-----------------------------------------------------------
b) To relet Leased Premises and recover cost of alterations and damages.
Upon any reletting, Tenant shall be immediately liable to pay to Landlord,
without further demand or process of law, the cost and expense of
reletting, including, without limitation, any brokerage fees, the cost of
any alterations and repairs deemed necessary by Landlord to effect
reletting, and the full amount, if any, by which the rental reserved in
this Lease for the period of reletting (but not beyond the terms of this
Lease) exceeds the amount agreed to be paid as rent for the Premises for
the period of reletting. If Tenant has been credited with any rent to be
received by reletting and the rent shall not be promptly paid to Landlord
by the new Tenant, Tenant shall immediately be liable to pay the deficiency
to Landlord. If the Landlord elects to terminate this Lease, Landlord may
recover from Tenant all damages Landlord may incur by reason of Tenant's
failure to pay rental, including the cost of recovering the Premises, and
including the excess of the rental reserved in this Lease for the remainder
of the stated term over the then reasonable rental value of the Premises
for the remainder of the term, all of which amount shall be immediately due
and payable by Tenant to Landlord. Landlord shall be under no obligation to
attempt to re-lease the Leased Premises before it leases its other
properties.
c) To remove, store, and dispose of Tenant's property. Any property
belonging to Tenant, or to any person holding by, through, or under Tenant,
or otherwise found upon the Premises at the time of re-entry or termination
by the Landlord, may be removed and stored in any warehouse, at the cost
of, and for the account of, Tenant, or, in Landlord's sole discretion,
deemed to be abandoned by Tenant and disposed of accordingly.
d) Additional Remedies. In the event of any breach or threatened breach by
Tenant of any covenants, agreements, terms, or conditions of this Lease,
Landlord shall be entitled to enjoin the breach or threatened breach, and
in addition to the rights and remedies provided hereunder, shall have any
other right or remedy allowed at law or equity, by statute, or otherwise.
The provisions of this Section shall be construed consistent with the laws
of the State of Oklahoma, so that remedies of Landlord herein described
shall be available to Landlord to the full extent, but only to the extent
that they are valid or enforceable under the laws of the State of Oklahoma.
e) To Recover Attorney's Fees. If suit shall be brought for recovery of
possession of the Premises, for the recovery of rental, or any other amount
due under the provisions of this Lease, or because of the breach of any
other covenant herein contained on the part of either party to be kept or
performed, and a breach shall be established, the non-prevailing party
shall pay to the prevailing party all expenses incurred, including a
reasonable attorney's fee. The prevailing party shall be determined by the
Court which shall also approve the amount of reimbursed expenses.
The foregoing rights and remedies given to Landlord are, and shall be,
deemed to be cumulative and the exercise of any of them shall not be deemed to
be an election excluding the exercise by the Landlord, at any time, of a
different or inconsistent remedy, and shall be deemed to be given to Landlord in
addition to any other right and further rights granted to the Landlord by the
terms hereof, or by law. The failure of Landlord at any time to exercise any
right or remedy herein granted or established by law shall not be deemed to
operate as a waiver of its right to exercise such right or remedy at any other
future time.
13. EFFECT AND SEVERABILITY. This Lease shall be executed in duplicate
originals and, when executed by both Landlord and Tenant, shall be binding upon
and inure to the benefit of Landlord and Tenant, their heirs, legal
representatives, successors, and assigns. This Lease sets forth the complete
understanding of Landlord and Tenant and supersedes all previous negotiations,
representations, and agreements between them and their agents. This Lease can
only be amended or modified by a written agreement signed by Landlord and
Tenant.
Should any clause or provision of this Agreement be adjudged, or
otherwise rendered, unenforceable, all provisions not so affected shall remain
in full force and effect. In the event of any transfer of title or interest of
the Leased Premises, the Landlord named herein shall be relieved of all
liability related to Landlord's obligations to be performed after such transfer.
Provided, however, that any funds in the hands of Landlord at the time of such
transfer shall be delivered to Landlord's Grantee. Landlord's obligations
hereunder shall be binding upon Landlord's successors and assigns only during
their respective periods of ownership.
14. EXHIBITS. Exhibits "A" through --- plus Addendum are attached to, and by
--- -----
this reference made a part of, this Lease.
15. AGENCY DISCLOSURE. The parties to this transaction hereby acknowledge that,
prior to the parties entering into this Lease, the following disclosures were
clearly made to each of the parties:
The Listing Broker, as defined below, is acting as the agent of:
X The Landlord _______ Both the Landlord and Tenant (Consensual Dual
---
Limited Agent)
___ The Listing Broker is not acting as an agent for the Landlord
or Tenant.
The Leasing Broker, as defined below, is acting as the agent of:
X The Landlord _____ The Tenant _____ Both (Consensual Dual Limited
---
Agent)
___ The Leasing Broker is not acting as an agent for the Tenant or
Landlord.
16. BROKER'S COMMISSION. The Tenant and Landlord mutually warrant and represent
that the undersigned Broker(s) is/are the only Broker(s) involved in this
transaction. It is further acknowledged and agreed by the parties that the _____
Landlord will pay the Listing Broker -- % of the total Lease Value as a
- -------- ----
commission for services rendered in this real estate transaction. The total
Lease Value shall be the Base Rental, plus CAM, if any, and the value of any and
all renewals, extensions, and expansions when executed. The initial commission
shall be payable as follows:
Per Separate Agreement
- --------------------------------------------------------------------------------
In the event Tenant shall purchase the property from Landlord during the term of
this Lease or within 180 days of the
________ __________
Page 4 of 6 Tenant Landlord
<PAGE>
expiration or termination of this Lease or any extensions, or holdover, Landlord
agrees to pay the Listing Broker a sales commission of -- % of the sales price.
17. SPECIAL CONDITIONS. NONE
--------------------------------------------------------
- --------------------------------------------------------------------------------
18. RECEIPT. By execution of this Lease, Landlord acknowledges receipt of
Prepaid Rent and Security Deposit.
19. SECURITY DEPOSIT. The Security Deposit set forth in paragraph 1(j) of this
Lease, if any, shall secure the performance of the Tenant's obligations
hereunder. Landlord may, but shall not be obligated to apply all or
portions of said deposit on account of Tenant's obligations hereunder. Any
balance remaining upon termination shall be returned to Tenant. Tenant
shall not have the right to apply the Security Deposit in payment of the
last month's rent.
<TABLE>
<S> <C>
APPROVED AND AGREED TO BY TENANT: APPROVED AND AGREED TO BY LANDLORD:
This _____ day of ______________, 19__ This ______ day of _____________ ,19__
EDUCATIONAL DEVELOPMENT CORPORATION JAMES D. DUNN
- ------------------------------------------------- ----------------------------------------------
By: By:
- ------------------------------------------------- ----------------------------------------------
Name: Randall White Name: James D. Dunn
- ------------------------------------------------- ----------------------------------------------
Title: President Title: Owner
- ------------------------------------------------- ----------------------------------------------
ATTEST:__________________________________________ ATTEST:_______________________________________
LEASING BROKER: LISTING BROKER:
This ______ day of ______________________ , 19__ This _______ day of ____________________ ,19__
TULSA PROPERTIES, INC. TULSA PROPERTIES, INC.
- ------------------------------------------------- ----------------------------------------------
By: By:
---------------------------------------------- --------------------------------------------
Thomas J. O'Brien, Broker Associate Thomas J. O'Brien, Broker Associate
</TABLE>
________ __________
Page 5 of 6 Tenant Landlord
<PAGE>
EXHIBIT "A"
ADDENDUM TO
COMMERCIAL/INDUSTRIAL LEASE (GROSS)
BY AND BETWEEN
JAMES D. DUNN ("LANDLORD")
AND
EDUCATIONAL DEVELOPMENT CORPORATION ("TENANT")
20. Exterior Painting: Landlord agrees to power wash, seal, caulk and paint the
north, east, west and southeast exterior walls of the north building within one-
hundred twenty (120) days following the Lease execution date. The accent stripe
shall be painted in a blue color that corresponds to the existing stripe and the
smooth concrete panels will be painted gray from the ground up to the aggregate
facing. The budget for completing this work shall not exceed $20,000.00.
21. Lease Termination: Tenant may terminate this Lease after July 1, 2001 by
providing Landlord with one hundred eighty (180) days advance written notice of
Tenant's intention to terminate the Lease and vacate the Premises.
22. Holding Over: Any holding over after the expiration of this Lease, with the
consent of Owner, shall be construed as a month-to-month tenancy at a rental of
$23,500.00 per month payable in advance and otherwise subject to the terms of
this Lease, as applicable, until either party terminates the same by giving the
other party thirty (30) days written notice.
23. Time: Time is of the essence of this Lease.
LANDLORD: TENANT:
JAMES D. DUNN EDUCATIONAL DEVELOPMENT
CORPORATION
By:__________________________ By:________________________________
Date:________________________ Date:______________________________
<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
April 4, 2000, appearing in this Annual Report on Form 10-K of Educational
Development Corporation for the year ended February 29, 2000.
May 12, 2000
Tulsa, Oklahoma
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 214,321
<SECURITIES> 0
<RECEIVABLES> 2,229,920
<ALLOWANCES> 209,466
<INVENTORY> 8,364,096
<CURRENT-ASSETS> 10,956,952
<PP&E> 1,415,734
<DEPRECIATION> 1,330,464
<TOTAL-ASSETS> 12,340,022
<CURRENT-LIABILITIES> 3,367,613
<BONDS> 0
0
0
<COMMON> 1,085,848
<OTHER-SE> 7,886,561
<TOTAL-LIABILITY-AND-EQUITY> 12,340,022
<SALES> 16,851,261
<TOTAL-REVENUES> 16,851,261
<CGS> 6,984,387
<TOTAL-COSTS> 13,423,805
<OTHER-EXPENSES> 1,582,027
<LOSS-PROVISION> 52,000
<INTEREST-EXPENSE> 45,401
<INCOME-PRETAX> 1,748,028
<INCOME-TAX> 669,000
<INCOME-CONTINUING> 1,079,028
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,097,028
<EPS-BASIC> .25
<EPS-DILUTED> .24
</TABLE>
