<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: September 30, 1997
Commission File Number 1-1003
NOBEL EDUCATION DYNAMICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2465204
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1400 N. Providence Road, Suite 3055, Media, PA 19063
(Address of principal executive offices) (Zip Code)
(610) 891-8200
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all report(s) 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
----------- ----------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 6,051,565 shares of Common
Stock outstanding at November 4, 1997.
<PAGE>
INDEX TO FORM 10-Q
Nobel Education Dynamics, Inc.
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION Number
------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets,
September 30, 1997 (unaudited) and
December 31, 1996.................................................. 2
Consolidated Statements of Income for the
nine months ended September 30, 1997
and 1996 (unaudited)............................................... 3
Consolidated Statements of Income for the
three months ended September 30, 1997
and 1996 (unaudited)............................................... 4
Consolidated Statements of Cash Flow for the
nine months ended September 30, 1997
and 1996 (unaudited)............................................... 5
Notes to Consolidated Interim Financial Statements................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................... 10
PART II OTHER INFORMATION
</TABLE>
2
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PART I
Financial Information
"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995
The Company's 1997 outlook and all other statements in this report other than
historical facts are forward-looking statements that involve risks and
uncertainties and are subject to change at any time. The Company derives its
forward-looking statements from its operating budgets and forecasts, which are
based upon detailed assumptions about many important factors such as market
demand, market conditions and competitive activities. While the Company
believes that its assumptions are reasonable, it cautions that there are
inherent difficulties in predicting the impact of certain factors, especially
those affecting the acceptance of the Company's newly developed and converted
schools and performance of recently acquired businesses, which could cause
actual results to differ materially from predicted results.
1
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NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
ASSETS September 30, 1997 December 31, 1996
- ------ ----------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 907,176 $ 5,251,555
Accounts receivable, less allowance for doubtful accounts of $103,009 1,230,902 779,075
in 1997 and 1996
Prepaid rent - 734,463
Prepaid insurance and other 555,151 622,106
Deferred taxes 324,468 890,934
----------- -----------
3,017,697 8,278,133
----------- -----------
Total Current Assets
Property and equipment, net 25,479,917 19,323,110
Property and equipment held for sale, net 415,167 1,111,412
Goodwill, net 37,297,094 25,601,028
Deposits and other assets 4,329,062 2,402,951
Deferred taxes - 116,854
----------- -----------
Total Assets $70,538,937 $56,833,488
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current portion of long-term debt $ 3,395,542 $ 3,448,112
Deferred revenue--prepaid tuition 3,915,966 1,716,048
Accounts payable and other current liabilities 6,192,609 4,464,957
----------- -----------
Total Current Liabilities 13,504,117 9,629,117
----------- -----------
Long Term Debt 16,855,355 11,097,593
Deferred gain on sale/leaseback 41,328 47,321
Minority interest in consolidated subsidiary 501,170 318,359
Long-term subordinated debt 5,811,725 3,417,657
----------- -----------
Total Liabilities 36,713,695 24,510,047
----------- -----------
Stockholders' Equity:
Preferred stock, $.001 par value; 10,000,000 shares authorized, issued
and outstanding 4,697,542 in 1997 and 1996 4,698 4,698
Common stock, $.001 par value, 20,000,000 shares authorized, issued
and outstanding 6,051,565 shares in 1997 and 5,831,055 in 1996 6,051 5,831
Treasury Stock 36,810 shares (375,000) -
Additional paid-in capital 38,179,893 37,665,713
Accumulated deficit (3,990,400) (5,352,801)
----------- -----------
Total Stockholders' Equity 33,825,242 32,323,441
----------- -----------
Total Liabilities and Stockholders' Equity $70,538,937 $56,833,488
=========== ===========
</TABLE>
The accompanying notes and the notes in the financial statements included in
Nobel's Annual Report on Form 10-K are an integral part of these financial
statements.
2
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NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the nine months ended September 30, 1997 and 1996
-----------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues $58,590,684 $43,208,018
Operating Expenses 50,510,446 35,973,946
----------- -----------
School operating profit 8,080,238 7,234,072
General and administrative expenses 4,217,721 3,053,994
----------- -----------
Operating Profit 3,862,517 4,180,078
Interest Expense 1,314,751 1,566,854
Other (Income) (2,136) (393,824)
Minority interest in earnings of consolidated subsidiary 68,811 70,527
----------- -----------
Income before income taxes 2,481,091 2,936,521
Income tax expense 1,042,189 1,126,281
----------- -----------
Net income $ 1,438,902 $ 1,810,240
=========== ===========
Preferred stock dividends $ 76,500 $ 98,063
----------- -----------
Net income available to common stockholders $ 1,362,402 $ 1,712,177
=========== ===========
Primary earnings per share $ 0.19 $ 0.25
=========== ===========
Fully diluted earnings per share $ 0.19 $ 0.25
=========== ===========
</TABLE>
The accompanying notes and the notes in the financial statements included in
Nobel's Annual Report on Form 10-K are an integral part of these financial
statements.
3
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NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the three months ended September 30, 1997 and 1996
------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
1997 1996
--- ----
<S> <C> <C>
Revenues $18,926,298 $13,719,005
Operating Expenses 17,491,358 12,102,189
----------- -----------
School operating profit 1,434,940 1,616,816
General and administrative expenses 1,443,364 935,502
----------- -----------
Operating Profit (Loss) (8,424) 681,314
Interest Expense 461,281 458,949
Other (Income) Expense 2,634 (143,027)
Minority interest in earnings of consolidated subsidiary 19,357 21,755
----------- -----------
Income (Loss) before income taxes (491,696) 343,637
Income tax expense (benefit) (206,521) 134,010
----------- -----------
Net income (loss) $ (285,175) $ 209,627
=========== ===========
Preferred stock dividends $ 25,500 $ 20,411
----------- -----------
Net income (loss) available to common stockholders $ (310,675) $ 189,216
=========== ===========
Primary earnings (loss) per share $ (0.04) $ 0.03
=========== ===========
Fully diluted earnings (loss) per share $ (0.04) $ 0.03
=========== ===========
</TABLE>
The accompanying notes and the notes in the financial statements included in
Nobel's Annual Report on Form 10-K are an integral part of these financial
statements.
4
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NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
For the nine months ended September 30, 1997 and 1996
-----------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Cash Provided by Operating Activities $ 7,078,252 $ 3,312,260
Cash flows from Investing Activities:
Capital expenditures (3,643,956) (3,101,693)
Proceeds from the sale of real estate 3,594,438 6,334,648
Payment for acquisitions (9,466,496) (3,284,213)
Cash used in land acquisitions and new school development (6,044,212) (6,274,350)
Cash paid for 19.9% investment in elementary school (340,000) --
Cash received from note receivable -- 373,237
------------ -----------
Net Cash Used In Investing Activities: (15,900,226) (5,952,371)
Cash Flows from Financing Activities:
Repayment of long-term debt (1,472,078) (6,564,334)
Cash proceeds from line of credit 9,936,584 1,500,000
Repayment of subordinated debt (771,318) (6,000,000)
Repayment of capital lease obligation (52,849) (43,008)
Payments of dividends on preferred stock (76,500) (97,911)
Proceeds from exercise of stock options 139,400 160,055
Cash used for repayment of line of credit (3,225,644) --
Proceeds from the second Term Loan -- 6,000,000
Issuance of common stock -- 13,196,203
------------ -----------
Net Cash Provided by Financing Activities: 4,477,595 8,151,005
------------ -----------
Net increase (decrease) in cash and cash equivalents (4,344,379) 5,510,894
Cash and cash equivalents at the beginning of year 5,251,555 3,714,560
------------ -----------
Cash and cash equivalents at end of the period $ 907,176 $ 9,225,454
============ ===========
</TABLE>
The accompanying notes and the notes in the financial statements included in
Nobel's Annual Report Form 10-K are an integral part of these consolidated
financial statements.
5
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NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE FOR
CONSOLIDATED STATEMENT OF CASH FLOW
Non Cash Financing and Investing Activities
<TABLE>
<CAPTION>
Nine Months Ended September 30 1997 1996
---- ----
<S> <C> <C>
Acquisitions
Fair value of tangible assets acquired $ 1,314,264 $ 149,195
Cost in excess of net assets acquired 13,097,126 5,108,067
Liabilities assumed (1,260,330) (136,369)
Notes issued (3,684,564) (336,680)
Stock issued - (1,500,000)
----------- -----------
Total Cash Used For Acquisitions $ 9,466,496 $ 3,284,213
=========== ===========
</TABLE>
The accompanying notes and the notes in the financial statements included in
Nobel's Annual Report Form 10-K are an integral part of these consolidated
financial statements.
6
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NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
Notes to Consolidated Interim Financial Statements
for the nine months ended September 30, 1997 and 1996
(unaudited)
Note 1 - Basis of Presentation
- ------------------------------
The consolidated financial statements have been prepared by Nobel Education
Dynamics, Inc. pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the financial position and results of operations. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with the generally accepted accounting principals have been condensed
or omitted pursuant to such SEC rules and regulations. It is suggested that
these financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in Nobel's Annual Report on Form
10-K for the year ended December 31, 1996.
Due to the inherent seasonal nature of the education and child care businesses,
annualization of amounts in these interim financial statements may not be
indicative of the actual operating results for the full year.
Note 2 - Earnings (Loss) Per Share
- ----------------------------------
The earnings (loss) per share is based upon the weighted average number of
common and common share equivalents outstanding as follows:
<TABLE>
<CAPTION>
3 months ended 3 months ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Primary 7,448,290/1/ 7,187,715
Fully Diluted 7,448,290 7,564,423
<CAPTION>
9 months ended 9 months ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Primary 7,273,151 6,910,060
Fully Diluted 7,446,107 7,286,769
</TABLE>
/1/ Note: The shares of Series A Preferred Stock, which are convertible into
shares of common stock, were excluded in this calculation because exclusion
would have been anti-dilutive in the calculation.
In February 1997, the Financial Accounting Standards Board issued Statement no.
128, "Earnings per Share," which establishes new standards for computations of
earnings per share. The Statement will
7
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be effective for periods ending after December 15, 1997, with prior periods
restated at that time to comply with the new standards. If the statement had
been effective for the periods ended September 30, 1997 and 1996, basic and
diluted loss per share would have totaled $0.05 for the three months ended
September 30, 1997 and there would be no change in the calculation for the three
months ended September 30, 1996. For the nine months ended September 30, 1997,
the basic earnings per share equal $0.23 and the diluted earnings per share
equal $0.18 as compared to $0.19 for both primary and fully diluted under the
current method of accounting. In the same period in 1996, basic earnings per
share total $0.31 and diluted earnings per share total $0.25 as compared to
$0.25 for both primary and fully diluted.
Note 3 - Acquisitions
- ---------------------
Acquisition of Another Generation Enterprises Inc.
On January 7, 1997, the Company purchased Another Generation Enterprises Inc.
and certain related corporations, which owned six preschools located in Broward
County and Palm Beach County, Florida with a capacity of 1,200 children and
annual aggregate revenues of approximately $5,600,000. The aggregate purchase
price for the stock totaled $4,543,000, with $3,643,000 in cash, $750,000 in
notes and approximately $150,000 in assumed liabilities. The acquisition was
accounted for using the purchase method of accounting in accordance with APB 16.
Also on January 7, 1997, the Company purchased a 19.99% interest in the Sagemont
School located in Weston, Florida from the principal owners of Another
Generation Enterprises Inc. The Sagemont School is an elementary school with a
capacity of 340 which opened in the Fall of 1996. The Company also formed a
joint venture with such persons to develop five additional elementary schools in
Florida, each of which the company will own 80%.
Acquisition of Rainbow Bridge Schools
On April 1, 1997 the Company acquired the Rainbow Bridge schools located in San
Jose, California. Rainbow Bridge schools are private elementary and preschool
operations with five schools, two of which are elementary and middle schools and
three of which are preschools with combined annual revenues of $5,600,000 and
licensed capacity of 950. The acquisition was accounted for using the purchase
method of accounting in accordance with APB 16. The purchase price of the
acquisitions totaled $5,500,000, $3,700,000 paid in cash and $1,800,000 paid in
a note. The asset purchase agreement provides for payment of an additional
"earn-out" payment if the operators achieve certain earnings targets.
Acquisition of Las Vegas Schools
On September 19, 1997 the Company purchased three schools located in Las Vegas,
Nevada formerly operating as Hillpointe Elementary School and Warren Walker
Preschools with current combined annual revenues of $2,600,000 and licensed
capacity of 670. The Hillpointe Elementary School is a new school which opened
in September of 1997 and is operating at 40% of capacity. The acquisitions were
accounted for using the purchase method of accounting in accordance with APB 16.
The
8
<PAGE>
purchase price of the acquisition totaled approximately $3,800,000, $2,300,000
paid in cash, $700,000 paid in notes and $800,000 in assumed liabilities.
Note 4 - Commitments and Contingencies
- ---------------------------------------
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. 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 are 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.
Note 5 - Debt
- -------------
Loan Amendment
On May 8, 1997, the Company entered into the Sixth Amendment of its Loan and
Security Agreement with its primary lender, which increases the Revolving Line
of Credit from $10,000,000 to $13,800,000 and extends its maturity from
September 1, 1999 to May 1, 2000. The Company is also given the right to
convert outstanding loans under the revolver into fixed rate term loans with a
term of five years. The Loan Amendment also changes the interest rate of the
term loans from fixed rates to floating rates (currently lower). The Amendment
increased the principal debt facilities from $21,200,000 to $25,000,000.
9
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
For the nine month period ended September 30, 1997 compared to September 30,
- ----------------------------------------------------------------------------
1996:
- ----
Revenues increased $15,382,666 or 36% to $58,590,684 for the nine month period
ended September 30, 1997. The increase in revenues was due primarily to the
combination of (1) the acquisition of 16 schools and (2) the opening of twelve
new or replacement schools all subsequent to the third quarter of 1996. Of the
$15,382,666 increase, $11,477,451 was related to acquisitions and $2,525,874 was
related to the school openings subsequent to September 30, 1996. The remaining
increase of $1,379,341 was the result of several factors. Revenues in the
Eastern division increased due to the maturing of new schools opened in early
1996 and a slight increase in enrollment. This was offset by a combination of
(1) the closing in August 1996 of six non-performing schools located in South
Carolina upon expiration of leases and (2) a decrease in revenues in the
Merryhill schools. (See Trends for discussion of Merryhill)
As of September 30, 1997, the Company operated 129 schools. From the period
September 30, 1996 to September 30, 1997, the Company built twelve new schools
(including two replacement schools), closed seven schools and acquired nineteen
schools.
School operating profit increased $846,166 or 12% to $8,080,238 for the nine
months ended September 30, 1997 compared to the same period in the prior year.
The following factors contributed to this increase: (1) acquisitions closed
since September 1996 added operating profit of $1,545,667, (2) Eastern schools'
operating profit increased $695,000, due to maturing of the new schools opened
in early 1996 and a slight increase in enrollment, (3) the closure of certain
South Carolina schools eliminated a $153,885 loss, (4) Merryhill's operating
profit decreased by $705,000, (5) the Company paid aggregate rent of $197,000 in
the latter period on properties acquired in the Carefree acquisition which were
later sold in sale/leaseback transactions, and (6) new schools opened since
September 1996 generated operating losses of $646,386.
School operating profit margins decreased 2.9% to 13.8% for the nine months
ended September 30, 1997 from 16.7% for the nine months ended September 30,
1996. The decrease in margins was due to (1) the absorption of start-up losses
in the new schools, (2) lower margins in the acquired schools related to
goodwill amortization, and (3) lower margins in Core schools substantially as a
result of the decline in the operating profits in the Merryhill schools.
General and administrative expenses increased $1,163,727 or 38% to $4,217,721
for the nine months ended September 30, 1997 as compared to the same period in
the prior year. As a percentage of revenues general and administrative expenses
increased 0.13% from 7.07% in 1996 to 7.2% in 1997. This increase is
attributable to the increase in the Company's management infrastructure
necessary to support its revenue growth. In 1997, the Company added a Chief
Financial Officer, Vice President of Eastern U.S. Operations, Vice President
Marketing, a Training Manager, several Executive Directors,
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a Human Resource Manager and several other support staff. In addition, the
Company selected and launched an Education Advisory Board to oversee and assist
in curriculum development.
Interest expense decreased $252,103 or 16.1% to $1,314,751 for the nine months
ended September 30, 1997 as compared to the same period in 1996. The decrease
is the result of (1) the Company's refinancing in May 1996 of $6,000,000 of
subordinated debt which accrued interest at 14% with a term loan from its
principal lender which accrues interest at a floating interest rate, (2)
generally lower interest rates (7.125% vs. 8.25%) on the Company's principal
credit facility as a result of the Sixth Amendment of the Loan and Security
Agreement entered into on May 8, 1997, and (3) the Company's selling five
properties and subsequently repaying the related debt facility.
Other income decreased $391,688 or 99% to $2,136 for the nine months ended
September 30, 1997 as compared to the same period in 1996. In 1996, the Company
earned interest on net proceeds of $11,700,000 from a private placement of
common stock which was subsequently used for acquisitions in the fourth quarter
of 1996 and early 1997.
Pretax income decreased $455,430 or 16% to $2,481,091 for the nine months ended
September 30, 1997 as compared to the same period in the prior year. The
decrease is primarily attributed to the decrease in operating profit and
increase in general and administrative expenses as described above.
Income tax expense decreased $84,091 or 7.4% to $1,042,190 for the nine months
ended September 30, 1997 as compared to the same period in 1996 as the result of
lower operating profit. Income taxes were accrued at a 42% effective tax rate
in 1997 as compared to a 38% effective tax rate in 1996. The tax rate increased
as a result of an increase in non-deductible goodwill amortization expense.
Net income decreased $371,338 or 21% to $1,438,902 for the nine months ended
September 30, 1997 as compared to the same period in 1996. The net decrease is
the result of (1) a decrease in operating profit, (2) a decrease in other income
and (3) an increase in general and administrative expense, offset by (4) a
decrease in interest expense.
Primary earnings per share for the nine months ended September 30, 1997 equaled
$0.19 on common share equivalents of 7,273,151 as compared to $0.25 earnings per
share on common share equivalents of 6,910,061 for the same period in 1996.
Fully diluted earnings per share equaled $0.19 on 7,446,107 common share and
share equivalents for the nine months ended September 30, 1997 as compared to
$0.25 on 7,286,769 common share and share equivalents for the same period in
1996.
In February 1997, the Financial Accounting Standards Board issued Statement no.
128, "Earnings per Share," which establishes new standards for computations of
earnings per share. The Statement will be effective for periods ending after
December 15, 1997, with prior periods restated at that time to comply with the
new standards. If the statement had been effective for the periods ended
September 30, 1997 and 1996, basic and diluted loss per share would have totaled
$0.05 for the three months ended September 30, 1997 and there would be no change
in the calculation for the three months ended September 30, 1996. For the nine
months ended September 30, 1997, the basic earnings per share equal $0.23 and
the diluted earnings per share equal $0.18 as compared to $0.19 for both
11
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primary and fully diluted under the current method of accounting. In the same
period in 1996, basic earnings per share total $0.31 and diluted earnings per
share total $0.25 as compared to $0.25 for both primary and fully diluted.
For the three months ended September 30, 1997 compared to September 30, 1996:
- ----------------------------------------------------------------------------
Revenues for the third quarter of 1997 increased $5,207,293 or 38% to
$18,926,298 compared to the third quarter of 1996. The increase is primarily
attributable to revenues related to acquisitions and new school openings and
maturing of several new schools opened during the second half of 1996 and early
1997. Acquisitions which occurred in the fourth quarter of 1996 and in 1997
accounted for $3,986,209 of the increase in revenues. Newly opened schools
accounted for $1,010,827 of the increase. The revenues of the remaining schools
were substantially unchanged due to a combination of improved performance at
Eastern division schools opened in the first nine months of 1996 offset by a
decline in revenues of the Merryhill schools. (See Trends for discussion of
Merryhill)
School operating profit decreased $181,876 or 11% to $1,434,940 for the third
quarter of 1997 as compared to 1996. The decrease in the operating profit is
the result of (1) the absorption of operating losses resulting from new schools
opened since the third quarter of 1996 which totaled $437,374, (2) a seasonal
summer loss totaling $118,447 at Evergreen Academy, a recent acquisition, which
historically experienced reduced operations in the summer, and (3) a decline in
the operating profit in the Merryhill schools totaling $319,000. The described
decreases were offset by an increase in operating profit totaling $692,945,
which is primarily related to profits generated from acquisitions and an
improved performance in the Eastern division schools opened in the first nine
months of 1996.
Operating profit margins decreased 4.2% from 11.8% in the third quarter of 1996
to 7.6% in the third quarter of 1997. The margins decreased as a result of (1)
new school losses absorbed, (2) a decline in the Merryhill operating profit, (3)
lower margins in the acquisitions related to goodwill amortization and (4) weak
summer programs in several of the elementary schools which resulted in losses.
General and administrative expenses increased $507,862 or 54% to $1,443,364 for
the third quarter of 1997 compared to the third quarter of 1996. In the third
quarter of 1996, the Company reversed management bonuses of approximately
$220,000 which had been accrued. The remainder of the increase is related to
adding the infrastructure necessary to build the Company as described above. As
a percentage of revenues, general and administrative expenses increased 0.81%.
Interest expense increased slightly by $2,332 or 0.5% to $461,281. The increase
is the result of increased principal amount of loan balances related to the
acquisitions and new school development.
Other income and expense decreased from income of $143,027 to a charge of $2,634
as a result of decreased interest income. In 1996, the Company raised net
proceeds of $11,700,000 in a private placement of common stock for use in
acquisitions and new school development. The Company began to use the funds in
the fourth quarter of 1996. Prior to this, the funds generated earned interest.
12
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The pretax loss for the third quarter of 1997 totaled $491,696 which was below
the prior year third quarter by $835,333. The loss is the result of decreased
school operating profit, increased general and administrative expenses and a
decrease in other income as discussed above.
The income tax benefit totaled $206,521 in the third quarter of 1997 which
represents a 42% effective tax rate compared to expense of $134,010 in the third
quarter of 1996 which represented a 39% effective tax rate.
The net loss totaled $285,175 for the third quarter of 1997 which represents a
$494,802 or 236% decrease compared to the third quarter of 1996. As discussed
above, the loss and decrease is due to a decrease in school operating profit, an
increase in general and administrative expenses and a decrease in other income.
Primary loss per share for the third quarter of 1997 totaled $0.04 on 7,448,290
common shares and share equivalents. This is a decrease of $0.07 per share
when compared to the third quarter in 1996. Fully diluted earnings per share
also totaled $0.04 on 7,448,290 common shares and share equivalents for the
third quarter of 1997 which also decreased $0.07 when compared to the third
quarter of 1996.
Liquidity and Capital Resources
Management is currently pursuing a three-pronged growth strategy to expand the
Company, which includes (1) internal growth of existing schools through the
expansion of certain facilities and increased enrollments, (2) new school
development in both existing and new markets and (3) consolidation through
strategic acquisitions. The Company currently intends to fund its growth
strategy and its cash needs through (1) the available balance of its $13,800,000
revolving line of credit, (2) the use of site developers to build schools and
lease them to the Company and (3) issuance of subordinated indebtedness or
shares of common stock to sellers in acquisition transactions. If the need
arises, the Company may also effect additional debt or equity financings. The
Company anticipates that its existing available principal credit facilities,
cash generated from operations and continued support of site developers to build
and lease schools will be sufficient to satisfy the working capital needs of the
Company and the building of new schools in the near term future. The Company is
continuing to look for quality acquisition candidates. Depending on the size
and number of future acquisitions, the Company may need to seek funds from
additional debt or equity placements.
At October 31, 1997, the Company's loans from its senior lender consisted of: a
$5,700,000 term loan ("Term Loan I"), a $4,480,000 term loan ("Term Loan II"),
and, a $13,800,000 revolving line of credit, under which $8,230,000 loans were
outstanding along with $300,000 standby letters of credit issued. The Term Loan
I bears interest at a LIBOR based performance rate and requires quarterly
principal payments as follows: $250,000 each quarter through September 1, 1999;
and $300,000 each quarter from December 1, 1999 through September 1, 2001. The
Term Loan II, bears interest at a LIBOR based performance rate and requires
quarterly principal payments as follows: $280,000 each quarter through September
1, 1999; $350,000 each quarter from December 1, 1999 through June 1, 2001, with
the remaining balance due on September 1, 2001. The revolving line of credit
bears interest at a LIBOR based performance rate and matures May 1, 2000. The
current loan agreement
13
<PAGE>
with the Bank gives the Company flexibility in implementing its new school
development program and its acquisition strategy.
In 1997, the Company converted six of its child care centers to Chesterbrook
Academy schools. When a conversion takes place, the Company upgrades the
curriculum and equipment, retrains the teachers and changes signage. The
Company estimates the capitalized cost of a conversion to be $30,000 to $40,000
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.
Additionally in 1997, the Company will begin to upgrade its management
information system to link the schools to the corporate office as well as to
other schools. Management anticipates that the process will take several years
and projects spending approximately $600,000 on this project in 1997 and
approximately $1,000,000 in 1998.
During the nine months ended September 30, 1997 cash decreased $4,344,379 as
compared to a net increase of $5,510,894 for the same period in 1996. In the
first half of 1996, the Company raised $11,700,000 net cash proceeds through a
private placement of common stock. In addition, in May 1996 the Company sold
real estate related to Carefree schools for a total of $6,100,000. During the
nine months of 1997, the Company used cash raised in the private placement to
fund several acquisitions, including Another Generation Enterprises Inc. and
related companies, Rainbow Bridge schools and certain schools in Las Vegas,
Nevada operating under the names Warren Walker Preschools and Hillpointe
Elementary School. The funds used for acquisitions totaled $9,274,496. In
addition, the Company used $6,044,212 to develop and build new schools. The
Company intends to sell several of these schools by the end of 1997 in
sale/leaseback transactions, although such sales cannot be assured. Also in
1997, the Company has spent $3,643,956 in capital expenditures.
The Company's working capital deficit increased $9,135,436 from $1,350,984 for
the year ended December 30, 1996 to $10,486,420 for the nine months ended
September 30, 1997. The decrease is the result of the decrease in cash of
$4,344,379 and the increase in deferred revenue, accounts payable and accrued
expenses totaling $3,927,570. The Company has used its cash flow from
operations and revolving line of credit for acquisitions, new school development
and capital expenditures.
Cash flow from operations increased $3,765,992 or over 110% from $3,312,260 for
the nine months ended September 30, 1996 compared to $7,078,252 for the same
period in 1997. The increase in cash is the result of a combination of factors
which include (1) an increase in depreciation and amortization for goodwill
totaling $700,000, (2) an increase in accounts payable and accrued expenses of
$1,010,000, (3) an increase in deferred revenue of $1,266,091 and (4) the use of
the deferred taxes asset in 1997 totaling approximately $700,000 year to date.
Trends
During the nine months ended September 30, 1997, the Company experienced a
decrease in enrollment in its Merryhill schools located in California, coupled
with a weaker summer program in several elementary schools. As discussed
herein, this decrease is primarily due to the effect of California public
schools' initiative to decrease student/teacher class size ratios in
Kindergarten to
14
<PAGE>
third grade classes. This initiative affected Merryhill in several ways: (1)
teacher turnover increased, (2) enrollment decreased, and (3) with efforts to
attract replacement teachers and retain existing teachers, average teacher
salaries increased. In addition to the effect of the public school initiative,
rent expense in some of the Merryhill schools is increasing because of recently
built replacement schools, which expanded capacity. September results for Fall
enrollment in the upcoming 1997-1998 school year are down from the previous
year. This has negatively affected the Company's near term earnings.
In an effort to improve the performance in Merryhill schools and improve the
summer programs, as well as Company-wide performance, the Company has taken
several key steps. The structure of operations management has changed. The
Executive Director position replaces both the Regional Manager and District
Manager positions. The number of schools reporting to each Executive Director
has been reduced so that each can spend more time in the schools. In addition,
the Company has hired a West Coast Vice President and an experienced Summer Camp
Business Manager. The Company is also searching for a President and Chief
Operating Officer. In the near term, additional overhead from this management
structure will have a negative impact on earnings; however, over the long term,
the Company believes this strategy is warranted.
The Company is also looking at some of its current non-strategic and weaker
performing operations for possible closure/divestiture strategies. As such, the
Company is considering taking a pretax restructuring charge in the vicinity of
$3,000,000 in the fourth quarter of 1997.
The Company sees the continuation of major reforms taking place in the education
market. The Company plans to capitalize on the growing need for improved
quality education. In 1996 and 1997, the Company built new elementary and
middle schools which incur higher initial losses in the first year as compared
to newly constructed preschools. The Company plans to open five newly
constructed elementary schools in 1997, and continue development in 1998.
15
<PAGE>
Item 3 - Submission of Matters to Vote of Security Holders
A. An annual meeting of the stockholders of the Company was held on September
19, 1997. The total shares eligible to vote on the record date included
6,051,565 shares of Common Stock, 1,128,694 shares of Series A Preferred
Stock, 2,500,000 shares of Series C Preferred Stock and 1,063,830 shares of
Series D Preferred Stock. Each share of Series A Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock is convertible into 0.294, 0.25
and 0.25 shares of Common Stock, respectively. These shares represent a
total of 7,274,359 votes.
B. At the meeting:
1. Election of Directors
---------------------
Three directors were elected to serve until the 2000 Annual Meeting:
<TABLE>
<CAPTION>
Votes Number Withheld Total Votes
--------- --------------- -----------
<S> <C> <C> <C>
John R. Frock 6,035,832 25,569 6,061,401
Janet Katz 6,036,132 25,269 6,061,401
Eugene E. Monaco 6,033,632 27,769 6,061,401
</TABLE>
The term of office of the following directors continues until the 1998
Annual Meeting:
Morgan Jones
John Martinson
The term of office of the following directors continues until the 1999
Annual Meeting:
Edward Chambers
A.J. Clegg
Peter Havens
2. Ratification of Independent Auditors
------------------------------------
The selection of Coopers & Lybrand as the Company's independent auditors
for fiscal 1997 was approved by the requisite vote, the votes cast being as
follows:
<TABLE>
<S> <C>
Voted for 6,030,131
Voted against 14,742
Withheld 4,950
Abstentions 11,578
</TABLE>
16
<PAGE>
3. Amendment of 1995 Stock Incentive Plan
------------------ --------------------
The approval of the proposal to amend the 1995 Stock Incentive Plan was
approved by the requisite vote, the votes cast being as follows:
<TABLE>
<S> <C>
Voted for 3,308,523
Voted against 154,731
Withheld 0
Abstentions 22,620
Broker nonvotes 2,575,518
</TABLE>
4. Amendment of the Company's Amended and Restated Certificate of
--------------------------------------------------------------
Incorporation
- -------------
The approval of the proposal to amend the Company's Amended and Restated
Certificate of Incorporation to reduce the number of authorized shares of
capital stock was approved by the requisite vote, the votes cast being as
follows:
<TABLE>
<S> <C>
Voted for 5,953,303
Voted against 34,503
Withheld 57,688
Abstentions 15,907
</TABLE>
17
<PAGE>
Part II
-------
Other Information
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
<S> <C>
3 Certificate of Incorporation, as amended.
11 Statement re: computation of per share earnings.
27 Financial Data Schedule
</TABLE>
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Nobel has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
NOBEL EDUCATION DYNAMICS, INC.
Dated: November 14, 1997 By: /s/ Brian C. Zwaan
--------------------------------------
Brian C. Zwaan
Executive Vice President/CFO
(duly authorized officer and
principal financial officer)
19
<PAGE>
Exhibits
Exhibit
Number Description of Exhibit
3 Certificate of Incorporation, as amended.
11 Statement re: computation of per share earnings
27 Financial Data Schedule
20
<PAGE>
Exhibit 3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NOBEL EDUCATION DYNAMICS, INC.
FIRST: The name of the Corporation is Nobel Education Dynamics, Inc.
SECOND: The address of the Corporation's registered office in the State
of Delaware is the Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware 19801. The name of the Corporation's registered agent at such address
is Corporation Trust Company.
THIRD: The purpose for which the Corporation is organized is to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: The amount of total authorized capital stock of the Corporation
is Thirty Million (30,000,000) shares, divided into Twenty Million (20,000,000)
shares of Common Stock, par value $.001 per share, and Ten Million (10,000,000)
shares of undesignated Preferred Stock, par value $.001 per share.
No stockholder shall have any preemptive right to subscribe to or
purchase any issue of stock or other securities of the Corporation, or any
treasury stock or other treasury securities.
The powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights are as follows:
PART 1
UNDESIGNATED PREFERRED STOCK
1. Issuance in Series. Shares of Preferred Stock may be issued in
-------------------
one or more series at such time or times, and for such consideration or
considerations as the Board of Directors may determine. All shares of any one
series of any such Preferred Stock will be identical with each other in all
respects, except that shares of one series issued at different times may differ
as to dates from which dividends thereon may be cumulative. All series will rank
equally and be identical in all respects, except as permitted by the following
provisions of Section 2.
2. Authority of the Board with Respect to Series. The Board of
----------------------------------------------
Directors is authorized at any time and from time to time, subject to
limitations prescribed by law and the provisions of this Article FOURTH, to
provide for the issuance of shares of Preferred Stock in one or more series and
by filing a certificate pursuant to the applicable law of the State of Delaware
to establish the number of shares to be included in each such series, and to fix
the powers, designations, preferences and relative, participating, optional or
other special rights and qualifications, limitations or restrictions thereof as
21
<PAGE>
are stated and expressed in the resolution or resolutions providing for the
issue thereof adopted by the Board of Directors, and as are not stated and
expressed in the Certificate of Incorporation including, but not limited to,
determination of any of the following:
(a) the distinctive serial designation and the number of shares
constituting a series;
(b) the dividend rate or rates of the shares of a series, whether
dividends are cumulative and, if so, from which date, the payment date or dates
for dividends, the relative rights of priority, if any, and the participating or
other special rights, if any, with respect to dividends;
(c) the voting powers, full or limited, if any, of the shares of the
series;
(d) whether the shares of the series are redeemable and, if so, the
terms and conditions on which the shares may be redeemed, including the date or
dates upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
(e) the amount or amounts payable upon the shares of a series in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation prior to any payment or distribution of the assets of the
Corporation to any other class or series of the same or any other class or
classes of stock of the Corporation ranking junior to that series of Preferred
Stock;
(f) whether the shares of a series are entitled to the benefit of a
sinking or retirement fund to be applied to the purchase or redemption of shares
of that series and, if so entitled, the amount of the fund and the manner of its
application, including the price or prices at which the shares may be redeemed
or purchased through the application of the fund;
(g) whether the shares of a series are convertible into, or
exchangeable for, shares of any other class or series of the same or any other
class or classes of stock of the Corporation and, if so convertible or
exchangeable, the conversion price or prices, or the rates of exchange, and the
adjustments thereof, if any, at which the conversion or exchange may be made,
and any other terms and conditions of the conversion or exchange; and
(h) any other preferences, privileges and powers, and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions of a series, as the Board of Directors may deem advisable and as
are not inconsistent with the provisions of this Certificate of Incorporation.
3. Dividends. Before any dividends on any class or classes of stock
----------
of the Corporation ranking junior to the Preferred Stock (other than dividends
payable in shares of any class or classes of stock of the Corporation ranking
junior to the Preferred Stock) may be declared or paid or set apart for payment,
the holders of shares of Preferred Stock of each series are entitled to such
cash dividends, but only when and as declared by the Board of Directors out of
funds legally available therefor, as they may be entitled to in accordance with
the resolution or resolutions adopted by the Board of Directors providing for
the issue of the series, payable on such dates in each year as may be fixed in
the resolution or resolutions. The term "class or classes of stock of the
Corporation ranking junior to the
22
<PAGE>
Preferred Stock" means the Common Stock and any other class or classes of stock
of the Corporation hereafter authorized which rank junior to the Preferred Stock
as to dividends or upon liquidation, dissolution or winding up of the
Corporation.
4. Reacquired Shares. Shares of Preferred Stock which have been
------------------
issued and reacquired in any manner by the Corporation (excluding, until the
Corporation elects to retire them, shares which are held as treasury shares but
including shares redeemed, shares purchased and retired and shares which gave
been converted into shares of Common Stock) will have the status of authorized
and unissued shares of Preferred Stock and may be reissued.
5. Voting Rights. Unless and except to the extent otherwise required
--------------
by law or provided in the resolution or resolutions of the Board of Directors
creating any series of Preferred Stock pursuant to this Part I, the holders of
Preferred Stock shall have no voting power with respect to any matter
whatsoever.
PART II
COMMON STOCK
1. Junior to Preferred Stock. The Common Stock shall rank junior to
--------------------------
the Preferred Stock with respect to payment of dividends and distribution on
liquidation, dissolution or winding up of the Corporation.
2. Voting Rights. Except as expressly provided by law, or as
--------------
otherwise provided in Part I above, all voting rights shall be vested in the
holders of the Common Stock. At each meeting of stockholders of the
Corporation, each holder of Common Stock shall be entitled to one vote for each
such share on each matter to come before the meeting, except as otherwise
provided in this Certificate of Incorporation or by law.
3. Dividends. After all accumulated and unpaid dividends upon all
----------
shares of Preferred Stock for all previous dividend periods shall have been paid
and full dividends on all shares of Preferred Stock for the then current
dividend period shall have been declared and a sum sufficient for the payment
thereof set apart therefor, and after or concurrently with the setting aside of
any and all amounts then or theretofore required to be set aside for any sinking
fund
obligation or obligation of a similar nature in respect of any class or series
of Preferred Stock or any other class or series of stock having preferential
dividend rights, then and not otherwise, dividends may be declared upon and paid
to the holders of the Common Stock to the exclusion of the holders of the
Preferred Stock.
4. Rights Upon Liquidation. In the event of voluntary or involuntary
------------------------
liquidation or dissolution or winding up of the Corporation, after payment in
full of amounts, if any, required to be paid to the holders of shares of stock
having preferential liquidation rights, including without limitation the holders
of the Preferred Stock, the holders of the Common Stock shall be entitled, to
the exclusion of the holders of shares of stock having preferential liquidation
rights, including without
23
<PAGE>
limitation the holders of the Preferred Stock, to share ratably in all remaining
assets of the Corporation.
FIFTH: In furtherance and not in limitation of the general powers
conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized to make, alter or repeal the By-Laws of the Corporation,
except as specifically stated therein.
SIXTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of $291 of Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of $279 of Title 8 of the Delaware Code, order
a meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be, to be summoned in
such manner as the said Court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the Court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of this Corporation, as the case may be, and also on this
Corporation.
SEVENTH: The term of existence of the Corporation shall be perpetual.
EIGHTH:
1. The directors of the Corporation shall be elected at the annual
meeting of stockholders, except as provided in Section 3 of this Article Eighth.
The directors shall be divided into three (3) classes, as nearly equal in number
as possible, designated Class I, Class II and Class III. Class I directors shall
initially serve until the 1997 annual meeting of stockholders; Class II
directors shall initially serve until the 1998 annual meeting of stockholders;
and Class III directors shall initially serve until the 1999 annual meeting of
stockholders. At each annual meeting of stockholders beginning with the 1997
annual meeting, successors to the class of directors whose term expires at that
annual meeting shall be elected for a term expiring at the third succeeding
annual meeting of stockholders after their election. Except as otherwise
provided by law, if the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible. In no case shall a decrease in the
number of directors shorten the term of any incumbent director. Notwithstanding
the foregoing, whenever the holders of any one or more classes or series of
preferred stock of the Corporation shall have the right to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies, and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation applicable thereto, or the resolution
or resolutions of the Board of Directors relating to the issuance of such shares
of preferred stock, and
24
<PAGE>
such directors so elected shall not be divided into classes pursuant to this
Article Eighth unless expressly provided by such terms or such resolution or
resolutions.
2. A director shall hold office until the annual meeting of
stockholders for the year in which his or her term expires and until his or her
successor shall be elected. Directors may be removed only by the holders of at
least a majority of the outstanding Common Stock and only for cause at a meeting
called for such purpose. Except as may otherwise be provided by law, cause for
removal shall be construed to exist only if (i) the director whose removal is
proposed has been convicted of a felony by a court of competent jurisdiction and
the conviction is no longer subject to direct appeal, (ii) the director has been
adjudged by a court of competent jurisdiction to be liable for negligence or
misconduct in the performance of his or her duty to the corporation in a matter
of substantial importance to the Corporation and the adjudication is no longer
subject to direct appeal or (iii) any other situation exists which at least
eighty percent (80%) of the other directors, in their sole discretion, agree
constitutes cause for removal.
3. If any vacancy occurs on the Board of Directors or any new
directorship is created by an increase in the authorized number of directors, a
majority of the directors in office, though less than a quorum, may fill the
vacancy or fill the newly created directorship. Any director elected to fill a
vacancy shall have the same term as that of his or her predecessor, or, if such
vacancy is a result of an increase in the number of directors, as that of the
other directors of the class of which he or she shall be a member.
4. Notwithstanding any other provision of this Certificate of
Incorporation or the Bylaws of the Corporation (and in addition to any other
vote that may be required by law, the Certificate of Incorporation or the Bylaws
of the Corporation), the affirmative vote of the holders of shares entitled to
cast at least two-thirds of the votes represented by the shares of all classes
of stock of the Corporation entitled to vote generally in elections of
directors, considered for purposes of this Article EIGHTH as one class, shall be
required to amend, alter, change, repeal or adopt any provision inconsistent
with this Article EIGHTH.
NINTH: The election of directors shall be conducted in the manner
prescribed in the By-Laws of the Corporation and need not be by ballot.
TENTH: A director of the Corporation shall have no personal liability to
the Corporation or to its stockholders for monetary damages for breach of
fiduciary duty as a director except to the extent that Section 102 (b) (7) (or
any successor provision) of the Delaware General Corporation Law, as amended
from time to time, expressly provides that the liability of a director may not
be eliminated or limited.
ELEVENTH: Subject to the special rights, if any, of the holders of any
class or series of preferred stock established in or pursuant to the provisions
of the Certificate of Incorporation, any action required or permitted to be
taken by the stockholders of the Corporation must be effected at a duly called
annual or special meeting of such holders and may not be effected by any consent
in writing by such holders.
25
<PAGE>
TWELFTH: Nominations for the Board.
1. Subject to the special rights, if any, of the holders of any class
or series of preferred stock then outstanding, nominations for the election of
directors may be made by the Board of Directors or a committee appointed by the
Board of Directors or by a stockholder entitled to vote in the election of
directors. However, a stockholder entitled to vote in the election of directors
may make such a nomination only if such stockholder has given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to, or mailed by United States mail,
postage prepaid and received at, the principal executive offices of the
Corporation (a) with respect to an election to be held at an annual meeting of
stockholders, not later than seventy-five (75) days prior to the first
anniversary of the preceding year's annual meeting (or, if the date of the
annual meeting is changed by more than twenty (20) days from such anniversary
date, not later than ten (10) days after the date the Corporation first mails to
stockholders of the Corporation notice of the date of the annual meeting), and
(b) with respect to an election to be held at a special meeting of stockholders
called for that purpose, not later than ten (10) days after the date the
Corporation first mails to stockholders of the Corporation notice of the date of
the special meeting.
2. Each stockholder's notice of intent to make a nomination must set
forth: (a) the name(s) and address(es) of the stockholder who intends to make
the nomination; (b) a representation that the stockholder (i) is a holder of
record of stock of the Corporation entitled to vote at such meeting, (ii) will
continue to hold such stock through the date on which the meeting is held, and
(iii) intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) the name, age, business and
residence address(es) and principal occupation or employment of each nominee;
(d) a description of all arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination is to be made by the stockholder; (e) such
other information regarding each nominee proposed by such stockholder as would
be required to be included in a proxy statement filed pursuant to Regulation 14A
promulgated under Section 14 of the Securities Exchange Act of 1934, as amended,
as now in effect or hereafter modified, had the nominee been nominated by the
Board of Directors; and (f) the consent of each nominee to serve as a director
of the Corporation if so elected. The Corporation may require any proposed
nominee to furnish such other information as may reasonably be required by the
Corporation to determine the qualifications of such person to serve as a
director.
3. The presiding officer of the stockholders' meeting shall determine
and declare at the stockholders' meeting whether the nomination was made in
accordance with the terms of this Article Twelfth. If the presiding officer
determines that a stockholder proposal was not made in accordance with the terms
of this Article Twelfth, he or she shall so declare at the stockholders' meeting
and any such defective nomination shall be disregarded.
THIRTEENTH: Proposals.
1. At an annual or special meeting of stockholders (other than a special
meeting called at the written request of stockholders of the Corporation in
accordance with the Corporation's Bylaws)
26
<PAGE>
only such business shall be conducted, and only such proposals shall be acted
upon, as shall have been brought before the meeting (a) by, or at the direction
of, a majority of the directors, or (b) by any stockholder the Corporation who
complies with the notice procedures set forth in this Article Thirteenth. For a
proposal to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to, or
mailed by United States mail, postage prepaid and received at, the principal
executive offices of the Corporation (i) with respect to a proposal to be
considered at an annual meeting of stockholders, not later than seventy-five
(75) days prior to the first anniversary of the preceding year's annual meeting
(or, if the date of the annual meeting is changed by more than twenty (20) days
from such anniversary date, not later than ten (10) days after the date the
Corporation first mails to stockholders of the Corporation notice of the date of
the annual meeting), and (ii) with respect to a proposal to be considered at a
special meeting of stockholders, not later than ten (10) days after the date the
Corporation first mails to stockholders of the Corporation notice of the date of
the special meeting.
2. A stockholder's notice to the Secretary must set forth as to each
proposal the stockholder desires to bring before the stockholders' meeting (a) a
brief description of such proposal and the reasons supporting such proposal, (b)
a representation that the stockholder (i) is a holder of record of stock of the
Corporation entitled to vote at such meeting, (ii) will continue to hold such
stock through the date on which the meeting is held, (iii) intends to appear in
person or by proxy at the meeting to make such proposal, and (c) any financial
interest of the stockholder in such proposal.
3. The presiding officer of the stockholders' meeting shall determine and
declare at the stockholders' meeting whether the stockholder proposal was made
in accordance with the terms of this Article Thirteenth. If the presiding
officer determines that a stockholder proposal was not made in accordance with
the terms of this Article Thirteenth, he or she shall so declare at the
stockholders' meeting and any such proposal shall not be acted upon at the
stockholder's meeting.
FOURTEENTH: Notwithstanding any other provision of this Certificate of
Incorporation or the Bylaws of the Corporation (and in addition to any other
vote that may be required by law, the Certificate of Incorporation or the Bylaws
of the Corporation), the affirmative vote of the holders of shares entitled to
cast at least two-thirds of the votes represented by the shares of all classes
of stock of the Corporation entitled to vote generally in elections of
directors, considered for purposes of this Article FOURTEENTH as one class,
shall be required to amend, alter, change, repeal or adopt any provision
inconsistent with Article TENTH, ELEVENTH, TWELFTH, THIRTEENTH or this Article
FOURTEENTH, per share earnings.
27
<PAGE>
Exhibit 11
Net Income Per Common Share
- ---------------------------
for the three months ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Net Income Per Common Share Primary:
- -----------------------------------
Net income $ (285,175) $ 209,627
Less preferred dividends 25,500 20,411
---------- ----------
Net income available to common stockholders $ (310,675) $ 189,216
========== ==========
Average shares outstanding 6,051,065 5,732,815
Common stock equivalents (less convertible preferred
in 1996, includes convertible in 1997) 1,397,225 1,454,900
---------- ----------
Adjusted average shares outstanding 7,448,290 7,187,715
Primary earnings per common share $ (0.04) $ 0.03
========== ==========
Net Income Per Common Share Fully Diluted:
- -----------------------------------------
Net Income $ (285,175) $ 209,627
---------- ----------
Average shares outstanding 6,051,065 5,732,815
Common Stock equivalents (including
convertible preferred) 1,397,225 1,831,608
---------- ----------
Average Shares outstanding assuming full dilution 7,448,290 7,564,423
Fully diluted earnings per share $ (0.04) $ 0.03
========== ==========
</TABLE>
28
<PAGE>
Exhibit 11
Net Income Per Common Share
- ---------------------------
for the nine months ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Net Income Per Common Share Primary:
- -------------------------------------
Net income $1,438,902 $1,810,240
Less preferred dividends 76,500 98,063
---------- ----------
Net income available to common stockholders $1,362,402 $1,712,177
========== ==========
Average shares outstanding 6,048,882 5,455,160
Common stock equivalents less convertible preferred 1,224,269 1,454,900
---------- ----------
Adjusted average shares outstanding 7,273,151 6,910,060
Primary earnings per common share $ 0.19 $ 0.25
========== ==========
Net Income Per Common Share Fully Diluted:
- -----------------------------------------
Net Income $1,438,902 $1,810,240
---------- ----------
Average shares outstanding 6,048,882 5,455,160
Common Stock equivalents including
convertible preferred 1,397,225 1,831,609
---------- ----------
Average Shares outstanding assuming full dilution 7,446,107 7,286,769
Fully diluted earnings per share $ 0.19 $ 0.25
========== ==========
</TABLE>
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 907 5,251
<SECURITIES> 0 0
<RECEIVABLES> 1,231 779
<ALLOWANCES> (103) (103)
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,017 8,278
<PP&E> 25,480 19,323
<DEPRECIATION> 1,605 1,304
<TOTAL-ASSETS> 70,539 56,833
<CURRENT-LIABILITIES> 13,504 9,629
<BONDS> 0 0
0 0
5 5
<COMMON> 6 6
<OTHER-SE> 33,814 32,312
<TOTAL-LIABILITY-AND-EQUITY> 70,539 56,833
<SALES> 58,590 43,208
<TOTAL-REVENUES> 58,590 43,208
<CGS> 0 0
<TOTAL-COSTS> 50,510 35,974
<OTHER-EXPENSES> (2) (393)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,315 1,566
<INCOME-PRETAX> 2,481 2,936
<INCOME-TAX> 1,042 1,126
<INCOME-CONTINUING> 1,439 1,810
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,439 1,712
<EPS-PRIMARY> 0.19 0.25
<EPS-DILUTED> 0.19 0.25
</TABLE>
