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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 [No Fee Required]
Commission File Number 1-1003
NOBEL EDUCATION DYNAMICS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 22-2465204
(State or other jurisdiction (IRS Employer
of incorporation or organization Identification No.)
ROSE TREE CORPORATE CENTER II
1400 N. PROVIDENCE ROAD, SUITE 3055
MEDIA, PA 19063
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (610) 891-8200
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE
$.001 PER SHARE
(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]
As of March 27, 1996, 5,697,390 shares of common stock were outstanding.
The aggregate market value of the shares of common stock owned by non-affiliates
of the Registrant as of March 27, 1996 was approximately $89,125,000 (based upon
the closing sale price of these shares as reported by NASDAQ). Calculation of
the number of shares held by non-affiliates is based on the assumption that the
affiliates of the Company include only directors, executive officers and
stockholders filing Schedules 13D or 13G with the Company. 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.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held June 18, 1996 (the "Proxy Statement") and to be filed
within 120 days after the registrant's fiscal year ended December 31, 1995 are
incorporated by reference in Part III.
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TABLE OF CONTENTS
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Item
No. Page
PART I
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1. Business ........................................................... 1
2. Properties.......................................................... 8
3. Legal Proceedings................................................... 9
4. Submission of Matters to a Vote of Security Holders................. 9
Executive Officers of the Company................................... 10
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.............................................. 21
12. Security Ownership of Certain Owners and Management................. 21
13. Certain Relationships and Related Transactions...................... 21
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.... 22
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PART I
ITEM 1. BUSINESS.
GENERAL
Nobel Education Dynamics, Inc.'s business mission is to be the leader in the
United States in providing affordable private education from preschool through
eighth grade for the children of middle-income working families. The Company's
operations include preschools, child care centers, elementary schools and middle
schools (through eighth grade) throughout the United States. To attain its
objectives, Nobel intends to build on its experience and expertise both in
education and child care. As an "education company", the Company's strategy is
to offer practical solutions to a segment of the education problem in the United
States.
In California, Nobel operates Merryhill Country Schools. Merryhill is a fully
accredited private school system which consists of 31 preschools, elementary
schools and middle schools. In July 1995, Merryhill received full seven-year
accreditation of all its preschool and schools from the National Independent
Private Schools Association (NIPSA).
In the Eastern and Midwestern United States, the Company operates 19
curriculum-based preschools and elementary schools, both under the name
"Chesterbrook Academy" and through its Educo, Inc. subsidiary (acquired in
August 1995). The Company also operates fifty-six child care centers, most, if
not all, of which it intends to convert to curriculum-based preschools/schools
by the end of 1997. Eastern and Midwestern locations include Pennsylvania, New
Jersey, Virginia, Maryland, North Carolina, South Carolina, Illinois, Indiana,
Delaware and Maine
Conversions to preschools/schools will include the adoption of the highly
regarded and accredited education curriculums of Nobel's other schools, with an
upgrading of the educationally oriented teaching materials and technology,
including computer labs. Immediately following conversion, a Chesterbrook
Academy school will offer grade levels through kindergarten or first grade. One
or more grades are then planned to be added in subsequent years, space
permitting, through eighth grade.
In September 1995, the Company opened the first Chesterbrook Academy schools,
including three new schools and six conversions.
Management is currently pursuing a three-pronged strategy to take advantage of
the significant growth opportunities in the private education market. First,
the Company is strengthening its existing campuses by applying the strengths of
the curriculum-based programs of its school systems to its child care centers
through conversions to the Chesterbrook Academy format. Second, the Company is
pursuing expansion in both existing and new markets by opening or acquiring
additional preschools and schools. Finally, the Company is geographically
clustering its preschools to (i) increase market awareness, (ii) provide a lower
risk method for expansion into elementary and middle schools by providing a
feeder population and (iii) gain operating effectiveness in both management and
costs.
Nobel targets its schools and preschools to meet the needs of middle-income
working parents. Most of Nobel's schools, preschools and child care centers are
open from 6:30 a.m. to 6:00 p.m., allowing early drop-off and late pick-up. In
most locations, programs are available for children
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starting at six weeks of age. For basically the same price as standard child
care, parents can leave children of various ages at one Nobel school knowing
they will receive a quality education during the greater part of the day and be
engaged in well-supervised activities the remainder.
To complement its educational and child care programs, the Company also
operates (i) before and after school programs and (ii) summer camps (both sports
and educational) at its various school facilities. Nobel also seeks to add
other services and products which will add ancillary income and improve overall
operating margins.
Since 1992, when there was a change in management, the Company's strategies
changed significantly. New strategies included a change of the Company's focus
to education from child care, strengthening of the Company's financial
condition, divestiture of centers in mature markets and, after the Company's
financial stabilization, expansion into growth areas. With the implementation of
these new strategies, the Company's financial strength improved dramatically:
. The equity of the Company increased from a negative net worth of $3.8
million on December 31, 1991 to positive net worth of $16.1 million as of
December 31, 1995. Further, on March 5, 1996, the Company closed a private
placement of common stock for additional equity of $11.7 million (net of
offering expenses) and, on February 2, 1996, the Company issued shares of
common stock in connection with an acquisition, resulting in a positive net
worth as of December 31, 1995 on a pro forma basis of $27.8 million.
. 1992, 1993, 1994 and 1995 were the highest net income years in the
Company's history, with 1995's being the highest at $3.7 million (before
preferred stock dividends).
. The price of the Company's stock was $1.25 per share on December 31, 1991
(adjusted for the 1 to 4 reverse stock split effected on September 28,
1995) and reached $16.00 on March 27, 1996.
The Company's corporate office is located at Rose Tree Corporate Center II,
1400 North Providence Road, Suite 3055, Media, PA 19063. Its telephone number
is (610) 891-8200.
EDUCATIONAL PHILOSOPHY AND IMPLEMENTATION
The educational philosophy of Merryhill and Chesterbrook Academy is based on
innovative techniques and quality, proprietary curriculums developed by
experienced education personnel. Nobel'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 recognize that
each child develops according to his or her own abilities and timetable. Each
child's educational needs are considered upon entrance, with the instructional
program being matched to a child's individual learning skills. Children are
inspired to proceed at their own rate and advance to higher conceptual and skill
levels. The result is the opportunity for children to develop a strong
foundation in learning, positive self-esteem and emotional well-being.
During 1995, the Company instituted an Education Advisory Board which reviews
and upgrades Nobel's curriculums on a continuing basis. Janet Katz, E.E.D., a
director of the Company, is responsible for the formulation of the Education
Advisory Board's structure and its modus operandi.
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The Company believes small class sizes are a basic ingredient of its quality
education. Nobel's philosophy is based on personalized instruction provided in
classrooms with reduced pupil/teacher ratios. The program for the Company's
schools is a strong skills-based, comprehensive curriculum. This curriculum
enables children and students to achieve success in learning overall and
specifically in the academic skills of reading readiness and reading, spelling,
writing, mathematics, science, social science, the visual arts, physical
education, a foreign language, computers and study skills. Use of state-of-the-
art technologies, such as interactive CD-ROMs, produce an advanced learning
process. Early learning and development is a keystone to the preschools. For
example, Merryhill and Chesterbrook Academy schools introduce a second language
between the ages of two and three with full immersion into a second language by
first grade. Learning processes are employed which stimulate and advance right
brain (creative) development in addition to left brain (logical) development.
The Company offers sports activities and supplemental programs which include
day field trips coordinated with the curriculum to such places as zoos,
libraries, museums and theaters, and, at middle school, overnight trips to such
places as Yosemite, California and Washington, D.C. Schools arrange 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 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 in an atmosphere where learning is fun and exciting.
The Company's programs are implemented by experienced 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 an excellent working environment where employees can reach
their full potential; outstanding performance is recognized and rewarded.
The Company is committed to maintaining close relationships between the
schools 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 encouraged 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.
As of March 21, 1996, the aggregate licensed capacity at the Company's 108
schools and centers exceeded 14,400 children or approximately 134 children per
school or center.
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OPERATIONS / SCHOOL SYSTEMS
In order to maintain uniform standards, each school and center shares
consistent educational goals and operating procedures. To respond to local
demands, principals are encouraged to tailor curriculums, within Nobel's
standards, to regional needs. Management visits all schools and centers on a
regular basis to review program and facility quality.
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.
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 reports by district, region and for the Company in total. Weekly or
monthly tuition rates and utilization rates are continually monitored. Each
school and center is measured on a monthly basis versus its individual business
plan. Nobel is in the process of evaluating several state-of-the-art computer
systems which would assist the principals in operating schools and provide
management with enhanced operational information.
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 is 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.
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 concept and strategy of its Merryhill and Educo
subsidiaries, Nobel in all its locations strives to differentiate itself from
the child care providers. Through its proven curriculum programs, Nobel will
provide developmental programs beginning at the preschool level and continuing
through upper grades. 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 generates the majority of new enrollments from its reputation in
the community and word-of-mouth recommendations of parents. Further, the
Company is geographically clustering its preschools to increase local market
awareness and to provide a feeder population for Nobel elementary and middle
schools. 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.
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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.
NEW CENTER AND SCHOOL DEVELOPMENT; RECENT DEVELOPMENTS
Management expects a significant portion of the growth of the Company, for the
next few years, to be through the opening of new schools and preschools and
strategic acquisitions of existing schools and preschools.
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. After site selection, the Company typically seeks to engage a developer
to build a facility to the Company's specifications and lease the premises to
the Company pursuant to a long-term lease. The Company is pursuing several
alternatives to establish a pool of funds which would be available to finance
such third party construction activity. However, there can be no assurance that
the Company will be successful in such efforts.
Typically, new schools are single-story stand alone structures located near
residential neighborhoods on sites of acreage appropriate to the nature of the
school. 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, viii)
family education data, xi) local licensing requirements and x) real estate
costs. The Company historically has had significant success in the new centers
it has opened.
The Company also plans to expand the number of grade levels offered by its
existing schools. Upon conversion to Chesterbrook Academy format, current
preschools and child care centers will offer initially grade levels through
kindergarten or first grade, with further expansion planned. The Company also
plans to expand the grades offered by its Merryhill and Educo schools. There
can be no assurance that the Company will be successful in these plans.
Development activities in 1995 and early 1996 included the following:
New School Openings / Expansion of Grade Levels
In 1995 and the first quarter of 1996, the Company opened eight new schools.
The Company plans to open approximately eleven new schools under the name of
Chesterbrook Academy or Merryhill in 1996. There can be no assurance that the
Company will be successful in these plans.
Carefree Acquisition
On March 10, 1995, the Company acquired from Carefree Learning Centers, Inc.,
a subsidiary of Pennsylvania Blue Shield, substantially all of the assets (other
than real estate) and the operations of Carefree. The operations acquired
consist of eight learning centers generating revenues of approximately
$4,446,000 in 1994 and three learning centers under construction. The licensed
capacity of the eight existing learning centers aggregates 1,075 pupils. The
licensed capacity of the
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three learning centers then under construction aggregates 416 pupils. One of
the centers under construction was opened in October 1995, and the other two
were opened in March 1996 as Chesterbrook Academy schools. In May 1995, the
Company acquired the land and building of five of the Carefree Learning Centers.
Corydon Acquisition
On August 25, 1995, the Company acquired from Corydon Day Care Center, Inc.,
an Indiana corporation d/b/a "Children Today" and substantially all of the
assets (other than real estate) used by Corydon in the business of operating
nine of its preschools located in the Indianapolis, Indiana area. Revenues of
these preschools for Corydon's fiscal year ended March 31, 1995 were
approximately $3,300,000. Aggregate licensed capacity of the preschools is
1,140 pupils.
Educo Acquisition
On September 1, 1995, the Company acquired all of the capital stock of Educo,
Inc., a Maryland corporation. Educo, Inc. is an operator of a private school
system consisting of ten schools and preschools located in Virginia, Maryland,
North Carolina and South Carolina with an aggregate licensed capacity of 1,500
pupils. Revenues of Educo for its fiscal year ended August 31, 1995 were
approximately $5,500,000.
Virginia Acquisition
On February 2, 1996, the Company acquired the assets of five Virginia
corporations, each of which operates a learning center in northern or central
Virginia. The five learning centers have an aggregate licensed capacity of 821
pupils and had aggregate revenue in the twelve months ending December 31, 1995
of approximately $2,900,000.
INDUSTRY AND COMPETITION
Annual spending on education in the United States is estimated to be between
$500 and $600 billion. Estimates of spending in education for preprimary
(preschools and child care) are close to $30 billion; estimates for kindergarten
through twelfth grade are $308 billion, with approximately $200 billion being
for kindergarten through eighth grade. The Company plans to capitalize on this
education market through its schools and preschools.
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. 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 Wall Street Journal reported in a feature article on March 1, 1996 that
parental concerns that a public-school education is not sufficient to be
successful "are propelling a growing number of
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middle- and upper-middle-class parents -- who moved to the suburbs seeking a
good, free education for their sons and daughters -- to abandon public schools."
The article stated:
Fueling their anxiety is more than concern over class size or test scores.
They worry that their children are being short-changed by inadequate
teaching and by the focus on classmates with special needs, as well as by
the drug use and violence they associated with urban schools. Beneath these
fears lies a deeper angst. Apprehensive about their own job security, these
parents feel the best way to ensure their children's prosperity is to get
them the best education possible -- which isn't possible, they feel, in
their suburban public schools.
The Wall Street Journal article cited a survey last year conducted by Public
Agenda, an independent think tank that examines educational issues. Almost 60%
of the parents surveyed said that, if they could afford to, they would send
their children to private school. Parents surveyed ranked private schools
higher than public school in 11 of 13 categories, including preparing students
for college, safety and discipline. Nobel seeks to respond to these trends by
making quality private school education affordable.
While price is an important factor in competition, the Company believes that
important competitive factors also are offering: professionally developed
educational programs, well equipped facilities, trained teachers and a broad
range of services, including transportation and infant care. Particularly in the
preschool market, many of these services are not offered by the Company's
competition.
Competition in the Company's markets is highly fragmented. For school age
children, the Company competes with other for-profit private schools, with non-
profit schools and, in a sense, with public school systems. The Company is not
aware of any secular competitor which currently competes beyond a regional
level. However, the Company anticipates that, given the perceived potential of
the education market, well-financed competition may emerge, including possible
competition from the large for-profit child care companies. The Company
believes that the structure of these larger companies may make it difficult for
them to implement and develop programs which are based upon curriculum-intensive
goals, which would require significant cultural changes.
For pre-school age children, the Company competes with other curriculum-based
preschools. Also seeking enrollments of pre-school age children are large for-
profit child care companies, as well as other child care providers (including
in-home individual child care providers and corporations that provide child care
for their employees). However, the Company believes that persons in its target
market -- parents seeking curriculum-based programs for their children -- seek
services not provided by these child care providers. Nobel believes that these
parents desire to give their child the best educational advantage available.
REGULATION
Schools and preschools are subject to a variety of state and local regulations
and licensing requirements. These regulations and licensing requirements vary
greatly from jurisdiction to jurisdiction. Generally, 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,
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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 insurance. The policies provide for a variety of coverage
and are subject to various limits. Companies involved in the education and care
of children, however, may not be able to obtain insurance for the total risks
inherent in their operations. In particular, general liability coverage can
have sublimits per claim for child abuse. In 1995, the Company was able to
increase significantly the sublimit applicable to such coverage. There can be
no assurance that in future years the Company will not again become subject to
lower limits. 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.
SERVICE MARK
The Company has registered the service marks Merryhill Country School(R), The
Rocking Horse Child Care Center(R) and Carefree Learning Centers(R) in the
Untied States Patent and Trademark Office. The Company has also applied for
registration of its service mark Chesterbrook Academy. The Company believes
that the name Merryhill Country School has substantial value in its marketing in
the area in which such schools operate. The Company has not determined whether
it will utilize its existing school names in all new locations.
SEASONALITY
Nobel's elementary schools historically have lower operation revenues in the
summer due to lower summer enrollments. Summer revenues of preschools tend to
remain more stable or, in some cases, increase. The Company has sought to
improve summer results through camps and other programs.
EMPLOYEES
On March 25, 1996, the Company employed approximately 2,500 persons,
approximately 830 of which were employed on a part-time basis. Management
believes that its relationship with its employees is satisfactory.
ITEM 2. PROPERTIES.
At December 31, 1995, the Company operated 101 schools, preschools and child
care centers (hereafter, "schools") in 12 states. At March 11, 1996, the
number of schools totaled 108, located in 12 states.
The Company's schools generally are located in suburban settings. At March
11, 1996, the Company's schools are geographically located as follows: 31 in
California, 17 in Pennsylvania, 7 in New Jersey, 11 in Virginia, 7 in Illinois,
9 in Indiana, 14 in North Carolina, 8 in South Carolina and 1 each in Maryland,
Delaware, Maine and Louisiana.
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The Company owns the land and buildings for 15 of the schools it operates.
All such properties are subject to mortgages on the real property. In addition,
one school 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 remaining 93
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.
The Company owns the land and building of six properties in Florida and
Georgia; five of such properties are leased to tenants with an option to
purchase and one such property, which the Company intends to sell, is
nonoperational. In addition, the Company leases one closed center and is
attempting to assign this lease.
The Company leases 10,786 square feet of space for its corporate offices in
Media, Pennsylvania. The lease expires in the year 2001.
The Company intends to engage in a sale and leaseback transaction of six
properties and use the proceeds to pay down the related mortgages and other
debt. Currently, two of such properties are subject to a sale agreement and
four are subject to a letter of intent. No assurances can be made that these
transactions will be completed.
ITEM 3. LEGAL PROCEEDINGS.
In March 1996, the Company entered into a settlement with Douglas E. Carneal,
former Chief Operating Officer of the Company, pursuant to which Mr. Carneal
released all claims against the Company and certain officers and directors, and
other persons arising out of a dispute over amounts which Mr. Carneal claims
were payable to him following his termination from the Company. In connection
with such settlement, the Company made a payment to Mr. Carneal of $170,000, all
parties executed releases and all proceedings relating to the matter pending in
the Court of Common Pleas for Chester County, Pennsylvania and the United States
District Court for the Eastern District of Pennsylvania were terminated.
The Company is engaged in 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.
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EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
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NAME AGE POSITION
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A.J. Clegg 56 Chairman of the Board, President and
Chief Executive Officer
John R. Frock 52 Executive Vice President -- Corporate
Development; Assistant Secretary
D. Scott Clegg 33 Vice President -- Operations
Yvonne DeAngelo 38 Vice President -- Administration
and Finance; Secretary
B. Robin Eglin 39 Vice President -- Corporate Development
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A.J. Clegg. Mr. Clegg 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. Mr. Clegg's
responsibilities for JBS Investment Banking, Ltd. do not require material
amounts of his time. 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.
John R. Frock. Mr. Frock 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, which formerly provided services to Nobel through an Administrative Services
Agreement. He is currently the Chairman and CEO of Avant Garde Enterprises Ltd.
Mr. Frock's responsibilities for companies other than Nobel do not require
material amounts of his time. During the past five years, Mr. Frock has also
served as the President and COO of SBF Communications 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.
D. Scott Clegg. Mr. Clegg was named Vice President of Operations for the
Merryhill Country Schools division in June 1993 and Vice President of Operation,
with responsibility for nationwide operations in early 1996. 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.
10
<PAGE>
Yvonne DeAngelo. Ms. DeAngelo was appointed Vice President of Finance and
Administration in December 1995. She had served as Controller since March 1989.
Ms. DeAngelo has also served as Secretary since May 1992. Before joining Nobel
Education Dynamics, Inc., she served as Senior Auditor for Coopers and Lybrand
from 1986 to 1989.
B. Robin Eglin. Mr. Eglin was named Vice President of Corporate Development in
April 1995. Mr. Eglin was formerly Vice President of Carefree Learning Centers,
Inc. and Keystone Real Estate Development Company, Inc., wholly-owned for-profit
subsidiaries of Pennsylvania Blue Shield, where he was in charge of all real
estate, finance and accounting activities. Mr. Eglin joined Carefree in 1989.
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 each quarter during the period from January 1, 1994 through
December 31, 1995 and for the first quarter to date in 1996. These quotations
reflect inter-dealer prices, without retail mark-ups, mark-downs or commissions
and may not necessarily represent actual transactions. Quotations prior to
September 28, 1995 are adjusted to reflect the 1 for 4 reverse stock split of
the Company effected on such date.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1994
First Quarter.................. $ 5 3/4 $3
Second Quarter................. 5 1/2 4
Third Quarter.................. 4 7/8 4
Fourth Quarter................. 4 5/8 3 3/4
1995
First Quarter.................. $ 6 3/4 $4
Second Quarter................. 8 1/4 6
Third Quarter.................. 15 1/2 7 1/4
Fourth Quarter................. 16 5/8 10 3/4
1996
First Quarter (as of 3/27/96).. 17 3/8 13 5/8
</TABLE>
HOLDERS.
At March 21, 1996, there were approximately 525 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. Further, in connection with the private placement
of the Series C Convertible Preferred Stock to Edison Venture Fund II, L.P., the
Company is prohibited from paying cash dividends on its common stock, unless the
dividend is permitted under the Company's bank agreement and the amount of the
dividend is less than or equal to 50% of operating income less income tax.
The Company's Series A Preferred Stock bears a dividend of 8% per annum,
payable quarterly. Dividends totaling $184,115 were paid in 1995.
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,
1995 1994 1993 1992 1991
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue......................................... $44,154 $34,372 $32,594 $33,498 $ 34,665
Center operating expenses....................... 35,908 28,161 26,543 27,036 28,139
Center operating profit......................... 8,246 6,211 6,051 6,462 6,526
General and administrative
expenses....................................... 3,396 2,696 2,555 2,946 2,376
Litigation expense.............................. 500 200 - - -
Restructuring charge............................ - - - - 4,821
Operating income (loss)......................... 4,350 3,315 3,496 3,516 (671)
Interest expense................................ 1,840 1,223 1,718 1,729 3,220
Other (income) expense.......................... (126) 107 (39) (117) (30)
Minority interest............................... 86 83 88 63 (36)
Income (loss) before income taxes............... 2,550 1,902 1,729 1,841 (3,825)
Income tax (benefit) expense.................... (1,356) (438) 21 36 -
Net income before extraordinary item............ 3,906 2,340 1,708 1,805 (3,825)
Extraordinary Item.............................. 62 - - - -
Net income (loss)............................... 3,844 2,340 1,708 1,805 (3,825)
Preferred Dividends............................. 184 199 107 - -
Net income available to
Common Shareholders............................ $ 3,660 $ 2,141 $ 1,601 $ 1,805 $ (3,825)
Primary earnings per share (post split):
- ---------------------------------------
Net income before extraordinary item............ $ 0.69 $0.53 $ 0.40 $0.48 ($1.32)
Extraordinary item.............................. $ (0.01) - - - -
------- ------ ------- ----- -----
Net income...................................... $ 0.68 $ 0.53 $ 0.40 $0.48 ($1.32)
======= ====== ======= ===== =====
Fully diluted earnings per share (post split):
- --------------------------------------------
Net income before extraordinary item............ $ 0.64 $ 0.46 $ 0.38 $0.48 ($1.32)
Extraordinary item.............................. $ (0.01) - - - -
------- ------ ------- ----- ------
Net income...................................... $ 0.63 $ 0.46 $ 0.38 $0.48 ($1.32)
======= ====== ======= ===== ======
Year ended December 31,
1995 1994 1993 1992 1991
(in thousands)
BALANCE SHEET DATA:
Working Capital (deficit)....................... $(831) $(4,197) $(3,114) $(3,996) $(25,715)
Cost in excess of net assets acquired........... 17,274 8,888 8,923 9,278 9,533
Total assets.................................... 44,937 23,234 22,613 24,226 27,355
Short-term debt and current
portion of long-term debt...................... 1,371 1,768 905 1,523 21,403
Long-term debt.................................. 20,272 7,846 12,545 17,733 3,216
Shareholders' equity (deficit).................. $16,121 $ 8,298 $ 3,732 $ (279) $ (3,784)
</TABLE>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Fiscal year 1995 compared to fiscal year 1994.
As of December 31, 1994, the Company operated 68 elementary schools,
preschools and child care centers (collectively referred to herein as
"schools"). During the year ended December 31, 1995, the Company acquired in
both assets and stock transactions, 27 operating schools, and three schools
under development, which consisted of (1) eight schools operated by Carefree
Learning Centers, and three under development, located in Pennsylvania, (2) ten
schools operated by Educo, Inc., located in Maryland, Virginia, North Carolina
and South Carolina and (3) nine schools operated by Children Today, Inc.,
located in Indiana. In addition, the Company opened seven new schools in
various locations and leased one school in Florida. As of December 31, 1995,
the Company operated a total of 101 schools. In February 1996, the Company
acquired five schools located in Virginia. In March 1996, the Company opened
two new schools in Pennsylvania bringing the total number of schools the Company
operates to 108.
Revenues for the twelve months ended December 31, 1995 totaled $44,154,367, an
increase of $9,782,866 or 28% from the prior year of $34,371,501. The increase
in revenues was due primarily to the three acquisition transactions and the
opening of seven new schools. Revenues relating to the acquisitions totaled
$7,352,751 or 21% of revenues for the twelve months ended December 31, 1995.
Revenues related to the acquisitions do not reflect a full year as one
transaction occurred in March and the others occurred place in September.
Revenue increases relating to the new schools built in 1995 and late 1994
totaled $1,521,133 or 4.4%. Same school operations reflected an increase of
$1,351,414 or 4%. This increase was offset by a loss of revenues related to the
divestiture of the Southeastern centers totaling $442,432 or 1.3%.
School operating profit increased $2,034,919 or 33% from $6,210,964 for the
year ended December 31, 1994 to $8,245,883 for the year ended December 31, 1995.
The $2,034,919 increase was attributable to an increase of (1) $1,202,839
related to operating profit from the acquisitions described above and (2)
$897,175 due to increase in operating profit in the same school base, offset by
a loss of $65,095 related to the opening of new schools.
The school operating profit margin increased from 18.07% for the year ended
December 31, 1994 to 18.68% in 1995. The increase was due primarily to (1)
efficiencies in the same school base operating in 1994, (2) the divestiture of
schools located in the Southeast which generally had lower margins and (3) lower
rent expense as a result of owning the properties of six of the Carefree
schools. The Company intends to engage in a sale and leaseback transaction of
these properties and use the proceeds to pay down the related mortgages and
other debt. Currently, two of such properties are subject to a sale agreement
and four are subject to a letter of intent. No assurances can be made that
these transactions will be completed.
General and administrative expenses decreased as a percent of revenues from
7.84% in 1994 to 7.69% in 1995. The percentage decrease is due to efficiencies
resulting from growing the base of the
14
<PAGE>
Company. General and administrative expense increased $699,864 or 26%. This
increase was related primarily to the increase in staff as a result of the
acquisitions.
During the twelve months ended December 31, 1995, the Company recorded a
$500,000 litigation expense which was the result of the outcome of the lawsuit
by former management. The United States Court of Appeals for the Third Circuit
ruled in favor of Julie Sell and Michael Bright and against the Company. The
Company paid the judgment plus attorney fees and interest in September 1995,
totaling $580,000. In March 1996, the Company settled certain other proceedings
against the Company brought by Douglas Carneal, its former Chairman, and made a
payment of $170,000 to Mr. Carneal in connection with such settlement. The
Company had sufficient reserves for the settlement, thus additional expense was
not recorded.
Operating income increased $1,035,055 or 31% from $3,314,888 for the year
ended December 31, 1995 to $4,349,943 for the year ended December 31, 1995. The
increase is a result primarily of increased school operating profit related to
the acquisitions.
Interest expense increased $616,592 or 50% from $1,222,971 for the year ended
December 31, 1994 to $1,839,563 for the year ended December 31, 1995. The
increase in interest is due to higher debt levels associated with the
acquisitions which include $6,000,000 of subordinated debt at 14% and 8.5%
mortgage loans on the Carefree properties with a balance at December 31, 1995 of
$3,512,881. Currently, two of such properties are subject to a sale agreement
and four are subject to a letter of intent. No assurances can be made that this
transaction will be completed.
Other income and expense showed income of $125,724 for the year ended December
31, 1995 compared to expense of $106,960 for the year ended December 31, 1994,
an increase of $232,694. The increase was related to (1) increased interest
income on cash balances, (2) adjustments of rent accruals related to the
cancellation of several leases in the Southeast and (3) decreased costs of
Southeast centers which were divested.
Pretax income increased $648,830 or 34% from $1,901,466 for the twelve months
ended December 31, 1994 to $2,550,296 for the same period in 1995. The increase
was due primarily to an increase in schools' operating profit as a result of the
growth of the Company.
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 relating to the net operating loss. In 1994, the
Company reduced the valuation allowance and recognized $510,300 of the deferred
tax asset. The 1994 estimate recorded was based on the analysis of the positive
operating performance of the prior two years and projected taxable income of
1994 and 1995. In 1995, based on three years of positive net income and the
analysis of projections for the years 1996 though 1999, the Company removed the
remaining valuation allowance. Accordingly, such amounts were recorded as a
credit to income tax expense.
On August 31, 1995, the Company completed the refinancing of its existing
principal debt facilities as described in Footnote 6 to the Company's
Consolidated Financial Statements. As a result of the refinancing, the Company
expensed the remaining unamortized loan origination fees related to the prior
debt facilities as an extraordinary item, totaling $62,000 after the tax effect.
15
<PAGE>
Net income before preferred dividends increased $1,504,110 or 64% from
$2,339,776 for the year ended December 31, 1994 to $3,843,886 for the year ended
December 31, 1995.
Dividends totaling $184,114 and $198,555 were paid on the Company's Series A
Preferred Stock for the twelve months ended December 31, 1995 and 1994,
respectively. During 1995, 543,000 shares of the Series A Preferred Stock were
converted to 638,568 shares of common stock.
Fully diluted earnings per share increased from $.46 per share (adjusted for
the 1:4 reverse stock split) for the year ended December 31, 1994 to $.63 for
the year ended December 31, 1995. Common shares and shares equivalents on a
fully diluted base increased 1,092,119 or 22% from 5,037,002 for the year ended
December 31, 1994 to 6,129,121 for the year ended December 31, 1995, as a result
of raising equity capital and issuing stock in connection with acquisitions.
Fiscal Year 1994 Compared to Fiscal Year 1993
As of December 31, 1993, the Company operated 66 schools. During the year
ended December 31, 1994, the Company divested three schools, terminated the
lease of one school, opened three new schools, and acquired 3 additional
schools. At December 31, 1994, the Company operated 68 schools.
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 revenues totaling
$32,594,386. Of this increase $1,893,652 or 5.8% of revenues was related to the
acquisition and/or opening of six new schools and $1,939,498 or 6% of revenues
was related to an increase in revenues in the same school base. The same school
base increase was due to increased enrollment and increased tuition rates.
Tuition rates increased an average of 3% to 4%. These increases were offset by
a decrease in revenues resulting from the divesture of ten schools in the
Southeast totaling $2,213,797 or 6.8% of revenues. Other revenues totaling
$157,762 related to the test marketing of a product catalogue which was
discontinued in 1995.
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 same school base operating profit increased $749,367 or 13% from $5,789,018
for the year ended December 31, 1994 to $6,538,385 for the year ended December
31, 1995. The increase was due primarily to (1) increased revenues related to
increased enrollment and tuition rates and (2) the successful opening of new
schools in 1994. New 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 schools very successfully which offset the normal
losses related to openings.
This increase described above was offset by a $589,902 decrease in operating
profit. Of such total decrease, (1) $282,556 was related to the divestiture of
the ten schools in the Southeast in December 1993 and maturation of the
remaining Southeastern markets, (2) $171,731 was related to the testing of a
product catalogue and (3) $135,615 was related to cost from some of the closed
centers in the Southeast which the Company has since subleased.
16
<PAGE>
School 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. The same school base operating profit margins remained stable for the
twelve months ended 1994 at 20% compared to 1993. The decline in total was
attributed to (1) the loss resulting from the test marketing of the catalogue
division, (2) costs related to non-operating centers in the Southeast and (3)
lower margins attributed to the start-up of new schools.
General and administrative expenses increased $140,973 or 5.5% from $2,555,103
or 7.8% of revenues for the year ended December 31, 1993 to $2,696,076 or 7.8%
of revenues for the year ended December 31, 1994. The increase is related to
increased professional fees associated with analysis of various acquisitions and
costs associated with the test marketing of the catalogue. In 1994, the Company
recorded $200,000 in a legal reserve associated with lawsuits from prior
management.
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 performance 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 in preferred dividends in the twelve months ended
December 31, 1994 as compared to $106,686 in 1993.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During 1995, the Company effected its growth strategy through the acquisition
of three multi-school operations and the opening of seven new schools. The
acquisitions were funded by various combinations of cash made available from the
"Recapitalization" (described below), issuance of new shares of common stock and
incurrence of indebtedness to sellers. New school development was effected
primarily by outside developers (who entered into long-term leases with the
Company) and, to a lesser extent, through bank financing.
During 1996, the Company intends to continue its growth strategy through both
acquisitions and new school development. The Company plans to finance
acquisitions through a March 1996 equity private placement (discussed below)
which resulted in proceeds of approximately $11,700,000 after transaction costs
and funds available under the Company's revolving line of credit ($6,300,000
available at March 28, 1996). If appropriate, the Company may also issue
additional senior debt, incur indebtedness to sellers or issue additional shares
of common stock to sellers.
The Company generally seeks to accomplish development of new schools without
significant expenditures of cash by entering into arrangements with real estate
developers to build new schools. The Company commits to enter into a long-term
lease for a new school from the third party owner. The Company is pursuing
several alternatives to establish a pool of funds which would be available to
finance such third party construction activity. There is no assurance that the
Company will be successful in such efforts.
The Company's loan agreement permits the Company each year to construct up to
three schools which it will own itself (or which will otherwise appear on the
Company's balance sheet). (Such number is reduced to two, if the Company enters
into an agreement with a third party to build and lease to the Company five or
more newly constructed schools in a year.) If the Company does build a school
and own the real estate, the Company intends subsequently to seek to sell and
lease back the property. Non-real estate costs incurred by the Company in
connection with opening a new school are approximately $75,000 to $100,000.
In 1996, the Company plans to convert approximately 15 of its child care
centers to Chesterbrook Academy schools. When a conversion takes place, the
Company upgrades the curriculum and equipment, retrains teachers, changes
signage and installs a close-circuit security system. The Company estimates the
cost of a conversion to be $25,000 to $30,000 per location. The Company
anticipates that cash generated from operations and its line of credit will be
sufficient to fund the cost of the conversions.
On March 5, 1996, the Company raised $11.7 million from the issuance of one
million shares of common stock in a private placement transaction. The equity
capital raised gives the Company the ability to continue its growth strategy.
Proceeds from the transaction may be used for (1) strategic acquisitions, (2)
repayment of debt, (3) the development of new schools or (4) general corporate
purposes. The Company is in negotiations with respect to several acquisitions;
however, no definitive purchase agreements have been signed for any
transaction. There are no assurances that any of these potential acquisitions
will occur.
18
<PAGE>
On August 31, 1995, the Company completed a $23,000,000 recapitalization (the
"Recapitalization") which consisted of the placement of: (1) a $7,500,000
revolving line of credit and $7,500,000 senior term loan, both financed through
First Valley Bank; (2) $6,000,000 of subordinated debentures with Allied Capital
Corporation and affiliated entities (collectively, "Allied"); (3) 1,063,830
shares of Series D Convertible Preferred Stock sold to Allied for a purchase
price of $2,000,000; and (4) warrants to acquire an aggregate of 309,042 shares
of the Company's common stock, subject to certain adjustments under antidilution
provisions for a purchase price of $100. Proceeds of the Recapitalization were
used as described below.
The $7,500,000 revolving line of credit bears interest at an annual rate which
is LIBOR performance based and matures on September 1, 1998. There is also a
usage fee at a rate of 1/4 of 1% of the average daily unused portion of the
line. As of December 31, 1995, the Company had not drawn on the facility. On
February 6, 1996, the Company drew $1.2 million on the line of credit to finance
in part the acquisition of five schools located in Virginia.
The senior term loan bears interest at an annual rate of 8.5%. Principal
payments are due quarterly, $200,000 each quarter from December 1, 1995 through
September 1, 1996, $250,000 each quarter from December 1, 1996 through September
1, 1999 and $300,000 each quarter from December 1, 1999 through June 1, 2000.
The revolving line of credit and senior term loan are secured by liens in favor
of First Valley Bank on the Company's real and personal properties.
The $6,000,000 of subordinated debentures sold to Allied bears interest
payable monthly at an annual rate of 14%. Level payments of principal are due
quarterly, beginning in year five (calendar year 2000) and the remaining balance
of the loan matures on August 31, 2002. The debt may be paid off at any time
without penalty. The Company issued 1,063,830 shares of Series D Convertible
Preferred Stock for total cash of $2,000,000 and warrants to acquire an
aggregate of 309,042 shares of common stock at $7.52 per share for $100. Each
share of Series D Convertible Preferred Stock is convertible to one-fourth of a
share of common stock.
Total cash and cash equivalents increased $2,860,674 from $853,886 at December
31, 1994 to $3,714,560 at December 31, 1995. The increase was primarily due to
the Recapitalization described above and an increase in the cash provided by
operations. Of the total cash proceeds of $15,500,000 from the
Recapitalization, $11,104,101 was used to repay the Company's existing principal
debt facilities, $2,000,000 was used to fund the cash portion of the Educo
acquisition and $1,090,771 was used to pay transaction costs. The remaining
$1,305,328 represents a portion of the increase in the cash balance.
Net cash provided by operations increased $1,139,334 from $2,897,905 at
December 31, 1994 to $4,037,239 at December 31, 1995. The increase was due
primarily to increases in net income from operations offset by the reversal of
the valuation allowance.
The working capital deficit decreased $3,365,916 or 80% from a deficit of
$4,196,958 at December 31, 1994 to a deficit of $831,042. The decrease is
related to the increase in the cash and cash equivalents and the decrease in the
current portion of long term debt due to the refinancing of the company's debt
facilities.
19
<PAGE>
INFLATION
The Company has not been significantly affected by inflation.
INSURANCE
Companies involved in the education and care of children may not be able to
obtain insurance for the total risks inherent in their operations. In
particular, general liability coverage can have sublimits per claim for child
abuse. In 1995, the Company was able to increase significantly the sublimit
applicable to such coverage. There can be no assurance that in future years the
Company will not again become subject to lower limits.
CAPITAL EXPENDITURES
In 1996, the Company plans to convert 15 of its existing Rocking Horse Child
Care Centers to Chesterbrook Academy schools. Capital expenditure requirements
for each conversion are estimated to be $25,000 to $30,000 per school, with
total costs projected to be $450,000. Cash flows from operations and the line
of credit are anticipated to be sufficient to cover the costs. In addition, the
Company plans to spend approximately $2 million on capital expenditures in the
remaining schools.
The Company is continuously maintaining and upgrading the property and
equipment of each school. During 1995, the Company spent $2,051,644 on capital
expenditures which included upgrading playgrounds, purchasing new equipment and
technology and books, making purchases relating to new school startup and
improving the equipment and facilities of some of the acquisitions.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 1996, the Company will adopt Statement of Financial
Accounting Standards (SFAS) No 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." The provisions of SFAS No.
121 require the Company to review its long-lived assets for impairment on an
exception basis whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable through future cash flows.
If it is determined that an impairment loss has occurred based on expected
future cash flows, then the loss is recognized in the income statement and
certain disclosures regarding the impairment are made in the financial
statements. It is not expected that the adoption of SFAS No. 121 will have a
material effect on the Company's 1996 consolidated financial statements.
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 included in this Annual Report on Form 10-K on pages F-1 through F-
21 below.
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 information required by this Item with respect to the directors of the
Company is incorporated herein by reference to the information set forth in the
Proxy Statement. The information required by the Item with respect to executive
officers of the Company is furnished in a separate item captioned "Executive
Officers of the Company" and included in Part I of this Annual Report on Form
10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by reference to
the information set forth in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to
the information set forth in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein by reference to
the information set forth in the Proxy Statement.
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS A PART OF THIS REPORT:
<TABLE>
<CAPTION>
Page
----
(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 Stockholders Equity............. F-4
Consolidated Statements of Cash Flows...................... F-5
Notes to Consolidated Financial Statements................. F-7
</TABLE>
(2) Financial Statement Schedules.
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) REPORTS ON FORM 8-K.
On November 3, 1995, the Company filed a Current Report on Form 8-K reporting
the distribution of, and including as an exhibit, a shareholder letter dated
November 1, 1995, which included the related quarterly financial statements for
the fiscal quarter ended September 30, 1995.
(c) 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.
Exhibit
Number Description of Exhibit
2.1 Asset Purchase Agreement dated as of 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 filed on March 27, 1995, date of earliest
event reported March 10, 1995, and incorporated herein by reference.)
2.2 Agreement of Sale dated as of 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 filed on March 27, 1995, date of earliest
event reported March 10, 1995, and incorporated herein by reference.)
2.3 Asset Purchase Agreement dated August 25, 1995 by and among Corydon
Day Care Center, Inc., d/b/a Children Today, Donald Mitchell, Jeffrey
Owen and the Registrant. (Filed as Exhibit 2A to the Registrant's
Current Rep ort on Form 8-K filed on September
22
<PAGE>
11, 1995, date of earliest event reported August 25, 1995, and
incorporated herein by reference.)
2.4 Stock Purchase Agreement dated May 23, 1995, by and among Educo, Inc.,
the stockholders of Educo, Inc. and the Registrant, as amended by
First Amendment to Stock Purchase Agreement dated August 31, 1995 and
Second Amendment to Stock Purchase Agreement dated August 31, 1995.
(Filed as Exhibit 2B to the Registrant's Current Report on Form 8-K
filed on September 11, 1995, date of earliest event reported August
25, 1995, and incorporated herein by reference.)
2.5 Asset Purchase Agreement dated as of February 2, 1996 by and among
Stony Point Learning Center, Inc., School's Out, Inc., Cascades
Childcare, Inc. and Pump Road Child Care, Inc. and Linda Nash and
Stephen Nash and the Registrant. (Filed as Exhibit 4A to the
Registrant's Current Report on Form 8-K dated February 16, 1996, date
of earliest event reported February 2, 1996, and incorporated herein
by reference.)
2.6 Asset Purchase Agreement dated as of February 2, 1996 by and among
Loudoun Children's Center, Inc. and Linda Nash and Stephen Nash and
the Registrant. (Filed as Exhibit 4A to the Registrant's Current
Report on Form 8-K dated February 16, 1996, date of earliest event
reported February 2, 1996, and incorporated herein by reference.)
3.1 Registrant's Certificate of Incorporation, as amended and restated
(including the Certificate of Amendment of Certificate of
Incorporation of Registrant filed September 28, 1995 effecting a one-
for-four reverse stock split). (Filed as Exhibit 3.1 to the
Registrant's Registration Statement on Form S-8 (Registration
Statement No. 33-64701) filed on December 1, 1995 (the "Form S-8") and
incorporated herein by reference.)
3.2 Registrant's Certificate of Designation, Preferences and Rights of
Series A Convertible Preferred Stock. (Filed as Exhibit 7(c) to the
Registrant's Current Report on Form 8-K filed on June 14, 1993 and
incorporated herein by reference.)
3.3 Registrant's Certificate of Designation, Preferences and Rights of
Series C Convertible Preferred Stock. (Filed as Exhibit 4(ae) to the
Registrant's Quarterly Report on Form 10-Q with respect to the quarter
ended June 30, 1994 and incorporated herein by reference.)
3.4 Registrant's Certificate of Designation, Preferences and Rights of
Series D Convertible Preferred Stock. (Filed as Exhibit 4E to the
Registrant's Current Report on Form 8-K filed on September 11, 1995,
date of earliest event reported August 25, 1995, and incorporated
herein by reference.)
3.5 Registrant's Amended and Restated By-laws, as amended. (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.)
4.1 Loan and Security Agreement dated August 30, 1995 among the
Registrant, certain subsidiaries of the Registrant and First Valley
Bank.
23
<PAGE>
Registrant's Current Report on Form 8-K filed on September 11, 1995,
date of earliest event reported August 25, 1995, and incorporated
herein by reference.)
4.2 Investment Agreement dated as of August 30, 1995 by and among the
Registrant, certain subsidiaries of the Registrant and Allied Capital
Corporation and its affiliated funds. (Filed as Exhibit 4A to the
Registrant's Current Report on Form 8-K dated September 11, 1995, date
of earliest event reported August 25, 1995, and incorporated herein by
reference.)
4.3 Senior Subordinated Debenture dated as of August 30, 1995 in the
principal amount of $450,000 payable to the order of Allied Capital
Corporation. (Filed as Exhibit 4B to the Registrant's Current Report
on Form 8-K dated September 11, 1995, date of earliest event reported
August 25, 1995, and incorporated herein by reference.)
Exhibit 4.3 is one in a series of four Senior Subordinated Debentures issued
pursuant to the Investment Agreement dated as of August 30, 1995 (Exhibit 4.2)
that are identical except for the original holder thereof and the principal
amount thereof, which are as follows:
<TABLE>
<CAPTION>
Holder Principal Amount
------ ----------------
<S> <C>
Allied Capital Corporation II $2,775,000
Allied Investment Corporation $1,800,000
Allied Investment Corporation II $ 975,000
</TABLE>
4.4 Term Note dated August 30, 1995 in the principal sum of $7,500,000 payable
to the order of First Valley Bank. (Filed as Exhibit 4G to the
Registrant's Current Report on Form 8-K dated September 11, 1995, date of
earliest event reported August 25, 1995, and incorporated herein by
reference.)
4.5 Line Note dated August 30, 1995 in the principal sum of $7,500,000 payable
to the order of First Valley Bank. (Filed as Exhibit 4H to the Registrant's
Current Report on Form 8-K dated September 11, 1995, date of earliest event
reported August 25, 1995, and incorporated herein by reference.)
4.6 Subordinated Promissory Note of the Registrant dated March 10, 1995, to
Medical Service Association of Pennsylvania, Doing Business as Pennsylvania
Blue Shield, in the principal amount of $1,584,962.45. (Filed as Exhibit
4(a) to the Registrant's Current Report on Form 8-K filed on March 27,
1995, date of earliest event reported March 10, 1995, and incorporated
herein by reference.)
4.7 Form of Subordinated Promissory Note of the Registrant to Medical Service
Association of Pennsylvania, Doing Business as Pennsylvania Blue Shield.
(Filed as Exhibit 4(b) to the Registrant's Current Report on Form 8-K filed
on March 27, 1995, date of earliest event reported March 10, 1995, and
incorporated herein by reference.)
4.8 Form of Subordinated Promissory Note of the Registrant to Medical Service
Association of Pennsylvania, Doing Business as Pennsylvania Blue Shield.
(Filed as Exhibit 4(c) to the
24
<PAGE>
Registrant's Current Report on Form 8-K filed on March 27, 1995, date of
earliest event reported March 10, 1995, and incorporated herein by
reference.)
4.9 Subordinated Note dated as of February 2, 1996 in the principal amount of
$336,680 payable to the order of Cascades Childcare, Inc. (Filed as
Exhibit 4A to the Registrant's Current Report on Form 8-K dated February
16, 1996, date of earliest event reported February 2, 1996, and
incorporated herein by reference.)
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.
10.1 1986 Stock Option and Stock Grant Plan of the Registrant, as amended.
(Filed as Exhibit 10(1) to the Registrant's Registration Statement on Form
S-1 (Registration Statement No. 33-1644) filed on August 12, 1987 (the
"Form S-1") and incorporated herein by reference.)
10.2 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.)
10.3 1995 Stock Incentive Plan of the Registrant. (Filed as Exhibit 4.6 to the
Form S-8 and incorporated herein by reference.)
10.4 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.)
10.5 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.)
10.6 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.)
10.7 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.)
10.8 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.)
10.9 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
25
<PAGE>
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.)
10.10 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.)
10.11 Amendment No. 1 to Shareholders' Agreement dated May 28, 1992 by and
among JBS Investment Banking, Ltd., Nobel and Saltzman Partners. (Filed
as Exhibit 4(ag) to the Registrant's Quarterly Report on Form 10-Q with
respect to the quarter ended June 30, 1994 and incorporated herein by
reference.)
10.12 Series 1 Warrants for shares of Common Stock issued to Edison Venture
Fund II, L.P. and Edison Venture Fund II-PA, L.P. (Filed as Exhibit 4(ad)
to the Registrant's Quarterly Report on Form 10-Q with respect to the
quarter ended June 30, 1994 and incorporated herein by reference.)
10.13 Registration Rights Agreement between Registrant and Edison Venture Fund
II, L.P. and Edison Venture Fund II-PA, L.P. (Filed as Exhibit 4(af) to
the Registrant's Quarterly Report on Form 10-Q with respect to the
quarter ended June 30, 1994 and incorporated herein by reference.)
10.14 Amendment dated February 23, 1996 to Registration Rights Agreement
between Registrant and Edison Venture Fund II, L.P. and Edison Venture
Fund II-PA, L.P.
10.15 Common Stock Purchase Warrant dated August 30, 1995 entitling Allied
Capital Corporation to purchase up to 92,173 shares (pre-reverse stock
split) of the Common Stock of the Registrant. (Filed as Exhibit 4C to the
Registrant's Current Report on Form 8-K dated September 11, 1995, date of
earliest event reported August 25, 1995, and incorporated herein by
reference.)
Exhibit 10.15 is one in a series of four Common Stock Purchase Warrants issued
pursuant to the Investment Agreement dated as of August 30, 1995 that are
identical except for the Warrant No., the original holder thereof and the number
of shares of Common Stock of the Registrant for which the Warrant may be
exercised, which are as follows:
<TABLE>
<CAPTION>
Number of Shares
(pre-reverse stock split)
of Common Stock
Warrant No. Holder (subject to adjustment)
----------- ------ -----------------------
<S> <C> <C>
2 Allied Capital Corporation II 142,932
3 Allied Investment Corporation 92,713
4 Allied Investment Corporation II 50,220
</TABLE>
10.16 Registration Rights Agreement dated August 30, 1995 by and among the
Registrant and Allied Capital and its affiliated funds, and amendment
thereto dated February 23, 1996. (Filed
26
<PAGE>
as Exhibit 4D to the Registrant's Current Report on Form 8-K dated
September 11, 1995, date of earliest event reported August 25, 1995, and
incorporated herein by reference.)
10.17 Amendment dated February 23, 1996 to Registration Rights Agreement dated
August 30, 1995 by and among the Registrant and Allied Capital and its
affiliated funds.
10.18 Form of subscription agreement entered into between Registrant and
certain customers of Gilder, Gagnon, Howe & Co. relating to the offer and
sale by the Company of 1,000,000 shares of its common stock.
11 Statement re-computation of per share earnings dated year ended December
31, 1995, and made a part hereof.
21 List of subsidiaries of the Registrant.
23 Consent of Coopers & Lybrand, L.L.P.
Certain schedules (and similar attachments) to Exhibits 2.1, 2.2, 2.3, 2.4, 2.5,
2.6, 4.1 and 4.2 have not been filed. The Registrant will furnish supplementally
a copy of any omitted schedules or attachments to the Commission upon request.
(d) FINANCIAL STATEMENT SCHEDULES.
None.
27
<PAGE>
QUALIFICATION BY REFERENCE
Information contained in this Annual Report on Form 10-K 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.
28
<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.
Date: March 29, 1996 NOBEL EDUCATION DYNAMICS, INC.
By: /s/ A.J. Clegg
---------------------------------
A.J. Clegg
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Position Date
<S> <C> <C>
/s/ A. J. Clegg Chairman of the Board, March 29, 1996
- ----------------------------
A. J. Clegg President and Chief
Executive Officer and Director
/s/ Yvonne DeAngelo Vice President - Finance March 29, 1996
- ----------------------------
Yvonne DeAngelo and Administration
(Principal Financial
and Accounting Officer)
/s/ Edward H. Chambers Director March 29, 1996
- ----------------------------
Edward H. Chambers
/s/ John R. Frock Executive Vice President March 29, 1996
- ----------------------------
John R. Frock and Director
____________________________ Director March 29, 1996
Peter H. Havens
/s/ Morgan R. Jones Director March 29, 1996
- ----------------------------
Morgan R. Jones
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C>
____________________________ Director March 29, 1996
Janet L. Katz
____________________________ Director March 29, 1996
John H. Martinson
/s/ Eugene G. Monaco Director March 29, 1996
- ----------------------------
Eugene G. Monaco
</TABLE>
30
<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, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 14, 1996, except
for Note 15 as to which the
date is March 14, 1996 and
Note 16, as to which
the date is March 5, 1996
F-1
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS 1995 1994
- ------ ---- ----
<S> <C> <C>
Cash and cash equivalents $ 3,714,560 $ 853,886
Accounts receivable, less allowance for doubtful
accounts of $103,009 in 1995 and $96,282 in 1994 727,097 614,640
Other accounts receivable 573,237 45,114
Prepaid rent 609,401 238,952
Prepaid insurance and other 613,784 567,068
Deferred taxes 873,962 -
------- ------------
Total Current Assets 7,112,041 2,319,660
--------- ---------
Property and equipment, at cost 21,220,004 13,398,969
Accumulated depreciation (5,355,699) (4,216,505)
---------- ------------
15,864,305 9,182,464
Property and equipment held for sale (Southeast) 1,307,497 1,266,648
Cost in excess of net assets acquired 17,273,626 8,887,995
Deposits and other assets 2,262,871 1,066,926
Deferred taxes 1,117,000 510,300
---------- ------------
Total Assets $ 44,937,340 $ 23,233,993
========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Revolving Line of Credit (unused portion $7,500,000) $ - $ -
Current portion of long-term obligations 1,086,409 1,767,756
Current portion of subordinated debt 285,253 -
Current portion of capital lease obligations 49,897 57,194
Accounts payable and other current liabilities 6,318,219 4,691,668
Escrow Payable 203,305 -
--------- ----------
Total Current Liabilities 7,943,083 6,516,618
---------- ----------
Long-term obligations 11,392,590 7,846,151
Capital lease obligations 323,199 371,543
Deferred gain on sale/leaseback 55,312 63,303
Minority interest in consolidated subsidiary 223,881 138,073
Long-term subordinated debt 8,878,605 -
--------- ------------
Total Liabilities 28,816,670 14,935,688
---------- ------------
Commitments and Contingencies(Notes 5, 7, 9, and 15)
Stockholders' Equity:
Preferred stock, $.001 par value; 10,000,000 shares
authorized,issued and outstanding 5,505,150 in
1995 and 4,984,320 in 1994 ($6,984,320 and 5,505 4,984
$4,984,320 at liquidation value in 1995 and 1994)
Common stock, $.001 par value, 50,000,000 shares 4,095 15,445
authorized, issued and outstanding 4,095,094
shares in 1995 and 3,861,266 after split in 1994
Additional paid-in capital 21,818,344 19,644,922
Common Stock issuable (Educo), 312,500 shares 2,000,000 -
Accumulated deficit (7,707,274) (11,367,046)
------------ ------------
Total Stockholders' Equity 16,120,670 8,298,305
------------ ------------
Total Liabilities and Shareholders' Equity $ 44,937,340 $ 23,233,993
============== ============
</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,
--------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues $44,154,367 $34,371,501 $32,594,386
----------- ----------- -----------
Operating expenses:
Personnel costs 19,664,455 15,285,330 14,521,170
Center operating costs 6,640,288 5,482,016 4,997,153
Insurance, taxes, rent
and other 8,091,531 6,329,865 5,880,600
Depreciation and
amortization 1,512,210 1,063,326 1,143,964
----------- ----------- -----------
35,908,484 28,160,537 26,542,887
----------- ----------- -----------
School operating
profit 8,245,883 6,210,964 6,051,499
----------- ----------- -----------
General and administrative expenses 3,395,940 2,696,076 2,555,103
Litigation expense 500,000 200,000 -
----------- ----------- -----------
Operating income 4,349,943 3,314,888 3,496,396
----------- ----------- -----------
Interest expense 1,839,563 1,222,971 1,717,933
Other (income) expense (125,724) 106,960 (39,247)
Minority interest in income of
consolidated subsidiary 85,808 83,491 88,693
----------- ----------- -----------
Income before income taxes 2,550,296 1,901,466 1,729,017
Income tax (benefit) expense (1,355,590) (438,300) 21,000
----------- ----------- -----------
Net income before extra-
ordinary item $ 3,905,886 $ 2,339,766 $ 1,708,017
----------- ----------- -----------
Extraordinary loss on early
extinguishment of debt, net of
income tax benefit 62,000 - -
----------- ----------- -----------
Net income 3,843,886 2,339,766 1,708,017
Preferred stock dividends 184,114 198,555 106,686
----------- ----------- -----------
Net income available to
common shareholders $ 3,659,772 $ 2,141,211 $ 1,601,331
=========== =========== ===========
Primary earnings per share
(post split)
Net income before extraordinary item $ 0.69 $ 0.53 $ 0.40
Extraordinary item (0.01) -
----------- ----------- -----------
Net income $ 0.68 $ 0.53 $ 0.40
=========== =========== ===========
Fully diluted earnings per share
(post split)
Net income before extraordinary item $ 0.64 $ 0.46 $ 0.38
Extraordinary item (0.01) - -
----------- ----------- -----------
Net income $ 0.63 $ 0.46 $ 0.38
=========== =========== ===========
</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 STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Additional
-----------
Preferred Stock Common Stock Paid-In
------------------------- ------------------------
Shares Amount Shares Amount Capital
--------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance as of
January 1, 1993 - $ - 15,418,063 $ 15,418 $14,815,301
========= ============ ========== ========== ===========
Issuance of Preferred Stock
less transaction costs 2,484,320 2,484 - - 2,406,836
Preferred Dividends - - - - -
Net Income - - - - -
--------- ------------ ----------- --------- -----------
December 31, 1993 2,484,320 $ 2,484 15,418,063 $ 15,418 $17,222,137
========= ============ =========== ========= ===========
Stock Options Exercised - - 27,000 27 25,285
Issuance of Preferred Stock
less transaction costs 2,500,000 2,500 - - 2,397,500
Preferred Dividends - - - - -
Net Income - - - - -
--------- ------------ ---------- --------- -----------
December 31, 1994 4,984,320 $ 4,984 15,445,063 $ 15,445 $19,644,922
========= ============ ========== ========= ===========
Stock Options Exercised - - 150,000 150 112,443
Warrants exercised - - 100,000 100 49,900
Common shares issuable - - - - -
Issuance of Preferred Stock 1,063,830 1,064 - - $ 1,998,936
Conversion of Preferred Stock (543,000) (543) 638,568 639 (96)
One-for-four reverse stock split - - (12,238,537) (12,239) 12,239
Preferred Dividends - - - - -
Net Income
--------- ------------ ----------- ---------- -----------
December 31, 1995 5,505,150 $ 5,505 4,095,094 $ 4,095 $21,818,344
========= ============ =========== ========== ===========
<CAPTION>
Common
Stock Accumulated
Issuable Deficit Total
---------- ------------- -----
<S> <C> <C> <C>
Balance as of
January 1, 1993 - $(15,109,588) $ (278,869)
========== ============ ===========
Issuance of Preferred Stock
less transaction costs - - 2,409,320
Preferred Dividends - (106,686) (106,686)
Net Income - 1,708,017 1,708,017
---------- ------------ -----------
December 31, 1993 - $(13,508,257) $ 3,731,782
========== ============ ===========
Stock Options Exercised - - 25,312
Issuance of Preferred Stock
less transaction costs - - 2,400,000
Preferred Dividends - (198,555) (198,555)
Net Income - 2,339,766 2,339,766
---------- ------------ -----------
December 31, 1994 - $(11,367,046) $ 8,298,305
========== ============ ===========
Stock Options Exercised - - $ 112,593
Warrants exercised - - 50,000
Common shares issuable $2,000,000 - 2,000,000
Issuance of Preferred Stock - - 2,000,000
Conversion of Preferred
Stock - - -
One-for-four reverse stock split - - -
Preferred Dividends - (184,114) (184,114)
Net Income 3,843,866 3,843,866
December 31, 1995 $2,000,000 $ (7,707,274) $16,120,670
========== ============ ===========
</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,
----------------------------------------------
1995 1994 1993
----- ----- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 3,843,886 $ 2,339,766 $ 1,708,017
------------ ----------- -----------
Adjustment to Reconcile Net Income
to Net Cash Provided by
Operating Activities:
Depreciation and amortization 1,512,210 1,063,326 1,143,964
Depreciation related to non-operating
centers 82,007 90,646 102,649
Provision for losses on accounts receivable 96,867 119,212 63,134
Minority interest in income 85,808 83,491 88,693
Early extinguishment of debt 88,571 - -
Reversal of tax valuation allowance (1,480,672) (510,300) -
Deferred gain amortization (7,991) (7,991) (7,991)
Changes in Assets and Liabilities Net of
Acquisitions (increase) decrease in:
Accounts receivable and other receivables (128,245) (331,452) 7,213
Prepaid assets (187,848) 12,817 (337,567)
Other assets and liabilities (175,813) (69,585) (110,133)
Accounts payable and accrued expenses 308,459 107,975 (298,223)
------------ ----------- -----------
Total Adjustments 193,353 558,139 651,739
Net Cash Provided by Operating Activities 4,037,239 2,897,905 2,359,756
------------ ----------- -----------
Cash Flows from Investing Activities:
Capital expenditures (2,051,664) (1,372,384) (914,996)
Proceeds from sale of property and
equipment 251,225 463,760 2,324,278
Payment for acquisition
net of cash acquired (9,101,443) (210,161) -
Payment received from notes receivable - - 120,630
Other (146,315) - -
------------ ----------- -----------
Net Cash Provided by
(Used in) Investing Activities (11,048,197) (1,118,785) 1,529,912
------------ ----------- -----------
Cash Flows from Financing Activities:
Proceeds from new credit facility 7,500,000 - -
Proceeds from subordinated debt 6,000,000 - -
Proceeds from real estate mortgage 3,567,300 - -
Proceeds from other debt 3,671,697 - -
Transaction costs related to
issuance of debt and stock (1,090,771) (100,000) (78,320)
Proceeds from issuance of common stock 162,593 25,312 -
Dividends paid to minority shareholders - (230,726) -
Repayment of long-term debt (11,699,432) (4,025,322) (4,939,104)
Repayment of capital lease obligation (55,641) (62,484) (59,162)
Proceeds from issuance of preferred stock 2,000,000 2,500,000 1,616,000
Dividends paid to preferred stockholders (184,114) (198,555) (106,686)
------------ ----------- -----------
Net Cash Provided by (Used in)
Financing Activities 9,871,632 (2,091,775) (3,567,272)
------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents 2,860,674 (312,655) 322,396
Cash and cash equivalents at beginning
of year 853,886 1,166,541 844,145
------------ ----------- -----------
Cash and cash equivalents at end of year $3,714,560 $ 853,886 $1,166,541
=========== =========== ==========
</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,
------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Supplemental Disclosures of Cash
Flow Information
Cash paid during year for:
Interest $1,823,882 $ 1,228,431 $1,739,913
---------- ----------- ----------
Income taxes $ 137,423 $ 64,721 20,855
---------- ----------- ----------
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
Acquisitions
Fair value of tangible assets acquired 6,847,961 $ 190,000 -
Cost in excess of net assets acquired 8,727,293
Cash acquired (29,630) - -
Liabilities assumed (934,181) - -
Notes issued (3,310,000) - -
Escrow held (200,000) - -
Common shares issuable (2,000,000) - -
----------- ---------- -----------
Total cash paid $9,101,443 $ 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. (the "Company") was founded in 1982 and
commenced operations in 1984. The company operates private pre-schools and
grade schools located primarily in California, the Mid-Atlantic states,
Illinois, Indiana and Maine.
Principles of Consolidation and Basis of Presentation:
-----------------------------------------------------
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.
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fiscal Year:
-----------
The Company's fiscal year ends the last Friday in December. There were 52
weeks in fiscal 1995, and 1993 and 53 weeks in fiscal 1994.
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 The shorter of the leasehold
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.
F-7
<PAGE>
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 $341,662, $253,514 and $261,279, for the years ended December
31, 1995, 1994 and 1993 respectively. Accumulated amortization at December
31, 1995 and 1994 was $1,638,603 and $1,296,941, 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.
Income Taxes:
------------
The Company accounts for income taxes using the asset and liability method.
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. 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.
Reverse Stock Split:
--------------------
On September 22, 1995, the Stockholders approved a one-for-four reverse
stock split of the Company's common stock. The Company effected the reverse
split on September 28, 1995. For every four shares of common stock, each
shareholder received one share of common stock. All historical share and
per share amounts have been restated to reflect retroactively the reverse
stock split (except for the statement of stockholders equity).
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 primary
and fully-diluted basis, both net earnings and shares outstanding are
adjusted to assume conversion of the non-interest bearing convertible
preferred stock from the date of issue.
The number of shares used for computing primary and fully diluted earnings
per share after the impact of the 4:1 reverse split was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Primary 5,398,731 4,019,675 3,974,156
Fully diluted 6,129,121 5,037,002 4,395,973
</TABLE>
Concentrations of Credit Risk
-----------------------------
The Company provides its services to the parents and guardians of the
children attending the schools. The Company does not extend credit for an
extended period of time, nor does it require collateral. Exposure to losses
on receivables is principally dependent on each person's financial
condition. The Company monitors its exposure for credit losses and
maintains allowances for anticipated losses.
Recently Issued Accounting Standards
------------------------------------
Effective January 1, 1996, the Company will adopt Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." The
provisions of SFAS No. 121 require the Company to review its long-lived
assets for impairment on an exception basis whenever events or changes in
circumstances indicate that the carrying amount of the assets may
F-8
<PAGE>
not be recoverable through future cash flows. If it is determined that an
impairment loss has occurred based on expected future cash flows, then the
loss is recognized in the income statement and certain disclosures
regarding the impairment are made in the financial statements. It is not
expected that the adoption of SFAS No. 121 will have a material effect on
the Company's 1996 consolidated financial statements.
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation," effective for fiscal years beginning after December 15,
1995. The Statement encourages employers to account for stock compensation
awards based on their fair value on their date of grant. Entities may
choose not to apply the new accounting method but instead, disclose in the
notes to the financial statements the pro forma effects on net income and
earning per share as if the new method had been applied. The Company
adopted the disclosure-only approach of the Standard effective January
1, 1996.
(2) ACQUISITIONS:
-------------
During the twelve months ended December 31, 1995 the company completed
three acquisitions which are described below:
Acquisition of Educo, Inc.:
--------------------------
On September 1, 1995, the Company acquired all of the outstanding shares of
common stock of Educo, Inc. Educo, Inc. is an operator of 10 schools and
preschools located in Maryland, Virginia, North Carolina and South
Carolina. The purchase price for the stock consisted of (i) $2,000,000 in
cash and (ii) an agreement to issue and deliver to the former stockholders
of Educo, Inc. ("Educo Stockholders") an aggregate of 312,500 shares
(giving effect to the reverse split) of the Company's Common Stock on or
after January 15, 1996. The cash portion of the purchase price was financed
with proceeds of the Term Loan from First Valley Bank described in Note 6
below.
In connection with the acquisition of Educo, Inc., the Company guaranteed
the value of the 312,500 shares issued to the Educo Stockholders at the
fair market value of the shares ($6.40 per share) as of the date of
execution of the purchase agreement, provided certain conditions are met.
Specifically, if an Educo Stockholder sells shares in a bona fide brokers'
transaction during the period (18 months) that the Company keeps effective
a registration statement with respect to such shares, the Company would pay
the difference between guaranteed value and, if less, the actual sales
prices (excluding commissions and fees); provided that the Educo
Stockholders do not sell in the aggregate more than 17,500 shares during
any 30 day period during such period.
In conjunction with the acquisition, the Company entered into an agreement
with the former manager of Educo (one of the Educo stockholders) to provide
consulting services over a period of 10 years. Under the agreement, the
Company will pay annual fees in the amount of $58,224.
Acquisition of Corydon Schools:
------------------------------
On August 25, 1995, the Company acquired from Corydon Day Care Center, Inc.
("Corydon"), nine of its preschools located in the Indianapolis, Indiana
area (the "Centers") and substantially all of the assets (other than real
estate) used by Corydon in the business of operating the Centers. The
Company also acquired a leasehold interest in the buildings and the land
upon which the Centers are located. The purchase price for the business and
assets acquired from Corydon consisted of (i) $1,050,000 in cash and (ii) a
subordinated promissory note in the principal amount of $1,125,000
collateralized by a security interest in certain assets located at the
centers. The cash portion of the purchase price paid by the Company was
financed by drawing on the Company's then existing line of credit.
F-9
<PAGE>
Acquisition of Carefree Learning Centers, Inc.:
-----------------------------------------------
On March 10, 1995, the Company acquired 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, 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 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 acquired in May
1995 (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 was at the time currently under construction (collectively, the
Real Estate"). At the closing, the purchase price paid for the Real Estate
consisted 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.
The Company is currently seeking a potential buyer for a sale leaseback of
these properties and will use the proceeds to pay down the related
mortgages and other debt.
Cost in Excess of Net Assets Acquired:
-------------------------------------
The cost in excess of net assets acquired for the above acquisitions will
be amortized over a 40 year life. Management has evaluated the life cycles
of similar schools and determined that 40 years is consistent with an
historical range for private elementary education, including schools of the
Company's subsidiary Merryhill Schools, Inc., and Educo, Inc., both of
which have been operating over 30 years. In evaluating potential
acquisitions of child care centers, management considers not only the
current child care operations but also the outlook for these centers as
elementary schools. Therefore, for the child care centers purchased a 40
year life will also be used given management's intent to add the elementary
school concept to these centers.
Unaudited Pro Forma Information:
--------------------------------
The operating results of all acquisitions are included in the company's
consolidated results of operations from the date of acquisition. The
following pro forma financial information assumes the acquisitions occurred
at the beginning of each year. These results have been prepared for
comparative purposes only and do not purport to be indicative of what would
have occurred had the acquisitions been made at the beginning of 1995, or
of the results which may occur in the future. Further, the information
gathered from some acquired companies are estimates since some acquirees
did not maintain information on a period comparable with the company's
fiscal year-end.
F-10
<PAGE>
<TABLE>
<CAPTION>
(Unaudited)
1995 1994
---- ----
<S> <C> <C>
Revenues $51,376,546 $47,535,246
Net Income $ 3,999,424 $ 2,588,695
Earning per share
Primary $ 0.71 $ 0.60
Fully Diluted $ 0.66 $ 0.52
</TABLE>
(3) 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 $3,470,873 and $987,204 at December 31, 1995 and 1994,
respectively. In 1995 and 1994, 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 as such deposits are maintained in high quality financial
institutions.
(4) PROPERTY AND EQUIPMENT:
----------------------
The balances of major property and equipment classes excluding property and
equipment held for sale in conjunction with the Southeast restructuring
were as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
---- ----
<S> <C> <C>
Land $ 2,675,423 $ 1,653,812
Buildings 8,986,500 4,929,060
Assets under capital lease
obligations 912,781 912,781
Leasehold improvements 2,382,420 1,837,057
Furniture and equipment 5,769,390 4,066,259
Construction in progress 493,490 -
----------- -----------
21,220,004 13,398,969
Accumulated depreciation (5,355,699) (4,216,505)
----------- -----------
$15,864,305 $ 9,182,464
=========== ===========
</TABLE>
Included in the net book value of property and equipment listed above is
$5,227,753 of land and buildings acquired in conjunction with the Carefree
acquisition. As stated in Note 2, the Company is currently seeking a
potential buyer for a sale leaseback of these properties.
Depreciation expense was $1,150,087, $809,818 and $845,579 for the years
1995, 1994 and 1993 respectively. Amortization of capital leases included
in depreciation expense amounted to $14,640, in each of the years 1995,
1994, and 1993. Accumulated amortization of capital leases amount to
$431,655, $417,015 and $402,375 for the years ended December 31, 1995, 1994
and 1993 respectively.
(5) PROPERTY AND EQUIPMENT HELD FOR SALE (SOUTHEAST):
------------------------------------------------
In 1990 management initiated a restructuring plan which consisted of
selling operations which did 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-11
<PAGE>
The restructuring plan initiated in 1990 resulted thus far in the
disposition of 48 centers located in Florida, Georgia and South Carolina,
and divestiture of seven centers in Georgia and Florida developed for the
Company but not operated.
The revenues and operating losses before general and administrative costs
of the centers remaining to be divested are $1,570,000 and $131,000,
respectively, for the year ended December 31, 1995.
Remaining Property and Equipment Held for Sale:
----------------------------------------------
Management has estimated the market price of its remaining six 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 1995 and 1994:
Property and Equipment at Cost:
------------------------------
<TABLE>
<CAPTION>
Beginning Ending
Balances Balances
12/31/94 Additions Disposals 12/31/95
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Land $ 562,531 - $ - $ 562,531
Buildings 2,104,094 $ 2,395 2,106,489
FFE 626,792 11,871 (87,940) 550,723
----------- ---------- ---------- -----------
Accumulated 3,293,417 14,266 (87,940) 3,219,743
Depreciation (841,373) (102,568) 78,071 (865,870)
---------- ---------- -----------
Net book value 2,452,044 - - (2,353,873)
Reserve (1,185,396) - - (1,046,376)
----------- ---------- ---------- -----------
Estimated net
realizable
value $ 1,266,648 $1,307,497
=========== ==========
<CAPTION>
Beginning Ending
Balances Balances
12/31/93 Additions Disposals 12/31/94
-------- --------- --------- --------
<S> <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 $ (817,961) $ (150,718) $ 127,306 $ (841,373)
----------- ---------- ---------- -----------
Net book value 2,861,423 - - 2,452,044
Reserve (1,213,358 - - (1,185,396)
----------- ---------- ---------- -----------
Estimated net
realizable
value $ 1,648,065 1,266,648
=========== ==========
</TABLE>
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.
F-12
<PAGE>
(6) DEBT:
-----
Debt consisted of the following at:
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
---- ----
<S> <C> <C>
Long Term Obligations:
---------------------
Term Loan $7,300,000 $ -
Line of Credit - -
(unused portion $7.5M)
1/st/ mortgages, due in varying installments
over three to twenty years with
fixed interest rates ranging from 11%
to 12%. 4,943,911 818,468
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 1995 and 1994. - 403,079
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%. 162,700 198,137
Notes payable to vendors for property and
equipment with fixed interest rates
varying from 11.3% to 17.5%. 72,388 45,677
Term Loan I (refinanced in August 1995) - 2,402,871
Revolving Credit Loan II
(refinanced in August 1995) - 5,745,675
----------- -----------
Total Long Term Obligations 12,478,999 9,613,907
Less Current Portion (1,086,409) (1,767,756)
----------- -----------
$11,392,590 $ 7,846,151
=========== ===========
Subordinated Debt:
-----------------
14% Subordinated Debentures $ 6,000,000
Subordinated Debt Agreements 3,163,858
-----------
Total Long Term Subordinated Debt 9,163,858
Less Current Portion (285,253)
----------
$8,878,605
==========
</TABLE>
On August 31, 1995, the Company completed a $23,000,000 refinancing (the
"Refinancing") which consisted of the placement of: (1) a $7,500,000
revolving line of credit and $7,500,000 senior loan, both financed through
First Valley Bank; (2) $6,000,000 of subordinated debentures with Allied
Capital Corporation and affiliated entities
F-13
<PAGE>
(collectively, "Allied"); (3) 1,063,830 shares of Series D Convertible
Preferred Stock sold to Allied for a purchase price of $2,000,000; and (4)
warrants to acquire an aggregate of 309,042 shares of the Company's Common
Stock, subject to certain adjustments under antidilution provisions for a
purchase price of $100. Proceeds of the Refinancing were used as follows:
$11,104,101 to repay the Company's existing principal debt facilities;
$2,000,000 for the acquisition of Educo, Inc.; approximately $1,000,000 to
pay transaction fees and approximately $1,500,000 to provide additional
cash to the Company.
The Refinancing resulted in an extraordinary loss of $62,000 related to the
write-off of the unamortized loan origination fees.
The $7,500,000 revolving line of credit bears interest at an annual rate
which is LIBOR performance based and matures on September 1, 1998. There is
also a usage fee at a rate of 1/4 of 1% of the average daily unused portion
of the line. The balance of the revolving line of credit at December 31,
1995 was zero with $7,500,000 available. On February 6, 1996 the Company
drew $1.2 million on the line of credit to finance, in part, the
acquisition of five schools located in Virginia.
The senior term loan bears interest at an annual rate of 8.5%. Principal
payments are due quarterly, $200,000 each quarter from December 1, 1995
through September 1, 1996, $250,000 each quarter from December 1, 1996
through September 1, 1999 and $300,000 each quarter from December 1, 1999
through June 1, 2000. The revolving line of credit and senior term loan are
collateralized by liens in favor of First Valley Bank on the Company's real
and personal properties.
The $6,000,000 of subordinated debentures sold to Allied bears interest
payable monthly at an annual rate of 14%. Level payments of principal are
due quarterly, beginning in year five (calendar year 2000) and the
remaining balance of the loan matures on August 31, 2002. The debt may be
paid off at any time without penalty.
Subordinated debt totaling $3,163,858 at December 31, 1995 includes
$1,087,500 related to the acquisition of the Indianapolis schools and
$2,076,358 related to the acquisition of the Carefree School and real
estate. The $1,087,500 subordinated note to Children's Today, Inc. has an
8% interest rate with equal principal payments totaling $9,375 per month
maturing in ten years. The $2,076,358 subordinated note bears interest to
Pennsylvania Blue Shield at 8% with monthly interest payments only and
annual payments of principal maturing in twenty years.
The Company's debt agreements contain restrictive covenants regarding the
payment of common stock dividends and the maintenance of ratios related to
adjusted net worth, debt to tangible net worth and other financial ratios.
Maturities of long-term obligations are as follows: $1,371,662 in 1996,
$1,598,993 in 1997, $4,863,507 in 1998, $1,899,260 in 1999, $4,822,269 in
2000 and $7,087,166 in 2001 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
was guaranteed by the Company. The CCI bank loans total $333,275 as of
December 31, 1995. The loans were repaid in January 1996 and the loan and
guarantee were canceled.
F-14
<PAGE>
(8) ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES:
----------------------------------------------
Accounts payable and accrued expenses were as follows:
<TABLE>
<CAPTION>
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Accounts payable $ 853,218 $ 560,993
Accrued payroll and
related items 859,901 581,719
Accrued rent 444,359 514,138
Unearned income 1,709,670 1,225,447
Accrued property taxes 765,625 702,877
Other accrued expense 1,685,446 1,106,494
---------- ----------
$6,318,219 $4,691,668
========== ==========
</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, 1995:
<TABLE>
<CAPTION>
Operating Leases
----------------
Centers
to be Continuing
Divested Centers Total
-------- ---------- -----
<S> <C> <C> <C>
1996 $337,003 $ 6,553,173 $ 6,890,176
1997 44,658 6,018,902 6,063,560
1998 44,658 5,319,527 5,364,185
1999 44,658 4,519,939 4,564,597
2000 44,658 4,134,046 4,178,704
2001 and thereafter 368,428 28,588,155 28,956,583
-------- ----------- -----------
Total minimum lease
obligations $884,063 $55,133,742 $56,017,805
======== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Capital Leases
--------------
<S> <C>
1996 $96,264
1997 97,708
1998 99,173
1999 100,660
2000 102,171
2001 and thereafter 25,637
--------
Total minimum lease obligations 521,613
--------
Less amount representing interest 148,517
--------
Present value of capital lease obligations 373,096
--------
Less current portion 49,897
--------
$323,199
========
</TABLE>
F-15
<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 $5,828,786, $4,444,735 and
$3,996,986, in 1995, 1994, and 1993, 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>
1996 888,953
1997 724,567
1998 688,125
1999 673,733
2000 and thereafter 4,185,215
</TABLE>
(10) SHAREHOLDERS' EQUITY:
--------------------
Preferred Stock:
---------------
In connection with the Investment Agreement with Allied (see Note 6) on
August 30, 1995 the company issued 1,063,830 shares of the Company's Series
D Convertible Preferred Stock for a purchase price of $2,000,000. The
Series D Preferred Stock is convertible to Common Stock at a conversion
rate, subject to adjustment, of 1/4 share of Common Stock for each share of
Series D Convertible Preferred Stock. The holders of Series D are not
entitled to dividends, unless dividends are declared on Common Shares. Upon
liquidation, the holders of shares of Series D Convertible Preferred Stock
are entitled, before any distribution or payment is made upon any common
stock, to $1.88 per share plus all unpaid dividends.
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 125,000 shares of the Company's
Common Stock, and Series 2 Warrants for the purchase of up to 125,000
shares of the Company's Common Stock, for an aggregate purchase price of
$2,500,000. The shares of Series C Preferred Stock, with a par value of
$.001, are convertible into Common Stock at conversion rate, subject to
adjustment, of 1/4 share of Common Stock for each share of Series C
Convertible Preferred Stock. Holders of shares of Series C Convertible
Preferred Stock are not entitled to dividends unless dividends are declared
on the Company's Common Stock. Initially, each share of Series C
Convertible Preferred Stock has one vote subject to change when the
conversion rate is adjusted as specified in the purchase agreement. Upon
liquidation, the holders of shares of Series D Convertible Preferred Stock
are entitled, before any distribution or payment is made upon Common Stock,
$1.00 per share plus all unpaid dividends. The Series 1 are exercisable at
$4.00 per share, subject to adjustment. The Series 1 Warrants expire on
August 19, 2001. The Series 2 Warrants have terminated pursuant to their
terms, because the fair market value of the Company's Common Stock exceeded
$12.00 per share, for each business day in any period of 20 consecutive
business days ending on or prior to December 31, 1996. As of December 31,
1995, 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 Series A Preferred Stock is
convertible into Common Stock at an initial conversion rate of .2940 shares
of Common Stock for each share of Preferred Stock so
F-16
<PAGE>
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 Series A Preferred Stock (currently
$3.40 per share). The Series A 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 Stock ("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 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, 1995 and 1994, 1,941,320 and
2,484,320 shares were outstanding respectively .
Each share of Series A Preferred Stock entitles the holder to an $.08 per
share annual dividend and 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 Series A 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 Warrants:
----------------------
In connection with the Investment Agreement with Allied (see Note 6) on
August 31, 1995, the Company issued warrants to acquire an aggregate of
309,042 shares of the Company's Common Stock.
In May 1992, the Company raised $2,000,000 before transaction costs from
the private sale of 1,000,000 shares of common stock. In connection with
the private placement, an additional 275,000 warrants to purchase the
Company's common stock were issued. The Company registered these shares in
February 1994. The warrants are exercisable at $2.00 per share and expire
on May 29, 1997.
1995 Stock Incentive Plan Approved
----------------------------------
On September 22, 1995, the shareholders approved the 1995 Stock Incentive
Plan which enables the Company to issue 375,000 options to purchase common
stock of the Company at the fair market value on the date the options are
issued. The purpose of the Plan is to attract and retain quality employees.
On December 27, 1995 108,450 options were issued to employees at the fair
market value on the date of issuance. These options vest over three years.
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 125,000 shares of common
stock of the Company for issuance in connection with stock grants,
incentive stock options and non-qualified stock options.
F-17
<PAGE>
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 216,750 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 216,750 shares, not more
than 7,500 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.
Option activity (adjusted for the 4:1 reverse split) with respect to the
1995, 1988 and 1986 plans was as follows:
<TABLE>
<CAPTION>
Outstanding Options
----------------------------
Number Range
------ -----
<S> <C> <C> <C>
Balance, January 1, 1993 71,950 $3.75 to $13.00
Granted 51,250 $3.04 to $3.75
Canceled (36,400) $4.00 to $11.00
Exercised - - -
-------- -----------------------
Balance, December 31, 1993 86,800 $3.00 to $13.00
-------- -----------------------
Granted - - -
Canceled (275) $3.00 to $4.00
Exercised (6,750) $3.75
-------- -----------------------
Balance, December 31, 1994 79,775 $3.00 to $13.00
-------- -----------------------
Granted 108,450 $11.625
Canceled
Exercised (37,500) $3.00 to $4.00
-------- -----------------------
Balance, December 31, 1995 150,725 $3.00 to $13.00
-------- -----------------------
</TABLE>
At December 31, 1995, 285,000 shares remain available for options or stock
grants and 42,275 options were exercisable.
In 1991 the Board of Directors granted 50,000 stock options outside the
above plans in connection with a consulting agreement with the Company's
former President. In 1986 the Board of Directors granted 18,125 options
outside the above plans to a former officer of the Company. At December 31,
1995, 1994 and 1993, 65,250 of such options remained outstanding,
respectively.
F-18
<PAGE>
Activity (adjusted for the 4:1 reverse split) with respect to warrants
outstanding at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
Number Range
------ -----
<S> <C> <C> <C>
Balance, January 1, 1993 335,000 $2.00 to $12.00
Granted -
Canceled (30,000) $9.00 to $12.00
Exercised - - -
-------- -----------------------
Balance, December 31, 1993 305,000 $2.00
-------- -----------------------
Granted 125,000 $4.00
Canceled -
Exercised -
--------
Balance, December 31, 1994 430,000 $2.00 to $4.00
-------- ----------------------
Granted 309,042 $7.52
Canceled -
Exercised (25,000) $2.00
-------- ----------------------
Balance, December 31, 1995 714,042 $2.00 to $7.52
-------- ----------------------
(11) OTHER (INCOME) EXPENSE:
----------------------
Other (income) expense consists of the following:
Year Ended December 31,
-------------------------------------
1995 1994 1993
---- ---- ----
Interest income $(141,637) $ (76,721) $ (34,664)
Rental income (194,312) (70,288) (116,823)
Depreciation related to
to rental properties 82,007 93,815 102,649
Other projects 29,574 15,584 9,591
Costs related to centers
held for sale 98,644 144,569 -
--------- --------- ---------
$(125,724) $ 106,960 $ (39,247)
========= ========= =========
</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 1996. Fees paid to the
firm in 1995, 1994 and 1993 totaled $703,622, $129,367 and $52,809
respectively.
Mr. A.J. Clegg the Chairman and Chief Executive Officer was also the
Chairman and Chief Executive Officer of JBS Investment Banking, Ltd.
("JBS"). In August 1994, Mr. Clegg relinquished his duties at JBS and
joined the Company as Chairman and Chief Executive Officer. As of December
31, 1995 and 1994 the Company paid to JBS fees totaling $11,554, and
$400,000, respectively.
(13) INCOME TAXES:
------------
Current tax provision:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal $ 33,755 $47,000 $ 200
States 91,327 25,000 20,800
-------- ------- -------
$125,082 $72,000 $21,000
======== ======= =======
</TABLE>
F-19
<PAGE>
Deferred tax provision:
<TABLE>
<S> <C> <C> <C>
Federal (1,477,672) (510,300) $ -
States (3,000) - -
----------- -------- --------
(1,480,672 (510,300) -
----------- --------- --------
$(1,355,590) $(438,300) $21,000
============ ========= ========
</TABLE>
The difference between the actual income tax rate and the statutory U.S.
federal income tax rate is attributable to the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate 34% 34% 34%
State taxes, net of federal
tax benefit 5% 1% 1%
Benefit from realization of
net operating losses (39%) (38%) (39%)
Reduction in valuation allowance (58%) (27%) -
Goodwill and other 5% 7% 5%
---- ---- ----
(53%) (23%) 1%
==== ==== ====
</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.
Temporary differences and carry forwards which give rise to a significant
portion of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1995 1994
Deferred Deferred
Tax Tax
Assets Assets
(Liabilities) (Liabilities)
-------------- -------------
<S> <C> <C>
Depreciation $ (240,639) $ (371,787)
Provision for center closings and
other restructurings 1,269,913 1,712,547
Net operating losses 720,496 1,716,213
General business credits 27,650 27,650
AMT credit carryforward 125,816 8,400
Other 87,726 46,256
---------- -----------
Net deferred tax asset 1,990,962 3,139,279
Valuation allowance - (2,628,979)
---------- -----------
Total deferred taxes $1,990,962 $ 510,300
========== ===========
</TABLE>
In 1994, based on the Company's analysis of the last two years of
significant positive operating performance and expected future taxable
income, the Company reduced the
F-20
<PAGE>
valuation allowance by $510,300. In 1995, based on three years of positive
net income and the analysis of projections for the years 1996 through 1999,
the company removed the remaining valuation allowance. Accordingly, such
amounts were recorded as a credit to income tax expense in the respective
period.
The general business credit will expire in 1997 and the net operating loss
totaling $2,109,106 begins to expire in the year 2000.
(14) EMPLOYEE BENEFIT PLANS:
----------------------
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 existing similar
401(k) Plan at Merryhill as of January 31, 1994. Nobel's matching
contributions under the Plan and prior Merryhill Plan were $60,904, $60,617
and $19,791 for the years ended December 31, 1995, 1994 and 1993
respectively.
(15) COMMITMENTS AND CONTINGENCIES:
-----------------------------
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 the amounts which were paid to Mr.
Carneal following his termination from the Company in 1993. The lawsuit was
settled on March 14, 1996 in the amount of $170,000. This amount had
previously been accrued on the Company's books.
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. 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
September 1995, the Company satisfied the court ruling and paid $406,000 in
the aggregate to Ms. Sell and Mr. Bright plus attorney fees and interest
for a total of $580,000
The Company is currently in dispute with a landlord over the payment of
certain taxes related to Leases of centers estimated to be approximately
$70,000. At this time, the Company feels that no taxes are due. However,
there are no certainties regarding the outcome of the dispute.
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. 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 education and
preschool 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 EVENTS
-----------------
F-21
<PAGE>
ACQUISITION OF VIRGINIA SCHOOLS:
-------------------------------
On February 2, 1996, the Company acquired the assets of four Virginia
corporations, each of which operates a learning center in northern or
central Virginia. The purchase price consisted of (i) $3,200,000 in cash,
and (ii) a note in the principal amount of $336,680 and bearing interest at
the rate of 7% per annum. The note is payable in sixty equal monthly
installments of principal and interest. The Company will also be required
to pay an earn-out based on the results of operations of the fours centers
for the twelve month period following the closing date. The Company also
agreed to pay a non-compete fee of $1,667 per month for sixty months.
Also on February 2, 1996, the Company acquired the stock of a fifth
Virginia learning center for 96,192 shares of the Company's common stock.
The Company will also be required to pay an earn-out of 2.2 times the
amount, if any, by which adjusted EBITDA for the center exceeds $272,075
for the twelve month period following the closing date. The Company will
satisfy any portion of the earn-out obligation in excess of $100,000 in
shares of its Common Stock at fair market value on the date of issuance.
The Company has also retained an officer and shareholder of the five
acquired centers under an employment agreement and agreed to grant her
options on 10,000 shares of the Company's Common Stock at fair market value
on the grant date if certain results of operations are achieved. The five
learning centers have an aggregate licensed capacity of 821 pupils and had
revenue in the twelve months ended December 31, 1995 of approximately
$2,900,000.
PRIVATE PLACEMENT OF COMMON STOCK:
----------------------------------
On March 5, 1996, the Company raised $11.7 million through the issuance of
1 million shares of common stock at $12 per share. The Company plans to use
the funds to pay debt, acquire schools or for general corporate purposes.
F-22
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
2.1 Asset Purchase Agreement dated as of 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 filed on March 27, 1995, date of earliest
event reported March 10, 1995, and incorporated herein by reference.)
2.2 Agreement of Sale dated as of 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 filed on March 27, 1995, date of earliest
event reported March 10, 1995, and incorporated herein by reference.)
2.3 Asset Purchase Agreement dated August 25, 1995 by and among Corydon Day
Care Center, Inc., d/b/a Children Today, Donald Mitchell, Jeffrey Owen
and the Registrant. (Filed as Exhibit 2A to the Registrant's Current
Report on Form 8-K filed on September 11, 1995, date of earliest event
reported August 25, 1995, and incorporated herein by reference.)
2.4 Stock Purchase Agreement dated May 23, 1995, by and among Educo, Inc.,
the stockholders of Educo, Inc. and the Registrant, as amended by First
Amendment to Stock Purchase Agreement dated August 31, 1995 and Second
Amendment to Stock Purchase Agreement dated August 31, 1995. (Filed as
Exhibit 2B to the Registrant's Current Report on Form 8-K filed on
September 11, 1995, date of earliest event reported August 25, 1995,
and incorporated herein by reference.)
2.5 Asset Purchase Agreement dated as of February 2, 1996 by and among
Stony Point Learning Center, Inc., School's Out, Inc., Cascades
Childcare, Inc. and Pump Road Child Care, Inc. and Linda Nash and
Stephen Nash and the Registrant. (Filed as Exhibit 4A to the
Registrant's Current Report on Form 8-K dated February 16, 1996, date
of earliest event reported February 2, 1996, and incorporated herein by
reference.)
2.6 Asset Purchase Agreement dated as of February 2, 1996 by and among
Loudoun Children's Center, Inc. and Linda Nash and Stephen Nash and the
Registrant. (Filed as Exhibit 4A to the Registrant's Current Report on
Form 8-K dated February 16, 1996, date of earliest event reported
February 2, 1996, and incorporated herein by reference.)
3.1 Registrant's Certificate of Incorporation, as amended and restated
(including the Certificate of Amendment of Certificate of Incorporation
of Registrant filed September 28, 1995 effecting a one-for-four reverse
stock split). (Filed as Exhibit 3.1 to the Registrant's Registration
Statement on Form S-8 (Registration Statement No. 33-64701) filed on
December 1, 1995 (the "Form S-8") and incorporated herein by
reference.)
I - 1
<PAGE>
3.2 Registrant's Certificate of Designation, Preferences and Rights of
Series A Convertible Preferred Stock. (Filed as Exhibit 7(c) to the
Registrant's Current Report on Form 8-K filed on June 14, 1993 and
incorporated herein by reference.)
3.3 Registrant's Certificate of Designation, Preferences and Rights of
Series C Convertible Preferred Stock. (Filed as Exhibit 4(ae) to the
Registrant's Quarterly Report on Form 10-Q with respect to the quarter
ended June 30, 1994 and incorporated herein by reference.)
3.4 Registrant's Certificate of Designation, Preferences and Rights of
Series D Convertible Preferred Stock. (Filed as Exhibit 4E to the
Registrant's Current Report on Form 8-K filed on September 11, 1995,
date of earliest event reported August 25, 1995, and incorporated
herein by reference.)
3.5 Registrant's Amended and Restated By-laws, as amended. (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.)
4.1 Loan and Security Agreement dated August 30, 1995 among the Registrant,
certain subsidiaries of the Registrant and First Valley Bank. (Filed as
Exhibit 4F to the Registrant's Current Report on Form 8-K filed on
September 11, 1995, date of earliest event reported August 25, 1995,
and incorporated herein by reference.)
4.2 Investment Agreement dated as of August 30, 1995 by and among the
Registrant, certain subsidiaries of the Registrant and Allied Capital
Corporation and its affiliated funds. (Filed as Exhibit 4A to the
Registrant's Current Report on Form 8-K dated September 11, 1995, date
of earliest event reported August 25, 1995, and incorporated herein by
reference.)
4.3 Senior Subordinated Debenture dated as of August 30, 1995 in the
principal amount of $450,000 payable to the order of Allied Capital
Corporation. (Filed as Exhibit 4B to the Registrant's Current Report on
Form 8-K dated September 11, 1995, date of earliest event reported
August 25, 1995, and incorporated herein by reference.)
4.4 Term Note dated August 30, 1995 in the principal sum of $7,500,000
payable to the order of First Valley Bank. (Filed as Exhibit 4G to the
Registrant's Current Report on Form 8-K dated September 11, 1995, date
of earliest event reported August 25, 1995, and incorporated herein by
reference.)
4.5 Line Note dated August 30, 1995 in the principal sum of $7,500,000
payable to the order of First Valley Bank. (Filed as Exhibit 4H to the
Registrant's Current Report on Form 8-K dated September 11, 1995, date
of earliest event reported August 25, 1995, and incorporated herein by
reference.)
4.6 Subordinated Promissory Note of the Registrant dated March 10, 1995, to
Medical Service Association of Pennsylvania, Doing Business as
Pennsylvania Blue Shield, in the principal amount of $1,584,962.45.
(Filed as Exhibit 4(a) to the Registrant's Current Report on Form 8-K
filed on March 27, 1995, date of earliest event reported March 10,
1995, and incorporated herein by reference.)
I - 2
<PAGE>
4.7 Form of Subordinated Promissory Note of the Registrant to Medical
Service Association of Pennsylvania, Doing Business as Pennsylvania
Blue Shield. (Filed as Exhibit 4(b) to the Registrant's Current Report
on Form 8-K filed on March 27, 1995, date of earliest event reported
March 10, 1995, and incorporated herein by reference.)
4.8 Form of Subordinated Promissory Note of the Registrant to Medical
Service Association of Pennsylvania, Doing Business as Pennsylvania
Blue Shield. (Filed as Exhibit 4(c) to the Registrant's Current Report
on Form 8-K filed on March 27, 1995, date of earliest event reported
March 10, 1995, and incorporated herein by reference.)
4.9 Subordinated Note dated as of February 2, 1996 in the principal amount
of $336,680 payable to the order of Cascades Childcare, Inc. (Filed as
Exhibit 4A to the Registrant's Current Report on Form 8-K dated
February 16, 1996, date of earliest event reported February 2, 1996,
and incorporated herein by reference.)
10.1 1986 Stock Option and Stock Grant Plan of the Registrant, as amended.
(Filed as Exhibit 10(1) to the Registrant's Registration Statement on
Form S-1 (Registration Statement No. 33-1644) filed on August 12, 1987
(the "Form S-1") and incorporated herein by reference.)
10.2 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.)
10.3 1995 Stock Incentive Plan of the Registrant. (Filed as Exhibit 4.6 to
the Form S-8 and incorporated herein by reference.)
10.4 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.)
10.5 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.)
10.6 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.)
10.7 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.)
10.8 Warrant Subscription Agreement dated May 28, 1992 between Registrant
and Pennsylvania Merchant Group Ltd. (Filed as Exhibit 4(c) to the
Registrant's Current
I - 3
<PAGE>
Report on Form 8-K dated June 11, 1992, date of earliest event reported
May 28, 1992, and incorporated herein by reference.)
10.9 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.)
10.10 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.)
10.11 Amendment No. 1 to Shareholders' Agreement dated May 28, 1992 by and
among JBS Investment Banking, Ltd., Nobel and Saltzman Partners. (Filed
as Exhibit 4(ag) to the Registrant's Quarterly Report on Form 10-Q with
respect to the quarter ended June 30, 1994 and incorporated herein by
reference.)
10.12 Series 1 Warrants for shares of Common Stock issued to Edison Venture
Fund II, L.P. and Edison Venture Fund II-PA, L.P. (Filed as Exhibit
4(ad) to the Registrant's Quarterly Report on Form 10-Q with respect to
the quarter ended June 30, 1994 and incorporated herein by reference.)
10.13 Registration Rights Agreement between Registrant and Edison Venture
Fund II, L.P. and Edison Venture Fund II-PA, L.P. (Filed as Exhibit
4(af) to the Registrant's Quarterly Report on Form 10-Q with respect to
the quarter ended June 30, 1994 and incorporated herein by reference.)
10.14 Amendment dated February 23, 1996 to Registration Rights Agreement
between Registrant and Edison Venture Fund II, L.P. and Edison Venture
Fund II-PA, L.P.
10.15 Common Stock Purchase Warrant dated August 30, 1995 entitling Allied
Capital Corporation to purchase up to 92,173 shares (pre-reverse stock
split) of the Common Stock of the Registrant. (Filed as Exhibit 4C to
the Registrant's Current Report on Form 8-K dated September 11, 1995,
date of earliest event reported August 25, 1995, and incorporated
herein by reference.)
10.16 Registration Rights Agreement dated August 30, 1995 by and among the
Registrant and Allied Capital and its affiliated funds, and amendment
thereto dated February 23, 1996. (Filed as Exhibit 4D to the
Registrant's Current Report on Form 8-K dated September 11, 1995, date
of earliest event reported August 25, 1995, and incorporated herein by
reference.)
10.17 Amendment dated February 23, 1996 to Registration Rights Agreement
dated August 30, 1995 by and among the Registrant and Allied Capital
and its affiliated funds.
I - 4
<PAGE>
10.18 Form of subscription agreement entered into between Registrant and
certain customers of Gilder, Gagnon, Howe & Co. relating to the offer
and sale by the Company of 1,000,000 shares of its common stock.
11 Statement re-computation of per share earnings dated year ended
December 31, 1995, and made a part hereof.
21 List of subsidiaries of the Registrant.
23 Consent of Coopers & Lybrand, L.L.P.
I - 5
<PAGE>
Exhibit 10.14
Nobel Education Dynamics, Inc.
Rose Tree Corporate Center II
1400 N. Providence Road
Media, PA 19063
February 23, 1996
Edison Venture Fund II, L.P.
987 Lenox Drive #3
Lawrenceville, NJ 08648
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated August 19,
1994, as amended by letter agreement dated August 30, 1995, (the "Registration
Rights Agreement") among Nobel Education Dynamics, Inc. ("Nobel"), Edison
Venture Fund II, L.P. ("Edison") and Edison Venture Fund II-PA, L.P. (which no
longer has rights under the Registration Rights Agreement).
This letter confirms our mutual understanding and agreement that the
Registration Rights Agreement is further amended as follows:
1. Section 4(c) of the Registration Rights Agreement is amended and
restated to read in its entirety as set forth in Attachment 1 to this Letter
Agreement.
2. The third sentence of Section 5 of the Registration Rights Amendment is
amended and restated to read in its entirety as set forth in Attachment 2 to
this Letter Agreement.
3. The third, fourth and fifth sentences of Section 6 of the Registration
Rights Agreement are amended and restated to read in their entirety as set forth
in Attachment 3 to this Letter Agreement.
4. Edison understands that this Amendment has been requested by Gilder,
Gagnon, Howe & Co. ("Gilder") in connection with the circulation to certain
customers of Gilder of the Company's Summary Private Placement Offering
Memorandum dated February 15, 1996 relating to the offering by the Company of
1,000,000 shares of its common stock at $12.00 per share, as further described
therein, and as condition to the closing of such proposed transaction.
5. Except as expressly modified by this Letter Agreement, all of the
original terms and conditions of the Registration Rights Agreement continue in
full force and effect.
<PAGE>
Edison Venture Fund II, L.P.
February 23, 1996
Page 2
6. This Letter Agreement shall be effective as of the date first above
written, upon the later to occur of (i) execution by all the parties set forth
below and (ii) execution of an amendment to similar effect by the Company and
Allied Capital Corporation, Allied Capital Corporation II, Allied Investment
Corporation and Allied Investment Corporation II of the registration rights
agreement between the Company and such entities.
Please confirm your understanding and agreement to the foregoing by
executing the enclosed copy of this Letter Agreement in the place indicated
below, and return one copy to us, whereupon each of us shall be legally bound
hereby.
Very truly yours,
NOBEL EDUCATION DYNAMICS, INC.
By:_________________________________
John R. Frock
Executive Vice President
Accepted and agreed to:
EDISON VENTURE FUND II, L.P.
By: Edison Partners II,
its general partner
By: __________________________
John Martinson
General Partner
<PAGE>
Attachment 1
------------
(c) The Company may not include in any registration statement
referred to in this Section 4 any shares of Common Stock to be sold for the
account of any person not entitled as of August 19, 1994 to registration rights
with respect to such shares, except for (i) the shares of Common Stock issuable
to Allied Capital Corporation, Allied Capital Corporation II, Allied Investment
Corporation and Allied Investment Corporation II, each a Maryland corporation
(collectively, "Allied"), upon the conversion of the Company's Series D
Convertible Preferred Stock, $.001 par value per share, and exercise of the
Stock Purchase Warrants, all issued to Allied on August 29, 1995 pursuant to a
certain Investment Agreement (the "Allied Shares") and (ii) the shares of Common
Stock to be issued to persons purchasing such shares in connection with the
Company's private placement of 1,000,000 shares of Common Stock as described in
the Company's Private Placement Offering Memorandum dated February 15, 1996, all
of which persons have brokerage accounts with Gilder, Gagnon, Howe & Co. at the
closing of such transaction (collectively, the "Gilder Shares"). The Company may
include in any registration statement referred to in this Section 4 the Gilder
Shares, the Allied Shares and/or shares of Common Stock to be sold for its own
account or for the account of any other holders of Common Stock who as of August
19, 1994 are entitled to "piggy-back" or "incidental" rights to be included in
the registration statement, in which case such registration statement shall be
deemed to be a registration statement initiated by the Company and shall be
governed by the provisions of Section 5 below. Except for registration
statements on Form S-4, S-8 or any successor thereto, registration statements
registering the Gilder Shares and/or securities to be issued by the Company to
the seller or sellers in connection with an acquisition by the Company and
registration statements required to be filed for holders of Common Stock who as
of August 19, 1994 are entitled to "demand" registration rights, the Company
will not file with the Commission any other registration statement with respect
to its Common Stock, whether for its own account or that of other stockholders,
from the date of receipt of a notice from requesting holders pursuant to this
Section 4 until the completion of the period of distribution of the registration
contemplated thereby.
<PAGE>
Attachment 2
------------
In the event that any registration pursuant to this Section 5 shall be, in whole
or in part, an underwritten public offering of Common Stock, the number of
shares of Restricted Stock to be included in such an underwriting may be reduced
(pro rata among the requesting holders based upon the number of shares of
Restricted Stock owned by such holders and the shares of Common Stock held by
the persons referred to in clauses (ii) through (iv) of the provisio to this
sentence) if and to the extent that the managing underwriter shall be of the
opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company therein, provided, however, that such
number of shares of Restricted Stock shall not be reduced if any shares are to
be included in such underwriting for the account of any person other than (i)
the Company, (ii) requesting holders of Restricted Stock, (iii) Allied, if the
shares to be included are limited to the Allied Shares or (iv) any other holders
of Common Stock who as of August 19, 1994 are entitled to contractual "piggy-
back" or "incidental" rights to be included in the registration statement.
<PAGE>
Attachment 3
------------
The Company may not include in any registration statement referred to in this
Section 6 any shares of Common Stock to be sold for the account of any person
not entitled as of August 19, 1994 to registration rights with respect to such
shares, except for the Allied Shares and the Gilder Shares. The Company may
include in any registration statement referred to in this Section 6 the Gilder
Shares, the Allied Shares and/or shares of Common Stock to be sold for its own
account or for the account of any other holders of Common Stock who as of August
19, 1994 are entitled to "piggy-back" or "incidental" rights to be included in
the registration statement, in which case such registration statement shall be
deemed to be a registration statement initiated by the Company and shall be
governed by the provisions of Section 5 above. Except for registration
statements on Form S-4, S-8 or any successor thereto, registration statements
registering the Gilder Shares, securities to be issued by the Company to the
seller or sellers in connection with an acquisition by the Company and
registration statements required to be filed for holders of Common Stock who as
of August 19, 1994 are entitled to "demand" registration rights, the Company
will not file with the Commission any other registration statement with respect
to its Common Stock, whether for its own account or that of other stockholders,
from the date of receipt of a notice from requesting holders pursuant to this
Section 6 until the completion of the period of distribution of the registration
contemplated thereby.
<PAGE>
Exhibit 10.17
FIRST AMENDMENT OF REGISTRATION RIGHTS AGREEMENT
First Amendment of Registration Rights Agreement, dated as of February
23, 1996, by and between Nobel Education Dynamics, Inc. (the "Company") and
Allied Capital Corporation, Allied Capital Corporation II, Allied Investment
Corporation and Allied Investment Corporation II.
BACKGROUND
----------
The parties hereto are parties to a Registration Rights Agreement
dated as of August 30, 1995 (the "Registration Rights Agreement"). The Company
desires to sell up to 1,000,000 shares (the "Gilder Shares") of Common Stock to
persons having brokerage accounts with Gilder, Gagnon, Howe & Co., as described
in the Company's confidential Summary Private Placement Offering Memorandum
dated February 15, 1996. The form of subscription agreement to be entered into
in connection with such transaction provides that the Company will grant to the
purchasers certain rights with respect to the registration of the Gilder Shares
under applicable securities laws. By this First Amendment of Registration Rights
Agreement, the parties desire to effect certain amendments to the Registration
Rights Agreement to eliminate certain conflicts among holders of registration
rights which would otherwise arise.
TERMS
-----
NOW, THEREFORE, in consideration of the mutual promises made herein,
and intending to be legally bound, the parties hereto agree as follows:
1. Section 4(c) of the Registration Rights Agreement is amended by:
(a) inserting at the end of the first sentence thereof the words:
except for the shares of Common Stock to be issued to persons
purchasing such shares in connection with the Company's private
placement of 1,000,000 shares of Common Stock as described in
the Company's Private Placement Offering Memorandum dated
February 15, 1996, all of which persons have brokerage accounts
with Gilder, Gagnon, Howe & Co. at the closing of such
transaction (collectively, the "Gilder Shares")
(b) inserting in the second sentence thereof, immediately following
the words "Section 4", the words "the Gilder Shares"; and
(c) inserting in the third sentence thereof, immediately following
the words "registration statements registering", the words "the Gilder Shares
and/or".
<PAGE>
2. Section 5 of the Registration Rights Agreement is amended by
inserting at the end of the parenthetical in the third sentence thereof the
words "and the shares of Common Stock held by the persons referred to in clauses
(ii) and (iii) of the proviso to this sentence."
3. Section 6 of the Registration Rights Agreement is amended by:
(a) inserting at the end of the third sentence thereof (which
starts with the words, "The Company may not include"), the words ", except the
Gilder Shares";
(b) inserting in the fourth sentence thereof, immediately following
the words "this Section 6", the words "the Gilder Shares,"; and
(c) inserting in the fifth sentence thereof, immediately following
the words "registration statements registering" the words, "the Gilder Shares,".
4. In all other respects, the Registration Rights Agreement shall
continue in full force and effect.
5. This First Amendment of Registration Rights Agreement shall be
effective as of the date first above written, upon the later to occur of (i)
execution by all the parties set forth below and (ii) execution of an amendment
to similar effect by the Company and Edison Venture Fund II, L.P. of the
registration rights agreement between the Company and Edison.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment of Registration Rights Agreement as of the date first above written.
ALLIED CAPITAL CORPORATION ALLIED INVESTMENT CORPORATION
By:_________________________________ By:_________________________________
ALLIED CAPITAL CORPORATION II ALLIED INVESTMENT CORPORATION II
By:_________________________________ By:_________________________________
NOBEL EDUCATION DYNAMICS, INC.
By:_________________________________
John R. Frock,
Executive Vice President
2
<PAGE>
Exhibit 10.18
SUBSCRIPTION AGREEMENT
NOBEL EDUCATION DYNAMICS, INC.
1,000,000 Shares of Common Stock
$.001 Par Value Per Share
Nobel Education Dynamics, Inc.
Rose Tree Corporate Center, II
1400 North Providence Road
Suite 3055
Media, PA 19063
Ladies and Gentlemen:
You have informed the undersigned (individually and collectively, the
"Purchaser") that Nobel Education Dynamics, Inc., a Delaware corporation (the
"Company") is making a private placement of 1,000,000 shares of its Common
Stock, $.001 par value per share (the "Shares"), at $12.00 per share.
You have further advised the undersigned that (i) the Shares are being
offered and sold on a "best efforts" basis through Gilder, Gagnon, Howe & Co.,
1775 Broadway, New York, New York (the "Agent"); (ii) the proceeds of the
offering, after expenses, will be used by the Company as set forth under "Use of
Proceeds" in the Company's Summary Offering Memorandum, dated February 15, 1996
(the "Memorandum"), (iii) the Shares are being offered by the Company subject to
prior subscription, and (iv) none of the Shares will be sold in the Offering
unless all of the Shares are sold in the Offering.
I/we understand that the Purchaser's rights and responsibilities as a
Purchaser will be governed by the terms of this Subscription Agreement. I/we
understand that the Company will rely on the following information to confirm
that the Purchaser is an "accredited investor" as defined in Regulation D
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
SHARES WILL BE OFFERED AND SOLD ONLY TO ACCREDITED INVESTORS.
This Subscription Agreement is one of a number of such subscriptions
for the Shares. By signing this Subscription Agreement, the Purchaser hereby (i)
offers to purchase from the Company the number of Shares set forth on page 7
hereof on the terms specified herein and, (ii) if and to the extent this
Subscription Agreement is accepted by the Company, authorizes the Agent to debit
my account with the Agent, for payment to the Company, at the Closing (as
defined in the Memorandum) for an aggregate cash amount equal to $12.00
multiplied by the number of Shares for which this Subscription Agreement is
accepted by the Company. The Purchaser understands that the Company reserves the
right, in its complete discretion, to reject the offer of the Purchaser made
hereby in whole or in part. If this offer is accepted, in whole or in part, the
Company will execute a copy of this Subscription Agreement and return it to the
Agent.
1
<PAGE>
1. Accredited Investor. The Purchaser is an Accredited Investor because the
-------------------
Purchaser falls within one of the following categories: (please check
the appropriate category)
___ $1,000,000 Net Worth. A natural person whose individual net worth or
joint net worth with that person's spouse, at the time of his
purchase exceeds $1,000,000.
___ $200,000/$300,000 Income. A natural person who had an individual
income in excess of $200,000 in each of the two most recent years or
joint income with such person's spouse in excess of $300,000 in each
of the two most recent years and who reasonably expects to attain
the same individual or joint levels of income in the current year.
___ Corporation. A corporation not formed for the specific purpose of
acquiring the Shares, with total assets in excess of $5,000,000.
___ All Equity Owners In Entity Are Accredited. An entity (i.e.
corporation, partnership, trust, IRA, etc.) in which all of the
equity owners are Accredited Investors as defined herein.
2. Representations and Warranties. The Purchaser represents and warrants to
------------------------------
the Company that:
(a) I/we (i) have adequate means of providing for my/our current needs
and possible contingencies, and have no need for liquidity of my/our
proposed investment in the Shares, (ii) can bear the economic risk
of losing the entire amount of my/our proposed investment in the
Shares, and (iii) together with my financial advisors, have such
knowledge and experience that I/we am capable of evaluating the
relative risks and merits of this investment.
(b) The Purchaser is a resident of the state set forth on the signature
page hereto and the Purchaser has no present intention of becoming a
resident of any other state or jurisdiction.
(c) The Purchaser has not utilized the services of a "Purchaser
Representative" as defined in Regulation D promulgated under the
Securities Act.
(d) The Purchaser acknowledges the receipt of, and is familiar with, the
Memorandum, the Company's Annual Report on Form 10-K for the year
ended December 31, 1994, the Company's Quarterly Reports on Form 10-
Q for the quarters ended March 31, 1995, June 30, 1995, and
September 30, 1995, the Company's Reports on Form 8-K, and
amendments thereto, dated February 3, 1995, March 27, 1995, May 11,
1995, August 1, 1995, June 23, 1995, September 11, 1995, November 3,
1995 and November 15, 1995, and the Company's Proxy Statement, dated
August 22, 1995, for its 1995 Annual Meeting of Shareholders.
2
<PAGE>
(e) The Purchaser understands the risks implicit in the Purchaser's
proposed investment in the Shares and in the Company's business.
(f) Other than as set forth in this Subscription Agreement, the
Memorandum and the attachments thereto, no person or entity has made
any representation or warranty to the Purchaser whatsoever with
respect to any matter or thing concerning the Company and the
Offering.
(g) I/we understand that the Shares have not been registered under the
Securities Act, nor have they been registered pursuant to the
provisions of the securities or other laws of applicable
jurisdictions and may only be resold pursuant to an effective
registration statement or in a transaction which is exempt from
registration.
(h) The Shares which I/we offer to purchase hereby are being acquired
solely for the Purchaser's own account, for investment and are not
being purchased with a view to or for their resale or distribution.
The Company will have no obligation to recognize the ownership,
beneficial or otherwise, of the Shares purchased by the Purchaser by
anyone but the Purchaser.
(i) The Purchaser is aware of the following:
(i) the Shares are a speculative investment which involve a high
degree of risk; and
(ii) The Shares are not readily transferable; it may not be possible
for me to liquidate my investment in the Shares when I/we wish to
do so.
The foregoing representations and warranties are true and accurate as of
the date hereof, shall be true and accurate as of the date of the Closing
and shall survive thereafter. If, in any respect, such representations
and warranties are not true and accurate prior to the date of the
Closing, the Purchaser will give written notice of that fact to the
Company, specifying which representations and warranties are not true and
accurate and the reasons therefor.
3. Transferability. I/we understand that I/we may sell or otherwise
---------------
transfer the Shares purchased hereunder only if the transaction in which
they are to be sold is registered or exempt from registration under the
Securities Act (as set forth in a favorable opinion of counsel to the
Company to the effect that such sale or other transfer may be made in the
absence of registration under the Securities Act). Any certificates or
other documents representing my Shares will contain a restrictive legend
reflecting this restriction, and stop transfer instructions will apply to
my Shares. Section 6 sets forth the Company's obligation to effect a
registration for the sale of the Shares upon the terms and conditions
therein set forth.
3
<PAGE>
4. Termination of Agreement. If this subscription is rejected, in whole or
------------------------
in any part, by the Company, then this Subscription Agreement, or with
respect to those Shares so rejected if rejected in part, shall be null
and void and of no further force and effect, no party shall have any
rights against any other party hereunder (or, if rejected in part, with
respect to the rejected portion), and the Agent's authority to debit my
account with respect to this Subscription, or any portion thereof so
rejected, shall terminate. In the event that this Agreement is accepted,
in whole or in part, by the Company and the Closing is not held by the
date provided for in the Memorandum, this Agreement shall terminate and
have no further force or effect.
5. Revocation. I/we will not cancel, terminate or revoke this Subscription
----------
Agreement or any agreement made by me hereunder and this Subscription
Agreement will survive my death or disability and be binding upon my
successors, assigns and heirs.
6. Registration of Nobel Shares.
----------------------------
(a) Registration Statement. Within ninety (90) days following the
----------------------
earlier of (i) the completion by the Company of the transaction
described in the Memorandum under "Recent Developments - Possible
Acquisition", and (ii) termination by the Company of negotiations
with respect thereto, the Company shall prepare and file with the
Securities and Exchange Commission (the "SEC") a registration
statement of Form S-3 (the "Registration Statement") under the
Securities Act to permit the offer and sale of the Shares by the
Purchaser from time to time through the facilities of the National
Association of Securities Dealers Automated Quotation System at
market prices current at the time of sale exclusively in "brokers'
transactions" or in transactions directly with a "market maker," as
defined in paragraphs (f) and (g) of Rule 144 under the 1933 Act.
The Company shall use reasonable best efforts to cause the
Registration Statement to be declared effective promptly and,
except as set forth below, to remain effective under the Securities
Act for a period equal to the shorter of (i) twenty-four months,
and (ii) the date on which the Shares first become eligible for
sale under Rule 144 under the Securities Act under circumstances in
which the Purchaser is not required to aggregate his/her/their
sales with other clients of the Agent under paragraph (e)(3)(vi) of
Rule 144 solely by reason of the common utilization of the same
broker-dealer. The Company will prepare and file with the SEC any
amendments or post-effective amendments as may be necessary to keep
the Registration Statement effective under the Securities Act
during the period described in the prior sentence. As used in the
second sentence of this Section 6(a), the term "reasonable best
efforts" does not include the withdrawal of a delaying amendment by
the Company at a time when comments on the registration statement,
if any, made by the Staff of the SEC, remain unresolved to the
satisfaction of the Staff of the SEC. The Company will promptly
notify the
4
<PAGE>
Purchaser in writing of the date on which the Registration
Statement is declared effective. Notwithstanding the foregoing, the
Company shall not be obligated to keep the Registration Statement
or any prospectus included therein (the "Prospectus") current
during any period (A) of up to 120 days per calendar year if the
Company's chief executive officer advises the Purchaser that he has
determined in good faith that in order to keep the Registration
Statement or Prospectus current the Company would be required to
disclose information which is not otherwise required to be
disclosed and which the Company has a bona fide business purpose
---- ----
for keeping confidential or would require the disclosure of
financial information of a business acquired or to be acquired
which is unavailable pending completion of an audit, or (B) when
financial statements do not satisfy the requirements of the last
sentence of paragraph (b) of Rule 3-12 of Regulation S-X (or any
successor rule) to the extent, and only to the extent, that the SEC
interprets such sentence as being applicable to the continued
effectiveness of the Registration Statement, provided the Company
uses reasonable efforts to satisfy such requirements as soon as
possible. For purposes of this Agreement, the "Effectiveness
Period" shall be the period during which the Prospectus is kept
current pursuant to the provisions of this Section 6(a).
(b) Copies of Documents. During the Effectiveness Period, the
-------------------
Company shall furnish to the Purchaser such number of copies of the
Registration Statement, the Prospectus (including each preliminary
Prospectus) and any amendments and supplements thereto and any
documents incorporated by reference in the Registration Statement
as the Purchasers shall reasonably request.
(c) Blue Sky Compliance. The Company shall use reasonable efforts to
-------------------
register or qualify or cooperate with the Purchasers in connection
with the notification, coordination, registration or qualification
(or use reasonable efforts to obtain exemption from such
registration or qualification) of the Shares under the securities
or blue sky laws of Connecticut, New York and New Jersey, and do
any and all other acts and things which may be reasonably necessary
to enable the Purchaser to consummate the disposition of the Shares
in such jurisdictions during the Effectiveness Period; provided,
that in no event shall the Company be required to qualify to do
business as a foreign corporation in any jurisdiction where it is
not so qualified, to subject itself to taxation in any jurisdiction
where it has not theretofore done so or to take any action which
would subject it to general service of process in any such
jurisdiction where it is not then so subject.
(d) Notification. During the Effectiveness Period, the Company shall
------------
notify the Purchaser promptly (i) of any request by the SEC for
amendments or supplements to the Registration Statement or a
Prospectus or for additional information relating thereto, (ii)
5
<PAGE>
of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose, (iii) of the receipt by the
Company of any notification with respect to the suspension of the
registration, qualification or exemption from registration or
qualification of any of the Shares covered by the Registration
Statement for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (iv) of the
happening of any event which makes any statement made in the
Registration Statement or in the Prospectus or any document
incorporated therein by reference, or deemed to be incorporated
therein by reference, untrue in any material respect or which
requires the making of any changes in the Registration Statement or
the Prospectus so that such documents will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading, and (v) the effective date of any firm commitment
underwriting by the Company. The Purchaser hereby agrees not to
make sales pursuant to the Registration Statement (A) after any
notice received under clauses (i)-(iv), above, until the Purchaser
has received a notice that such period is no longer in effect, and
(B) during the ninety (90) day period following any notice
contemplated by clause (v), above.
(e) Obligations of the Purchaser. Prior to the filing of the
----------------------------
Registration Statement, the Purchaser shall enter into such further
agreements and understandings as the Company shall reasonably
require to assure compliance under the securities laws. The
Purchaser shall cooperate with the Company in the fulfillment by
the Company of its obligations under this Section 6.
(f) Expenses. The Company shall bear all expenses incident to Buyer's
--------
performance of or compliance with this Section 6, including all
registration and filing fees and expenses of compliance with
securities or blue sky laws, including without limitation
reasonable fees and disbursements of counsel in connection with
blue sky qualifications, rating agency fees, printing expenses,
messenger and delivery expenses, internal expenses, the fees and
expenses incurred in connection with the listing of the securities
to be registered on each securities exchange on which such
securities are required to be listed (if any), fees and
disbursements of counsel for the Company and its independent
certified public accountants (including the expenses of any special
audit conducted at the Company's option or "cold comfort" letters
required by or incident to such performance), securities acts
liability insurance (if the Company elects to obtain such
insurance), and the reasonable fees and expenses of any special
experts retained by the Company. Notwithstanding the foregoing, the
Company shall not be required to bear the expenses of any
underwriting discounts or commissions or brokerage
6
<PAGE>
commissions attributable to the sale of the Shares or any out-of-
pocket expenses of the Purchaser, including travel costs and the
costs of any counsel or any other advisers engaged by the Purchaser
to represent or advise him, her or them in connection with the
transactions contemplated by this Section 6.
7. Miscellaneous.
-------------
(a) This Subscription Agreement shall be governed by and construed in
accordance with the substantive law of the Commonwealth of
Pennsylvania.
(b) This Subscription Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by all
parties.
(c) All notices, requests, consents and other communications hereunder
shall be in writing and shall be delivered in person, mailed by
certified or registered mail, return receipt requested, sent by
recognized commercial courier or air delivery service (such as
FedEx), or sent by telecopier, addressed as follows: (i) if to the
Company at its address set forth on the first page hereto, (ii) if
to the Purchaser, c/o of Agent at the Agent's principal place of
business in New York, New York, or (iii) in any case, to such other
address or addresses or either the Company or the Purchaser shall
have furnished to the other in accordance with the provisions of
this paragraph.
(d) The Purchaser hereby irrevocably appoints the Agent as its
attorney-in-fact to (i) waive rights of the Purchaser under Section
6 hereof, (ii) consent to actions of the Company, or extensions of
time for the Company, under Section 6 hereof to the extent any such
consent may be required thereunder or otherwise, and (iii) enter
into, on behalf of the Purchaser, amendments to the Company's or
the Purchaser's rights or obligations under Section 6 hereof.
7
<PAGE>
8. Registration and Ownership. Set forth below is the total number of
--------------------------
Shares which the Purchaser offers to purchase hereby, the aggregate
purchase price thereof. Please register any Shares sold hereunder in the
name of Gilder, Gagnon, Howe & Co. or such nominee name as they shall
designate.
TOTAL NUMBER OF SHARES OFFERED TO BE PURCHASED:__________________________
RESIDENCE ADDRESS:_______________________________________________________
(Street Address)
_____________________________________________________________________
(City, State and Zip code)
9. Date and Signatures. (each co-owner or joint owner must sign)
-------------------
Dated __, 1996
_______________ ________________________________________________________
(Signature) (Printed Name)
_______________ ________________________________________________________
(Signature) (Printed Name)
ACCEPTED:
IN FULL: ________________
AS TO ______________SHARES
NOBEL EDUCATION DYNAMICS, INC.
By: _______________
Its: _______________
Dated: __, 1996
8
<PAGE>
Exhibit 11
Statement Re-computation of per Share Earnings
<TABLE>
<CAPTION>
NET INCOME PER COMMON SHARE, PRIMARY:
<S> <C> <C>
Net Income $3,843,886 $2,339,766
Less: Preferred Dividends 184,114 198,555
---------- ----------
Net income 3,659,772 2,141,211
Average Shares Outstanding 4,688,335 3,797,053
Common stock equivalents - Convertible Preferred 710,396 222,623
---------- ----------
Adjusted Average Shares Outstanding 5,398,731 4,019,676
---------- ----------
Net Income per common share $0.68 $0.53
========== ==========
NET INCOME PER COMMON SHARE, FULLY DILUTED:
Net Income $3,843,886 $2,339,766
Average Shares Outstanding Outstanding 4,688,335 3,797,053
Shares issuable on conversion of preferred stock 1,440,786 1,239,949
---------- ----------
Average shares outstanding assuming full dilution 6,129,121 5,037,002
Fully diluted earnings per share $0.63 $0.46
========== ==========
</TABLE>
<PAGE>
Exhibit 21
SUBSIDIARIES OF NOBEL EDUCATION DYNAMICS, INC.
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
Bluegrass Educational Products, Inc. Pennsylvania
Merryhill Schools, Inc. California
Children's Park, Incorporated Delaware
Educo, Inc. Maryland
<PAGE>
Exhibit 23
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, 33-44888 and 33-64701 of our report, dated February 14,
1996, except for Note 15, as to which the date is March 14, 1996 and Note 16 as
to which the date is March 5, 1996, on our audits of the consolidated financial
statements of Nobel Education Dynamics, Inc. and subsidiaries as of December 31,
1995 and 1994 and for each of the three years in the period ended December 31,
1995, which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand, L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 29, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
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<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
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<PERIOD-END> DEC-31-1995 DEC-31-1994
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0 0
5 5
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<EPS-PRIMARY> .68 .53
<EPS-DILUTED> .63 .46
</TABLE>
