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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1994
Commission File Number 1-1003
NOBEL EDUCATION DYNAMICS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-2465204
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Rose Tree Corporate Center II
1400 N. Providence Road, Suite 3055
Media, Pennsylvania 19063
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 891-8200
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None None
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(Title of each class) (Name of each exchange on
which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value
$.001 per share
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(Title of each 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. [X]
At March 24, 1995, 15,595,063 shares of Common Stock were outstanding and
the aggregate market value of the shares of Common Stock owned by non-affiliates
(based upon the closing bid price of these shares on NASDAQ) was approximately
$24,360,044. See Footnote (a) on page i.
DOCUMENTS INCORPORATED BY REFERENCE
None
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TABLE OF CONTENTS
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Item No. Page
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PART I
1. Business........................ 1
2. Properties...................... 10
3. Legal Proceedings............... 11
4. Submission of Matters to a Vote of Security
Holders......................... 11
PART II
5. Market for Registrant's Common Equity and
Related Stockholder Matters.. 12
6. Selected Financial Data......... 13
7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................... 14
8. Financial Statements and Supplementary Data 20
9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure................... 20
PART III
10. Directors and Executive Officers of the
Registrant................... 21
11. Executive Compensation.......... 23
12. Security Ownership of Certain Beneficial
Owners and Management........ 27
13. Certain Relationships and Related
Transactions................. 30
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K...... 31
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FOOTNOTE (a). The information provided shall in no way be construed as an
admission that any person whose holdings are excluded from the figure is an
affiliate or that any person whose holdings are included is not an affiliate and
any such admission is hereby disclaimed. The information provided is included
solely for record keeping purposes of the Securities and Exchange Commission.
(i)
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PART I
ITEM 1. BUSINESS
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General
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Nobel Education Dynamics, Inc.'s (the "Company") business mission is to be one
of the nation's leaders, if not the leader, in providing a quality, safe,
private education alternative affordable for the middle income, working families
of America. Initially, this education and development of children by Nobel will
include pre-school children through junior high (eighth grade), under the name
Merryhill Country Schools and Merryhill Preparatory Schools in the west, and
eventually via Chesterbrook Academies in the east and midwest.
Currently Nobel operates thirty private schools in California as Merryhill
Country Schools and forty-six day care and early development centers under the
names Rocking Horse and Carefree in the east and midwest. The Rocking Horse and
Carefree centers are scheduled to be upgraded over the next few years to
Chesterbrook Academies. This upgrading will include the adoption of Merryhill's
highly regarded education curriculums plus an upgrading of the educationally
oriented equipment to be utilized by the children.
In addition, the Chesterbrook Academies will eventually offer grade levels up to
eighth grade. Early learning and development will be a keystone to the
preschools; for example, a standard educational curriculum which includes an
introduction to a second language between the ages of two and three.
Utilization of state-of-the-art technologies, such as interactive CD Roms, are
already being utilized within the Nobel school systems.
Nobel via its Merryhill and Chesterbrook school systems offers to the middle
income, working families of America the quality and safety of private, well run
schools, coupled with the programs and care required before and after school.
Parents can leave their children at a Merryhill or Chesterbrook preschool or
school knowing they are cared for throughout the day (6:30 a.m. to 6:00 p.m.),
but with the added advantage of a quality education during the greater part of
the day, for basically the same price as standard child care. Nobel will
continue to provide quality, alternative infant care recognizing the overall
needs of working families with young and/or multiple children.
Nobel's strategy is to position itself as an "education company" which may have
a practical solution to a portion of the education problem in the United States.
The Company's strategy and financial strength has changed significantly since
1992 when there was a change in the management structure.
. The equity of the Company has increased from ($3.8 million) on 12/31/91 to
$8.3 million at the end of 1994.
. Total Debt has decreased from $24.6 million on 12/31/91 to $9.6 million on
12/31/94.
. 1992, 1993 and 1994 have been the highest net income years in the
Company's history, with 1994's being the highest, $2.3 million.
. The price of the Company's stock was $5/16 per share on 12/31/91 and
reached $1.75 on March 6, 1995.
. The number and quality of the market makers in Nobel's stock continues to
improve.
At the end of 1993 and into 1994, Nobel began its regrowth strategy after
financially stabilizing the Company.
. Opened new center in Virginia in September, 1993.
. Opened and/or acquired six new centers and schools in North Carolina,
Illinois, and California in 1994.
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. On March 10, 1995 acquired Carefree Learning Center, a subsidiary of Blue
Shield adding eight additional operating centers to Nobel's base and three
centers to be developed.
The Company's strategy is to continue to open new build-to-suit schools and to
acquire appropriate, strategic schools and centers in its core growth areas and
other identified growth market areas. In addition, Nobel plans to add services
and products which will add ancillary income and improve overall operating
margins.
Nobel intends to refinance the Company to provide more flexible senior debt and
significant growth capital via additional equity and/or subordinated debt.
Discussions are under way with several banks and several investment banking
concerns relative to achieving the refinancing objectives.
Recent Developments.
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Acquisition of Carefree
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On March 10, 1995, the Company acquired from Carefree Learning Centers, Inc.
("Carefree"), a Pennsylvania corporation and a subsidiary of Medical Service
Association of Pennsylvania, doing business as Pennsylvania Blue Shield
("Pennsylvania Blue Shield"), Carefree's child day care business and operations,
and substantially all of its other assets, other than real estate, used in the
operation of Carefree's business. Additionally, the Company acquired from
another subsidiary of Pennsylvania Blue Shield (i) a leasehold estate at which
one of the child day care centers acquired from Carefree is currently in the
permitted pre-development stage (the "Leasehold Estate"), which Leasehold Estate
the Company contemporaneously assigned to one of its wholly-owned subsidiaries,
and (ii) a leasehold interest in the land and buildings at which one of the
child day care centers acquired from Carefree is currently under construction.
The child care business purchased from Carefree, which generated revenues of
approximately $4,446,000 in 1994, consists of eight learning centers currently
in operation, and three learning centers currently under construction or in the
pre-development stage, all of which are located in Pennsylvania. The Company
initially intends to continue to operate the acquired business under the
Carefree Learning Centers name.
The purchase price for the business and assets acquired from Carefree consisted
of (i) $500,000 in cash, (ii) a subordinated promissory note of the Company in
the principal amount of approximately $1,585,000, and (iii) the assumption of
certain other liabilities of Carefree in the amount of approximately $365,000.
Concurrently with the acquisition of Carefree's business and the Leasehold
Estate, the Company and one of its wholly-owned subsidiaries entered into an
Agreement of Sale (the "Agreement of Sale") with a subsidiary of Pennsylvania
Blue Shield, pursuant to which the Company's subsidiary will acquire (i) the
land and buildings on which four of the learning centers currently in operation
and acquired from Carefree are located, and (ii) the land and buildings at which
one of the child day care centers acquired from Carefree is currently under
construction (collectively, the "Real Estate"). At the closing under the
Agreement of Sale, the purchase price to be paid for the Real Estate will
consist of (i) approximately $1,500,000 in cash, (ii) subordinated promissory
notes of the Company in the aggregate principal amount of approximately
$600,000, and (iii) the assumption by the Company of certain other liabilities
of the Pennsylvania Blue Shield subsidiary in the amount of approximately
$2,700,000. The Company anticipates closing its acquisition of the Real Estate
within 60 days of the date of the Agreement of Sale. Following this closing,
the Company anticipates selling all of the Real Estate to an investor group and
then leasing the Real Estate from the investor group under long term leases.
While discussions are underway between the Company and various investor groups
for this purpose, there can be no assurances that the Company will enter into
any such sale and leaseback arrangement.
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The cash portion of the purchase price paid by the Company for the acquisition
of Carefree's business was financed by drawing on the Company's existing line of
credit with CoreStates Bank.
The Company proposes financing the purchase price for the acquisition of the
Real Estate through a term loan in an amount up to $3,705,000 (the "Loan") with
First Valley Bank ("First Valley") and through borrowings of approximately
$1,500,000 under the Company's existing line of credit with CoreStates Bank.
The Loan will be secured by mortgage liens on the Real Estate, by assignments of
the Registrant's subsidiary's rights to any future leases and licenses affecting
any parcel of such Real Estate and by security interests in fixtures at any
parcel of the Real Estate.
Private Placement of Preferred Stock
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On August 22, 1994, the Company completed a private placement of an aggregate of
2.5 million shares of Series C Convertible Preferred Stock, Series 1 Warrants
for the purchase of up to 500,000 shares of the Company's Common Stock, and
Series 2 Warrants for the purchase of up to 500,000 shares of the Company's
Common Stock, for an aggregate purchase price of $2,500,000. The Preferred
shares, with a par value of $.001, are convertible into Common Stock at an
initial conversion rate, subject to adjustment, of one share of Common Stock for
each shares of Series C Convertible Preferred Stock. The Series 1 Warrants
become exercisable at $1.00 per share, subject to adjustment, on the first date
on or after February 19, 1995 when the average fair market value of the
Company's Common Stock, for each business day in the prior 6 months, equals or
exceeds $1.75 per share. The Series 1 Warrants expire on August 19, 2001. The
Series 2 Warrants become exercisable at $1.00 per share, subject to adjustment,
on January 1, 1997; provided, however, that the Series 2 Warrants will expire
prior to that date if the fair market value of the Company's Common Stock, for
each business day in any period of 20 consecutive business days ending on or
prior to December 31, 1996, equals or exceeds $3.00 per share. If the Series 2
Warrants have not expired prior to January 1, 1997 they expire on August 19,
2001. Pending their use for the development of new schools, possible strategic
acquisitions and new products, the proceeds of this placement totaling
approximately $2,458,000 after legal costs and other fees were used initially to
reduce temporarily the balance of the Revolving Credit Loan II.
In conjunction with this transaction, the Board of Directors was increased to
nine and Mr. John Martinson, Managing Partner of Edison Venture Fund (the
majority purchaser of Series C Convertible Preferred Stock), joined the
Company's Board of Directors in October of 1994.
Management
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In order to strengthen the management base of the Company, in August of 1994,
the Board of Directors requested that A.J. Clegg and John Frock join the Company
as full time employees, relinquishing their day-to-day activities at JBS
Investment Banking. Mr. Clegg continues as Nobel's Chairman and CEO and Mr.
Frock has become Executive Vice President, responsible for acquisitions,
divestitures, new school and center development plus equity capital placement
activities. Both Frock and Clegg previously performed their activities for the
Company under an Administrative Services Agreement through JBS Investment
Banking. The Company ceased paying fixed fees under the Administrative Service
Agreement on August 1, 1994 when Frock and Clegg became full time employees. In
conjunction with management consolidations, the Company relocated its corporate
offices to Rose Tree Corporate Center II, 1400 N. Providence Road, Suite 3055,
Media, Pennsylvania 19063.
Other Acquisitions
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In November of 1994, the Company acquired the operations of Discovery School
located in Lewisville, North Carolina. The purchase price totaled $380,000
consisting of $190,000 in cash and a $190,000 note payable over five years.
On April 5, 1994, the Company acquired the operations of American River
Preparatory School in Sacramento, California. The school is a significant step
in the expansion of Merryhill
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Country Schools' grammar and junior high schools.
American River Prep has a capacity of 220 students and was opened in September
of 1994.
School Center Openings
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During 1994, the Company opened three new schools and centers, one center
located each in Illinois, Virginia and California. Additionally, the Company
leased a former public school facility, Bennett Valley School in Santa Rosa,
California, which opened in September of 1994 as a Merryhill School.
Divestiture Activity
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During 1994, the Company divested three centers located in the Southeast. On
June 2, 1994, the Company divested its College Park center located in Georgia.
The Company entered into a lease/purchase option agreement with respect to this
site and sold it in December of 1994. On July 25, 1994 the Company divested two
of its Rocking Horse centers by entering into lease/purchase option agreements
with Children Today of Georgia/Florida, Inc.; one located in Florida, and one
located in Georgia.
Financing Activity - In March of 1994 the Company's principal banking facilities
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totaling $11,890,336 were extended to December 31, 1998 under more favorable and
flexible terms. The Company is no longer restricted from opening new centers
and schools as long as it meets its basic financial performance covenants.
In June of 1994 the Company's principal banks agreed to convert the outstanding
balance of one of its term loans ($8,585,605) to a revolving credit line. This
provides the Company with greater cash flexibility by allowing the Company to
repay, without penalty, with excess cash beyond required debt service, and then
have the right to reborrow again up to the limit of the revolving credit loan.
During the twelve months ended December 31, 1994, the principal balance of the
Company's total debt facilities was reduced $3,835,322 from $13,449,229 as of
December 31, 1993 to $9,613,907 as of December 31, 1994.
In order to appeal the judgment entered against the Company in the litigation
with Bright and Sell described under Part II, Legal Proceedings, the Company was
required to post security with the court for payment of the judgment in the
event it is not overturned on appeal. The Company posted the required security
by arranging for the issuance of a letter of credit by its bank in the amount of
$600,000 pursuant to a Fourth Amendment of the Loan Agreement. Accordingly, the
available balance of the Company's Revolving Line of Credit was reduced to
$400,000.
Catalogue
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During 1994, the Company test marketed an educational product catalogue. Start-
up costs totaling approximately $300,000 for a catalogue design and inventory
were funded primarily through cash from operations. The catalogue performed
below management's expectations. Currently the Company is reviewing several
strategic alternatives. The Company does not anticipate a material amount of
cash to be allocated to the catalogue in 1995.
Company Background
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1986-1991
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Under the previous Management, the Company's growth during the period from 1986
to 1991 was accomplished primarily through acquisitions of established child
care centers or child care companies and private schools. These acquisitions
were financed with debt rather than equity. Many of the child care centers
located in Florida, Georgia and South Carolina were in mature markets.
Typically, a mature center is 5 to 15 years old and is characterized by flat
enrollment trends, modest revenue increases or flat revenues, positive cash flow
and operating profit leading to little potential for increased cash flow or
profit from such centers.
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In 1989 the company completed the acquisitions of Children's Park, Incorporated
("Children's Park") in North Carolina and Merryhill Schools, Inc. ("Merryhill")
in California. These purchases gave the Company access to two new geographic
markets with significant growth potential. Most of the child care centers and
elementary schools operated by Children's Park and Merryhill, respectively, were
opened within the six years prior to their acquisition by the Company. These
1989 acquisitions were financed by borrowings of approximately $10 million under
the Company's primary senior credit facilities. The Company had intended to
replace this debt with additional equity to be obtained from a proposed 1989
public offering. As a result of adverse changes and internal problems of the
underwriter, the Company was forced to cancel the offering. Although the
Company continued to explore various alternative avenues for raising additional
equity capital, it was unable to obtain alternative equity financing to replace
this debt.
As a result of the Company's inability to secure equity financing in 1990, the
Company was notified on April 9, 1991 that it was in default under its senior
credit facilities. This default plus the existence of many mature centers
within the Company forced the Company to seek outside equity financing.
1992-1994
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On March 29, 1992, the Company issued 4,000,000 shares of the Company's Common
Stock at $.50 per share (the "Shares") and warrants to purchase an additional
1,100,000 shares stock at $.50 (the "Warrants") in a private placement to a
limited number of accredited investors (the "Offering"). This placement brought
$2 million dollars, less transaction costs, of equity infusion into the Company,
which provided the basis to refinance its principal senior debt facility.
Pursuant to a Stock and Warrant Purchase Agreement dated April 14, 1992 (the
"Purchase Agreement") between the Company and JBS Investment Banking, Ltd.
("JBS"), JBS purchased in the Offering 400,000 of the Company's shares and a
warrant to purchase an additional 750,000 shares of the Company's Common Stock.
The aggregate consideration, the source of which was operating capital of JBS,
for the Shares and the Warrant was $200,083. Upon the closing of the
transaction with JBS, the Company entered into a three (3) year management
agreement with JBS (the "Administrative Services Agreement") pursuant to which
JBS undertook to provide management advisory services to the Company for which
it received management fees from the Company. Simultaneously, the Company's
management team was reorganized with A.J. Clegg, Chairman/Chief Executive
Officer and controlling stockholder of JBS, becoming the Chairman and Chief
Executive Officer of the Company. Pursuant to the Administrative Services
Agreement, the Company also agreed that during the term of the Agreement, JBS
would have the right to designate four of eight directors of the Company.
Accordingly, at the time of the Closing, the size of the Company's Board of
Directors was increased from five to eight Directors.
Additionally, in connection with the offering, the Company granted certain
rights to the purchasers of the Shares to require the Company to register their
Shares and the Shares issuable upon the exercise of the Warrants under the
Securities Act of 1933, at the Company's expense. A registration statement was
filed in February of 1994 registering these shares for resale by their holders.
On May 29, 1992, in connection with the Offering and Administrative Services
Agreement, the Company, in conjunction with JBS, was able to restructure its
indebtedness under its loan agreements with its senior lenders. As a result of
this restructuring the Company was no longer in default under its credit
facility and various milestones were agreed upon, the attainment of which would
allow for the extension of the loan repayment which maturities have been
extended as described under Item 1. Additionally, as part of the restructuring,
the banks forgave $558,000 of default interest and penalties.
As a result of the loan default described above, the Company adopted a business
plan which included the divestitures of certain centers. This business plan was
refined and expanded following the Offering and the Administrative Services
Agreement with JBS and became the basis upon which the Company's credit
facilities were restructured in 1992.
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During 1993 and 1994, the Company made significant progress with its divestiture
plan. The plan included the divestiture of forty-eight (48) centers located in
Florida, Georgia and South Carolina, one center in New Jersey which was not
maintaining positive cash flow, and divestiture of seven centers in Georgia and
Florida developed for the Company but not operated. As of December 31, 1994,
the Company has sold twenty-one (21) centers; leased, with the option to
purchase, four centers; terminated the leases of seven centers; assigned or
subleased five centers; merged one center into another; closed three centers and
is currently operating seven (7) of the forty-eight (48) centers. Of the seven
centers developed for the Company but not operated, management has assigned all
of the properties which were leased and the one owned center was sold. In
connection with the implementation of this divestiture plan, the Company
incurred substantial charges in fiscal years 1990 and 1991 because the Company
could not realize a full return on these divestitures and in many cases the
centers had been revalued at a level below the historical cost basis. See Item
7 "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Such divestitures allowed the Company to concentrate its capital resources in
markets with greater growth potential, primarily in the Middle Atlantic Region,
Midwest and California. In addition, the divestiture of these centers has
enabled the Company to repay a substantial portion of its bank debt.
The Company strengthened its management team in 1994 and 1993. In January of
1993, F.E. Montgomery was hired as President and Chief Operating Officer to
manage operations and add expertise in education in addition to child care. Mr.
Montgomery replaced Mr. Douglas E. Carneal. On April 26, 1993, Mr. Wally T.
Orrel was hired as Vice President of Rocking Horse Child Care Division. On May
31, 1993, Mr. Scott Clegg was hired as Vice President of Merryhill Country
Schools. In September, Merryhill enhanced its educational expertise by
appointing Dr. Mary Jane Pearson as the Director of Education. Dr. Pearson had
been previously selected as Educator of the Year in California. On August 1,
1994, Mr. A.J. Clegg and Mr. John Frock joined the Company as full time
employees relinquishing their duties at JBS. Mr. Clegg is the Chairman and
Chief Executive Officer and Mr. Frock is Executive Vice President of Corporate
Development. Mr. Clegg and Mr. Frock were previously involved with the Company
via the Administrative Service Agreement with JBS as described above. In
February of 1995, F.E. Montgomery's employment as President and Chief Operating
Officer terminated and Mr. Montgomery is pursuing other interests. Mr. Clegg
assumed the duties as President. Mr. Orrel was promoted to Executive Vice
President.
In 1993 the Company raised $2.4 million of equity through the private placement
of Series A Convertible Preferred Stock. The stock bears a dividend rate of 8%
and were issued at $1.00 per share. The proceeds were used primarily to reduce
debt.
During 1994, the Company raised $2.5 million of equity through the private
placement of Series C Convertible Preferred Stock and warrants to purchase
common stock. (See recent developments). The proceeds of the funds are
intended to fund growth via acquisitions and/or new school development. In March
of 1995, the Company acquired the operations of the Carefree Learning Centers.
$500,000 of the funds raised through the $2.5 million private placement of
Series C Preferred Stock was used for the acquisition. The remaining portion of
the funds will be used to acquire the assets and liabilities of the Keystone
Real Estate Company which leases four centers to Carefree and other
acquisitions.
General Description of Company's Business
-----------------------------------------
The Company provides high quality, child care, preschool and private school
education and development to children that is affordable to the middle income
working families. With an innovative, educational philosophy, the Company
provides through its Rocking Horse Division, child care services and early
childhood education primarily for children between 6 weeks and 5 years of age
and through its Merryhill Division, preschool, elementary and junior high
education for children up to 14 years of age. The Company's private schools
are currently located in California, but in 1995, private schools will expand to
the East. Under the name Chesterbrook Academy, Nobel will open (4) new schools
and convert (6) existing Rocking Horse Child Care centers. This will begin the
process of bringing the Merryhill school system to the East. The Chesterbrook
Academy school system will have preschool through kindergarten and
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in selected areas, the first grade. The Company plans to grow Chesterbrook
Academy in the image of the Merryhill school system eventually providing
education up to eighth grade.
The educational philosophy of Merryhill and Chesterbrook Academy is based on
innovative techniques which encompass an introduction of a second language for
children between the ages of two and three with full immersion into a second
language by first grade. Children develop computer skills at an early age
through the use of networks such as Prodigy and interactive learning via CD
Roms. Quality, proprietary curriculums which are developed by experienced
education personnel are instituted consistently throughout Nobel's school
systems. The Company believes small class sizes are a basic ingredient of its
quality education.
Each of the Company's programs stress the development of the "whole" child.
Every child's physical, social, emotional and intellectual growth is encouraged
through a balanced program. The programs also recognize that each child
develops according to his or her own abilities and timetable. Children are
inspired to proceed at their own rate and advance to higher conceptual and skill
level.
In addition, the Company offers supplemental programs which include field trips
to such places as zoos, libraries, museums and parks, along with classroom
presentations by parents and other volunteers. To better enhance the child's
physical, social, emotional and intellectual growth, the facilities have
developed fee-based programs specifically tailored to provide such ancillary
activities as computer instruction, dance, gymnastics and music lessons.
Schools and centers are open for visits by parents.
The developmental program also encourages interaction with adults and peers.
Through experiences with others, children clarify their thoughts and
perceptions, develop appropriate social skills and encounter the satisfaction
derived from working cooperatively with others. As they participate in the
programs, the children are supported in their efforts to make decisions, think
creatively and solve problems. Children are encouraged to become confident and
competent individuals where learning is fun and exciting.
The Company's programs are implemented by some of the industry's most successful
principals and directors and their faculty. They foster open communication,
teamwork and the attention to detail required to provide a superior service.
The Company expects and receives extraordinary efforts from the faculty and
management team. In turn, the Company provides and excellent working
environment where employees can reach their potential and outstanding
performance is recognized and rewarded.
The Company is committed to maintaining close relationships between the schools
and centers and the families they serve. Parents are encouraged to share
feelings, concerns, and suggestions about their child's care and educational
progress. They are invited to visit and participate in programs as often as
possible. Scheduled conferences are available to discuss each child's progress
with the teacher. Daily information sheets keep parents informed of infant and
toddler activities. Newsletters are sent home regularly. Social meetings and
programs of interest are held periodically for parents and friends.
Parent/teacher organizations are incorporated as part of the participation
environment.
The Rocking Horse Child Care Centers are open year round, from 6:30 a.m. until
6:00 p.m., excluding six observed holidays. Facilities typically consist of
classrooms, outdoor play areas, an office, bathrooms and kitchen where lunch and
snacks are prepared. They are generally equipped with one or more vans, which
are used for transportation of school-age children to and from public schools
and for field trips. The average facility has 6,500 square feet of space and is
situated on one acre of land.
Merryhill Country Schools are open and supervised daily from 6:30 A.M. to 6:00
P.M., excluding the ten observed holidays. The academic program begins at
approximately 9:00 A.M. for kindergarten through third grade students and 8:45
A.M. for grades fourth through eighth, and ends at 3:30 for all students. The
Extended Day Enrichment Program allows students to participate in a number of
supervised activities before and after school. Depending upon their ages and
interest, children may select from a variety of activities such as scouts,
chorus, study hall, arts and crafts, gymnastics, band, computers, piano lessons,
ballet and tap dancing and a variety of sports activities. In addition, each
student participates in a
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musical production during the school year. The curriculum at Merryhill Country
Schools is designed to assist students in mastering the basic academic subjects,
thus setting a firm foundation for a well-rounded education. The development of
strong study habits, good citizenship, and an appreciation of our American
heritage is essential in reaching this objective. A comprehensive reading
program, beginning in kindergarten, is emphasized. In addition, basic curriculum
includes English (grammar, composition, penmanship and spelling), mathematics,
social studies, geography and science. Foreign languages, music, art and
physical education are also an integral part of the curriculum at Merryhill
Country Schools.
As of March 25, 1995, the aggregate licensed capacity at the Company's seventy-
six (76) schools and centers exceeded 10,300 children or approximately 136
children per school or center.
Operations. In order to maintain uniform standards, each school and center
----------
shares consistent educational goals and operating procedures. School/center
functions are guided by operations manuals that are reviewed and updated
periodically. Corporate management visits all schools and centers on a regular
basis to review program and facility quality.
Principals and directors submit financial reports to the Company's corporate
office and to appropriate district and regional managers each week. These
reports include data on current enrollment, attendance, labor costs and cash
receipts. Corporate office personnel then review each report and prepare weekly
combined records by district, region and for the Company in total. Weekly
tuition rates and utilization rates are continually monitored. Each school and
center is measured on a monthly basis versus its individual business plan.
Marketing and Customers. The Company's management believes that Nobel has a
-----------------------
unique position in the marketplace and has implemented a marketing strategy to
capitalize on this niche. Utilizing the Merryhill Country Schools concept and
strategy from the West, Nobel under the name of Chesterbrook Academy in the
East, will differentiate itself from the child care providers. Though its
understanding of the educational developmental needs of children, Merryhill and
Chesterbrook will provide such development beginning at the preschool level.
Educational development is being stressed in contrast with competition in the
field in child care. Nobel is being marketed as an education-oriented company
that is in the early childhood development and private school industry. The
Company's monthly charges for a full-time student with extended care service
range from $250 - $750 per child, depending upon the age of the child and the
geographic area.
The Company generates the majority of new enrollments from its excellent
reputation in the community and word-of-mouth recommendations of parents. The
Company also markets its services through display ads, listings in local print
and radio media and through distribution of promotional materials in residential
areas. Marketing campaigns are conducted in the winter, spring and fall
primarily at the local level by the Company's directors and principals. In
addition, marketing programs such as mass mailings and media advertising are
conducted from the various regional offices.
Industry and Competition. The consumer market for education and educational
------------------------
products is estimated at $50 billion and growing at an annual 6%-7% rate. The
Company plans to capitalize on this market through the Merryhill and
Chesterbrook Academy subsidiaries and possibly through other educational
services. The child care industry, estimated to be approximately $20 billion,
has experienced rapid growth as the number of working women with young children
has increased. The Company anticipates that this growth will continue in the
foreseeable future.
Merryhill Country Schools is believed to be one of the largest private school
systems with 30 schools. Merryhill competes with other smaller for-profit
private schools, against some non-profit schools, and also is competing for
students with public school systems. Merryhill, in its own market, has the
reputation as a quality leader in education. The public school market is
estimated to be 81,859 schools in total, of which 59,258 are elementary, 20,120
are secondary, and 2,481 are combined schools. Spending for public elementary
and secondary schools has grown steadily, from $279.4 billion in 1992-1993 to
$295.2 billion in 1993-1994.
8
<PAGE>
The private school market is estimated to be 24,690 schools, of which 15,701 are
elementary, 2,467 are secondary, and 6,528 are combined. Of these schools,
4,483 are non-sectarian, 8,731 are Catholic schools, and 11,476 are religious
(non-Catholic) schools. Spending for the private school market is expected to
continue growing in sales dollars. It is estimated that spending will grow from
$2.4 billion in 1986 to $8.6 billion in 1996.
The child care industry in which Rocking Horse Child Care Centers competes is
highly fragmented. The six largest for-profit companies in the industry operate
approximately 2,840 centers, which represent 5% of the estimated 57,000 licensed
centers in the United States. The remaining 95% of the market is served
principally by not-for-profit child care providers, smaller for-profit
providers, in-home individual child care providers and corporations that provide
child care for their employees. The five largest for-profit child care
companies in the industry, based on annual revenues, are Kinder-Care Learning
Centers, Inc., La Petite Academy, Inc., Children's World Learning Centers, Inc.,
Childtime Childcare, Inc., and Children's Discovery Centers.
The Company's competition varies from market to market. In some areas, the
Company's primary competitors are nursery schools and other child care providers
operated by church affiliated and other not-for-profit organizations. In other
local markets, the Company competes with the large for-profit child care
providers, such as Kinder-Care Learning Centers, Inc. and La Petite Academy,
Inc.
Some not-for-profit centers charge less for their services than the Company.
The Company believes, however, that it is able to compete successfully by
offering professionally developed educational and recreational programs, well
equipped facilities, trained teachers and a broad range of services, including
transportation and infant care. Many of these services are not offered by the
not-for-profit centers and small for-profit providers because of their smaller
staffs and limited financial resources.
The large for-profit child care companies have greater financial resources and
much greater national exposure and awareness; however, Nobel believes this
creates as much a negative as a positive benefit. Merryhill Country Schools,
Rocking Horse and soon to be Chesterbrook Academy is focused only on a regional
base and more specifically to the community it serves. Nobel continues to stay
on the cutting edge of early childhood development and thereby continues to
differentiate itself from the child care providers. Through customer requests
and research, the Company believes parents desire to give their child the best
educational advantage available and our commitment is to continue our leadership
role.
Each school and center is staffed with a principal or director, teachers and
teaching assistants. Principals and directors are supervised by district,
regional or area managers. The principal or director is critical to the success
of the school and is provided with ongoing training. Principals and directors
have responsibility for: (i) maintaining the quality of educational services
delivered at their school, (ii) recommending pricing strategy based upon school
location and local area demographics, (iii) personnel management, (iv) sales and
marketing strategy for their location, and (v) fiscal management. Teachers and
teaching assistants are responsible for supervising as well as implementing the
educational programs offered by the Company.
The Company generally hires experienced individuals and attempts to promote from
within. Employment applicants are thoroughly reviewed with background checks
made to verify accurate employment history and establish background, reputation
and character. After hiring, the faculty are reviewed and evaluated annually
both through formal evaluation and market surveys. In addition, all principals
and directors are eligible for incentive compensation based on the profitability
of their school.
Minimum ratios of teacher to children, range from a one to four ratio for
infants to a one to twenty-two ratio for school-age children, are regulated by
state law and therefore differ from state to state. On March 25, 1995, the
Company employed approximately 1500 persons, approximately 500 of which were
employed on a part-time basis.
9
<PAGE>
Regulation. Child care centers and schools are subject to a variety of state
----------
and local regulations and licensing requirements. Although these regulations
and licensing requirements vary greatly from jurisdiction to jurisdiction, the
governmental agencies generally review the safety, fitness and adequacy of the
buildings and equipment, the ratio of staff personnel to enrolled children, the
dietary program, the daily curriculum, compliance with health standards and the
qualifications of the Company's personnel.
Insurance. The Company currently maintains comprehensive general liability
---------
insurance, workers compensation, automobile liability, property, excess umbrella
liability and student accident. The policies provide for a variety of coverage
and are subject to various limits. Child care companies however, may not be
able to obtain insurance for the total risks inherent in their operations. Some
forms of child abuse have sublimits per claim in the general liability coverage.
The Company carries fire and other casualty insurance on its centers and
liability insurance in amounts which management feels are adequate for its
operations in the foreseeable future.
New Center and School Development.
---------------------------------
Management expects a significant portion of the growth of the Company, for the
next few years, to be through the opening of new schools. In January of 1994,
the Company opened two new centers; one in North Carolina and one in Illinois,
and in August the Company opened a new preschool in California. The Company
plans to open six more preschools or private schools under the name of
Chesterbrook Academy or Merryhill in 1995.
New school development offers an attractive growth opportunity for the Company
to expand into both new and existing markets. Proposed development sites are
presented to the Company through a network of developers across the United
States, including New Jersey, Illinois, Pennsylvania, California, North
Carolina, Virginia, Maryland, Washington and Nevada. Management has been
successful in opening the new centers and schools and is considering increasing
the number of planned new schools in 1996-1999. Currently the Company is
seeking alternative sources of capital so that management can control their
ability to develop and build new schools.
Typically, new schools are single-story stand alone structures situated on
approximately one and a quarter acres of land, and are located near residential
neighborhoods. The Company carefully evaluates all proposed development sites
and makes a selection based on a variety of criteria, including: i) the number
and age of children living in proximity to the site, ii) family income data,
iii) incidence of two-wage earner and single parent families, iv) traffic
patterns, v) wage and fixed cost structure, vi) competition, vii) price
elasticity, and viii) family education data. The Company historically has had
significant success in the new centers it has opened.
ITEM 2. PROPERTIES
-------------------
At December 31, 1994, the Company operated sixty-eight (68) centers and schools
in eleven (11) states. At March 24, 1995 the number of centers and schools
totaled seventy-six (76), located in eleven (11) states. The Company's centers
generally are located in suburban settings. The Company owns the land and
buildings for twelve centers and schools it operates. All such properties are
subject to mortgages on the real property. In addition, one center is run by a
majority-owned subsidiary and operated jointly with a sponsoring employer. This
subsidiary leases the buildings from a third party and operates them under a
ground lease from the employer. The ground lease expires in May 1996. The
remaining fifty five centers and schools are leased under long-term leases which
are typically triple-net leases requiring the Company to pay all applicable real
estate taxes, utility expenses and insurance costs. These leases usually
contain inflation related rent escalators. See "Certain Relationships and
Related Transactions."
At March 24, 1995, the Company operated thirty (30) schools in California, one
child care center in Delaware, one center in Florida, six centers in Illinois,
one center in Maine, six centers in New Jersey, nine centers in North Carolina,
thirteen centers in Pennsylvania, six centers in South Carolina and three
centers in Northern Virginia.
10
<PAGE>
The Company owns one undeveloped parcel of land which it intends to develop as a
school. The Company currently owns the land and building of three properties in
Florida and Georgia of which two are leased to tenants with an option to
purchase and one center is closed. The Company intends to sell the closed
center. In addition, the Company leases one closed center and is attempting to
assign this lease. The Company leases 9,163 square feet of space for its
corporate offices in Media, Pennsylvania. The lease expires in the year 2001.
ITEM 3. LEGAL PROCEEDINGS
--------------------------
In February, 1993, Douglas E. Carneal, former Chief Operating Officer of the
Company, filed suit in the Court of Common Pleas for Chester County,
Pennsylvania against the Company, certain officers and directors, and other
persons arising out of a dispute over amounts which were paid to Mr. Carneal
following his termination from the Company. In that action, Mr. Carneal claims
that the Company is in breach of an agreement to cause a loan which he obtained
to purchase Company stock to be non-recourse. He further claims that his
termination payments were not made in accordance with his employment contract,
and that he is entitled to accrued but unpaid vacation. The Company filed
preliminary objection to Carneal's complaint, some of which were sustained. The
Chester County, Pennsylvania Court of Common Pleas dismissed several of the
claims filed by Douglas Carneal against the Company, allowing him to replead
some of those claims. Carneal filed an amended Complaint. After objections to
the amended complaint were dismissed, the Company filed an answer denying Mr.
Carneal's claims and filed a counterclaim against him seeking damages for his
alleged mismanagement of the Company. Mr. Carneal filed objections to that
counterclaim. A decision of the Court is pending.
In December, 1994, the Company brought a separate action against Mr. Carneal in
the Court of Common Pleas for Chester County, Pennsylvania, seeking damages for
his mismanagement of the Company. Mr. Carneal removed that action to the United
States District Court for the Eastern District of Pennsylvania and filed an
answer and a counterclaim asserting the same claims he had asserted in his
earlier action in Chester County, Pennsylvania. The Company has moved to
dismiss much of Mr. Carneal's counterclaim. A decision of the court is pending.
In May 1993, Julie Sell and Michael Bright, former executives of the Company,
commenced a suit in the United States District Court for the Eastern District of
Pennsylvania alleging that the Company breached its contractual duty to pay them
salary increases, bonuses and severance pay under the Company's Executive
Severance Pay Plan. On September 15, 1994, the United States District Court for
the Eastern District of Pennsylvania entered a judgment against the Company and
in favor of Julie Sell and Michael Bright in the combined amount of $406,000.
The Company has appealed this decision to the United States Court of Appeals for
the Third Circuit.
The Company is engaged in other legal actions arising in the ordinary course of
its business. The Company believes that the ultimate outcome of all such
matters above will not have a material adverse effect on the Company's
consolidated financial position or results of operations. The significance of
these matters on the Company's future operating results and cash flows depends
on the level of future results of operations and cash flows as well as on the
timing and amounts, if any, of the ultimate outcome.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
None.
11
<PAGE>
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
------------------------------------------------------------------------------
Market Information.
------------------
The table below sets forth the quarterly high and low bid prices for the
Company's Common Stock as reported by The National Association of Securities
Dealers (NASD) for the period June 15, 1993 through the present December 31,
1994 and for the first quarter to date in 1995. From January 1, 1993 through
June 15, 1993, the quarterly high and low bid prices are as reported by the
Electronic Bulletin Board System. These quotations reflect inter-dealer prices,
without retail mark-ups, mark-downs or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1993
First Quarter........$ 1 $ 3/8
Second Quarter....... 7/8 15/32
Third Quarter........ 1 1/16 9/16
Fourth Quarter....... 7/8 11/16
1994
First Quarter........$ 1 7/16 $ 3/4
Second Quarter....... 1 3/8 1
Third Quarter........ 1 7/32 1
Fourth Quarter....... 1 5/32 15/16
1995
First Quarter........$ 1 3/4 $ 1
As of 3/24/95
</TABLE>
Holders. At March 24, 1995 there were approximately 625 holders of record of
-------
shares of Common Stock.
Dividend Policy. The Company has never paid a dividend on its Common Stock and
---------------
does not expect to do so in the foreseeable future. Although the payment of
dividends is at the discretion of the Board of Directors, the Company intends to
retain its earnings in order to finance its ongoing operations and to develop
and expand its business. The Company's credit facility with its lenders
prohibits the Company from paying dividends on its common stock or making other
cash distributions without the lenders' consent. Additionally, in connection
with the private placement of the Series C Convertible Preferred stock to Edison
Venture Fund, the Company is prohibited from paying cash dividends on its common
stock as follows, 1) in accordance with the bank agreement and 2) the amount of
such dividend paid or declared must be less than or equal to 50% of operating
income less income tax.
During the period June 1 through July 20, 1993, the Company issued 2,484,320
shares of its Preferred Stock which bears a dividend of 8% per annum, payable
quarterly. Dividends of $7,314, $49,686, and $49,686 were paid on the Preferred
Stock on June, 30, 1993, September 30, 1993 and December 31, 1993, respectively,
an aggregate of $106,686 during 1993. Dividends totaling $198,555 or $49,639 in
each quarter were paid in 1994.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
--------------------------------
The following table sets forth selected historical financial data of the
Company. This data should be read in conjunction with the Company's Financial
Statements and the Notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Year ended December 31,
1994 1993 1992 1991 1990
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Revenue $34,372 $32,594 $33,498 $ 34,665 $ 35,808
Center operating expenses............... 28,161 26,543 27,036 28,139 29,998
Center operating profit................. 6,211 6,051 6,462 6,526 5,810
General and administrative
expenses.............................. 2,896 2,555 2,946 2,376 3,484
Restructuring charge.................... - - - 4,821 4,875
Operating income (loss)................. 3,315 3,496 3,516 (671) (2,549)
Interest expense........................ 1,223 1,718 1,729 3,220 3,910
Other (income) expense 107 (39) (117) (30) (108)
Minority interest 83 88 63 (36) 54
Income (loss) before income
taxes 1,902 1,729 1,841 (3,825) (6,405)
Income tax (benefit) expense (438) 21 36 - -
Net income (loss) 2,340 1,708 1,805 (3,825) (6,405)
Preferred Dividends 199 107 - - -
Net income available to
Common Shareholders $ 2,141 $ 1,601 $ 1,805 $ (3,825) $ (6,405)
Primary earnings (loss) per share
$ 0.13 $ 0.10 $ 0.12 $(0.33) $(0.08)
Fully diluted earnings (loss)
per share $ 0.12 $ 0.10 $ 0.12 $(0.33) $(0.08)
<CAPTION>
Year ended December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working Capital (deficit)............... $(4,197) $(3,114) $(3,996) $(25,715) $(26,905)
Total assets............................ 23,234 22,613 24,226 27,355 32,541
Short-term debt and current
portion of long-term debt............. 1,768 905 1,523 21,403 22,320
Long-term debt.......................... 7,846 12,545 17,733 3,216 3,307
Shareholders' equity (deficit).......... $ 8,298 $ 3,732 $ (279) $ (3,784) $ 51
</TABLE>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF OPERATIONS
-------------
Reference is made to Item 1. Business-Recent Developments concerning
information relating to the Private Placement of Series C Preferred Stock, the
extension of the maturity of the Company's debt with its senior lenders and the
acquisition of Carefree.
Results of Operations
---------------------
Fiscal Year 1994 Compared to Fiscal Year 1993
---------------------------------------------
As of December 31, 1993, the Company operated 66 child care centers. During the
year ended December 31, 1994, the Company divested three centers, terminated the
lease of one school, opened three new centers and schools, and acquired 3
additional centers and schools. At December 31, 1994, the Company operated 68
schools and centers. During the three months ended March 30, 1995, the Company
acquired a chain of centers, the Carefree Learning Centers which consists of
eight operating centers and three new sites to be opened during 1995. At March
24, 1995, the Company operated 76 schools and centers.
<TABLE>
<CAPTION>
Increase
Revenues 12/31/94 12/31/93 (Decrease)
-------- ------------ ------------- ---------
<S> <C> <C> <C>
Core operations $30,079,085 $28,319,927 $ 1,759,158
New Schools and Centers
opened during fiscal
year 2,008,251 114,599 1,893,652
----------- ----------- -----------
Subtotal Core operations $32,087,336 $28,434,526 $ 3,652,810
Non-Core centers
divested 1/92-12/93 $ - $ 2,213,797 $(2,213,797)
Non-Core centers 2,126,403 1,946,063 180,340
----------- ----------- -----------
Subtotal Non-Core $ 2,126,403 $ 4,159,860 $(2,033,457)
----------- ----------- -----------
Other Revenues 157,762 - 157,762
----------- ----------- -----------
Total Company $34,371,501 $32,594,386 $ 1,777,115
=========== =========== ===========
</TABLE>
Revenues for the twelve months ended December 31, 1994 totaled $34,371,501, an
increase of $1,777,115 or 5.5% from the prior year of $32,594,386. Revenues in
the Mid Atlantic Region (Pennsylvania, New Jersey, Delaware, Maine and
Virginia), North Carolina and California ("Core operations) increased a total of
$3,652,810 or 12.8%. $1,893,652 of the increase in the core operations was
related to the acquisition and/or opening of new schools and centers. The
remaining increase of $1,759,158 or 6.2% is due to increased enrollment and
increased tuition increases. Tuition rates increased an average of 3 to 4%.
The increase in revenues related to the core centers and schools described above
was offset by a decrease of $2,033,457 or 4.9% in the non-core centers. In
December of 1993, the Company divested ten centers located in Florida and
Georgia which resulted in a decrease of $2,213,797 or 6.8% in revenues. This
was offset by a slight increase in revenues in the remaining non-core centers
totaling $180,340 or 0.5%. In October of 1994, the Company test marketed an
educational products catalogue. Other revenues totaling $157,162 related to the
test marketing of the catalogue.
Occupancy of the core schools and centers without new centers and schools
increased from 71.6% as of December 31, 1993 to 73.0% as of December 31, 1994.
Occupancy as a measure of center utilization is calculated as actual net revenue
divided by the sum of the licensed building capacity by the tuition rate for a
full time three year old for the respective period. During 1994 the Company
expanded several existing locations which changed the occupancy. The three year
old rate represents the weekly tuition paid by the parent for a three year old
child to
14
<PAGE>
attend Nobel five days a week. In the industry, the three year old rate
represents an approximate average of all tuition rates at each center and
school.
<TABLE>
<CAPTION>
Center/School Operating Profit
------------------------------
12/31/94 12/31/93
-------------------- -----------------
% of % of
$ Revenue $ Revenue
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Core Operating Costs
--------------------
Total Core Operating
Costs $25,548,951 80% $22,645,508 80%
=========== ===========
Core Center and School
Operating Profit $ 6,538,385 20% $ 5,789,018 20%
=========== ===========
Non-Core Operating Costs
------------------------
Total Non-Core Operating
Costs $ 2,282,093 107% $ 3,997,379 96%
=========== ===========
Non-Core Operating
Profit (Loss) (155,690) (7)% 162,481 4%
=========== ===========
Other Operating Income
(Expenses) (171,731) (0.5)% 100,000 0.3%
=========== ===========
Total Operating Profit $ 6,210,964 18% $ 6,051,499 18.6%
=========== ===========
</TABLE>
Center and school operating profit increased $159,465 or 2.6% from $6,051,499
for the year ended December 31, 1993 to $6,210,964 for the year ended December
31, 1994. The core center/school operating profit increased $749,367 or 13%
from $5,789,018 for the year ended December 31, 1993 to $6,538,385 for the year
ended December 31, 1994. The increase was due to 1) increased revenues related
to increased enrollment and tuition rates and 2) the successful opening of new
centers and schools in 1994. New Centers/schools normally operate at a net loss
for the first several months primarily due to start up costs and time needed to
build enrollment. However in 1994, the Company acquired one school which was in
operation and opened several centers/schools very successfully which offset the
normal losses related to openings.
The non-core operating loss totaled $155,690 for the year ended December 31,
1994, which was a decrease of $318,171 compared to an operating profit of
$162,481 for the year ended December 31, 1993. This was attributed to 1) the
divestiture of the ten centers in the Southeast in December of 1993 and 2)
maturation of the remaining southeast markets.
In 1994, the Company test marketed an educational product catalogue division.
Included in other operating expenses for 1994, are costs related to the testing
of the catalogue and closed centers costs in the Southeast. Catalogue
performance was below management's expectations and the Company is now modifying
the strategy plan of the catalogue. Operating losses related to the testing of
the catalogue totaled $171,731 for the year end December 31, 1994. Additionally
in 1994, the Company incurred a total of $136,215 other costs related to several
closed centers in the southeast. The Company has subleased several of these
properties during 1994. In 1993, the Company recorded $100,000 in operating
profit related to insurance proceeds from a fire at one of the centers.
Operating profit margins declined slightly from 18.5% for the twelve months
ended December 31, 1993 to 18% for the twelve months ended December 31, 1994.
Total core operating profit margins remained stable for the twelve months ended
1994 at 20% compared to 1993 even with the opening losses of the three new
centers and schools. The decline in total was attributed to 1) the loss from
the test marketing of the catalogue division totaling $171,731, 2) costs related
to non-operating centers in the southeast and writing off of government
receivables and 3) lower margins attributed to the start-up of new centers and
schools.
15
<PAGE>
General and administrative expenses increased $340,973 or 13.3% from $2,555,103
or 7.8% of revenues for the year ended December 31, 1993 to $2,896,076 or 8.4%
of revenues for the year ended December 31, 1994. In 1994, the Company recorded
$200,000 in a legal reserve associated with lawsuits from prior management. The
remaining increase of $140,973 is related to increased professional fees
associated with analysis of various acquisitions and costs associated with the
test marketing of the catalogue. General and administrative expenses before the
legal accrual associated with lawsuits from prior management totaled $2,696,076
or 7.8% of revenues. As a percent of revenues, general and administrative
expense (before the legal accrual) remained constant at 7.8% or the same as
1993.
Operating profit for the twelve months ended December 31, 1994 decreased
$181,508 or 5% from $3,496,396 in 1993 to $3,314,888 in 1994. The decrease was
the result of the recording of a 1) $200,000 legal reserve as described above
and 2) operating losses related to the catalogue test marketing totaling
$272,000 which includes the related general and administrative charges.
Interest expense decreased $494,962 from $1,717,933 or 5.3% in 1993 of revenues
to $1,222,971 or 3.6% of revenues in 1994. This was the result of the reduction
of principal debt balances through the sale of several properties and the $2.5
million equity infusion of capital which was initially used to reduce debt
balances. Debt was reduced $3,835,322 from $13,449,229 in 1993 to $9,613,907 as
of December 31, 1994.
Other expense totaled $106,960 for the year ended December 31, 1994, which had a
net change of $146,207 from net other income of $39,247 for the year ended
December 31, 1993. Included in other expense were charges related to several
owned properties in the Southeast which were leased and the tenants defaulted in
1994. Charges included depreciation, real estate taxes and write offs of
receivables related to rental income.
In 1992 the Company changed its method of accounting for income taxes through
the adoption of SFAS 109. In 1992 and 1993 a valuation allowance of $3.7
million had been recorded. In the second quarter of 1994, the Company reduced
the valuation allowance and recognized $510,300 of the deferred tax asset. The
Company has had several years of net income. The recognition of the deferred
tax asset was based on the analysis of the last three years of positive
operating performed and expected future taxable income.
Net income before preferred dividends for the year ended December 31, 1994
totaled $2,339,766 or 6.8% of revenues, an increase of $631,749 or 37% from the
year ended December 31, 1993 of $1,708,017 or 5.2% of revenues. The increase is
primarily related to 1) the recording of a deferred tax asset and 2) decreased
interest expense.
The Company paid $198,555 preferred dividends in the twelve months ended
December 31, 1994 as compared to $106,686 in 1993.
Fiscal Year 1993 Compared to Fiscal Year 1992
---------------------------------------------
As of December 31, 1992, the Company operated 73 child care centers. During the
year ended December 31, 1993, the Company divested ten (10) operating centers,
opened one center in Northern Virginia and was required to re-assume two leases
which it had previously divested. At December 31, 1993 the Company operated 66
centers. During the three months ended March 30, 1994, the Company was required
to re-assume one lease which it had previously divested and opened two centers,
one each in Illinois and North Carolina.
<TABLE>
<CAPTION>
Revenues
--------
Increase
12/31/93 12/31/92 (Decrease)
------------ ------------ ---------
<S> <C> <C> <C>
Core operations $28,319,927 $26,956,396 $ 1,363,531
New Center - opened 9/93 114,599 - 114,599
----------- ----------- -----------
Subtotal Core operations $28,434,526 $26,956,396 $ 1,478,130
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C>
Non-Core centers
divested 1/92-12/93 $ 2,213,797 $ 4,744,117 $(2,530,320)
Non-Core centers 1,946,063 1,797,364 148,699
----------- ----------- -----------
Subtotal Non-Core $ 4,159,860 $ 6,541,481 $(2,381,621)
----------- ----------- -----------
Total Company $32,594,386 $33,497,877 $ (903,491)
=========== =========== ===========
</TABLE>
Revenue for the twelve months ended December 31, 1993 totaled $32,594,386, a
decrease of $903,491 or 2.7% from the prior year of $33,497,877. Revenues in
the Mid-Atlantic region (Pennsylvania, New Jersey, Delaware, Maine and
Virginia), North Carolina and California ("Core Operations") increased a total
of $1,478,130 or 5%. $114,599 of this increase was related to the opening of a
new center in Virginia. The remaining increase was due to increased enrollment
and higher tuition increases. Tuition rates increased 4% to 5% in 1993.
The increase of $1,478,130 described above was offset by a decrease of
$2,381,621 in the non-core centers. $2,530,320 of the decrease in non-core
centers was related to the divestiture of twenty (20) operating centers from
January 1992 to December 1993. The remaining increase of $148,699 was due
primarily to the taking back of two centers leased (with options to purchase)
whose previous tenants were not paying rent.
Occupancy increased from 76.4% as of December 31, 1992 to 78.1% as of December
31, 1993. Occupancy as a measure of center utilization is calculated as actual
net revenues divided by the sum of the licensed building capacity multiplied by
the tuition rate for a full time three year old for the respective period. The
three year old rate represents the weekly tuition paid by a parent for a three
year old child to attend Nobel five days a week. In the industry, the three
year old rate represents an approximate average of all tuition rates at each
center.
<TABLE>
<CAPTION>
Center/School Operating Profit
------------------------------
12/31/93 12/31/92
------------------- ------------------
% of % of
$ Revenue $ Revenue
---------- --------- ---------- -------
<S> <C> <C> <C> <C>
Core Operating Costs
--------------------
Total Core Operating
Costs $22,545,508 79% $21,373,090 79%
----------- -----------
Core Center Operating
Profit 5,889,018 21% 5,583,306 21%
----------- -----------
Non-Core Operating Costs
------------------------
Total Non-Core Operating
Costs 3,997,379 96% 5,662,697 87%
----------- -----------
Non-Core Center
Operating Profit 162,481 4% 878,784 13%
----------- -----------
Total Operating
Profit $ 6,051,499 18.6% $ 6,462,090 19.3%
=========== ===========
</TABLE>
Operating profit in the Core centers increased $305,712 or 5.4% due to increases
in revenues. This increase was offset by a $716,303 decrease in operating
profit in the non-Core operations due primarily to the divestiture of twenty
operating centers from January 1992 through December 31, 1993. Total center
operating profit decreased $410,591 (6.3%) to $6,051,499 or 18.6% of revenue for
the year ended December 31, 1993 compared to $6,462,090 or 19.3% of revenue for
the year ended December 31, 1992.
17
<PAGE>
Center operating profit margins have decreased from 19.3% for the year ended
December 31, 1992 to 18.6% for the year ended December 31, 1993. The decrease
was due primarily to slightly higher personnel costs and increased rent costs in
the California schools.
General and administrative costs decreased $390,992 or 13% from $2,946,095 or
8.8% of revenues for the twelve months ended December 31, 1992 to $2,555,103 or
7.8% of revenues for the twelve months ended December 31, 1993. The decrease
was due primarily to salary and benefit savings from the restructuring of
management.
Interest expense in 1992 included a one time reversal of default interest
accrued in prior years totaling $558,000 as a result of restructuring the
Company's debt. Interest expense before the reversal of the default interest
for the twelve months ended December 31, 1992 totaled $2,287,279. Interest
expense for the twelve months ended December 31, 1993 totaled $1,717,933, a
decrease of $569,346 or 25% compared to 1992 before the reversal of default
interest. The decrease in interest expense is due to lower interest rates and
the reduction of debt principal balances resulting from the cash flow from the
Company's operations, the raising of additional equity, and the Southeast
Divestiture.
Other income and expense decreased $78,585 or 67% from $117,832 for the twelve
months ended December 31, 1992 as compared to $39,247 for the same period in
1993. The decrease is primarily due to the loss of rent from the two centers
which the Company re-assumed from previous lease purchase options.
The provision for income taxes is lower than the statutory rate due to the
utilization of net operating loss carryforwards. In 1992, the Company changed
its method of accounting for income taxes through adoption of SFAS 109. In
1993, a $3,778,793 valuation allowance has been recorded against the Company's
deferred tax asset position based on the uncertainty regarding the ultimate
realizability of these deferred tax assets.
Net income before preferred dividends in 1993 totaled $1,708,017 compared to
$1,805,166 in 1992; however, net income in 1992 included a one time $558,000
credit due to the bank's forgiveness of accrued default interest and penalties.
Before this adjustment, 1993 net income before preferred dividends increased
$459,851 or 37%.
An aggregate of $106,686 was paid as dividends on the Company's Preferred Stock
during 1993.
Liquidity and Capital Resources.
--------------------------------
During the twelve months ended December 30, 1994, the Company has continued to
improve its financial structure in order to enable growth through new school and
center development and possible acquisitions.
On August 22, 1994, the Company raised $2,500,000 (before legal costs) through a
private placement of 2.5 million shares of Convertible Series C Preferred stock
at $1.00 per share plus warrants to purchase 1 million shares of Common Stock
(See Recent Developments) to Edison Venture Fund. The capital raised was used
initially to reduce debt balances. The Company plans to use the funds to open
new centers and schools and possible strategic acquisitions.
On June 1, 1994 the Company entered into the Third Amendment to the Amended and
Restated Revolving Credit and Term Loan Agreement with its primary lenders. The
Third Amendment converts the outstanding balance of Term Loan II totaling
$8,585,605 at June 1, 1994 to the Revolving Credit Loan II. Under the Revolving
Credit Loan II the Company may borrow sums, repay and reborrow without penalty
or premium, provided that the outstanding amounts shall at no time exceed the
limit of the Revolving Credit II, which is reduced annually as described below.
In June of 1994, the Company repaid $300,000 from cash flow from operations and
in August of 1994, the Company reduced the Revolving Credit Loan II by
$2,483,000. The balance as of December 30, 1994 was $5,745,675. The unused
portion of the above, totaling $2,740,000, is available as of December 30, 1994.
The Revolving Credit Loan II bears interest at the bank's prime plus one and one
half. Until the Expiration Date (December 30, 1998) interest only is payable on
the 15th day of each month commencing June 15, 1994. The balances are reduced
annually by the following amounts;
18
<PAGE>
$600,000 on December 30, 1995, $600,000 on December 30, 1996, $1,000,000 on
December 30, 1997, $2,150,000 on December 30, 1998, and the remaining balance on
December 31, 1998.
On March 18, 1994 the maturity of the company's principal credit facilities
totaling $11,890,336 were extended from April 30, 1994 to December 31, 1998. The
maturity extension is contained in a Second Amendment to the Company's loan
agreements. Pursuant to the Second Amendment, Term Loan I, having a principal
balance of $3,304,732 on March 18, 1994, remains payable in monthly installments
of $55,555 together with interest, with the balance thereof due on December 31,
1998. Term Loan I bears an interest rate of 11.02%. Revolving Credit Loan II,
having a principal balance of $8,585,605 on March 18, 1994, bears an interest
rate of prime plus one and one-half.
The $1,000,000 existing Revolving Credit Loan ("Revolver") was also extended
through December 31, 1998. Under the previously existing agreements with the
lenders, the Company's cash on deposit plus an unused portion of the Revolver
was limited to an amount not to exceed $1,000,000. Any excess over that amount
was to be used to pay down balances of the credit facilities. This requirement
has been deleted by the Second Amendment which now requires the Company to
reduce the Revolver to zero for thirty (30) consecutive days during each twelve
(12) month period. The Company is required to notify the lenders of the time of
such thirty (30) day cleanup period, which may be selected by the Company.
The Second Amendment provides that the Company is free to open new
centers/schools as long as the Company is not in default; whereas the prior
agreement restricted the number of centers the Company could open.
In order to appeal the judgment entered against the Company in the litigation
with Bright and Sell described under Part II, Legal Proceedings, the Company was
required to post security with the court for payment of the judgment in the
event the judgment is not overturned on appeal. The Company posted the required
security by arranging for the issuance of a letter of credit by its bank in the
amount of $600,000 pursuant to a Fourth Amendment of the Loan Agreement whereby
the bank issued the Letter of Credit, and the available balance of the Company's
Revolving Line of Credit was reduced to $400,000. As additional consideration
for the bank's issuing the Letter of Credit, the Company agreed to pay an annual
fee equal to $15,000 and a one time fee of $2,000.
Total cash and cash equivalents decreased $312,655 from $1,166,541 at December
31, 1993 to $853,886 at December 31, 1994. The decrease was primarily due to 1)
an increase in capital expenditures totaling $453,888, 2) cash used for
acquisitions totaling $196,000 and 3) the reduction of debt totaling $300,000.
The increase in capital expenditures is related primarily to the opening of
three new centers and schools and also to the Company improving equipment and
programs in the schools. During 1994, the Company completed its grammar school
computer enhancement program whereby all computer labs are now utilizing CD-Rom
technologies.
Net cash provided by operations increased by $538,149 from $2,359,765 for the
year ended December 31, 1993 to $2,897,905 for the year ended December 31, 1994
due primarily to the increase in net income offset by other working capital
items.
The working capital deficit increased from ($3,113,982) to ($4,196,958) due to
1) a decrease in cash totaling $312,655 and 2) an increase in the current
portion of long term debt totaling $863,059. One of the Company's debt
facilities totaling $403,079 matures in November of 1995. In addition, there is
a required payment of $600,000 on December 30, 1995 for the Company's principal
debt facilities. The Company intends to refinance both of the facilities.
The Company test marketed an educational catalog in October and November of
1994. 250,000 copies of the catalogue were mailed. The performance of the
catalogue was below management's expectations and management is reviewing
strategic alternatives for the future. Estimated costs for inventory and the
initial project costs are $300,000. This has been funded primarily through cash
from operations and the Revolving Line of Credit. Management does not
anticipate a material amount of cash to be used for the catalogue in 1995.
The Company intends to continue its regrowth strategy and is seeking to
refinance the Company to provide more flexible senior debt and significant
growth capital via additional equity and
19
<PAGE>
or subordinated debt. The Company has opened discussions with several banks and
investment banking concerns relative to achieving the refinancing objective.
The Company's strategy is to continue to open new build-to-suit schools and to
acquire appropriate strategic schools and centers in its core growth areas.
Typically new centers and schools are funded by real estate developers. However,
the Company is pursuing raising capital and/or through a single investor via a
real estate partnership financing the projects until completion then selling and
leasing back the properties. The problem with using various developers is that
it is a slow process. The Company is ready to grow more aggressively and is
analyzing various ways (sale, leaseback) to fund the development process. The
construction projects are approximately $1 million each to build a school with
preopening costs totaling between $75,000 and $90,000 per school or center.
Additionally the Company is also considering various strategic acquisitions.
The acquisitions, if any, will be financed principally through the proceeds of
alternative equity placements or subordinated debt.
Inflation. The Company has not been significantly affected by inflation.
---------
Insurance. Child care companies may not be able to obtain insurance for the
---------
total risks inherent in their operations. Some forms of child abuse have
sublimits per claim in the general liability coverage.
Capital Expenditures. The Company has entered into six lease commitments and
--------------------
one financing agreement for the development of schools in Pennsylvania, New
Jersey, Louisiana, Illinois and California. The company anticipates entering
into additional leases for the building of new schools which are financed
primarily by the builders financial source.
The Company spent approximately $1.4 million in capital expenditures and
acquisitions for the year ended December 31, 1994. Of this amount, approximately
$704,500 was spent on new school and center acquisitions and development,
$81,800 was spent on renovating various playgrounds, $106,800 was spent on
upgrading and installing computer equipment in the schools and $30,700 was spent
on the upgrade of accounting systems in the corporate office. The Company is
continuously maintaining properties and equipment at the schools and centers. In
1994 the Company completed the installation of CD Roms and computers for
educational uses in all of the Merryhill Schools. In 1995 the Company has
budgeted approximately $1,000,000 in capital expenditures of which $325,000 is
for the development of new schools and the remaining $675,000 for maintaining
the existing schools and centers.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
Financial statements and supplementary financial information specified by this
Item, together with the Reports of the Company's independent accountants
thereon, are presented under Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------------------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
None.
20
<PAGE>
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
A.J. Clegg..........55 Chairman of the Board of Directors and Chief
Executive Officer
F.E. Montgomery.....54 President & Chief Operating Officer - employment
terminated in February 1995
Wally T. Orrel......47 Executive Vice President
John Frock..........50 Executive Vice President of Corporate
Development and and Assistant Secretary
D. Scott Clegg......31 Vice President of Merryhill Country Schools
Division
Yvonne DeAngelo.....37 Controller and Secretary
Edward H. Chambers..57 Director
Peter H. Havens.....39 Director
Morgan R. Jones.....55 Director
Janet Katz..........47 Director
Kevin McGovern......45 Director
William Moore.......44 Director and Assistant Secretary
John Martinson......46 Director
</TABLE>
Directors are elected annually and hold such position until their successors are
elected and qualified. Officers serve at the discretion of the Board of
Directors.
A.J. Clegg, 55, was named Chairman of the Board and Chief Executive Officer of
the Company on May 29, 1992. Since 1989 Mr. Clegg has also served on the
Advisory Board of Drexel University. Since June 1990, Mr. Clegg has also served
as the Chairman and CEO of JBS Investment Banking, Ltd., which provides
investment management and consulting services to businesses. In 1979 he
formed Empery Corporation an operator of businesses in the cable and printing
industries and held the offices of Chairman, President and CEO during his tenure
(1979-1993). Additionally, Mr. Clegg served as Chairman and CEO of TVC Inc.
(1983-1993), a distributor of cable television components; and Design Mark
Industries (1988-1993), a manufacturer of electronic senswitches. Mr. Clegg has
also served on the Board of Ferguson International Holdings, PLC, a United
Kingdom company, from March 1990 to April 1991; and was Chairman and CEO of
Globe Ticket and Label Company from December 1984 to February 1991.
Edward H. Chambers, 57, has served as a director of the Company since March
1988. Mr. Chambers has served as Executive Vice President-Finance and
Administration of Wawa, Inc. since March 1988. During the period April 1984
through March 1988, he served as President and Chief Executive Officer, and as a
director of Northern Lites, Ltd., an owner and operator of quick-service
restaurants operating pursuant to a franchise from D'Lites of America, Inc.
From 1982 to July 1984, Mr. Chambers was President-Retail Operations of Kentucky
Fried Chicken Corp., a franchiser of quick-service restaurants. He is a
director of the MDF Division of Davco Restaurants, a franchisee of Wendy's
International, Inc., and is a director of Riddle Memorial Hospital.
John Frock, 50, was named Executive Vice President of Corporate Development on
August 1, 1994. Mr. Frock was elected to the Board of Directors of the Company
on May 29, 1992. In March 1992, Mr. Frock became the President and Chief
Operating Officer of JBS Investment Banking, Ltd., located in Paoli, PA.
Additionally, he has served as the Chairman, President and CEO of SBF
Communication Graphics, a business forms printer located in Philadelphia, PA;
President of Globe Ticket and Label Company, and President of the Graphics Group
of Empery Corporation; and member of the Board of Directors of Empery
Corporation.
Peter H. Havens, 39, was elected to the Board of Directors of the Company in
March 1991. Mr. Havens has served as manager of Kewanee Enterprises, a private
investment firm located in Bryn Mawr, Pennsylvania since 1982. He is also a
director of the Presidio Oil Company, Bryn Mawr Bank Corporation, and Ursinus
College.
21
<PAGE>
Morgan R. Jones, 55, was elected to the Board of Directors of the Company in
February 1991. Mr. Jones has been a partner in the law firm Drinker Biddle &
Reath, Philadelphia, Pennsylvania since 1970, and is presently Chairman and
Chief Executive Officer of the firm. Mr. Jones serves on the Board of Directors
of Mack Printing Companies, Inc.
Janet Lea Katz, 47, has both a Master's and a Doctorate in Education from
Columbia University and is currently the acting principal at Bogert School in
Upper Saddle River, New Jersey. Ms. Katz has held various positions throughout
her career in education including speech arts teacher, coordinator and therapist
for speech and language programs for elementary schools, research assistant for
the study of learning disabilities at Columbia University, and is presently the
curriculum coordinator/consultant for the Upper Saddle River Schools, Upper
Saddle River, New Jersey.
Kevin McGovern, 45, was elected to the Board of Directors of the Company in June
1993. He has served as a principal of McGovern & Associates, a law firm
specializing in corporate law, since 1981. From 1977 through 1980 he served as
general counsel of Clabir Corporation. He is a member of the Executive
Committee of the Connecticut Bar Association Sections on Corporations. He also
serves as a member of the Board of Trustees of Brunswick School.
John Martinson, 46, was elected to the Board of Directors of the Company in
August 1994. Mr. Martinson is Managing Partner of Edison Venture Fund, which he
founded in 1986. He serves on the Board of Directors of the National Venture
Capital Association, BTG, Inc., SubMicron Systems, Inc., and ten private
companies.
William P. Moore, 44, was elected to the Board of Directors of the Company in
January 1993. Mr. Moore is President/CEO of RML Laboratories, Inc., a medical
laboratory that provides diagnostic tests to physicians and other health care
consumers. Mr. Moore was Vice President and Chief Financial Officer of Empery
Corporation from 1987 through 1993, with businesses in the cable and printing
industries. He has also been an advisor or member on boards of directors of
several privately held companies. He continues to be a financial advisor to
Nobel.
Wally T. Orrel, 47, was named Executive Vice President of the Company on January
16, 1995. Mr. Orrel served as Executive Vice President of Nobel Rocking Horse
Child Care Centers since April 26, 1993. He also served as Divisional Vice
President at Kinder-Care Learning Centers where he had responsibility for over
600 locations. Mr. Orrel received a Bachelor of Science in Economics from the
University of South Carolina.
D. Scott Clegg, 31, was named Vice President of Operations for the Merryhill
Country Schools division on June 17, 1993. He was formerly Vice President of
New Business Development at JBS Investment Banking, Ltd. Mr. Clegg also served
as General Manager and Chief Operating Officer of Dynasil Corporation of
America, a public company, and also served as a member of Dynasil's Board of
Directors.
Yvonne DeAngelo, 37, has served as Controller since March of 1989 and was
appointed Secretary in May of 1992. Before joining Nobel Education Dynamics,
Inc., she served as Senior Auditor for Coopers and Lybrand from 1986 to 1989.
Ms. DeAngelo received a Master of Business Administration from Villanova
University.
Mssrs. Clegg, Frock, McGovern, and Moore are the designees of JBS Investment
Banking Ltd. on the Board of Directors. Mr. Scott Clegg, Vice President of
Merryhill Country Schools Division, is the son of Mr. A.J. Clegg, Chairman and
Chief Executive Officer of the Company, and is also a stockholder of JBS
Investment Banking, Ltd.
Mr. John Martinson is the designee of Edison Venture Fund, the majority holder
of the Series C Convertible Preferred Stock which was issued in August of 1994.
(See Recent Developments)
22
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
The following table sets forth the cash and non cash compensation for each of
the last three fiscal years awarded to or earned by the Chief Executive Officer
of the company and by the executive officers who earned more than $100,000
during 1994.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Long Term Compensation Awards
-----------------------------
Annual Compensation Securities
Name & Principal Other Annual Restricted Underlying All Other
Position Year Salary Bonus Compensation Stock Awards Options/SARs(#) Compensation
------------------ ---- ----------------------------- ------------ ------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
A.J. Clegg 1994 $57,851/(1)/ $39,978/(2)/ $ 5,074/(4)/
Chairman and 1993 /(1)/
Chief Executive 1992 /(1)/
Officer
F.E. Montgomery 1994 $158,357 55,650/(2)/ 13,600/(5)/
President and 1993 147,124 52,500/(3)/ 33,715/(5)/ $150,000
Chief Operating
Officer
W. Orrel 1994 $ 83,551 31,040/(2)/ 27,870/(6)/
Exec. Vice 1993 52,165 10,336/(3)/ 22,942/(6)/ 30,000
President
D. Scott Clegg 1994 73,238 13,320/(2)/ 11,963/(7)/
Vice President 1993 38,795 14,391/(3)/ 16,453/(7)/ 25,000
</TABLE>
(1) In August of 1994, Mr. A.J. Clegg was hired as an employee of the Company
in the position of Chairman and Chief Executive Officer. Prior to this
time, Mr. Clegg was the Chairman and Chief Executive Officer of JBS
Investment Banking (Ltd) ("JBS"). On May 29, 1992, pursuant to a private
placement offering, the Company entered into a three (3) year
Administrative Services Agreement with JBS whereby JBS would provide
management and advisory services to the Company and would receive certain
management fees. The fixed fee portion of this agreement was terminated in
August of 1994 when Mr. Clegg joined the Company as a full time employee.
During 1994, 1993 and 1992, respectively, the Company paid fees to JBS
approved by the Board totaling $200,374, $400,000 and $218,469 for the
services of JBS personnel including A.J. Clegg, B. Clegg, T. Fitzgerald, J.
Frock, W. Moore and C. Wisor.
(2) The bonus paid was for the period ended December 31, 1994.
(3) The bonus paid was for the period ended December 31, 1993.
(4) Other annual compensation for Mr. A.J. Clegg in 1994 includes $3,200 for
automobile expenses and $1,874 for health insurance. Mr. A.J. Clegg joined
the Company as a full time employee on August 1, 1994 (see 1 above).
(5) Other annual compensation for Mr. Montgomery included (1) $4,201 and $2,470
for automobile expenses in 1994 and 1993, respectively, (2) $9,399 and
$6,636 for health and life insurance in 1994 and 1993, respectively and (3)
$24,608 for relocation in 1993.
(6) Other annual compensation for Mr. Orrel included (1) $7,800 and $4,550 for
automobile expenses for 1994 and 1993, respectively, (2) $10,070 and $5,894
for health and life insurance in 1994 and 1993, respectively, and (3)
$10,000 and $12,498 for relocation expenses for 1994 and 1993,
respectively. Mr. Orrel joined the Company in April of 1993.
(7) Other annual compensation for Mr. D. Scott Clegg included (1) $6,600 and
$2,475 for automobile expenses in 1994 and 1993, respectively and (2)
$5,653 and $2,413 for health and life insurance in 1994 and 1993,
respectively and (3) $11,565 for relocation expenses in 1993. Mr. Clegg
joined the Company in June of 1993.
23
<PAGE>
Options/SAR Grants in Last Fiscal Year
--------------------------------------
The Company did not grant any options or SARS during 1994 to the named
executives.
Option Exercises in 1994 and
Value of Options at End of 1994
-------------------------------
<TABLE>
<CAPTION>
Number of Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired on Value at End of 1994 at End of 1994
Name Exercise Realized (1) (Exercisable/Unexercisable) (Exercisable/Unexercisable(1)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A.J. Clegg - - - -
F.E. Montgomery - - 100,000 E/50,000 U $37,500 E/$18,750 U
W. Orrel - - 20,000 E/20,000 U $ 3,750 E/$ 3,750 U
D. Scott Clegg - - 15,000 E/10,000 U $ 2,813 E/$ 1,875 U
</TABLE>
(1) Value based on market value of the Company's Common Stock at date of
exercise or end of 1994 minus the exercise price.
None of the above named officers held any SARS at the end of 1994.
Stock Options. On January 22, 1993, the Company issued 150,000 options under
-------------
the 1986 Plan to F.E. Montgomery, the President of the Company, in connection
with his compensation arrangements. These options were issued at fair market
value on January 22 and became exercisable in 3 installments as follows: 50,000
on July 14, 1993; 50,000 on January 14, 1994; and 50,000 on January 14, 1995.
Mr. Montgomery exercised these options on February 24, 1995.
Directors' Compensation. In June 1992 the Company adopted a policy to pay
-----------------------
certain Directors a fee of $1,500 for each board meeting. For the year ended
December 31, 1994, the Company paid $7,500 each to Messrs. Chambers, Frock,
Havens and Moore, $4,500 to Messrs. Jones and Ms. Katz, $3,000 to Mr. Martinson
and $1,500 to Mr. Shemin. For the year ended December 31, 1993, the Company
paid $10,500 each to Messrs. Chambers, Havens, Jones and Shemin, $7,500 to Mr.
McGovern and $3,000 each to Mr. Frock and Mr. Moore totaling $55,500. For the
year ended December 31, 1992 the company paid $3,000 each to Messrs. Chambers,
Shemin, Jones, Havens, and a fifth director who has since resigned, aggregating
$15,000. Directors have from time to time been awarded options to purchase
shares of the Company's Common Stock. See "Stock Options and Stock Grants"
below.
The Compensation Committee of the Board of Directors from January 1994 through
December 14, 1994 and all of 1993 consisted of Messrs. Clegg, Chambers, and
Frock. As of December 14, 1994 the Compensation Committee consisted of Mr.
Chambers and Mr. Havens. This Committee is responsible for establishing
compensation of the Company's executive officers. Mr. Clegg was an officer of
the Company during the period he served on this Committee. Mr. Frock was an
officer of the Company for five months (August thru December 1994) until a new
committee was elected. Messrs. Clegg and Frock are officers of JBS Investment
Banking, Ltd., which has an Administrative Services Agreement with the Company
under which the Company paid JBS an annual fee for management services through
1994. In August of 1994 the Company ceased paying fixed fees to JBS.
Employment Agreements. On January 16, 1995, the Company entered into an
---------------------
employment agreement with Mr. Wally Orrel in the capacity of Executive Vice
President. The agreement states on or about March 1, 1996, after one year of
training by the Chief Executive Officer and growth in managerial capacity
acceptable to the Chief Executive Officer, Mr. Orrel will be considered for
promotion to the position as President and Chief Operating Officer. The
employment
24
<PAGE>
agreement provides for Mr. Orrel's employment for a period commencing on January
16, 1995 and ending January 15, 2000. If the executive is not promoted to the
position as President and COO, the executive shall have the right to terminate
the Employment Agreement and may resign and receive a termination payment of six
times the Executive's base monthly salary plus one month's salary for each full
year of employment.
Additionally, the Company has agreed to pay the Executive effective January 16,
1995 until March 1, 1996 a gross salary at the rate of one hundred and five
thousand dollars ($105,000). On March 1, 1996, the gross salary shall increase
to $125,000 upon promotion to President and Chief Operating Officer.
Additionally, the executive shall be eligible for 1) bonuses according to a
bonus plan approved by the Board of Directors, 2) 125,000 additional stock
options at $1.00 per share vesting at 25,000 shares on each of the anniversary
dates of the execution of this Agreement, 3) group health, life, disability and
retirement plans according to the Employer's policy, 4) automobile allowance of
$650 per month and 5) 3 weeks vacation and four weeks on the fifth anniversary
of the Agreement.
The Executive will not, during the term of the Agreement and for a period of two
years after the term, engage in any business which directly or indirectly
competes with the business of the Company. The only exception to this provision
is in the event the Company does not promote the Executive to President and
Chief Operating Officer by March 1, 1996 and the Executive terminates his
employment then the non-compete period will be limited to six months.
In May 1988, the Company entered into a five-year employment agreement with Mr.
Carneal. On January 13, 1993, the employment of Mr. Douglas E. Carneal was
terminated by the Company pursuant to the provisions of his employment agreement
which permits his discharge for other than cause. At the time of his
termination in 1993, Mr. Carneal was serving as the Company's President and
Chief Operating Officer. Pursuant to the terms of that agreement, Mr. Carneal
received $250,000 per annum in base salary during 1992. Mr. Carneal has a non-
compete agreement with the Company during the term of his employment agreement
and for a two-year period thereafter. In connection with his employment
agreement, Mr. Carneal received $89,428 in compensation from his termination
date of January 13, 1993 to the end of his contract in May of 1993.
Additionally, the Company paid $43,773 in 1993 for premiums for health,
disability, and life insurance, the use of an automobile, interest on a loan and
reimbursement of taxes, pursuant to the terms of his contract and employment.
In May 1988, the Company entered into Executive Compensation and Loan Agreement
with Mr. Carneal in which the Company agreed to (i) reimburse such officer for
any interest on the principal amount of any loans obtained from third party
lenders to exercise his stock options, and for certain income taxes required to
be paid in connection with such reimbursements, and (ii) to loan such officer,
without interest, a sum equal to the amount of federal, state and local tax that
the Company is required to withhold from the officer's salaries on account of
the income he received upon the exercise of all or a portion of his Company
stock options.
Mr. Carneal had obtained loans from third party lenders in the principal amount
of $310,000 to exercise certain options. The repayment of those loans is
secured by a pledge of the shares that were issued upon exercise of the options
and by mortgages on certain real property owned by Mr. Carneal. The Board had
authorized the Company to guarantee the repayment of such loans, but this
guarantee was never effected and would require consent of the Company's lender.
The Company has reimbursed Mr. Carneal for fees and interest incurred in
connection with these loans in 1993.
See Item 3. Legal Proceedings for information relating to litigation between
the Company and Mr. Carneal and between the Company and Julie J. Sells and
Michael J. Bright, Jr. former officers of the Company.
Severance Agreement. In conjunction with his separation from the Company on
-------------------
February 24, 1995, the Company agreed to pay Mr. Montgomery 1) his base pay for
a period of eight months plus three weeks vacation pay for 1995, 2) the payment
of the 1994 performance bonus which is due based on finalization of the
Company's 1994 audited financials, 3) use of the company vehicle for up to
ninety days after the separation and 4) medical insurance for ninety days.
25
<PAGE>
Stock Options and Stock Grants. Options to purchase Common Stock are
------------------------------
outstanding under the Company's 1988 Stock Option and Stock Grant Plan (the
"1988 Plan") and 1986 Stock Option and Stock Grant Plan (the "1986 Plan")
(together, the 1988 Plan and 1986 Plan being referred to as the "Plans").
The Plans provide for the granting of "incentive stock options," as defined in
Section 422A of the Internal Revenue Code of 1986 (the "Code"), and non-
qualified stock options, and the awarding of stock grants, to officers, key
employees, directors and consultants of the company. The Plans are administered
by the compensation committee of the Board of Directors of the Company (the
"Compensation Committee"), which determines the recipients of options and grants
and the price and other terms thereof.
Under the terms of the Plans, incentive stock options are granted as market
value or above, non-qualified stock options are granted at a price fixed by the
Compensation Committee at the date of grant, and all options are exercisable for
up to ten years from the date of grant. Stock grants do not have an exercise
price, but, in the Compensation Committee's discretion, the grants may be
required to purchase the shares of Common Stock covered by the grant for a
nominal amount of cash. Stock granted under the Plans may be reacquired by the
Company prior to the expiration of one or more vesting periods which cannot be
less than one year or more than five years and established by the Compensation
Committee at the time of the grant. Options and Grants held by employees and
directors of the Company will immediately vest on a change of control of the
Company.
Stock Options. On January 22, 1993, the Company issued 150,000 options under
-------------
the 1986 Plan to F.E. Montgomery, the President of the Company, in connection
with his compensation package. These options were issued at fair market value
on January 22 and became exercisable in 3 installments as follows: 50,000 on
July 14, 1993; 50,000 on January 14, 1994; and 50,000 on January 14, 1995. Mr.
Montgomery exercised these options in February of 1995.
The Company issued 30,000 options under the 1986 plan on April 23, 1993 to Wally
T. Orrel, Vice President of Rocking Horse Division, in connection with his
compensation package. These shares were issued at fair market value on April
23, 1993 and vest over three years.
On July 6, 1993, the Company issued 25,000 options under the 1986 Plan to Scott
Clegg, Vice President of Merryhill Division, in connection with his compensation
package. These shares were issued at fair market value on July 6, 1993 and are
exercisable in installments over three years.
On September 10, 1992 the Company issued 81,000 stock options under the 1986
Plan as payment for services to certain outside members of the Board of
Directors which included 27,000 shares each to Messrs. Chambers, Shemin, and
Havens. The stock options were issued at the fair market value on September 10,
1992 or $0.9375. The options became exercisable in two installments and are
presently fully vested.
Compliance with Section 16(a) of the Securities Exchange Act of 1934. Section
--------------------------------------------------------------------
16(a) of the Securities Exchange Act of 1934 requires the Company's directors
and executive officers, and persons who own more than ten percent of its Common
Stock, to file with the Securities and Exchange Commission (the "SEC") initial
reports of ownership and reports of changes in ownership of the Company's Common
Stock. Executive officers, directors and ten percent stockholders are required
by SEC regulations to furnish the company with a copy of all Section 16(a) forms
("Forms 3, 4 and 5") that they file. To the Company's knowledge, based solely
on a review of copies of the Forms 3, 4 and 5 furnished to the Company and
written representations during the period from January 1, 1994 through December
31, 1994, all applicable Section 16(a) filing requirements were compiled with.
26
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------
The tabulation below sets forth the beneficial ownership of the company's Common
Stock by each director, by each executive officer named in Item 11, and
directors of the Company as a group, and of all persons known to the Company
beneficially owning more than 5% of the Company's Common Stock as of March 25,
1995.
<TABLE>
<CAPTION>
Amount and Nature Percent
Title Name of of Beneficial of
of Class Beneficial Owner Ownership of Shares Class/(1)/
-------- ---------------- ------------------- -----
<S> <C> <C> <C>
Common Stock A.J. Clegg 2,126,766 (2) 12.29%
Direct
Common Stock Edward H. Chambers 88,920 (3) *
Direct
Common Stock John Frock 108,800 (4) *
Direct
Common Stock Peter H. Havens 48,436 (5) *
Direct
Common Stock Morgan R. Jones 23,711 (6) *
Direct
Common Stock Janet Katz 117,600 (7) *
Direct
Common Stock Kevin McGovern 12,936 (8) *
Direct
Common Stock F.E. Montgomery 155,880 (9) 1.0%
Direct
Common Stock William Moore 5,880 (10) *
Direct
Common Stock Edison Venture Fund 2,096,774 (11) 11.85%
Direct
Common Stock All officers and directors 4,791,583 23.98%
as a group (12 persons) Direct
</TABLE>
* Less than 1%.
(1) The numbers set forth above reflect the percentage of outstanding Common
Stock currently owned by each entity and person listed and the percentage
of outstanding Common Stock which would be owned by each entity or person
listed upon conversion of the Preferred Stock owned by each assuming the
present conversion rate of 1.176 shares of Common Stock for each share of
Preferred Stock Series A and the conversion rate of one share of Common
for each share Preferred Series C.
(2) Of these shares, 403,226 shares are issuable upon conversion of Series C
Preferred Stock of the Company owned by Mr. Clegg. In addition, Mr. Clegg
is also the beneficial owner of an additional 1,711,540 shares owned of
record by, or issuable upon the exercise of securities of the Company
owned of record by JBS Investment Banking, Ltd., a privately held
corporation of which Mr. Clegg is a director, officer and controlling
stockholder as follows: 412,000 shares of Common Stock owned of record by
JBS; an additional 750,000 shares issuable upon the exercise of warrants
held by JBS; and an additional 561,540 shares of Common Stock issuable
upon the exercise of the Company's Series A Preferred Stock owned of
record by JBS. JBS may also be deemed to be the beneficial owner of these
1,711,540 shares.
27
<PAGE>
(3) Consists of 77,000 shares of Common Stock which Mr. Chambers has the right
to purchase upon the exercise of currently exercisable options, and an
additional 5,880 shares of Common Stock issuable upon the conversion of
the Company's Series A Preferred Stock and 6,040 shares of Common Stock
held by Mr. Chambers.
(4) Consists of 58,800 shares of Common Stock issuable up the conversion of
the Company's Series A Preferred Stock and 50,000 shares of Common Stock
held by Mr. Frock.
(5) Consists of 27,000 shares of Common Stock which Mr. Havens has the right
to purchase upon the exercise of currently exercisable options, an
additional 12,936 shares of Common Stock issuable upon the conversion of
the Company's Series A Preferred Stock, and 8,500 shares of Common Stock
held by Mr. Havens.
(6) Consists of 23,711 shares of Common Stock held by Mr. Jones. Does not
include 7,000 shares owned by Mr. Jones' spouse and 9,000 shares owned by
Mr. Jones' adult children as to which he disclaims beneficial ownership of
shares.
(7) Consists of 117,600 shares of Common Stock issuable upon the conversion of
the Company's Series A Preferred Stock held by Ms. Katz.
(8) Consists of 12,936 shares of Common Stock issuable upon the conversion of
the Company's Series A Preferred Stock held by Mr. McGovern.
(9) Consists of 150,000 shares of Common Stock held by Mr. Montgomery through
the exercise of stock options and 5,880 shares of Common Stock issuable
upon the conversion of the Company's Series A Preferred Stock also held by
Mr. Montgomery.
(10) Consists of 5,880 shares of Common Stock issuable upon the conversion of
the Company's Series A Preferred Stock held by Mr. Moore.
(11) Consists of 2,096,774 shares of Common Stock issuable upon the conversion
of the Company's Series C Preferred Stock held by the Edison Venture
Fund.
28
<PAGE>
The tabulation below sets forth the beneficial ownership of the Company's Series
A Preferred Stock by each director, by each executive officer named in Item 11,
and officers and directors of the Company as a group, and of all persons known
to the Company beneficially owning more than 5% of the Series A Preferred Stock
as of March 24, 1995.
<TABLE>
<CAPTION>
Amount and Nature Percent
Title Name of of Beneficial of
of Class Beneficial Owner Ownership of Shares Class
-------- ---------------- ------------------- -----
<S> <C> <C> <C>
Preferred Stock JBS Investment Banking, 477,500 (1) 19.22%
Series A Ltd. Direct
Preferred Stock Edward H. Chambers 5,000 *
Series A Direct
Preferred Stock John Frock 50,000 2.01%
Series A Direct
Preferred Stock Peter H. Havens 11,000 *
Series A Direct
Preferred Stock Janet Katz 100,000 4.03%
Series A Direct
Preferred Stock Kevin McGovern 11,000 *
Series A Direct
Preferred Stock William Moore 5,000 *
Series A Direct
Preferred Stock F.E. Montgomery 5,000 *
Series A Direct
Preferred Stock All officers and directors 669,500 26.95%
Series A as a group (12 persons) Direct
</TABLE>
(1) Mr. Clegg is the beneficial owner of the 477,500 shares of Series A
Preferred Stock, as he is a director, officer and controlling
shareholder of JBS Investment Banking, Ltd.
The tabulation set below sets forth the beneficial ownership of the Company's
Series C Preferred Stock by each director, by each executive officer named in
Item 11 and officers and directors of the Company as a group, and for all
persons known to the Company beneficially owning more than 5% of the Company's
Series C Preferred Stock at March 24, 1995.
<TABLE>
<CAPTION>
Amount and Nature Percent
Title Name of of Beneficial of
of Class Beneficial Owner Ownership of Shares Class
-------- ---------------- ------------------- -----
<S> <C> <C> <C>
Preferred Stock A.J. Clegg 403,226 16%
Series C
Preferred Stock Edison Venture Fund 2,096,774 84%
Series C
Preferred Stock All officers and
Series C directors as a group
(12 persons) 2,500,000 100%
</TABLE>
29
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
Child Care Investors L.P., Limited (the "Partnership"), a Delaware Limited
partnership, was formed in September 1986 for the purpose of purchasing and
leasing child care centers and other commercial properties. During 1986 and
1987, the Partnership purchased various child care centers and leased them to
the Company. To finance the acquisition of some of these centers, the
Partnership borrowed $3,500,000 from Fidelity Bank, N.A., the repayment of which
has been guaranteed by the Company. This loan was extended until April 1998 and
the balance was approximately $1.8 million.
During 1994 and 1993, legal services were rendered to the Company by Drinker
Biddle & Reath, of which Morgan R. Jones, a director of the Company, is a
partner, Chairman and Chief Executive Officer. The Company expects this firm to
continue to provide such services during 1995. Fees paid to Drinker Biddle &
Reath for 1994 and 1993 total $129,367 and $52,809, respectively.
Mr. A.J. Clegg, the Chairman and Chief Executive Officer, is also the Chairman
and Chief Executive Officer of JBS Investment Banking, Ltd. ("JBS"). On May 29,
1992 the Company entered into a three (3) year Administrative Services Agreement
with JBS whereby JBS would provide management and advisory services to the
Company and will receive management fees from the Company of $250,000 per year.
The Board of Directors approved an additional payment of $150,000 to JBS for
services performed in 1993 beyond the scope of the contract including
divestitures (including the Southeast Divestiture), new center and school
development, acquisition feasibility, new product development, and other
services in 1993. The described fixed fee portions Administrative Services
Agreement was terminated in August of 1994 when Mr. Clegg and Mr. Frock
relinquished their duties at JBS and became full time employees with the
Company. As of December 31, 1994, 1993 and 1992, the Company paid to JBS fees
totaling $200,374, $400,000 and $218,469, respectively.
In connection with the private placement of Preferred Stock Series A an
aggregate of 665,987 shares of the Company were purchased for $665,987 by
various officers, directors and JBS Investment Banking, Ltd. in July of 1993, in
addition to outside shareholders.
In accordance with the private placement agreement of the Series C Preferred
Stock, Edison Venture Fund has the right to designate one director until the
sale or conversion of more than 1,250,000 shares of Series C Preferred Stock.
In August of 1994, Edison Venture Fund appointed Mr. John Martinson, as its
Board designee. Edison Venture Fund beneficially owns 2,096,774 shares of
Series C Preferred Stock.
In November 1994, 403,206 shares of the Series C Preferred Stock were purchased
for $403,206 by A.J. Clegg from the Edison Venture Fund II, PA due to a conflict
within the fund. Edison Venture Funds continues to own the majority of the
Series C Preferred Stock.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
(a) Documents filed as a part of this Report: Reference
---------
(1) Financial Statements:
<S> <C>
Report of Independent Accountants..............F-1
Consolidated Balance Sheets....................F-2
Consolidated Statements of Income..............F-3
Consolidated Statements of Shareholders
Equity.......................................F-4
Consolidated Statements of Cash Flows..........F-5
Notes to Consolidated Financial Statements.....F-7
</TABLE>
Financial Statement Schedules have been omitted as not applicable or not
required under the instructions contained in Regulation S-X or the
information is included elsewhere in the financial statements or notes
thereto.
(b) Exhibits required to be filed by Item 601 of Regulation S-K:
Exhibits identified in parentheses below, on file with the Commission,
are incorporated herein by reference as exhibits hereto.
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
the Board of Directors of
Nobel Education Dynamics, Inc.
We have audited the accompanying consolidated financial statements of Nobel
Education Dynamics, Inc. and subsidiaries as listed in Item 14 (a) of this Form
10-K. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Nobel Education
Dynamics, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 21, 1995, except
for Note 16, as to which
the date is March 10, 1995
F-1
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
____________
<TABLE>
<CAPTION>
December 31,
----------------------------
ASSETS 1994 1993
------ ---- ----
<S> <C> <C>
Cash and cash equivalents $ 853,886 $ 1,166,541
Accounts receivable, less allowance for
doubtful accounts of $96,282 in 1994 614,640 402,400
and $88,060 in 1993
Notes receivable 45,114 49,114
Prepaid insurance 169,404 63,430
Prepaid expenses and other 636,616 755,407
------------ ------------
Total Current Assets 2,319,660 2,436,892
------------ ------------
Property and equipment, at cost 13,398,969 12,069,646
Accumulated depreciation (4,216,505) (3,462,850)
------------ ------------
9,182,464 8,606,796
Property and equipment held for sale 1,266,648 1,648,065
Cost in excess of net assets acquired 8,887,995 8,923,433
Deposits and other assets 1,066,926 997,341
Deferred tax asset 510,300 -
------------ ------------
Total Assets $ 23,233,993 $ 22,612,527
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Revolving Line of Credit (unused $ - $ -
portion $400,000)
Current portion of long-term obligations 1,767,756 904,697
Current portion of capital lease 57,194 62,484
obligations
Accounts payable and other current 4,594,768 4,454,220
liabilities
Reserve for restructuring 96,900 129,473
------------ ------------
Total Current Liabilities 6,516,618 5,550,874
------------ ------------
Long-term obligations 7,846,151 12,544,532
Capital lease obligations 371,543 428,737
Deferred gain on sale/leaseback 63,303 71,294
Minority interest in consolidated 138,073 285,308
subsidiary ------------ ------------
Total Liabilities 14,935,688 18,880,745
------------ ------------
Commitments and Contingencies (Notes 3,
7, 9, and 15)
Shareholders' Equity:
Preferred stock, $.001 par value;
10,000,000 shares authorized,
2,500,000 issued in 1994 and 2,484,320 4,984 2,484
issued in 1993
Common stock, $.001 par value,
50,000,000 shares authorized, issued
27,000 shares in 1994 and 15,418,063 15,445 15,418
in 1993
Additional paid-in capital 19,644,922 17,222,137
Accumulated deficit (11,367,046) (13,508,257)
------------ ------------
Total Shareholders' Equity 8,298,305 3,731,782
------------ ------------
Total Liabilities and Shareholders' $ 23,233,993 $ 22,612,527
Equity ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
_______
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Revenues $34,371,501 $32,594,386 $33,497,877
----------- ----------- -----------
Operating expenses:
Personnel costs 15,285,330 14,521,170 14,751,797
Center operating costs 5,482,016 4,997,153 5,252,660
Insurance, taxes, rent
and other 6,329,865 5,880,600 5,789,941
Depreciation and
amortization 1,063,326 1,143,964 1,241,389
----------- ----------- -----------
28,160,537 26,542,887 27,035,787
----------- ----------- ----------
Center operating profit 6,210,964 6,051,499 6,462,090
----------- ----------- ---------
General and administrative expenses 2,896,076 2,555,103 2,946,095
Operating income 3,314,888 3,496,396 3,515,995
----------- ----------- -----------
Interest expense 1,222,971 1,717,933 1,729,279
Other (income) expense 106,960 (39,247) (117,832)
Minority interest in income of
consolidated subsidiary 83,491 88,693 63,382
----------- ----------- -----------
Income before income taxes 1,901,466 1,729,017 1,841,166
Income tax (benefit) expense (438,300) 21,000 36,000
----------- ----------- -----------
Net Income $ 2,339,766 $ 1,708,017 $ 1,805,166
----------- ----------- -----------
Preferred stock dividends 198,555 106,686 -
----------- ----------- -----------
Net income available to
common shareholders $ 2,141,211 $ 1,601,331 $ 1,805,166
=========== =========== ===========
Primary earnings per share $0.13 $0.10 $0.12
=========== =========== ===========
Fully diluted earnings per share $0.12 $0.10 $0.12
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-In Accumulated
------------------ -------------------
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ --------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1992 - $ - 11,418,063 $11,418 $13,119,301 $(16,914,754) $(3,784,035)
========= ======== ========== ======= =========== ============ ===========
Proceeds of Private Placement
Offering - - 4,000,000 4,000 1,696,000 - 1,700,000
Net Income - - - - - 1,805,166 1,805,166
--------- -------- ---------- ------- ----------- ------------ -----------
December 31, 1992 - $ - 15,418,063 $15,418 $14,815,301 $(15,109,588) $ (278,869)
========= ======== ========== ======= =========== ============ ===========
Issuance of Preferred Stock
less transaction costs 2,484,320 2,484 - - 2,406,836 - 2,409,320
Preferred Dividends - - - - - (106,686) (106,686)
Net Income - - - - - 1,708,017 1,708,017
--------- ------- ---------- ------- ----------- ------------ -----------
December 31, 1993 2,484,320 $2,484 15,418,063 $15,418 $17,222,137 $(13,508,257) $ 3,731,782
========= ======= ========== ======= =========== ============ ===========
Stock Options Exercised - - 27,000 27 25,285 - 25,312
Issuance of Preferred Stock
less transaction costs 2,500,000 2,500 - - 2,397,500 - 2,400,000
Preferred Dividends - - - - - (198,555) (198,555)
Net Income - - - - - 2,339,766 2,339,766
--------- ------- ---------- ------- ----------- ------------ -----------
December 31, 1994 4,984,320 $4,984 15,445,063 $15,445 19,644,922 $(11,367,046) $ 8,298,305
========= ======= ========== ======= =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1994 1993 1992
----- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 2,339,766 $ 1,708,017 1,805,166
----------- ----------- -----------
Adjustment to Reconcile Net Income
to Net Cash Provided by
Operating Activities:
Depreciation and amortization 1,063,326 1,143,964 1,241,389
Depreciation related to non-operating
centers 90,646 102,649 78,527
Provision for losses on accounts receivable 119,212 63,134 83,961
Minority interest in income 83,491 88,693 63,382
Waiver of bank default interest and fees - - (558,000)
Reversal of tax valuation allowance (510,300) - -
Deferred gain amortization (7,991) (7,991) (7,991)
Changes in Assets and Liabilities Net of
Acquisitions (increase) decrease in:
Accounts receivable (331,452) 7,213 (42,711)
Prepaid assets 12,817 (337,567) (17,306)
Other assets and liabilities (69,585) (110,133) 56,724
Accounts payable and accrued expenses 140,548 99,119 (44,644)
Reserve for restructuring (32,573) (397,342) (650,245)
----------- ----------- -----------
Total Adjustments 558,139 651,739 203,086
Net Cash Provided by Operating Activities 2,897,905 2,359,756 2,008,252
----------- ----------- -----------
Cash Flows from Investing Activities:
Capital expenditures (1,372,384) (914,996) (491,919)
Proceeds from sale of property and
equipment 463,760 2,324,278 2,643,280
Payment for acquisitions (210,161) - -
Payment received from notes receivable - 120,630 43,303
----------- ----------- -----------
Net Cash Provided by
(Used in) Investing Activities (1,118,785) 1,529,912 2,194,664
----------- ----------- -----------
Cash Flows from Financing Activities:
Transaction costs related to
issuance of stock (100,000) (78,320) (300,000)
Proceeds from issuance of common stock 25,312 - 2,000,000
Dividends paid to minority shareholders (230,726) - -
Repayment of long-term debt (4,025,322) (4,939,104) (5,362,911)
Repayment of capital lease obligation (62,484) (59,162) (104,149)
Proceeds from issuance of preferred stock 2,500,000 1,616,000 -
Dividends paid to preferred stockholders (198,555) (106,686) -
----------- ----------- -----------
Net Cash Used in Financing Activities (2,091,775) (3,567,272) (3,767,060)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents (312,655) 322,396 435,856
Cash and cash equivalents at beginning
of year 1,166,541 844,145 408,289
----------- ----------- -----------
Cash and cash equivalents at end of year $ 853,886 $ 1,166,541 $ 844,145
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULES FOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
_______
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Supplemental Disclosures of Cash
Flow Information
Cash paid during year for:
Interest $1,228,431 $1,739,913 $2,773,734
---------- ---------- ----------
Income taxes $ 64,721 20,855 30,379
---------- ---------- ----------
Non-cash financing and investing
activities
Exchange of 768,320 shares of preferred
stock for payment of debt $ $ 868,320 $
Sale of furniture and equipment and
buildings for Notes Receivable $ $ 425,000 $ 191,695
Acquisition of furniture and
equipment with Notes Payable $ 190,000 $ $
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND COMPANY BACKGROUND:
-----------------------------------------------------------------
Nobel Education Dynamics, Inc. (formerly, The Rocking Horse Child Care
Centers of America, Inc.) (the "Company") was founded in 1982 and commenced
operations in 1984.
Principles of Consolidation:
---------------------------
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries and majority-owned subsidiary. All
significant intercompany balances and transactions have been eliminated.
Fiscal Year:
-----------
The Company's fiscal year ends the last Friday in December. There were 53
weeks in fiscal 1994, and 52 weeks in fiscal 1993 and 1992.
Recognition of Revenues and Preopening Expenses:
-----------------------------------------------
Revenue is recognized as the services are performed. Expenses associated
with opening new centers are charged to expense as incurred.
Cash and Cash Equivalents:
-------------------------
The Company considers cash on hand, cash in banks, and cash investments
with maturities of three months or less when purchased as cash and cash
equivalents.
Property and Equipment:
----------------------
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the related assets as follows:
Buildings 40 years
Leasehold improvements and The shorter of the leasehold
assets under capital lease period or useful life
Furniture and equipment 3 to 10 years
Maintenance, repairs and minor renewals are expensed as incurred. Upon
retirement or other disposition of buildings and furniture and equipment,
the cost of the items, and the related accumulated depreciation are removed
from the accounts and any gain or loss is included in operations.
Cost in Excess of Net Assets Acquired:
-------------------------------------
The excess of purchase price over net assets acquired is amortized on a
straight-line basis over a period of 40 years. Amortization expense
amounted to $253,514, $261,279, and $255,811 for the years ended December
31, 1994, 1993 and 1992, respectively. Accumulated amortization at
December 31, 1994 and 1993 was $1,601,211 and $1,347,697, respectively.
The Company assesses potential impairment by comparing the carrying value
of Cost in Excess of Net Assets Acquired at the balance sheet date with
anticipated undiscounted future operating income before amortization.
F-7
<PAGE>
Income Taxes:
------------
The Company adopted Statement of Financial Accounting Standard (SFAS) No.
109, Accounting for Income Taxes effective January 1, 1992, which requires
a change from the deferred method to the asset and liability method of
accounting for income taxes. Under the asset and liability method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future
years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities. Under SFAS No. 109, the
effect on deferred taxes of a change in tax rate is recognized in income in
the period of enactment. A valuation allowance is recorded based on the
uncertainty regarding the ultimate realizability of deferred tax assets.
Earnings Per Share:
------------------
Earnings per share are based on the weighted average number of shares
outstanding and common stock equivalents during the period. On a fully-
diluted basis, both net earnings and shares outstanding are adjusted to
assume conversion of convertible preferred stock from the date of issue.
The number of shares used for computing primary and fully diluted earnings
per share was as follows:
<TABLE>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Primary 16,078,702 15,896,624 13,997,162
Fully diluted 20,148,010 17,583,892 13,997,162
</TABLE>
(2) CHANGE IN CONTROL:
-----------------
On May 29, 1992, pursuant to various purchase agreements the Company issued
four million (4,000,000) shares of the Company's Common Stock at fifty
cents ($.50) per share (the "Shares") and warrants to purchase an
additional one million one hundred thousand (1,100,000) shares of the
Company's Common Stock at fifty cents ($.50) per share (the "Warrants") in
a private placement to a limited number of accredited investors (the
"Offering").
Pursuant to a stock and warrant purchase agreement dated April 14, 1992
between the Company and JBS Investment Banking, Ltd. ("JBS"), JBS purchased
four hundred thousand (400,000) of the Company's Shares and a Warrant to
purchase an additional seven hundred fifty thousand (750,000) shares of the
Company's Common Stock. The aggregate consideration for the Shares and the
Warrant acquired by JBS was $200,083.
Pursuant to the agreement, JBS has the ability to designate four of the
eight directors of the Company, one of whom, A.J. Clegg has become Chairman
and Chief Executive Officer of the Company.
(3) RESTRUCTURING:
-------------
In 1990 management initiated a restructuring plan which consisted of
selling operations which do not fit with its long term strategic goals and
emphasizing new center development in the Mid-Atlantic region (Delaware,
New Jersey, North Carolina, Pennsylvania and Virginia) and California. As
a result, the Company recorded a $4.9 million restructuring charge in 1990
and an additional $4.8 million in 1991.
F-8
<PAGE>
The restructuring plan initiated in 1990 included the disposition of 48
centers located in Florida, Georgia and South Carolina, one center in New
Jersey which was not maintaining positive cash flow, and divestiture of
seven centers in Georgia and Florida developed for the Company but not
operated. These 48 centers were composed of 24 centers owned by the
Company, 14 centers leased from Child Care Investors L.P., Limited ("CCI")
(see Note 7) and 10 centers leased from third parties.
In 1993, the Company sold 12 centers in Georgia and Florida to Children
Today of Georgia, Inc., a Georgia corporation ("Children Today") and
related affiliates and entities (the "December Closing"). At the December
Closing, the Company received the $425,000 note and proceeds of $2,490,000.
The $425,000 note bears interest at the rate of 8% and is payable over ten
years with the first five years of payments consisting of interest only.
Beginning in the sixth year, payments of principal and interest will be
amortized over a ten year period with the unpaid principal balance and
accrued interest due on the tenth anniversary of the note. The note is
collateralized by the properties sold and certain other assets of Children
Today. In 1994, the Company sold an additional center to Children Today.
The Company has also agreed not to own or operate additional child care
centers in Georgia or Florida for a period of three years from the date of
the closing, except in the event of certain limited circumstances.
As of December 31, 1994 (including the partial Southeast divestiture), the
Company sold twenty-one centers, leased with the option to purchase four
centers, terminated the leases of seven centers, assigned or subleased five
centers, merged one center into another, closed three centers and is
continuing to operate seven centers remaining to be divested.
The revenues and operating losses before general and administrative costs
of the centers remaining to be divested are $2,126,403 and $155,690,
respectively for the year ended December 31, 1994.
Remaining Property and Equipment Held for Sale:
----------------------------------------------
Management has estimated the market price of its remaining properties being
held for sale based on recent center sales, investment banker analysis, and
the Company's current marketing strategy.
Below is a schedule of activity of property and equipment held for sale and
related depreciation for the years ended 1994 and 1993:
F-9
<PAGE>
<TABLE>
<CAPTION>
Property and Equipment at Cost:
------------------------------
Beginning Ending
Balances Balances
12/31/93 Additions Disposals Transfers 12/31/94
-------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Land $ 607,531 - $ (45,000) $ - $ 562,531
Buildings 2,394,482 $ 23,232 (313,620) - 2,104,094
FFE 677,371 32,511 (83,090) - 626,792
---------- ---------- ----------- -------- ------------
$ 3,679,384 $ 55,743 $ (441,710) $ - $ 3,293,417
=========== =========== =========== ======== ============
Accumulated Depreciation:
------------------------
Beginning Ending
Balances Non-Operating Balances
12/31/93 Additions Disposals Depreciation 12/31/94
-------- --------- --------- ------------- --------
Land - - - - -
Building $ (337,047) $ (24,129) $ 58,221 $(38,149) $ (341,104)
FFE (480,914) (35,943) 69,085 (52,497) $ (500,269)
----------- ---------- ----------- -------- -----------
(817,961) (60,072) 127,306 (90,646) (841,373)
----------- ---------- ----------- -------- -----------
Net book value 2,861,423 (4,329) (314,404) (90,646) 2,452,044
Reserve (1,213,358) (1,185,396)
----------- -----------
Estimated net
realizable
value $ 1,648,065 $ 1,266,648
=========== ===========
Beginning Ending
Balances Balances
12/31/92 Additions Disposals Transfers 12/31/93
-------- --------- -------- --------- --------
Land $ 1,631,288 - $(1,023,757) $ - $ 607,531
Buildings 5,360,334 $ 45,170 (3,011,022) - 2,394,482
FFE 1,269,468 126,727 (718,824) - 677,371
----------- ----------- ----------- -------- -----------
$ 8,261,090 $ 171,897 $(4,753,603) $ - $ 3,679,384
=========== =========== =========== ======== ===========
Accumulated Depreciation:
------------------------
Beginning Ending
Balances Non-Operating Balances
12/31/92 Additions Disposals Depreciation 12/31/93
-------- --------- --------- ------------- --------
Land - - - - -
Building $ (611,960) $ (85,933) $ 405,388 $(44,542) $ (337,047)
FFE (758,268) (106,073) 438,372 (54,945) $ (480,914)
---------- --------- ----------- -------- -----------
(1,370,228) (192,006) 843,760 (99,487) (817,961)
---------- --------- ----------- -------- -----------
Net book value 6,890,862 (20,109) (3,909,843) (99,487) 2,861,423
Reserve (3,152,624) (1,213,358)
----------- --------- ----------- -------- -----------
Estimated net
Realizable
value $ 3,738,238 $ 1,648,065
=========== ===========
</TABLE>
F-10
<PAGE>
The change in reserve for restructuring includes the loss from disposition
of property and equipment as well as other assets and costs associated with
maintaining closed centers.
(4) CASH EQUIVALENTS:
----------------
The Company has an agreement with its primary bank that allows the bank to
act as the Company's principal in making daily investments with available
funds in excess of a selected minimum account balance. This investment
amounted to $987,204 and $790,156 at December 31, 1994 and 1993,
respectively. In 1994 and 1993, the Company's funds were invested in money
market accounts which exceed federally insured limits. The Company
believes it is not exposed to any significant credit risk on cash and cash
equivalents.
(5) PROPERTY AND EQUIPMENT:
-----------------------
The balances of major property and equipment classes excluding property and
equipment held for sale were as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1994 1993
---- ----
<S> <C> <C>
Land $ 1,653,812 $ 1,831,130
Buildings 4,929,060 4,858,226
Assets under capital lease
obligations 912,781 912,781
Leasehold improvements 1,837,057 1,348,170
Furniture and equipment 4,066,259 3,114,823
Construction in progress - 4,516
----------- -----------
13,398,969 12,069,646
Accumulated depreciation (4,216,505) (3,462,850)
----------- -----------
$ 9,182,464 $ 8,606,796
=========== ===========
</TABLE>
Lease amortization of capital leases included in depreciation expense
amounted to $14,640, $14,640 and $57,189 for the years 1994, 1993, and
1992, respectively.
F-11
<PAGE>
(6) LONG-TERM OBLIGATIONS:
----------------------
Long-term obligations consisted of the following at:
<TABLE>
<CAPTION>
December 31,
-------------------
1994 1993
---- ----
<S> <C> <C>
Term Loan I $ 2,402,871 $ 3,523,779
Revolving Credit Loan II 5,745,675 8,598,701
Revolving Credit Line (unused portion
$400,000) - -
1/st/ mortgages, due in varying installments
over three to twenty years with
fixed interest rates ranging from 9.4%
to 12%. 818,468 857,959
1/st/ mortgage, due in varying installments
over six to fifteen years with variable
interest rates ranging from prime plus
1 1/2% to prime plus 2%, weighted average
interest rate of 8.25% in 1994 and 7.0%
in 1993. 403,079 433,103
Notes payable to sellers from various
acquisitions, due in varying installments
over three to fifteen years with a fixed
interest rate of 8% to 12%. 198,137 13,280
Notes payable to vendors for property and
equipment with fixed interest rates
varying from 8.0% to 17.5%. 45,677 22,407
----------- -----------
Total debt $ 9,613,907 $13,449,229
Less Current Portion (1,767,756) (904,697)
----------- -----------
$ 7,846,151 $12,544,532
=========== ===========
</TABLE>
On March 18, 1994, the Company entered into the "Second Amendment to
Amended and Restated Revolving Credit and Term Loan Agreement" (the "Second
Amendment") with its primary senior lender (referred to as the "Bank").
The Second Amendment extends the maturity of the Company's principal credit
facilities until December 31, 1998. Term Loan I is payable in monthly
installments of $55,555 together with interest with the balance due on
December 31, 1998. Term Loan I bears an interest rate of 11.02%.
On June 1, 1994 the Company entered into the "Third Amendment to the
Amended and Restated Revolving Credit and Term Loan Agreement" with the
Bank. The Third Amendment converts the outstanding balance of Term Loan II
totaling $8,585,605 at June 1, 1994 to the Revolving Credit Loan II. Under
the Revolving Credit Loan II the Company may borrow sums, repay and
reborrow without penalty or premium, provided that the outstanding amounts
shall at no time exceed the limit of the Revolving Credit II, which is
reduced annually as described below.
Revolving Credit Loan II bears an interest rate of prime plus one and one
half and requires scheduled principal payments as follows: $600,000 on
December 30, 1995; $600,000 on December 30, 1996; $1,100,000 on December
30, 1997; and $2,150,000 on December 30, 1998 with the remainder due
December 31, 1998.
F-12
<PAGE>
The $1,000,000 Revolving Credit Loan was also extended through December 31,
1998. The Second Amendment requires the Company to reduce the Revolving
Credit Loan to zero for thirty consecutive days during each twelve month
period. At its discretion, the Company will notify the Banks at the time
such thirty day clean up period commences. Additionally, the Company is
required to pay the Banks a commitment fee equal to one-half of one percent
per year of the average daily unused portion of the Revolving Credit Loan.
These loans are collateralized by all real property owned by the Company or
its subsidiaries.
In order to appeal the judgment entered against the Company in the
litigation with certain former officers described in footnote 15, the
Company was required to post security with the court for payment of the
judgment in the event the judgment is not overturned on appeal. The
Company posted the required security by arranging for the issuance of a
letter of credit by its bank in the amount of $600,000 pursuant to a Fourth
Amendment of the Loan Agreement whereby the bank issued the Letter of
Credit, and the available balance of the Company's Revolving Line of Credit
was reduced to $400,000. As additional consideration for the bank's
issuing the Letter of Credit, the Company agreed to pay an annual fee equal
to $15,000 and a one time fee of $2,000.
The Second Amendment requires the Company to comply with certain non-
financial covenants as well as certain financial covenants. These
financial covenants include maintaining operating profit and earnings
before interest and taxes of not less than 85%, 80%, 80%, and 75% of the
1994, 1995, 1996, and 1997-1998 projections in the business plan presented
to the Banks. Also, the Company is required to increase shareholder's
equity by at least $400,000 in 1994; $817,600 in 1995; $1,076,800 in 1996;
$1,431,000 in 1997; and $2,055,750 in 1998. These amounts set forth are
exclusive of new equity raised through public offerings or private
placements. These loans restrict the ability of the Company to pay
dividends without prior consent of the Bank. In addition, these loans are
collateralized by substantially all of the real property owned by the
Company.
Additionally, the Second Amendment requires that all proceeds from the sale
of assets of which the banks have a recorded mortgage or security interest
shall be applied in the following order 1) to repay amounts outstanding
under either the Term Loan I or Term Loan II at the Borrower's discretion
in the inverse order of maturity; and, 2) to be applied to the outstanding
principal balance of the Revolving Credit Loan which amounts may be
reborrowed subject to the terms of the agreement.
Maturities of long-term obligations are as follows: $1,767,756 in 1995,
$1,420,644 in 1996, $1,864,783 in 1997, $3,952,403 in 1998, $448,510 in
1999 and $159,660 in 2000 and thereafter.
(7) CHILD CARE INVESTORS, L.P. DEBT FACILITY:
----------------------------------------
Child Care Investors, L.P. ("CCI") is a limited partnership that was
organized for the purpose of acquiring facilities for lease to the Company
for operation as child care centers. In 1986 and 1987, CCI purchased
various facilities and leased them to the Company for this purpose. To
finance the acquisition of some of these facilities, CCI borrowed
approximately $2.5 million from Fidelity Bank, N.A., the repayment of which
has been guaranteed by the Company. Such two CCI bank loans total
$1,520,864 as of December 31, 1994. This bank loan was also automatically
extended through December 31, 1998, when the Company extended its Credit
Agreement (see Note 6).
F-13
<PAGE>
(8) ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES:
----------------------------------------------
Accounts payable and accrued expenses were as follows:
<TABLE>
<CAPTION>
December 31,
------------
1994 1993
---- ----
<S> <C> <C>
Accounts payable $ 560,993 $ 597,729
Accrued payroll and
related items 581,719 262,390
Accrued rent 514,138 619,162
Unearned income 1,225,447 1,244,487
Other accrued expense 1,712,471 1,730,452
---------- ----------
$4,594,768 $4,454,220
========== ==========
</TABLE>
(9) LEASE OBLIGATIONS:
-----------------
Future minimum rentals, for the real properties utilized by the Company and
its subsidiaries, by year and in the aggregate, under the Company's capital
leases and noncancelable operating leases, excluding leases assigned,
consisted of the following at December 31, 1994:
<TABLE>
<CAPTION>
Operating Leases
----------------
Operating
Centers
Closed to be Continuing
Centers Divested Centers Total
------- -------- ---------- -----
<S> <C> <C> <C> <C>
1995 $ 85,018 $409,566 $ 4,423,550 $ 4,918,134
1996 50,155 307,175 4,116,421 4,473,751
1997 - - 3,699,197 3,699,197
1998 - - 3,100,653 3,100,653
1999 - - 2,303,643 2,303,643
2000 and thereafter - - 14,210,740 14,210,740
-------- --------- ----------- -----------
Total minimum lease
obligations $135,173 $716,741 $31,854,204 $32,706,118
======== ========= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Captial Leases
--------------
<S> <C>
1995 $110,219
1996 96,264
1997 97,708
1998 99,173
1999 100,660
2000 and thereafter 127,808
---------
Total minimum lease obligations 631,832
---------
Less amount representing interest 203,095
---------
Present value of capital lease obligations 428,737
---------
Less current portion 57,194
--------
$371,543
========
</TABLE>
F-14
<PAGE>
Most of the above leases contain annual rental increases based on changes
in consumer price indexes, which are not reflected in the above schedule.
Rental expense for all operating leases was $4,444,735, $3,996,986, and
$3,865,525 in 1994, 1993, and 1992, respectively. These leases are
typically triple-net leases requiring the Company to pay all applicable
real estate taxes, utility expenses and insurance costs.
Since the initiation of the restructuring, the Company entered into
agreements to assign or sublease leases for five of the centers under
development, and nine centers which were operating. The fourteen assigned
leases have remaining terms from four years to fourteen years. Under the
agreements, the Company is contingently liable if the assignee is in
default under the lease. Contingent future rental payments under the
assigned leases are as follows:
<TABLE>
<S> <C>
1995 $ 911,408
1996 888,953
1997 724,567
1998 688,125
1999 673,733
2000 and thereafter 4,185,215
</TABLE>
(10) SHAREHOLDERS' EQUITY:
--------------------
Preferred Stock:
---------------
On August 22, 1994, the company completed a private placement of an
aggregate of 2.5 million shares of Series C Convertible Preferred Stock,
Series 1 Warrants for the purchase of up to 500,000 shares of the Company's
Common Stock, and Series 2 Warrants for the purchase of up to 500,000
shares of the Company's Common Stock, for an aggregate purchase price of
$2,500,000. The Preferred shares, with a par value of $.001, are
convertible into Common Stock at an initial conversion rate, subject to
adjustment, of one share of Common Stock for each share of Series C
Convertible Preferred Stock. The Series 1 Warrants become exercisable at
$1.00 per share, subject to adjustment, on the first date on or after
February 19, 1995 when the average fair market value of the Company's
Common Stock, for each business day in the prior 6 months, equals or
exceeds $1.75 per share. The Series 1 Warrants expire on August 19, 2001.
The Series 2 Warrants become exercisable at $1.00 per share, subject to
adjustment, on January 1, 1997; provided, however, that the Series 2
Warrants will expire prior to that date if the fair market value of the
Company's Common Stock, for each business day in any period of 20
consecutive business days ending on or prior to December 31, 1996, equals
or exceeds $3.00 per share. If the Series 2 Warrants have not expired
prior to January 1, 1997 they expire on August 19, 2001. Pending their use
for the development of new schools and child care centers, possible
strategic acquisitions and new products, the proceeds of this placement
totaling approximately $2,458,000 after legal costs and other fees were
used initially to reduce temporarily the balance of the Revolving Credit
Loan II. As of December 31, 1994, 2,500,000 shares were outstanding.
On July 20, 1993, the Company completed a private placement of 2,484,320
shares of its Series A Convertible Preferred Stock (the Preferred Stock) at
a purchase price of $1.00 per share. The Preferred Stock is convertible
into Common Stock at an initial conversion rate of 1.176 shares of Common
Stock for each share of Preferred Stock so converted. The conversion rate
is subject to adjustment upon the occurrence of certain events including
the sale of Common Stock at a price less than the effective conversion
price of the Preferred Stock, which initially is $.85 per share. The
Preferred Stock is redeemable by the Company at any time after the fifth
anniversary of their issuance at a redemption price of $1.00 per share plus
cumulative unpaid dividends. The Preferred Stock is not redeemable at the
option of their holders. Of the 2,484,320 Preferred Shares ("Shares")
issued, 768,320 Shares were issued in exchange for the reduction of a CCI
Note payable. Another 100,000 Shares were issued in exchange for the
reduction of the principal debt facilities. Additionally, 1,616,000 Shares
were
F-15
<PAGE>
issued raising $1,616,000 in cash proceeds. $1,000,000 was used to repay
principal credit facilities, $537,680 for the remainder of a CCI Note
payable, and approximately $78,000 for transaction costs. As of December
31, 1994 and 1993, 2,484,320 shares were outstanding.
Each share of Preferred Stock entitles the holder to a number of votes
equal to the number of full shares of Common Stock into which such share is
then convertible. Except as otherwise required by law, holders of
Preferred Stock vote together with the Common Stock and not as a separate
class, in the election of directors and on each other matter submitted to a
vote of the stockholders.
Each share of Preferred Stock will entitle the holder to receive $1.00 plus
cumulative unpaid dividends upon the liquidation, dissolution or winding up
of the Company before any liquidation payments are made to the holders of
the Common Stock. The Preferred Stock does not have any preemptive rights
to subscribe for or purchase any securities proposed to be issued by the
Company.
Capital Stock and Warrants:
--------------------------
In May of 1992 the Company raised $2,000,000 before transaction costs from
the private sale of 4,000,000 shares of common stock. In connection with
the private placement, an additional 1,100,000 warrants to purchase the
Company's common stock were issued. The Company registered these shares in
February 1994. The warrants are exercisable at .50 cents per share and
expire on May 29, 1997.
1988 Stock Option and Stock Grant Plan:
---------------------------------
During 1988, the Company established the 1988 stock option and stock grant
plan. This plan reserves up to an aggregate of 500,000 shares of common
stock of the Company for issuance in connection with stock grants,
incentive stock options and non-qualified stock options.
1986 Stock Option and Stock Grant Plan:
--------------------------------------
During 1986, the Company established a stock option and stock grant plan,
which was amended in 1987. The 1986 Plan, as amended, reserves up to an
aggregate of 867,000 shares of common stock of the Company for issuance in
connection with stock grants and upon the exercise of incentive stock
options and non-qualified stock options. Of these 867,000 shares, not more
than 30,000 shares can be awarded as stock grants.
The number of options granted under the Stock Option and Stock Grant Plans
is determined from time to time by the Compensation Committee of the Board
of Directors. Incentive stock options are granted at market value or
above, and non-qualified stock options are granted at a price fixed by the
Compensation Committee at the date of grant. Options are exercisable for
up to ten years from date of grant and generally vest over a one to three
year period. Options and grants held by employees and directors of the
Company will immediately vest on a change of control of the Company.
F-16
<PAGE>
Option activity with respect to the 1988 and 1986 plans was as follows:
<TABLE>
<CAPTION>
Outstanding Options
-----------------------------
Number Range
------ -----
<S> <C> <C> <C>
Balance, January 1, 1992 223,100 $1.00 to $3.25
Granted 81,000 $0.9375
Canceled (16,300) $1.00 to $2.75
Exercised - - -
-------- --------------------
Balance, December 31, 1992 287,800 $0.9375 to $3.25
-------- --------------------
Balance, January 1, 1993 287,800 $0.9375 to $3.25
Granted 205,000 $0.75 to $0.9375
Canceled (145,600) $1.00 to $2.75
Exercised - - -
-------- --------------------
Balance, December 31, 1993 347,200 $0.75 to $3.25
-------- --------------------
Balance, January 1, 1994 347,200 $0.75 to $3.25
Granted - - -
Canceled (1,100) $0.75 to $1.00
Exercised (27,000) $0.9375
-------- --------------------
Balance, December 31, 1994 319,100 $0.75 to $3.25
-------- --------------------
</TABLE>
At December 31, 1994, 185,350 shares remain available for options or stock
grants and 169,100 options were exercisable.
In 1991 the Board of Directors granted 200,000 stock options outside the
above plans in connection with a consulting agreement with the Company's
former President (See Note 15). In 1986 the Board of Directors granted
72,500 options outside the above plans to a former officer of the Company.
At December 31, 1994, 1993 and 1992, 261,000 of such options remained
outstanding, respectively.
(11) OTHER (INCOME) EXPENSE:
-----------------------
Other (income) expense consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Interest income $(76,721) $ (34,664) $ (36,397)
Rental income (70,288) (116,823) (154,380)
Depreciation related to
to rental income 90,646 102,649 72,945
Other projects 15,584 9,591 -
Costs of maintaining closed centers
held for sale 147,739 - -
-------- --------- ---------
$106,960 $ (39,247) $(117,832)
======== ========= =========
</TABLE>
(12) RELATED-PARTY TRANSACTIONS:
--------------------------
Legal services were rendered to the Company by Drinker Biddle & Reath, of
which a director of the Company, is a partner. The Company expects this
firm to continue to provide such services during 1994. Fees paid to the
firm in 1994 and 1993 totaled $129,367 and $52,809, respectively.
Mr. A.J. Clegg the Chairman and Chief Executive Officer is also the
Chairman and Chief Executive Officer of JBS Investment Banking, Ltd.
("JBS"). On May 29, 1992 pursuant to the equity infusion the Company
entered into a three (3) year management agreement with JBS whereby JBS
will provide management and advisory services to the Company and will
F-17
<PAGE>
receive management fees from the Company of $250,000 per year. In December
of 1993, the Board of Directors approved payments for extra services
performed including the completion of the private placement and the
Southeast divestiture totaling $150,000. In August of 1994, the Company
ceased paying fixed fees to JBS. Mr. Clegg and Mr. Frock relinquished
their duties at JBS and joined the Company as full time employees. Mr.
Clegg is the Chairman and Chief Executive Officer of the Company and Mr.
Frock is Executive Vice President responsible for development, acquisition
and fund raising. As of December 31, 1994, 1993 and 1992, the Company paid
to JBS fees totaling $200,374, $400,000 and $218,469, respectively.
(13) INCOME TAXES:
-------------
As discussed in Note 1, the Company adopted SFAS No. 109 as of January 1,
1992.
Current tax provision:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Federal $47,000 $ 200 16,000
States 25,000 20,800 20,000
------- ------- -------
$72,000 $21,000 $36,000
======= ======= =======
</TABLE>
The difference between the actual income tax rate and the statutory federal
income tax rate is attributable to the following:
<TABLE>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate 34% 34% 34%
State taxes, net of federal
tax benefit 1% 1% 2%
Benefit from realization of
net operating losses (38%) (39%) (48%)
Reduction in valuation allowance (27%) -
Goodwill and other 7% 5% 14%
----- ----- -----
(23%) 1% 2%
===== ===== =====
</TABLE>
Deferred income taxes reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws.
F-18
<PAGE>
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1994 1993
Deferred Deferred
Tax Tax
Assets Assets
(Liabilities) (Liabilities)
--------------- ---------------
<S> <C> <C>
Depreciation $ (371,787) $ (431,098)
Provision for center closings and
other restructurings 785,020 802,846
Net operating losses 2,643,740 3,358,593
General business credits 27,650 27,650
AMT credit carryforward 8,400 8,400
Other 46,256 12,402
----------- -----------
Net deferred tax asset 3,139,279 3,778,793
Valuation allowance (2,628,979) (3,778,793)
----------- -----------
Total deferred taxes $ 510,300 $ 0
=========== ===========
</TABLE>
In 1994, based on the Company's analysis of the last three years of
significant positive operating performance and expected future taxable
income, the Company reduced the valuation allowance by $510,300.
Accordingly, such amount was recorded as a credit to income tax expense.
The general business credit will expire in 1997 and the net operating loss
begins to expire in the year 2000. There also is an AMT credit available
as well as a contribution carryover.
(14) EMPLOYEE BENEFIT PLANS:
----------------------
Merryhill Schools, Inc., a subsidiary of the Company had a 401(k) Plan
whereby eligible employees may elect to enroll immediately upon employment.
Merryhill will match 25% of the employee's contribution to the Plan.
Employee contributions are limited to 6% of the employees salary.
Merryhill's matching contributions under the Plan are charged to operating
expense and were approximately $33,843, $19,791, and $19,268 for the years
ended December 31, 1994, 1993, and 1992, respectively. As of January 30,
1994, the Plan was terminated and replaced with another 401(k) Plan.
Effective January 1, 1994, the Company adopted a 401(k) Plan whereby
eligible employees may elect to enroll after one year of service. The
Company will match 25% of the employees contribution to the Plan of up to
6% of the employees salary. This Plan also replaced the 401(k) Plan at
Merryhill Schools, Inc., a subsidiary of the Company, as of January 31,
1994. Nobel's matching contributions under the Plan were approximately
$26,774 for the year ended December 31, 1994.
(15) COMMITMENTS AND CONTINGENCIES:
-----------------------------
On February 24, 1995, Mr. F.E. Montgomery's, the Company's President and
Chief Operating Officer, employment terminated with the Company. In
conjunction with his separation from the Company, the Company agreed to pay
Mr. Montgomery 1) his base pay for a period of eight months plus three
weeks vacation pay for 1995, 2) the payment of the 1994 performance bonus
which is due based on audited financials, 3) use of the Company vehicle for
up to ninety days after the separation and 4) medical insurance for ninety
days.
F-19
<PAGE>
On January 13, 1993, the employment of Mr. Douglas E. Carneal was
terminated by the Company pursuant to the provisions of his employment
agreement which permits his discharge for other than cause. At the time of
his termination, Mr. Carneal was serving as the Company's President and
Chief Operating Officer.
In February 1993, Douglas E. Carneal, former Chief Operating Officer of the
Company, filed suit in the Court of Common Pleas for Chester County,
Pennsylvania against the Company, certain officers and directors, and other
persons arising out of a dispute over amounts which were paid to Mr.
Carneal following his termination from the Company. In that action, Mr.
Carneal claims that the Company is in breach of an agreement to cause a
loan which he obtained to purchase Company stock to be non-recourse. He
further claims that his termination payments were not made in accordance
with his employment contract, and that he is entitled to accrued but unpaid
vacation. Total compensatory damages sought approximate $800,000 and in
addition is seeking punitive damages and attorney fees. The Company filed
preliminary objection to Carneal's complaint, some of which were sustained.
The Chester County, Pennsylvania, Court of Common Pleas dismissed several
of the claims filed by Douglas Carneal against the Company, allowing him to
replead some of those claims. Carneal filed an amended Complaint. After
objections to the amended complaint were dismissed, the Company filed an
answer denying Mr. Carneal's claims and filed a counterclaim against him
seeking damages for his alleged mismanagement of the Company. Mr. Carneal
filed objections to that counterclaim. A decision of the Court is pending.
In December, 1994, the Company brought a separate action against Mr.
Carneal in the Court of Common Pleas for Chester County, Pennsylvania,
seeking damages for his mismanagement of the Company. Mr. Carneal removed
that action to the United States District Court for the Eastern District of
Pennsylvania and filed an answer and a counterclaim asserting the same
claims he had asserted in his earlier action in Chester County,
Pennsylvania. The Company has moved to dismiss much of Mr. Carneal's
counterclaim. A decision of the court is pending.
In May 1993, Julie Sell and Michael Bright, former executives of the
Company, commenced a suit in the United States District Court for the
Eastern District of Pennsylvania alleging that the Company breached its
contractual duty to pay them salary increases, bonuses and severance pay
under the Company's Executive Severance Pay Plan. On September 15, 1994,
the United States District Court for the Eastern District of Pennsylvania
entered a judgment against the Company and in favor of Julie Sell and
Michael Bright in the combined amount of $406,000. The Company has
appealed this decision to the United States Court of Appeals for the Third
Circuit.
During 1994, the Company entered into lease agreements for four new centers
which are being developed in Pennsylvania, Illinois, California and New
Jersey.
The Company is currently in dispute with a landlord over the payment of
certain taxes related to Leases of centers estimated to be approximately
$100,000. At this time, the Company feels that no taxes are due, however,
there are no certainties regarding the outcome of the dispute.
In December of 1994, the Company entered into an agreement with the Wall
Street Group, Inc. for which they will be retained as financial public
relations counsel for a cash fee of $5,000 per month payable in advance.
Additionally, on January 1, 1995 the Company agreed to grant Wall Street
Group five year options for as many shares as could be purchased for
$100,000 at the closing bid price on the date of the final agreement. The
agreement can be canceled by either party on ninety (90) day written notice
and the Wall Street Group would return on a pro rated basis the stock
options.
The Company is engaged in other legal actions arising in the ordinary
course of its business. The Company believes that the ultimate outcome of
all such matters above will not have a material adverse effect on the
Company's consolidated financial
F-20
<PAGE>
position. The significance of these matters on the Company's future
operating results and cash flows depends on the level of future results of
operations and cash flows as well as on the timing and amounts, if any, of
the ultimate outcome.
The Company carries fire and other casualty insurance on its centers and
liability insurance in amounts which management believes is adequate for
its operations. As is the case with other entities in the child care
industry, the Company cannot effectively insure itself against certain
risks inherent in its operations. Some forms of child abuse have sublimits
per claim in the general liability coverage.
(16) SUBSEQUENT EVENT - ACQUISITION OF CAREFREE:
------------------------------------------
On March 10, 1995, the Company acquired from Carefree Learning Centers,
Inc. ("Carefree"), a subsidiary of Medical Service Association of
Pennsylvania, doing business as Pennsylvania Blue Shield ("Pennsylvania
Blue Shield"), Carefree's child day care business and operations, and
substantially all of its other assets, other than real estate, used in the
operation of Carefree's business.
The child care business purchased from Carefree, which generated revenues
of approximately $4,446,000 in 1994, consists of eight learning centers
currently in operation, and three learning centers currently under
construction or in the pre-development stage, all of which are located in
Pennsylvania. The Company intends to continue to operate the acquired
business under the Carefree Learning Centers name.
The purchase price for the business and assets acquired from Carefree
consisted of (i) $500,000 in cash, (ii) a subordinated promissory note of
the Company in the principal amount of approximately $1,585,000, and (iii)
the assumption of certain other liabilities of Carefree in the amount of
approximately $365,000.
Concurrently with the acquisition of Carefree's business, the Company
entered into an Agreement of Sale (the "Agreement of Sale") with
Pennsylvania Blue Shield, pursuant to which the Company will acquire (i)
the land and buildings on which four of the learning centers currently in
operation and acquired from Carefree are located, and (ii) the land and
buildings at which one of the child day care centers acquired from Carefree
is currently under construction (collectively, the "Real Estate"). At the
closing under the Agreement of Sale, the purchase price to be missing -
paid for the Real Estate will consist of (i) approximately $1,500,000 in
cash, (ii) subordinated promissory notes of the Company in the aggregate
principal amount of approximately $600,000, and (iii) the assumption by the
Company of certain other liabilities of the Pennsylvania Blue Shield
subsidiary in the amount of approximately $2,700,000. The Company
anticipates closing its acquisition of the Real Estate within 60 days of
the date of the Agreement of Sale.
F-21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NOBEL EDUCATION DYNAMICS, INC.
By:_____________________________________ March 30, 1995
A.J. Clegg
(Chairman)
By:_____________________________________ March 30, 1995
Yvonne DeAngelo
(Controller and Principal 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.
By:_____________________________________ March 30, 1995
A.J. Clegg
Chairman of the Board of Directors
By:_____________________________________ March 30, 1995
Edward H. Chambers
Director
By:_____________________________________ March 30, 1995
John R. Frock
Director
By:_____________________________________ March 30, 1995
Peter H. Havens
Director
By:_____________________________________ March 30, 1995
Morgan R. Jones
Director
By:_____________________________________ March 30, 1995
Kevin McGovern
Director
By:_____________________________________ March 30, 1995
William P. Moore
Director
By:_____________________________________ March 30, 1995
John Martinson
Director
F-22
<PAGE>
Exhibit Index
-------------
Page number in Rule 0-3(b)
Exhibit Description Sequential number system
Number of Exhibit where Exhibit can be found
------ ---------- --------------------------
2(a) Purchase and Sale Agreement (the "Purchase and Sale Agreement")
between Nobel Education Dynamics, Inc. (the "Registrant") and Children
Today of Georgia, Inc., dated October 29, 1993. (Filed as Exhibit 2
to the Registrant's Form 10-Q dated September 30, 1994 and
incorporated herein by reference.)
2(b) Addendum I to Purchase and Sale Agreement dated December 3, 1993.
(Filed as Exhibit 2.1 to the Registrant's Form 8-K dated December 17,
1993 and incorporated herein by reference.
2(c) Agreement between O.M. Enterprises and the Registrant dated December
3, 1993. (Filed as Exhibit 2.2 to the Registrant's Form 8-K dated
December 17, 1993 and incorporated herein by reference.
3(a) Amended and Restated Certificate of Incorporation of the Registrant.
(Filed as Exhibit 3(a) to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-16444) filed on August 12, 1987 (the
"Form S-1") and incorporated herein by reference.)
3(b) Certificate of Amendment of Restated Certificate of Incorporation of
The Rocking Horse Child Care Centers of America, Inc., filed on June
10, 1993, changing the name of the Registrant from The Rocking Horse
Child Care Centers of America, Inc. to Nobel Education Dynamics, Inc.
filed herein as Exhibit 3(b) and made a part hereof.
3(c) Amended and Restated By-Laws of the Registrant. (Filed as Exhibit
3(b) to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, and incorporated herein by reference.)
3(d) Certificate of Designation, Preferences and Rights of Series A
Convertible Preferred Stock of The Rocking Horse Child Care Centers of
America, Inc. (Filed as Exhibit 7(c) to the Registrant's Form 8-K
dated June 14, 1993 and incorporated herein by reference.)
3(e) Certificate of Designation, Preferences and Rights of Series A
Convertible Preferred Stock of The Rocking Horse Child Care Centers of
America, Inc. (Filed as Exhibit 7(c) to the Registrant's Current
Report on Form 8-K dated June 25, 1993 and incorporated herein by
reference.)
4(a) Amended and Restated Revolving Credit and Term Loan Agreement dated
May 2, 1990 by and among First Pennsylvania Bank, N.A., the
Registrant, Rocking Horse Development Corporation, HI Management
Corporation, Homil Co., Children's Park, Incorporated and Merryhill
Schools, Inc. (Filed as Exhibit 4 to the Registrant's Quarterly Report
on Form 10-Q dated May 14, 1990 and incorporated herein by reference.)
4(b) Amended, Restated and Consolidated Revolving Credit Note in the
principal amount of $12,000,000 dated May 2, 1990. (Filed as Exhibit
4(b) to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, and incorporated herein by reference.)
F-23
<PAGE>
4(c) Amended and Restated Term Note in the principal amount of $10,000,000
dated May 2, 1990. (Filed as Exhibit 4(c) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990, and
incorporated herein by reference.)
4(d) General Security Agreement dated May 2, 1990. (Filed as Exhibit 4(d)
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, and incorporated herein by reference.)
4(e) Amended, Restated and Consolidated Stock Pledge Agreement dated May 2,
1990. (Filed as Exhibit 4(e) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990, and incorporated
herein by reference.)
4(f) Trademark Security Agreement dated May 2, 1990. (Filed as Exhibit
4(f) to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, and incorporated herein by reference.)
4(g) Mortgage and Security Agreement between the Registrant and First
Pennsylvania Bank, N.A. for certain properties in Androscoggin County,
Maine; Mortgage and Security Agreement between the Registrant and
First Pennsylvania Bank, N.A. for certain properties in Brevard
County, Florida; Leasehold Mortgage and Security Agreement between the
Registrant and First Pennsylvania Bank, N.A. for certain properties in
Duval County, Florida; Mortgage and Security Agreement between the
Registrant and First Pennsylvania Bank, N.A. for certain properties in
Champaign County, Illinois; Deed to Secure Debt and Security Agreement
between the Registrant and First Pennsylvania Bank, N.A. for certain
properties in Fulton County, Georgia; Leasehold Deed to Secure Debt
between the Registrant and First Pennsylvania Bank, N.A. for certain
properties in Dekalb County, Georgia; Mortgage and Security Agreement
between the Registrant and First Pennsylvania Bank, N.A. for certain
properties in Gloucester County, New Jersey. (Filed as Exhibit 25 to
the Registrant's Quarterly Report on Form 10-Q dated June 30, 1989 and
incorporated herein by reference.)
4(h) The Registrant and its subsidiaries have granted security interests in
all of the properties they own in North Carolina to First Pennsylvania
Bank, N.A. (The forms of all such security instruments are
substantially similar to the Deed of Trust filed as Exhibit 4(i) to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, and incorporated herein by reference.)
4(i) The Registrant has granted security interests in certain properties it
owns in New Jersey to First Pennsylvania Bank, N.A. (The forms of all
such security instruments are substantially similar to the Deed of
Trust filed as Exhibit 4(j) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1990, and incorporated herein by
reference.)
4(j) The Registrant has granted security interests in certain of the
properties it leases in Florida to First Pennsylvania Bank, N.A. (The
forms of all such security instruments are substantially similar to
the instrument filed as Exhibit 4(k) to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1990, and incorporated
herein by reference.)
4(k) The Registrant and its subsidiaries have granted security interests in
all of the properties they lease in various states to First
Pennsylvania Bank, N.A. (The forms of all such security instruments
are substantially similar to the instrument filed as Exhibit 4(l) to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, and incorporated herein by reference.)
4(l) The Registrant and its subsidiaries have granted security interests in
all of the properties they own in California to First Pennsylvania
Bank, N.A. (The forms of all such security instruments are
substantially similar to the security
F-24
<PAGE>
instrument filed as Exhibit 4(m) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990, and incorporated
herein by reference.)
4(m) Registration Rights Agreement dated May 28, 1992 among the Registrant,
JBS Investment Banking, Ltd., and Pennsylvania Merchant Group, Ltd.
(Filed as Exhibit 4(a) to the Registrant's Current Report on Form 8-K
dated June 11, 1992, date of earliest event reported May 28, 1992, and
incorporated herein by reference.)
4(n) Saltzman Partners' Agreement dated May 28, 1992 among the Registrant,
JBS Investment Banking, Ltd., and Saltzman Partners. (Filed as
Exhibit 4(b) to the Registrant's Current Report on Form 8-K dated June
11, 1992, date of earliest event reported May 28, 1992, and
incorporated herein by reference.)
4(o) Warrant Subscription Agreement dated May 28, 1992 between Registrant
and Pennsylvania Merchant Group Ltd. (Filed as Exhibit 4(c) to the
Registrant's Current Report on Form 8-K dated June 11, 1992, date of
earliest event reported May 28, 1992, and incorporated herein by
reference.)
4(p) Stock Purchase Agreement dated May 28, 1992 between Registrant and a
limited number of accredited investors at $0.50 per share totaling
3,200,000 shares of common stock. (Filed as Exhibit 4(d) to the
Registrant's Current Report on Form 8-K dated June 11, 1992, date of
earliest event reported May 28, 1992, and incorporated herein by
reference.)
4(q) Second Modification to Mortgage and Security Agreement dated May 28,
1992 between Registrant and Fidelity Bank, N.A. (Filed as Exhibit
4(f) to the Registrant's Current Report on Form 8-K dated June 11,
1992, date of earliest event reported May 28, 1992, and incorporated
herein by reference.)
4(r) Second Reaffirmation and Amendment of Guaranty and Suretyship
Agreement dated May 28, 1992 between Registrant and Fidelity Bank,
N.A. (Filed as Exhibit 4(g) to the Registrant's Current Report on
Form 8-K dated June 11, 1992, date of earliest event reported May 28,
1992, and incorporated herein by reference.)
4(s) First Amendment to Amended and Restated Revolving Credit and Term Loan
Agreement among the Registrant, CoreStates Bank, N.A. and Fidelity
Bank, N.A. (Filed as Exhibit 4(h) to the Registrant's Current Report
on Form 8-K dated June 11, 1992, date of earliest event reported May
28, 1992, and incorporated herein by reference.)
4(t) Fidelity Second Amended and Restated Revolving Credit Note dated May
28, 1992 between Registrant and Fidelity Bank, N.A. (Filed as Exhibit
4(i) to the Registrant's Current Report on Form 8-K dated June 11,
1992, date of earliest event reported May 28, 1992, and incorporated
herein by reference.)
4(u) CoreStates Second Amended and Restated Revolving Credit Note dated May
28, 1992 between Registrant and CoreStates Bank, N.A. (Filed as
Exhibit 4(j) to the Registrant's Current Report on Form 8-K dated June
11, 1992, date of earliest event reported May 28, 1992, and
incorporated herein by reference.)
4(v) Fidelity Second Amended and Restated Term Note dated May 28, 1992
between Registrant and Fidelity Bank, N.A. (Filed as Exhibit 4(k) to
the Registrant's Current Report on Form 8-K dated June 11, 1992, date
of earliest event reported May 28, 1992, and incorporated herein by
reference.)
4(w) CoreStates Second Amended and Restated Term Note dated May 28, 1992
between Registrant and CoreStates Bank, N.A. (Filed as Exhibit 4(l)
to the Registrant's Current Report on Form 8-K dated June 11, 1992,
date of earliest event reported May 28, 1992, and incorporated herein
by reference.)
F-25
<PAGE>
4(x) Fidelity Amended and Restated Note (Term Loan II) dated May 28, 1992
between Registrant and Fidelity Bank, N.A. (Filed as Exhibit 4(m) to
the Registrant's Current Report on Form 8-K dated June 11, 1992, date
of earliest event reported May 28, 1992, and incorporated herein by
reference.)
4(y) Shareholder's Agreement dated May 28, 1992 between Registrant and JBS
Investment Banking, Ltd. (Filed as Exhibit 2(a) to the Registrant's
Current Report on Form 8-K dated June 11, 1992, date of earliest event
reported May 28, 1992, and incorporated herein by reference.)
4(z) CoreStates Amended and Restated Note (Term Loan II) dated May 28, 1992
between Registrant and CoreStates Bank, N.A. (Filed as Exhibit 4(n)
to the Registrant's Current Report on Form 8-K dated June 11, 1992,
date of earliest event reported May 28, 1992, and incorporated herein
by reference.)
4(aa) Second Amendment to Amended and Restated Revolving Credit and Term
Loan Agreement dated March 18, 1994 between the Registrant and
CoreStates Bank, N.A., filed herein as Exhibit 4(gg) and made a part
hereof.
4(ab) Fourth Amendment to Amended and Restated Revolving Credit and Term
Loan Agreement dated October 6, 1994.
4(ac) Series 1 and 2 Warrants for shares of Common Stock issued to EVF and
EVF-PA.
4(ad) Secretary's Certificate as to the Designation, Preferences and Rights
of Series C Convertible Stock.
4(ae) Registration Rights Agreement.
4(af) Amendment No. 1 to Shareholders' Agreement dated May 28, 1992 by and
among JBS Investment Banking, Ltd., Nobel and Saltzman Partners.
The Registrant has omitted certain instruments defining the rights of holders of
long-term debt in cases where the indebtedness evidenced by such instruments
does not exceed 10% of the Registrant's total assets. The Registrant agrees to
furnish a copy of each of such instruments to the Securities and Exchange
Commission upon request.
10(a) 1986 Stock Option and Stock Grant Plan of the Registrant, as amended.
(Filed as Exhibit 10(1) to the Form S-1 and incorporated herein by
reference.)
10(b) 1988 Stock Option and Stock Grant Plan of the Registrant. (Filed as
Exhibit 19 to the Registrant's Quarterly Report on Form 10-Q dated
March 31, 1988 and incorporated herein by reference.)
10(c) Guaranty and Suretyship Agreement between the Registrant and Fidelity
Bank, National Association dated October 1, 1986; and Amendment to
Agreement dated October 31, 1986 (filed as Exhibit 10(1) to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1986 and incorporated herein by reference); Letter from Fidelity
Bank dated August 6, 1987 waiving certain financial covenants of
Guaranty and Suretyship Agreement. (Filed as Exhibit 10(q) to the
Form S-1 and incorporated herein by reference.)
10(d) Lease Agreement between the Registrant and LBA Associates dated August
1, 1994 through August 1, 2001 for its corporate office space of 9,163
square feet in Rose Tree Corporate Center II.
10(e) Lease agreements dated as of December 31, 1987 between the Registrant
and Child Care Investors LP, Limited relating to the leasing by the
Registrant of eight
F-26
<PAGE>
child care facilities in South Carolina and of six child care
facilities in Florida. (Filed as Exhibit 10(e) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1987 and
incorporated herein by reference.)
10(f) 1985 Stock Option Plan of Registrant. (Filed as Exhibit 19(k) to the
Registrant's Quarterly Report on Form 10-Q dated September 30, 1985
and incorporated herein by reference.)
10(g) Stock Purchase Agreement dated as of August 4, 1989 by and among the
Registrant and the stockholders of Children's Park, Incorporated
(Filed as Exhibit 2 to the Registrant's Current Report on Form 8-K
dated September 14, 1989, date of earliest event reported August 31,
1989 and incorporated herein by reference.)
10(h) Agreement for Purchase of Shares dated as of October 3, 1989, among
the Registrant and the shareholders of Merryhill Schools, Inc. (Filed
as Exhibit 2 to the Registrant's Current Report on Form 8-K dated
October 19, 1989, date of earliest event reported October 4, 1989 and
incorporated herein by reference).
10(i) Executive Severance Pay Plan Statement and Summary Plan Description
dated November 1991. (Filed as Exhibit 10(n) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991 and
incorporated herein by reference).
10(j) Employee Severance Pay Plan Statement and Summary Plan Description
dated November 1991. (Filed as Exhibit 10(o) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991 and
incorporated herein by reference).
10(k) Stock Purchase Agreement between the Registrant and various investors
dated April 2, 1990. (Filed as Exhibit 10(q) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991 and
incorporated herein by reference).
10(l) Stock and Warrant Purchase Agreement between the Registrant and
various investors, dated April 13, 1992. (Filed as Exhibit 10(r) to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 and incorporated herein by reference).
10(m) Administrative Services Agreement dated May 28, 1992 between the
Registrant and JBS Investment Banking, Ltd. (Filed as Exhibit 2(b) to
the Registrant's Current Report on Form 8-K dated June 11, 1992, date
of earliest event reported May 28, 1992, and incorporated herein by
reference.)
10(n) Promissory Note dated November 30, 1993 between the Registrant and
Bankers Trust of North Carolina, filed herein as Exhibit 4(bb) and
made a part hereof.
10(o) Security Agreement dated November 30, 1993 between the Registrant and
Bankers Trust of North Carolina, filed herein as Exhibit 4(cc) and
made a part hereof.
10(p) Deed of Trust dated November 30, 1993 between the Registrant and
Bankers Trust of North Carolina, filed herein as Exhibit 4(dd) and
made a part hereof.
10(q) Promissory Note dated January 31, 1994 between the Registrant and Mt.
Holly State Bank, filed herein as Exhibit 4(ee) and made a part
hereof.
10(r) Allonge, Note, Mortgage Modification & Security Agreement dated
January 31, 1994 between the Registrant and Mt. Holly State Bank,
filed as Exhibit 4(ff) and made a part hereof.
F-27
<PAGE>
11 Statement re-computation of per share earnings dated year ended
December 31, 1994, and made a part hereof.
22 List of subsidiaries of the Registrant.
23 Consent of Coopers & Lybrand.
(b) Reports on Form 8-K:
Addendum I to Purchase and Sale Agreement dated December 3, 1993.
(Filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K
dated December 17, 1993 and incorporated herein by reference.)
Agreement between O.M. Enterprises and the Registrant dated December
3, 1993. (Filed as Exhibit 2.2 to the Registrant's Current Report on
Form 8-K dated December 17, 1993 and incorporated herein by
reference.)
Asset Purchase Agreement dated March 10, 1995 among the Registrant,
Carefree Learning Centers, Inc., Keystone Ventures, Inc. and Medical
Service Association of Pennsylvania, doing business as Pennsylvania
Blue Shield. (Filed as Exhibit 2(a) to the Registrant's Current
Report on Form 8-K dated December 17, 1993 and incorporated herein by
reference.)
Agreement of Sale dated March 10, 1995 among the Registrant, Bluegrass
Real Estate Company, Inc. and Keystone Real Estate Development
Company, Inc. (Filed as Exhibit 2(b) to the Registrant's Current
Report on Form 8-K dated December 17, 1993 and incorporated herein by
reference.)
F-28
<PAGE>
QUALIFICATION BY REFERENCE
--------------------------
Information contained in this Annual Report as to a contract or other document
referred to or evidencing a transaction referred to is necessarily not complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to this Annual Report or incorporated herein by
reference, all such information being qualified in its entirety by such
reference.
F-29
<PAGE>
Description
-----------
Exhibit Number
(Referenced to
Item 601 of
-----------
Regulation S-K)
-----------------
2(a) Purchase and Sale Agreement (the "Purchase and Sale Agreement") between
Nobel Education Dynamics, Inc. (the "Registrant") and Children Today of
Georgia, Inc., dated October 29, 1993. (Filed as Exhibit 2 to the
Registrant's Form 10-Q dated September 30, 1994 and incorporated herein
by reference.)
2(b) Addendum I to Purchase and Sale Agreement dated December 3, 1993. (Filed
as Exhibit 2.1 to the Registrant's Form 8-K dated December 17, 1993 and
incorporated herein by reference.
2(c) Agreement between O.M. Enterprises and the Registrant dated December 3,
1993. (Filed as Exhibit 2.2 to the Registrant's Form 8-K dated December
17, 1993, and incorporated herein by reference.
3(a) Amended and Restated Certificate of Incorporation of the Registrant.
(Filed as Exhibit 3(a) to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-16444) filed on August 12, 1987 (the "Form S-1")
and incorporated herein by reference.)
3(b) Certificate of Amendment of Restated Certificate of Incorporation of The
Rocking Horse Child Care Centers of America, Inc., filed on June 10, 1993
changing the name of the Registrant from The Rocking Horse Child Care
Centers of America, Inc. to Nobel Education Dynamics, Inc. filed herein
as Exhibit 3(b) and made a part hereof.
3(c) Amended and Restated By-Laws of the Registrant. (Filed as Exhibit 3(b) to
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1990, and incorporated herein by reference.)
3(d) Certificate of Designation, Preferences and Rights of Series A
Convertible Preferred Stock of the Rocking Horse Child Care Centers of
America, Inc. (Filed as Exhibit 7(c) to the Registrant's Form 8-K dated
June 14, 1993 and incorporated herein by reference.)
3(e) Certificate of Designation, Preferences and Rights of Series A
Convertible Preferred Stock of the Rocking Horse Child Care Centers of
America, Inc. (Filed as Exhibit 7(c) to the Registrant's Current Report
on Form 8-K dated June 25, 1993 and incorporated herein by reference.)
4(a) Amended and Restated Revolving Credit and Term Loan Agreement dated May
2, 1990 by and among First Pennsylvania Bank, N.A., the Registrant,
Rocking Horse Development Corporation, HI Management Corporation, Homil
Co., Children's Park, Incorporated and Merryhill Schools, Inc. (Filed as
Exhibit 4 to the Registrant's Quarterly Report on Form 10-Q dated May 14,
1990 and incorporated herein by reference.)
4(b) Amended, Restated and Consolidated Revolving Credit Note in the principal
amount of $12,000,000 dated May 2, 1990. (Filed as Exhibit 4(b) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1990, and incorporated herein by reference.)
32
<PAGE>
4(c) Amended and Restated Term Note in the principal amount of $10,000,000
dated May 2, 1990. (Filed as Exhibit 4(c) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990, and
incorporated herein by reference.)
4(d) General Security Agreement dated May 2, 1990. (Filed as Exhibit 4(d) to
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1990, and incorporated herein by reference.)
4(e) Amended, Restated and Consolidated Stock Pledge Agreement dated May 2,
1990. (Filed as Exhibit 4(e) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1990, and incorporated herein by
reference.)
4(f) Trademark Security Agreement dated May 2, 1990. (Filed as Exhibit 4(f) to
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1990, and incorporated herein by reference.)
4(g) Mortgage and Security Agreement between the Registrant and First
Pennsylvania Bank, N.A. for certain properties in Androscoggin County,
Maine; Mortgage and Security Agreement between the Registrant and First
Pennsylvania Bank, N.A. for certain properties in Brevard County,
Florida; Leasehold Mortgage and Security Agreement between the Registrant
and First Pennsylvania Bank, N.A. for certain properties in Duval County,
Florida; Mortgage and Security Agreement between the Registrant and First
Pennsylvania Bank, N.A. for certain properties in Champaign County,
Illinois; Deed to Secure Debt and Security Agreement between the
Registrant and First Pennsylvania Bank, N.A. for certain properties in
Fulton County, Georgia; Leasehold Deed to Secure Debt between the
Registrant and First Pennsylvania Bank, N.A. for certain properties in
Dekalb County, Georgia; Mortgage and Security Agreement between the
Registrant and First Pennsylvania Bank, N.A. for certain properties in
Gloucester County, New Jersey. (Filed as Exhibit 25 to the Registrant's
Quarterly Report on Form 10-Q dated June 30, 1989 and incorporated herein
by reference.)
4(h) The Registrant and its subsidiaries have granted security interests in
all of the properties they own in North Carolina to First Pennsylvania
Bank, N.A. (The forms of all such security instruments are substantially
similar to the Deed of Trust filed as Exhibit 4(i) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990, and
incorporated herein by reference.)
4(i) The Registrant has granted security interests in certain properties it
owns in New Jersey to First Pennsylvania Bank, N.A. (The forms of all
such security instruments are substantially similar to the Deed of Trust
filed as Exhibit 4(j) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990, and incorporated herein by reference.)
4(j) The Registrant has granted security interests in certain of the
properties it leases in Florida to First Pennsylvania Bank, N.A. (The
forms of all such security instruments are substantially similar to the
instrument filed as Exhibit 4(k) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990, and incorporated herein
by reference.)
4(k) The Registrant and its subsidiaries have granted security interests in
all of the properties they lease in various states to First Pennsylvania
Bank, N.A. (The forms of all such security instruments are substantially
similar to the instrument filed as Exhibit 4(l) to the Registrant's
33
<PAGE>
Annual Report on Form 10-K for the year ended December 31, 1990, and
incorporated herein by reference.)
4(l) The Registrant and its subsidiaries have granted security interests in
all of the properties they own in California to First Pennsylvania Bank,
N.A. (The forms of all such security instruments are substantially
similar to the security instrument filed as Exhibit 4(m) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1990, and incorporated herein by reference.)
4(m) Registration Rights Agreement dated May 28, 1992 among the Registrant,
JBS Investment Banking, Ltd., and Pennsylvania Merchant Group, Ltd.
(Filed as Exhibit 4(a) to the Registrant's Current Report on Form 8-K
dated June 11, 1992, date of earliest event reported May 28, 1992, and
incorporated herein by reference.)
4(n) Saltzman Partners' Agreement dated May 28, 1992 among the Registrant, JBS
Investment Banking, Ltd., and Saltzman Partners. (Filed as EXhibit 4(b)
to the Registrant's Current Report on Form 8-K dated June 11, 1992, date
of earliest event reported May 28, 1992, and incorporated herein by
reference.)
4(o) Warrant Subscription Agreement dated May 28, 1992 between Registrant and
Pennsylvania Merchant Group Ltd. (Filed as Exhibit 4(c) to the
Registrant's Current Report on Form 8-K dated June 11, 1992, date of
earliest event reported May 28, 1992, and incorporated herein by
reference.)
4(p) Stock Purchase Agreement dated May 28, 1992 between Registrant and a
limited number of accredited investors at $0.50 per share totaling
3,200,000 shares of common stock. (Filed as Exhibit 4(d) to the
Registrant's Current Report on Form 8-K dated June 11, 1992, date of
earliest event reported May 28, 1992, and incorporated herein by
reference.)
4(q) Second Modification to Mortgage and Security Agreement dated May 28, 1992
between Registrant and Fidelity Bank, N.A. (Filed as Exhibit 4(f) to the
Registrant's Current Report on Form 8-K dated June 11, 1992, date of
earliest event reported May 28, 1992, and incorporated herein by
reference.)
4(r) Second Reaffirmation and Amendment of Guaranty and Suretyship Agreement
dated May 28, 1992 between Registrant and Fidelity Bank, N.A. (Filed as
Exhibit 4(g) to the Registrant's Current Report on Form 8-K dated June
11, 1992, date of earliest event reported May 28, 1992, and incorporated
herein by reference.)
4(s) First Amendment to Amended and Restated Revolving Credit and Term Loan
Agreement among the Registrant, CoreStates Bank, N.A. and Fidelity Bank,
N.A. (Filed as Exhibit 4(h) to the Registrant's Current Report on Form
8-K dated June 11, 1992, date of earliest event reported May 28, 1992,
and incorporated herein by reference.)
4(t) Fidelity Second Amended and Restated Revolving Credit Note dated May 28,
1992 between Registrant and Fidelity Bank, N.A. (Filed As Exhibit 4(i) to
the Registrant's Current Report on Form 8-K dated June 11, 1992, date of
earliest event reported May 28, 1992, and incorporated herein by
reference.)
34
<PAGE>
4(u) CoreStates Second Amended and Restated Revolving Credit Note dated May
28, 1992 between Registrant and CoreStates Bank, N.A. (Filed as Exhibit
4(j) to the Registrant's Current Report on Form 8-K dated June 11, 1992,
date of earliest event reported May 28, 1992, and incorporated herein by
reference.)
4(v) Fidelity Second Amended and Restated Term Note dated May 28, 1992 between
Registrant and Fidelity Bank, N.A. (Filed as Exhibit 4(k) to the
Registrant's Current Report on Form 8-K dated June 11, 1992, date of
earliest event reported May 28, 1992, and incorporated herein by
reference.)
4(w) CoreStates Second Amended and Restated Term Note dated May 28, 1992
between Registrant and CoreStates Bank, N.A. (Filed as Exhibit 4(l) to
the Registrant's Current Report on Form 8-K dated June 11, 1992, date of
earliest event reported May 28, 1992, and incorporated herein by
reference.)
4(x) Fidelity Amended and Restated Note (Term Loan II) dated May 28, 1992
between Registrant and Fidelity Bank, N.A. (Filed as Exhibit 4(m) to the
Registrant's Current Report on Form 8-K dated June 11, 1992, date of
earliest event reported May 28, 1992, and incorporated herein by
reference.)
4(y) Shareholder's Agreement dated May 28, 1992 between Registrant and JBS
Investment Banking, Ltd. (Filed as Exhibit 2(a) to the Registrant's
Current Report on Form 8-K dated June 11, 1992, date of earliest event
reported May 28, 1992, and incorporated herein by reference.)
4(z) CoreStates Amended and Restated Note (Term Loan II) dated May 28, 1992
between Registrant's and CoreStates Bank, N.A. (Filed as Exhibit 4(n) to
the Registrant's Current Report on Form 8-K dated June 11, 1992, date of
earliest event reported May 28, 1992, and incorporated herein by
reference.)
4(aa) Second Amendment to Amended and Restated Revolving Credit and Term Loan
Agreement dated March 18, 1994 between the Registrant and CoreStates
Bank, N.A., filed herein as Exhibit 4(gg) and made a part hereof.
4(ab) Fourth Amendment to Amended and Restated Revolving Credit and Term Loan
Agreement dated October 6, 1994.
4(ac) Series 1 and 2 Warrants for shares of Common Stock issued to EVF and
EVF-PA.
4(ad) Secretary's Certificate as to the Designation, Preferences and Rights of
Series C Convertible Stock.
4(ae) Registration Rights Agreement.
4(af) Amendment No. 1 to Shareholders' Agreement dated May 28, 1992 by and
among JBS Investment Banking, Ltd., Nobel and Saltzman Partners.
The Registrant has omitted certain instruments defining the rights of holders of
long-term debt in cases where the indebtedness evidenced by such instruments
does not exceed 10% of the Registrant's total assets. The Registrant agrees to
furnish a copy of each of such instruments to the Securities and Exchange
Commission upon request.
35
<PAGE>
10(a) 1986 Stock Option and Stock Grant Plan of the Registrant, as amended.
(Filed as Exhibit 10(l) to the Form S-1 and incorporated herein by
reference.)
10(b) 1988 Stock Option and Stock Grant Plan of the Registrant. (Filed as
Exhibit 19 to the Registrant's Quarterly Report on Form 10-Q dated March
31, 1988 and incorporated herein by reference.)
10(c) Guaranty and Suretyship Agreement between the Registrant and Fidelity
Bank, National Association dated October 1, 1986; and Amendment to
Agreement dated October 31, 1986 (filed as Exhibit 10(l) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1986 and incorporated herein by reference); Letter from Fidelity Bank
dated August 6, 1987 waiving certain financial covenants of Guaranty and
Suretyship Agreement. (Filed as Exhibit 10(q) to the Form S-1 and
incorporated herein by reference.)
10(d) Lease Agreement between the Registrant and LBA Associates dated August 1,
1994 through August 1, 2001 for its corporate office space of 9,163
square feet in Rose Tree Corporate Center II.
10(e) Lease agreements dated as of December 31, 1987 between the Registrant and
Child Care Investors LP, Limited relating to the leasing by the
Registrant of eight child care facilities in South Carolina and of six
child care facilities in Florida. (Filed as Exhibit 10(e) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1987 and incorporated herein by reference.)
10(f) 1985 Stock Option Plan of Registrant. (Filed as Exhibit 19(k) to the
Registrant's Quarterly Report on Form 10-Q dated September 30, 1985 and
incorporated herein by reference.)
10(g) Stock Purchase Agreement dated as of August 4, 1989 by and among the
Registrant and the stockholders of Children's Park, Incorporated (Filed
as Exhibit 2 to the Registrant's Current Report on Form 8-K dated
September 14, 1989, date of earliest event reported August 31, 1989 and
incorporated herein by reference.)
10(h) Agreement for Purchase of Shares dated as of October 3, 1989, among the
Registrant and the shareholders of Merryhill Schools, Inc. (Filed as
Exhibit 2 to the Registrant's Current Report on Form 8-K dated October
19, 1989, date of earliest event reported October 4, 1989 and
incorporated herein by reference).
10(i) Executive Severance Pay Plan Statement and Summary Plan Description dated
November 1991. (Filed as Exhibit 10(n) to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991 and incorporated herein
by reference).
10(j) Employee Severance Pay Plan Statement and Summary Plan Description dated
November 1991. (Filed as Exhibit 10(o) to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991 and incorporated herein
by reference).
10(k) Stock Purchase Agreement between the Registrant and various investors
dated April 2, 1990. (Filed as Exhibit 10(q) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1991 and incorporated
herein by reference).
36
<PAGE>
10(1) Stock and Warrant Purchase Agreement between the Registrant and various
investors, dated April 13, 1992. (Filed as Exhibit 10(r) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1991 and incorporated herein by reference).
10(m) Administrative Services Agreement dated May 28, 1992 between the
Registrant and JBS Investment Banking, Ltd. (Filed as Exhibit 2(b) to the
Registrant's Current Report on Form 10-K dated June 11, 1992, date of
earliest event reported May 28, 1992, and incorporated herein by
reference.)
10(n) Promissory Note dated November 30, 1993 between the Registrant and
Bankers Trust of North Carolina, filed herein as Exhibit 4(bb) and made a
part hereof.
10(o) Security Agreement dated November 30, 1993 between the Registrant and
Bankers Trust of North Carolina, filed herein as Exhibit 4(cc) and made a
part hereof.
10(p) Deed of Trust dated November 30, 1993 between the Registrant and Bankers
Trust of North Carolina, filed herein as Exhibit 4(dd) and made a part
hereeof.
10(q) Promissory Note dated January 31, 1994 between the Registrant and Mt.
Holly State Bank, filed herein as Exhibit 4(ee) and made a part hereof.
10(r) Allonge, Note, Mortgage Modification & Security Agreement dated January
31, 1994 between the Registrant and Mt. Holly State Bank, filed as
Exhibit 4(ff) and made a part hereof.
11 Statement re-computation of per share earnings dated year ended December
31, 1994, and made a part hereof.
22 List of subsidiaries of the Registrant.
23 Consent of Coopers & Lybrand.
(b) Reports on Form 8-K:
Addendum I to Purchase and Sale Agreement dated December 3, 1993. (Filed
as Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated
December 17, 1993 and incorporated herein by reference.)
Agreement between O.M. Enterprises and the Registrant dated December 3,
1993. (Filed as Exhibit 2.2 to the Registrant's Current Report on Form 8-
K dated December 17, 1993 and incorporated herein by reference.)
Asset Purchase Agreement dated March 10, 1995 among the Registrant,
Carefree Learning Centers, Inc., Keystone Ventures, Inc. and Medical
Service Association of Pennsylvania, doing business as Pennsylvania Blue
Shield. (Filed as Exhibit 2(a) to the Registrant's Current Report on Form
8-K dated December 17, 1993 and incorporated herein by reference.)
Agreement of Sale dated March 10, 1995 among the Registrant, Bluegrass
Real Estate Company, Inc. and Keystone Real Estate Development Company,
Inc. (Filed as Exhibit 2(b) to the Registrant's Current Report on Form 8-
K dated December 17, 1993 and incorporated herein by reference.)
37
<PAGE>
QUALIFICATION BY REFERENCE
--------------------------
Information contained in this Annual Report as to a contract or other document
referred to or evidencing a transaction referred to is necessarily not
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to this Annual Report or incorporated herein
by reference, all such information being qualified in its entirety by such
reference.
38
<PAGE>
Exhibit 11
Statement re-computation
of per share earnings.
1. Earnings Per Share
The earnings per share is based on the weighted average number of common
stock and common equivalent shares outstanding. The calculation is as
follows:
<TABLE>
<CAPTION>
12 months ended 12 months ended
December 30, 1994 December 30, 1993
<S> <C> <C>
Primary $ 2,336,665 - $198,555 = .13 $ 1,708,017 - $106,686 = .10
------------------------ -----------------------
16,078,702 15,896,624
Fully Diluted $ 2,336,665 = .12 $ 1,708,017 = .10
------------- ------------
20,148,010 17,583,892
</TABLE>
<PAGE>
Exhibit 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Nobel Education Dynamics, Inc. (formerly The Rocking Horse Child
Care Centers of America, Inc.) and subsidiaries on Form S-3 (File No. 33-73496)
and Forms S-8 (File Nos. 33-21859 and 33-44888) of our report, dated February
21, 1995, except for Note 16, as to which the date is March 10, 1995 on our
audits of the consolidated financial statements of Nobel Education Dynamics,
Inc. and subsidiaries as of December 31, 1994 and 1993 and for each of the three
years in the period ended December 31, 1994, which report is included in this
Annual Report on Form 10-K.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 30, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1993
<PERIOD-START> JAN-01-1994 JAN-01-1993
<PERIOD-END> DEC-31-1994 DEC-31-1993
<CASH> 854 1,167
<SECURITIES> 0 0
<RECEIVABLES> 615 402
<ALLOWANCES> 96 88
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,320 2,437
<PP&E> 13,399 12,070
<DEPRECIATION> (4,217) (3,463)
<TOTAL-ASSETS> 23,234 22,613
<CURRENT-LIABILITIES> 6,517 5,551
<BONDS> 0 0
<COMMON> 15,445 15,418
0 0
4,984 2,484
<OTHER-SE> 8,278 3,714
<TOTAL-LIABILITY-AND-EQUITY> 23,234 22,613
<SALES> 34,372 32,594
<TOTAL-REVENUES> 34,372 32,594
<CGS> 28,160 26,534
<TOTAL-COSTS> 32,156 29,097
<OTHER-EXPENSES> 107 (39)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,223 1,717
<INCOME-PRETAX> 1,901 1,729
<INCOME-TAX> (438) 21
<INCOME-CONTINUING> 2,339 1,708
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,339 1,708
<EPS-PRIMARY> 0.13 0.10
<EPS-DILUTED> 0.12 0.10
</TABLE>
