<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: MARCH 31, 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: 5,833,450 shares of Common
Stock outstanding at May 2, 1997.
<PAGE>
INDEX TO FORM 10-Q
Nobel Education Dynamics, Inc.
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION Number
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<S> <C>
Item 1.Financial Statements
Consolidated Balance Sheets,
March 31, 1997 (unaudited) and
December 31, 1996................................................ 2
Consolidated Statements of Income for the
three months ended March 31, 1997 (unaudited)
and 1996 (unaudited)............................................. 3
Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 (unaudited)
and 1996 (unaudited)............................................. 4
Notes to Consolidated Interim Financial Statements............... 5
Item 2.Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 7
</TABLE>
PART II. OTHER INFORMATION
<PAGE>
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
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(unaudited)
ASSETS
- ------
<S> <C> <C>
Cash and cash equivalents $ 1,587,815 $ 5,251,555
Accounts receivable, less allowance for 869,960 779,075
doubtful accounts of $103,009 in 1997
and 1996
Prepaid rent 477,378 734,463
Prepaid insurance and other 957,045 622,106
Deferred taxes 447,426 890,934
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Total Current Assets 4,339,624 8,278,133
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Property and equipment, net 20,096,395 19,323,110
Property and equipment held for sale
(Southeast), net 1,147,870 1,111,412
Goodwill, net 29,351,134 25,601,028
Deposits and other assets 3,770,953 2,402,951
Deferred taxes - 116,854
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Total Assets $58,705,976 $56,833,488
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current portion of long-term debt $ 3,006,639 $ 3,448,112
Accounts payable and other current
liabilities 7,196,195 6,181,005
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Total Current Liabilities 10,202,834 9,629,117
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Long Term Debt 10,874,615 11,097,593
Deferred gain on sale/leaseback 45,323 47,321
Minority interest in consolidated
subsidiary 343,422 318,359
Long-term subordinated debt 4,011,039 3,417,657
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Total Liabilities 25,477,233 24,510,047
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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,
50,000,000 shares authorized, issued
and outstanding 5,833,450 shares in
1997 and 5,831,055 in 1996 5,833 5,831
Additional paid-in capital 37,667,910 37,665,713
Accumulated deficit (4,449,698) (5,352,801)
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Total Stockholders' Equity 33,228,743 32,323,441
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Total Liabilities and Stockholders'
Equity $58,705,976 $56,833,488
=========== ===========
</TABLE>
The accompanying notes and the notes in the financial statements included in the
Registrant'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 three months ended March 31, 1997 and 1996
--------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Revenues $19,027,241 $14,568,269
Operating Expenses 15,707,803 11,589,831
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School operating profit 3,319,438 2,978,438
General and administrative expenses 1,303,869 1,031,197
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Operating Profit 2,015,569 1,947,241
Interest Expense 459,717 631,241
Other Income (70,247) (116,605)
Minority interest in earnings of
consolidated subsidiary 25,063 23,865
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Income before income taxes 1,601,036 1,408,740
Income tax expense 672,433 542,314
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Net income $ 928,603 $ 866,426
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Preferred stock dividends $ 25,500 $ 38,826
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Net income available to common
stockholders $ 903,103 $ 827,600
=========== ===========
Primary earnings per share $ 0.13 $ 0.13
=========== ===========
Fully diluted earnings per share $ 0.12 $ 0.13
=========== ===========
</TABLE>
The accompanying notes and the notes in the financial statements included in the
Registrant'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 CASH FLOWS
For the three months ended March 31, 1997 and 1996
--------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Net Cash (Used in) Provided by Operating Activities $ 2,548,161 $ (55,882)
Cash flows from Investing Activities:
Capital expenditures (1,117,652) (717,784)
Payment for acquisitions and land for development (3,857,877) (3,252,636)
Cash received from note receivable -- 373,237
Net Cash Used in Investing Activities: (4,975,529) (3,597,183)
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Cash Flows from Financing Activities:
Issuance of common stock -- 11,657,689
Repayment of long-term debt (773,153) (291,522)
Repayment of subordinated debt (422,478)
Repayment of capital lease obligation (17,440) (44,412)
Payments of dividends on preferred stock (25,500) (38,826)
Proceeds from exercise of stock options 2,199 --
Proceeds from the principal debt facilities -- 1,466,494
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Net Cash Provided by (Used in) Financing Activities: (1,236,372) 12,749,423
----------- -----------
Net increase (decrease) in cash and
cash equivalents: (3,663,740) 9,096,358
Cash and cash equivalents at
the beginning of year: 5,251,555 3,714,560
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Cash and cash equivalents at end of the period: $ 1,587,815 $12,810,918
=========== ===========
</TABLE>
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report Form 10-K are an integral part of these consolidated
financial statements.
4
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NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
Notes to Consolidated Interim Financial Statements
for the three months ended March 31, 1997 and 1996
(unaudited)
Note 1 - Basis of Presentation
- ------------------------------
The consolidated financial statements have been prepared by the Registrant
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 the Registrant'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 Per Share
- ---------------------------
The earnings 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
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Primary 7,147,212 6,513,681
Fully Diluted 7,487,541 6,890,389
</TABLE>
Note 3 - Acquisitions
- ---------------------
ACQUISITION OF ANOTHER GENERATION ENTERPRISES INC.
On January 7, 1997, the Company purchased the stock of 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
5
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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%.
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 - Subsequent Events
- --------------------------
ACQUISITION OF RAINBOW BRIDGE INC.
On April 1, 1997 the Company acquired the assets of Jeff and June, Inc., which
operated the Rainbow Bridge schools located in San Jose, California. Rainbow
Bridge schools are private elementary and preschool operations with three
schools, two of which are elementary and middle schools and one of which is a
preschool 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 acquisition totaled
$5,500,000, $3,700,000 paid in cash and $1,800,000 paid by delivery of a note.
The asset purchase agreement provides for payment of an additional "earn-out"
payment if the operators achieve certain earnings targets.
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 increases
the principal debt facilities from $21,200,000 to $25,000,000.
6
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Revenues increased $4,458,972 or 31% in the three months ended March 31, 1997 as
compared to the same period in 1996. The increase in revenues was due primarily
to the combination of (a) the acquisition of eleven schools and (b) the opening
of nine new schools, all subsequent to the first quarter of 1996. These
activities accounted for $3,065,741 and $1,182,429 of the overall increase,
respectively. The increase in revenues in the remaining schools of $210,802 was
the result of a combination of factors. Revenues in a majority of regions
increased, but were offset by the closing in the Summer of 1996 of six non-
performing child care centers in South Carolina when their leases expired, as
well as a modest revenue decrease in the Merryhill schools located in
California. The decrease at Merryhill was principally caused by a modest
unforseen turnover of teachers due to the higher demand for teachers created by
the California mandate to reduce class sizes in public schools. The Company has
taken aggressive steps to attract and maintain quality teachers and to maintain
quality standards, and has seen a trend of improving operating results,
comparing January to April 1997, and is encouraged by the preliminary results of
Fall enrollment.
At March 31, 1997, the Company operated 118 schools. From the period March 31,
1996 through March 31, 1997 the Company acquired eleven schools, built nine new
schools (replacing two) and closed six schools whose leases expired.
School operating profit increased 11.5% or $341,000 in the first quarter of 1997
compared to 1996. The increase in operating profit was the result of several
factors. Operating profit related to new acquisitions which occurred after the
first quarter of 1996 totaled $635,988. This increase was reduced by (1)
absorption of startup losses of new schools opened subsequent to the first
quarter of 1996 totaling $43,145, which included $108,678 related to the opening
of two schools in March 1997, and (2) a decrease in the school operating profit
in the remaining schools of $251,843. The decrease in the operating profit of
the remaining schools was the result of (1) an increase of $200,000 in rent
expense because the Company sold five properties in May of 1996 and concurrently
leased the properties back, (2) higher personnel costs and (3) lower revenues in
Merryhill schools as a result of a modest enrollment decline.
School operating profit margin for the first quarter ended March 31, 1997
decreased 3% from 20.4% for the first quarter ended March 31, 1996 to 17.4% for
the same period in 1997 as the Company's business plan anticipated. The decrease
in margin was due to (1) initial absorption of startup losses in the new
schools, (2) lower margins in acquired schools as compared to core schools
(which is after amortization expense of goodwill), and (3) lower margins in the
remaining schools as a result of the factors described in the previous
paragraph. Margins at the acquired schools were particularly affected by the
nine schools in Indianapolis which had a small loss in the first quarter. The
Company has implemented a plan of action to increase enrollments and decrease
operating expenses at the Indianapolis schools. Margins have steadily increased
from January through April of 1997.
7
<PAGE>
General and administrative expenses increased $272,672 or 26% for the first
quarter ended March 31, 1997 as compared to the same period in 1996. As a
percentage of revenues, general and administrative expenses decreased from 7.1%
for the first quarter of 1996 to 6.9% for the first quarter of 1997 which is due
to the economies of scale as the Company continues to grow its revenue base. The
dollar increase was primarily attributable to the increases in the Company's
infrastructure necessary to support its revenue growth. In 1997 the Company
added a Chief Financial Officer, Vice President of Eastern U.S. Operations,
several district managers and other support staff. In addition, the Company
selected and launched an Education Advisory Board to oversee and assist in
curriculum and technology development.
Interest expense decreased $171,524 or 27% for the first quarter ended March 31,
1997 as compared to the same period in 1996. The decrease in interest expense is
the result of (1) the Company's refinancing in May of 1996 $6,000,000 of
subordinated debt accruing interest at 14% with a term loan from its principal
Bank accruing interest at 8% per annum, and (2) the Company selling five
properties and subsequently repaying the related debt facilities in May of 1996.
Pretax income increased $192,296 or 14% for the first quarter ended March 31,
1997 as compared to 1996. The increase is primarily attributed to the increase
in school operating profit as a result of the acquisitions and a decrease in
interest expense as described above.
Income tax expense increased $130,119 or 24% as the result of a higher effective
tax rate of 42% for the first quarter ended March 31, 1997 as compared to 38.5%
for the same period in 1996, and also a higher profit level. The effective tax
rate increased as a result of an increase in non-deductible goodwill
amortization expense.
Net income increased $62,177 or 7% for the first quarter ended March 31, 1997 as
compared to the same period in 1996. The net increase is attributable to the
additional profits from acquisitions and a decrease in interest expense offset
by an increase in general and administrative expenses.
Primary earnings per share for the first quarter ended March 31, 1997 was $0.13
on common share equivalents of 7,147,212 as compared to $0.13 on 6,513,681
common share equivalents for the same period in 1996. Fully diluted earnings
per share was $0.12 on 7,487,541 share equivalents as compared to $0.13 on
6,890,389 share equivalents for the same period in 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. During 1997, the Company intends to fund its growth
strategy and its cash needs through (1) the $13,800,000 available balance of its
revolving line of credit, (2) the use of site developers to build schools and
lease them to the Company, (3) the $15,000,000 commitment from AEI, and (4)
issuance of subordinated indebtedness or shares of common stock to
8
<PAGE>
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,
continued support of site developers to build and lease schools and funds from
AEI 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 of future
acquisitions, the Company may need to seek funds from additional debt or equity
placements.
At May 8, 1997, the Company's loans from its senior lender consisted of: a
$6,200,000 loan ("Term Loan I"), a $5,040,000 term loan ("Term Loan II"), and, a
$13,800,000 revolving line of credit, of which $3,730,000 was outstanding. 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 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 with the Bank gives the Company flexibility in implementing its
accelerated new school development program and its acquisition strategy.
In 1997, the Company plans to convert approximately 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 has projected that it may spend approximately $700,000 on this project in
1997.
Cash flow from operating activities increased $2,604,043 from a $55,882 deficit
for the three months ended March 31, 1996 to $2,548,161 for the same period in
1997. The increase is the result of (1) increase in depreciation, (2) increase
in accounts payable expenses and (3) increase in deferred revenues. Accounts
payable increased $1,000,000 from March 1996 compared to 1997 as a result of the
growth of the Company through acquisitions and new school development. Deferred
revenues increased approximately $400,000 as a result of acquisitions.
During the three months ended March 31, 1997 cash decreased $3,653,740 as
compared to a net increase of $9,096,358 for the three months ended March 31,
1996. The Company used cash of $3,857,000 in January 1997 to acquire six
preschools in Florida and a 19.99% interest in the Sagemont elementary school.
In the first quarter of 1996, the Company raised $11,600,000 in cash as a result
of a private placement of common stock which was the reason for the increase in
cash during that period.
9
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The Company's working capital deficit increased $4,512,226 from $1,350,984 at
December 31, 1996 to $5,863,210 at March 31, 1997 primarily as a result of a
decrease in cash of $3,663,740 offset by an increase in accounts payable and
accrued liabilities of $1,458,698.
TRENDS
Looking forward into 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 larger initial losses in the
first year as compared to a preschool but offer higher margins in the later
years. The Company plans to open five to six elementary schools in 1997, and
continue such development on an accelerated pace.
10
<PAGE>
Part II
-------
Other Information
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K.
Exhibit
Number Description of Exhibit
4.1 Sixth Amendment and Modification to Loan and Security Agreement with
Summit Bank (Certain schedules to Exhibit 4.1 have not been filed.
Upon request, Registrant will furnish to the Commission a copy of any
omitted schedule.)
4.2 Line Note Payable to Summit Bank in the principal amount of
$13,800,000.
11 Statement re: computation of per share earnings.
27 Financial Data Schedule.
(B) REPORTS ON FORM 8-K.
On January 21, 1997, the Company filed a Current Report on Form 8-K
reporting the closing of its acquisition of all of the outstanding
common stock of Another Generation Enterprises Inc. and four
corporations under common control, as well as (i) the purchase of a
minority position (19.99%) in the limited liability company which owns
Sagemont School located in Weston, Florida and (ii) the formation of a
joint venture to develop five additional elementary schools in
Florida.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOBEL EDUCATION DYNAMICS, INC.
Dated: May ___, 1997 By: _______________________________________
Brian C. Zwaan
Executive Vice President/CFO
(duly authorized officer and
principal financial officer)
12
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EXHIBITS
Exhibit
Number Description of Exhibit
4.1 Sixth Amendment and Modification to Loan and Security Agreement.
4.2 Line Note payable to Summit Bank in the principal amount of
$13,800,000.
11 Statement re: computation of per share earnings.
27 Financial Data Schedule.
<PAGE>
SIXTH AMENDMENT AND MODIFICATION TO
-----------------------------------
LOAN AND SECURITY AGREEMENT
---------------------------
THIS SIXTH AMENDMENT AND MODIFICATION TO LOAN AND SECURITY AGREEMENT (the
"Amendment") is made effective as of the fifth day of May, 1997, by and among
NOBEL EDUCATION DYNAMICS, INC. ("Nobel"), BLUEGRASS REAL ESTATE COMPANY, INC.
("Bluegrass"), IMAGINE EDUCATIONAL PRODUCTS, INC. ("Imagine"), MERRYHILL
SCHOOLS, INC. ("Merryhill"), EDUCO, INC. ("Educo"), NEDI, INC. ("NEDI"),
MONTESSORI HOUSE, INC. ("Montessori"), ANOTHER GENERATION ENTERPRISES, INC.
("Another Generation") (collectively, the "Obligors") and SUMMIT BANK, formerly
known as First Valley Bank ("Bank").
BACKGROUND
----------
A. By a Loan and Security Agreement among Obligors, Children's Park,
Incorporated, Rocking Horse Management Corporation and Bank dated August 30,
1995 (as amended by those certain amendments dated September 1, 1995, April 4,
1996, July 23, 1996, November 1, 1996 and March ____, 1997, the "Loan
Agreement"), Bank agreed, inter alia, to extend to Obligors a (i) revolving line
----- ----
of credit in the original principal amount of up to Ten Million Dollars
($10,000,000.00) (the "Line"), (ii) term loan in the original principal amount
of Seven Million Five Hundred Thousand Dollars ($7,500,000.00) (the "Term
Loan"), and (iii) term loan in the original principal amount of Six Million
Dollars ($6,000,000.00) (the "New Term Loan"). Subsequent to the execution of
the Loan Agreement, Children's Park, Incorporated and Rocking Horse Management
Corporation merged into Nobel with Nobel being the surviving entity.
B. Obligors' obligations to repay the sums advanced under the (i) Line is
evidenced by that certain Line Note from Obligors to Bank dated November 1, 1996
in the face amount of Ten Million Dollars ($10,000,000.00) (the "Line Note"),
(ii) Term Loan is evidenced by that certain Term Note from Obligors to Bank
dated August 30, 1995 in the original principal amount of Seven Million Five
Hundred Thousand Dollars ( $7,500,000.00) (as amended, the "Term Note"), and
(iii) New Term Loan is evidenced by that certain New Term Note from Obligors to
Bank dated April 4, 1996 in the original principal amount of Six Million Dollars
($6,000,000.00) (as amended, the "New Term Note").
C. Obligors and Bank desire to further amend the Loan Agreement in
accordance with the terms and conditions hereof.
D. Capitalized terms not otherwise defined herein will have the meanings
set forth therefor in the Loan Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
agree as follows:
1. THE LINE. Section 1.1 of the Loan Agreement is hereby amended to read,
-------- -----------
in its entirety, as follows:
"1.1 Line of Credit. Bank will establish for Obligors for and during
--------------
the period from the date hereof and until May 1, 2000 (the
"Contract Period"), subject to the terms and conditions hereof, a
revolving line of credit (the "Line") pursuant to which Bank will from
time to time make loans or other extensions of credit to Obligors in
an aggregate amount not exceeding at any time Thirteen Million Eight
Hundred Thousand Dollars ($13,800,000.00) (the "Maximum Amount").
Obligors may borrow, repay and reborrow under the Line. The Line
shall be subject to all terms and conditions set forth in
<PAGE>
all of the Loan Documents (as hereafter defined) which terms and
conditions are incorporated herein. Obligors' obligation to repay the
loans and extensions of credit under the Line shall be evidenced by
Obligors' promissory note (the "Line Note") in the face amount of
Thirteen Million Eight Hundred Thousand Dollars ($13,800,000.00),
which shall be in the form attached hereto as Exhibit "A", with the
-----------
blanks appropriately filled in. The Line shall be subject to review
and renewal after the expiration of the Contract Period, at the sole
discretion of Bank."
2. NEW LINE NOTE. Coincident with the execution of this Amendment,
-------------
Obligors shall execute and deliver to Bank a new promissory note of even date
herewith, re-evidencing the existing indebtedness of Obligors to Bank under the
Line and increasing the maximum principal amount thereof, which Note shall be in
the form attached hereto as Exhibit "A". All references to the Line Note in the
-----------
Loan Agreement and the other Loan Documents shall be deemed to be references to
such new Line Note. Exhibit "A" to the Loan Agreement is hereby replaced with
-----------
Exhibit "A" attached hereto. The indebtedness evidenced by the previous Line
- -----------
Note remains outstanding as of the date hereof and continues to be secured by
the Collateral. The parties hereby expressly acknowledge and agree that the new
Line Note merely re-evidences the indebtedness evidenced by the previous Line
Note, and is given in substitution of, and not as payment of the previous Line
Note. Bank will stamp the existing Line Note to show that it has been re-
evidenced and succeeded.
3. INTEREST RATES.
--------------
(a) Section 2.4(e) of the Loan Agreement is amended to read, in its
--------------
entirety, as follows:
"(e) Individual portions drawn on the Line accruing interest at
the (i) Line LIBOR Rate must be in amounts of at least Two Hundred
Fifty Thousand Dollars ($250,000.00) each, and (ii) Floating Rate must
be in amounts of at least Twenty-Five Thousand Dollars ($25,000.00)
each."
(b) Section 2.6 of the Loan Agreement is amended to read, in its
-----------
entirety, as follows:
"2.6 Interest Rate Options on the Term Loan. Interest on the unpaid
--------------------------------------
principal balance of the Term Loan will accrue from the date of
advance until final payment thereof at a rate selected by Obligors
from the two (2) interest rate options set forth below, subject to the
restrictions and in accordance with the procedures set forth in this
Agreement:
(a) Floating Rate; or
(b) Term LIBOR Rate.
The interest rate (and Rate Period, if applicable) from time to time
chosen by Obligors for the Term Loan shall apply to the entire
outstanding principal balance thereof until another interest rate
option is chosen in accordance with the procedures set forth in this
Agreement."
(c) Section 2.9 of the Loan Agreement is deleted in its entirety. All
-----------
references in the Loan Agreement to the term "Fixed Rate" shall hereafter be
deleted.
(d) Section 2.10 of the Loan Agreement is amended to read, in its
------------
entirety, as follows:
2
<PAGE>
"2.10 Certain Provisions Regarding Term Loan Interest Rates.
-----------------------------------------------------
Obligors understand and agree that: (a) the Rate Period for any Term
LIBOR Rate shall be thirty (30), sixty (60) or ninety (90) days; and
(b) Bank shall have the right to terminate any Rate Period and the
interest applicable thereto, prior to the maturity of such Rate
Period, if Bank determines in good faith (which determination shall be
conclusive) that continuance of such interest rate has been made
unlawful by any law, statute, rule or regulation to which Bank may be
subject, in which event the principal amount to which such terminated
Rate Period relates shall thereafter earn interest at the Floating
Rate."
(e) From and after the date hereof, interest on the unpaid principal
balance of the New Term Loan will accrue at a rate or rates selected by Obligors
from the two (2) interest rate options set forth in Section 2.6 of the Loan
-----------
Agreement and in accordance with the procedures set forth in the Loan Agreement.
The interest rate (and Rate Period, if applicable) from time to time chosen by
Obligors for the New Term Loan shall apply to the entire outstanding principal
balance thereof until another interest rate option is chosen in accordance with
the procedures set forth in the Loan Agreement.
(f) The following Section 2.18 is added to the Loan Agreement:
------------
"2.18 Term-Out Portion. Interest on the unpaid principal balance of
----------------
any Term-Out Portion will accrue from the Effective Date (as defined
below) until final payment thereof at the Term-Out Rate."
4. PAYMENTS AND FEES.
-----------------
(a) Section 3.2 of the Loan Agreement is amended as follows:
-----------
(i) By amending Section 3.2(b) to read in its entirety, as
--------------
follows:
"(b) Principal Payment on the Line. Obligors will pay the
-----------------------------
outstanding principal balance of the Line, together with any accrued
and unpaid interest thereon, and all other sums due and owing in
connection therewith on the earlier to occur of: (i) the occurrence
of an Event of Default and termination of the Line by the Bank
pursuant to Section 12.2(b) below, or (ii) May 1, 2000 (unless the
---------------
Contract Period is extended by Bank in its sole discretion). Any
partial principal payments on account of the Line prior to the date
payment thereof is due in full (other than in connection with any
Term-Out Portions) must be in minimum increments of at least Twenty-
Five Thousand Dollars ($25,000.00)."
(ii) By adding the following Section 3.2(c):
--------------
"(c) Term-Out Portion. Obligors may, at their option during the
----------------
Contract Period by delivering to Bank a Term-Out Notice, elect to term
out a portion or portions of the outstanding principal balance under
the Line in minimum increments of at least Two Million Five Hundred
Thousand Dollars ($2,500,000.00) each (each, a "Term-Out Portion" and
collectively, the "Term-Out Portions"). Each Term-Out Portion shall
be repaid in (a) fifty-nine (59) equal and consecutive monthly
payments of principal each in an amount equal to the quotient obtained
by dividing the original principal amount of such Term-Out Portion by
sixty (60), together with interest thereon at the Term-Out Rate,
commencing on the first (1st) day of the first (1st)
3
<PAGE>
month after the Effective Date, and (b) one (1) final payment of the
remaining balance thereof and all accrued and unpaid interest thereon,
on the first day of the sixtieth (60th) month after the Effective
Date."
Obligors shall deliver to Bank not less than fifteen (15) days
prior written notice of Obligors' desire to elect a Term-Out Portion
(each, a "Term-Out Notice"), which Term-Out Notice shall indicate the
amount of such Term-Out Portion and the date on which Obligors desire
such Term-Out Portion to become effective (the "Effective Date").
Once a Term-Out Notice is delivered by Obligors, such Term-Out Notice
shall be irrevocable and, on the Effective Date, the Maximum Amount
shall be permanently reduced by the full amount of the Term-Out
Portion identified in such Term-Out Notice."
(b) Section 3.3 of the Loan Agreement is amended to read, in its
-----------
entirety, as follows:
"3.3 Letter of Credit Fees. For each issuance or renewal of a
---------------------
standby letter of credit hereunder, Obligors will pay to Bank an
issuance or renewal fee in an amount equal to one percent (1%) per
annum of the face amount of such standby letter of credit, payable
coincident with and as a condition of the issuance or renewal of such
standby letter of credit. In addition, Obligors shall pay such other
fees and charges in connection with the negotiation or cancellation of
each standby letter of credit as may be customarily charged by Bank.
Such fees shall be computed on the basis of a year of three hundred
sixty (360) days."
(c) Section 3.6 of the Loan Agreement is amended to read, in its
-----------
entirety, as follows:
"3.6 Usage Fee. So long as the Line is outstanding and has not
---------
been terminated, and the Bank Indebtedness not satisfied in full,
Obligors shall unconditionally pay to Bank a fee equal to one-fifth of
one percent (1/5%) per annum of the daily unused portion of the Line
(which shall be calculated as the difference between Thirteen Million
Eight Hundred Thousand Dollars ($13,800,000.00) (or such greater
amount if the Maximum Amount is ever increased), minus the outstanding
principal balance of cash advances under the Line plus the amount
remaining to be drawn under any letters of credit issued and
outstanding under the Line), at the close of business on the date such
calculation is made, which fee shall be computed on a monthly basis in
arrears and shall be due and payable on the first day of each month
commencing on the first day of the first full month after the date
hereof."
(d) Section 3.9 of the Loan Agreement and Section 8 of the Second
----------- ---------
Amendment to the Loan Agreement are deleted in their entirety.
(e) The following Section 3.14 is added to the Loan Agreement:
------------
"3.14 Prepayment or Termination of the Loans.
--------------------------------------
(a) Obligors may prepay all or any portion of the Loans or
terminate the Loans (such termination or prepayment being referred to
herein as a "Prepayment Event") upon thirty (30) days prior written
notice to Bank (a "Prepayment Event Notice") specifying the amount
4
<PAGE>
of the Loans Obligors desire to prepay or that Obligors desire to
terminate the Loans (provided that no Prepayment Event Notice shall be
required with respect to partial prepayments on the Line). Once
delivered, the Prepayment Event Notice shall be irrevocable.
(b) In the event that (i) a Prepayment Event occurs, or (ii) an
Event of Default occurs as a result of Obligors' failure to pay any
sums when due under this Agreement (whether upon maturity,
acceleration or otherwise) and the Loans are terminated, Obligors
shall pay to Bank, in addition to all other sums due hereunder, a fee
(the "Prepayment Fee") with respect to each Term-Out Portion in an
amount equal to the product obtained by multiplying the applicable
percentage set forth below times the outstanding principal amount of
each Term-Out Portion prepaid or terminated:
Date of Prepayment Event Percentage
------------------------ ----------
Prior to the first anniversary of the date of the
Term-Out Notice delivered in respect of such
Term-Out Portion 5%
On or after the first anniversary of the date of the
Term-Out Notice delivered in respect of such
Term-Out Portion but prior to the second anniversary
of such date 4%
On or after the second anniversary of the date of the
Term-Out Notice delivered in respect of such
Term-Out Portion but prior to the third anniversary
of such date 3%
On or after the third anniversary of the date of the
Term-Out Notice delivered in respect of such
Term-Out Portion but prior to the fourth anniversary
of such date 2%
On or after the fourth anniversary of the date of the
Term-Out Notice delivered in respect of such
Term-Out Portion 1%
Notwithstanding anything in this Section 3.14 to the contrary,
------------
provided that no Event of Default shall have occurred and be
continuing, Obligors may, without paying the Prepayment Fee, prepay
during any fiscal year of Obligors, from internally generated funds
only, an amount not to exceed twenty percent (20%) of the outstanding
balance of each Term-Out Portion at the beginning of such fiscal
year."
(f) The following Section 3.15 is added to the Loan Agreement:
------------
"3.15 Term-Out Portion Fee. Obligors shall pay to Bank a fee in
--------------------
connection with each Term-Out Portion in an amount equal to one-
quarter of one percent (1/4%) of each such Term-Out Portion (the
"Term-Out Portion Fee"). Each Term-Out Portion Fee shall be payable
upon delivery of the respective Term-Out Notice."
5. LIMITATION ON INDEBTEDNESS. Section 6.2(c) of the Loan Agreement is
-------------------------- --------------
amended to read, in its entirety, as follows:
5
<PAGE>
"(c) Indebtedness incurred in connection with any Permitted
Acquisition, provided that such Indebtedness is evidenced by a
subordinated note in the form of Schedule A hereto, a fully executed
----------
copy of which shall be delivered to Bank within fourteen (14) days of
closing on such Permitted Acquisition."
6. PERMITTED INDEBTEDNESS. Section 6.2 of the Loan Agreement is amended
---------------------- -----------
by adding the following subsection (e):
"(e) Future purchase money Indebtedness and Capitalized Lease
Obligations in an aggregate amount not to exceed Two Hundred Fifty
Thousand Dollars ($250,000.00) during any fiscal year (which amount
shall be non-cumulative as to any unused portions during any fiscal
year)."
7. INVESTMENTS AND LOANS. Section 6.3 of the Loan Agreement is amended
--------------------- -----------
by adding the following subsection (h):
"(h) Loans from one Obligor to another or from or to any Subsidiary
of any Obligor, or investments in one Obligor or any Subsidiary by
another Obligor or Subsidiary; provided that any such Subsidiary is
created in accordance with the terms and conditions of this Loan
Agreement."
8. MAINTENANCE OF MANAGEMENT. Section 6.16 of the Loan Agreement is
------------------------- ------------
amended to read, in its entirety, as follows:
"6.16 Maintenance of Management. Obligors shall at all times
--------------------------------
maintain Management reasonably satisfactory to Bank. Obligors will
notify Bank promptly in writing of any change of its Board of
Directors or Executive Officers and will provide Bank with a copy of
proposed amendments to its articles of incorporation or bylaws, prior
to adoption. Obligors shall not make any amendment to its articles of
incorporation or bylaws which will in any way affect any Obligor's
operations or ability to comply with the terms and conditions of the
Loan Documents without the prior written consent of Bank."
9. NEW FACILITIES. Section 6.27 of the Loan Agreement is amended to
-------------- ------------
read, in its entirety, as follows:
"6.27 New Facilities. During any fiscal year, Obligors shall not
--------------
establish more than ten (10) newly constructed educational facilities
that Obligors will own or which otherwise appear as an asset on any
Obligor's balance sheet. During any fiscal year, Obligors will not
acquire more than seven (7) parcels of land for the construction of
facilities nor expend in excess of Three Million Five Hundred Thousand
Dollars ($3,500,000.00) in the aggregate for such land acquisition."
10. REPORTS. Section 8 of the Loan Agreement is amended by adding the
------- ---------
following Section 8.11:
------------
"8.11 Profit and Loss Per Facility. As soon as available but in any
----------------------------
event within ninety (90) days after the end of each fiscal year of
Obligors, annual profit and loss statements for each district (or,
region, if there is no district) operated by Obligors, in form and
6
<PAGE>
content reasonably satisfactory to Bank."
11. DEFINITIONS. Section 14 of the Loan Agreement is amended as follows:
----------- ----------
(a) By amending Section 14.23 to read, in its entirety, as follows:
-------------
"14.23 Floating Rate Margin shall mean one of the following
--------------------
margins determined based on the ratio of Obligors' Total Funded
Indebtedness to EBITDA from time to time:
<TABLE>
<CAPTION>
Ratio of Total Funded Indebtedness Floating Rate
to EBITDA Margin
---------------------------------- ----------
<S> <C>
greater than or equal to 3.5 to 1.0, but less than or equal to 4.0 to .10 25 basis points
greater than or equal to 2.5 to 1.0, but less than 3.5 to 1.0 0 basis points
greater than or equal to 1.5 to 1.0, but less than 2.5 to 1.0 -25 basis points
less than 1.5 to 1.0 -50 basis points
</TABLE>
The Floating Rate Margin shall be determined on a quarterly basis
effective upon the receipt, review and approval by Bank of Obligors'
financial statements for such quarter, which financial statements
shall include, inter alia, a calculation of Obligors' Total
----- ----
Indebtedness to EBITDA as of the end of such quarter. If Obligors
fail to deliver to Bank the foregoing financial statements, the
Floating Rate Margin shall be highest margin set forth above."
(b) By amending Section 14.30 to read, in its entirety, as follows:
-------------
"14.30 "LIBOR Rate Margin" shall mean one of the following
-------------------
margins determined based on the ratio of Obligors' Total Funded
Indebtedness to EBITDA from time to time:
<TABLE>
<CAPTION>
Ratio of Total Funded Indebtedness LIBOR Rate
to EBITDA Margin
---------------------------------- ----------
<S> <C>
greater than or equal to 3.5 to 1.0, but less than or equal to 4.0 to 1.0 225 basis points
greater than or equal to 2.5 to 1.0, but less than 3.5 to 1.0 175 basis points
greater than or equal to 1.5 to 1.0, but less than 2.5 to 1.0 150 basis points
less than 1.5 to 1.0 125 basis points
</TABLE>
The LIBOR Rate Margin shall be determined on a quarterly basis
effective upon the receipt, review and approval by Bank of Obligors'
financial statements for such quarter, which financial statements
shall include, inter alia, a calculation of Obligors' Total
----- ----
Indebtedness to EBITDA as of the end of such quarter. If Obligors
fail to deliver to Bank the foregoing financial statements, the LIBOR
Rate Margin shall be highest margin set forth above."
(c) By amending Section 14.36 to read, in its entirety, as follows:
-------------
7
<PAGE>
"14.36 "Permitted Acquisition" shall mean an acquisition by any
-----------------------
Obligor in which:
(a) the purchase price for the entity or assets being acquired is less
than Two Million Five Hundred Thousand Dollars ($2,500,000.00); or
(b) the purchase price for the entity or assets being acquired is
greater than Two Million Five Hundred Thousand Dollars ($2,500,000.00)
but less than Five Million Dollars ($5,000,000.00) and each of the
following criteria are met:
(i) the business being acquired is either educational or
daycare;
(ii) the assets being acquired, or the assets of the entity
being acquired, are all located in the United States;
(iii) the purchase price is not greater than six (6) times the
adjusted EBIT of the business being acquired; and
(iv) the cash portion of the purchase price does not exceed
seventy percent (70%) of the total purchase price."
(d) By adding the following defined term as Section 14.44:
-------------
"14.44 "Term-Out Rate" shall mean a fixed per annum rate of interest
---------------
determined by Bank (which determination shall be conclusive) equal to
one hundred eighty (180) basis points in excess of the yield on a
United States Treasury Note, in the face amount of the respective
Term-Out Portion, purchased on or about the date Obligors give Bank
the Term-Out Notice in respect of such Term-Out Portion and maturing
on or about the date which is sixty (60) days thereafter."
12. FEE. Contemporaneously with the execution of this Amendment, Obligors
---
shall pay to Bank a fee in an amount equal to Thirty Thousand Dollars
($30,000.00). Bank is hereby authorized to deduct such fee from any deposit
account of any Obligor maintained with Bank.
13. FURTHER ASSURANCES. Obligors covenant and agree to execute and
------------------
deliver to Bank or to cause to be executed and delivered at the sole cost and
expense of Obligors, from time to time, any and all other documents, agreements,
statements, certificates and information as Bank shall reasonably request to
evidence or effect the terms hereof, the Loan Agreement, as amended, or any of
the other Loan Documents, or to enforce or to protect Bank's interest in the
Collateral. All such documents, agreements, statements, etc., shall be in form
and content acceptable to Bank in its sole discretion.
14. FURTHER AGREEMENTS AND REPRESENTATIONS. Obligors do hereby:
--------------------------------------
(a) ratify, confirm and acknowledge that the Loan Agreement, as
amended, and the other Loan Documents continue to be and are valid, binding and
in full force and effect;
(b) covenant and agree to perform all obligations of Obligors
contained herein and under the Loan Agreement, as amended, and the other Loan
Documents;
8
<PAGE>
(c) acknowledge and agree that Obligors have no defense, set-off,
counterclaim or challenge against the payment of any sums owing under Loan
Documents, the enforcement of any of the terms of the Loan Agreement, as
amended, or the other Loan Documents;
(d) acknowledge and agree that all representations and warranties of
Obligors contained in the Loan Agreement and/or the other Loan Documents, as
amended, are true, accurate and correct on and as of the date hereof as if made
on and as of the date hereof, provided that the Schedules to Article 5 of the
Loan Agreement shall be as attached hereto;
(e) represent and warrant that no Event of Default (as defined in the
Loan Agreement or any of the other Loan Documents) or event which with the
giving of notice or passage of time or both would constitute such an Event of
Default exists and all information described in the foregoing Background is
true, accurate and complete;
(f) acknowledge and agree that nothing contained herein and no actions
taken pursuant to the terms hereof is intended to constitute a novation of the
Loan Agreement or any of the other Loan Documents, and does not constitute a
release, termination or waiver of any of the rights or remedies granted to the
Bank therein, which rights and remedies are hereby ratified, confirmed, extended
and continued as security for the obligations of Obligors to Bank under the Loan
Agreement and the other Loan Documents, including, without limitation, this
Amendment; and
(g) acknowledge and agree that any Obligor's failure to comply with or
perform any of its covenants, agreements or obligations contained in this
Amendment shall constitute an Event of Default under the Loan Agreement and each
of the Loan Documents.
15. COSTS AND EXPENSES. Upon execution of this Amendment, Obligors shall
------------------
pay to Bank, all costs and expenses incurred by Bank in connection with the
review, preparation and negotiation of this Amendment and all documents in
connection therewith, including, without limitation, all of Bank's attorneys'
fees and costs.
16. INCONSISTENCIES. To the extent of any inconsistency between the
---------------
terms, conditions and provisions of this Amendment and the terms, conditions and
provisions of the Loan Agreement or the other Loan Documents, the terms,
conditions and provisions of this Amendment shall prevail. All terms,
conditions and provisions of the Loan Agreement and the other Loan Documents not
inconsistent herewith shall remain in full force and effect and are hereby
ratified and confirmed by Obligors.
17. CONSTRUCTION. All references to the Loan Agreement therein or in
------------
any other Loan Documents shall be deemed to be a reference to the Loan Agreement
as amended hereby.
18. NO WAIVER. Nothing contained herein and no actions taken pursuant to
---------
the terms hereof are intended to nor shall they constitute a waiver by the Bank
of any rights or remedies available to Bank at law or in equity or as provided
in the Loan Agreement or the other Loan Documents.
19. BINDING EFFECT. This Amendment shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective successors and assigns.
20. GOVERNING LAW. This Amendment shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Pennsylvania.
21. HEADINGS. The headings of the sections of this Amendment are inserted
--------
for convenience only and shall not be deemed to constitute a part of this
Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of the date first above written.
NOBEL EDUCATION DYNAMICS, INC.
9
<PAGE>
By:
------------------------------------------
Name/Title:
----------------------------------
(CORPORATE SEAL)
Attest:
--------------------------------------
Name/Title:
----------------------------------
[SIGNATURES CONTINUED NEXT PAGE]
10
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
BLUEGRASS REAL ESTATE COMPANY, INC.
By:
------------------------------------------
Name/Title:
----------------------------------
(CORPORATE SEAL)
Attest:
--------------------------------------
Name/Title:
----------------------------------
IMAGINE EDUCATIONAL PRODUCTS, INC.
By:
------------------------------------------
Name/Title:
----------------------------------
(CORPORATE SEAL)
Attest:
--------------------------------------
Name/Title:
----------------------------------
MERRYHILL SCHOOLS, INC.
By:
------------------------------------------
Name/Title:
----------------------------------
(CORPORATE SEAL)
Attest:
--------------------------------------
Name/Title:
----------------------------------
EDUCO, INC.
By:
------------------------------------------
Name/Title:
----------------------------------
(CORPORATE SEAL)
Attest:
--------------------------------------
Name/Title:
----------------------------------
NEDI, INC.
By:
------------------------------------------
Name/Title:
----------------------------------
(CORPORATE SEAL)
Attest:
--------------------------------------
Name/Title:
----------------------------------
[SIGNATURES CONTINUED NEXT PAGE]
11
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
MONTESSORI HOUSE, INC.
By:
------------------------------------------
Name/Title:
----------------------------------
(CORPORATE SEAL)
Attest:
--------------------------------------
Name/Title:
----------------------------------
ANOTHER GENERATION ENTERPRISES, INC.
By:
------------------------------------------
Name/Title:
----------------------------------
(CORPORATE SEAL)
Attest:
--------------------------------------
Name/Title:
----------------------------------
SUMMIT BANK
By:
------------------------------------------
Donald H. McCarty
Regional Vice President
12
<PAGE>
LINE NOTE
---------
Media, Pennsylvania
Dated: May 8, 1997
$13,800,000.00
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND, the undersigned
("Borrower"), hereby promises to pay to the order of SUMMIT BANK ("Bank"), ON
DEMAND after the occurrence of an Event of Default or after expiration of the
Contract Period, the principal sum of Thirteen Million Eight Hundred Thousand
Dollars ($13,800,000.00), or such greater or lesser principal amount as may be
outstanding from time to time under the line of credit established by Bank for
the benefit of Borrower pursuant to the terms of that certain Loan and Security
Agreement dated August 30, 1995 between Borrower and Bank (such Loan and
Security Agreement, as the same may have been and may hereafter be amended,
supplemented or restated from time to time, being the "Loan Agreement"),
together with interest thereon, upon the following terms:
1. Line Note. This Note is the "Line Note" as defined in the Loan
---------
Agreement and, as such, shall be construed in accordance with all terms and
conditions thereof. Capitalized terms not defined herein shall have such
meaning as provided in the Loan Agreement. This Note is entitled to all the
rights and remedies provided in the Loan Agreement and the Loan Documents and is
secured by all collateral as described therein.
2. Interest Rate. Interest on the unpaid principal balance hereof will
-------------
accrue from the date of advance until final payment thereof at the applicable
rates per annum described in Section 2.1 of the Loan Agreement.
-----------
3. Default Interest. Interest will accrue on the outstanding principal
----------------
amount hereof, following the occurrence of an Event of Default, until paid at
the applicable rate per annum described in Section 2.13 of the Loan Agreement
------------
(the "Default Rate").
4. Post Judgment Interest. Any judgment obtained for sums due hereunder
----------------------
or under the Loan Documents will accrue interest at the Default Rate until paid.
5. Computation. Interest will be computed on the basis of a year of three
-----------
hundred sixty (360) days and paid for the actual number of days elapsed.
6. Interest Payments. Interest which accrues on the outstanding principal
-----------------
balance hereof at the applicable rate set forth above shall be due and payable
monthly, on the first day of each calendar month, commencing on the first day of
the first calendar month following the date hereof.
7. Place of Payment. Principal and interest hereunder shall be payable as
----------------
provided in the Loan Agreement, or at such other place as Bank, from time to
time, may designate in writing.
8. Default; Remedies. Upon the occurrence of an Event of Default or
-----------------
expiration of the Contract Period, Bank, at its option and without notice to
Borrower, may declare immediately due and payable the entire unpaid balance of
principal and all other sums due by Borrower hereunder or under the Loan
Documents, together with interest accrued thereon at the applicable rate
specified above. Payment thereof may be enforced and recovered in whole or in
part at any time and from time to time by one or more of the remedies provided
to Bank in this Note or in the Loan Documents or as otherwise provided at law or
in equity, all of which remedies are cumulative and concurrent.
-1-
<PAGE>
9. Waivers. Borrower and all endorsers, jointly and severally, waive
-------
presentment for payment, demand, notice of demand, notice of nonpayment or
dishonor, protest and notice of protest of this Note, and all other notices in
connection with the delivery, acceptance, performance, default or enforcement of
the payment of this Note, except for such notices, if any, as are expressly
required to be delivered by Bank to Borrower under the Loan Agreement.
10. Miscellaneous. If any provisions of this Note shall be held invalid
-------------
or unenforceable, such invalidity or unenforceability shall not affect any other
provision hereof. This Note has been delivered in and shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
without regard to the law of conflicts. This Note shall be binding upon
Borrower and upon Borrower's successors and assigns and shall benefit Bank and
its successors and assigns. The prompt and faithful performance of all of
Borrower's obligations hereunder, including without limitation, time of payment,
is of the essence of this Note.
11. Joint and Several Liability. If there is more than one Borrower
---------------------------
executing this Note, all agreements, conditions, covenants and provisions of
this Note shall be the joint and several obligation of each Borrower.
12. Confession of Judgment. BORROWER HEREBY AUTHORIZES AND EMPOWERS ANY
----------------------
ATTORNEY OR THE PROTHONOTARY OR CLERK OF ANY COURT IN THE COMMONWEALTH OF
PENNSYLVANIA, OR IN ANY OTHER JURISDICTION WHICH PERMITS THE ENTRY OF JUDGMENT
BY CONFESSION, TO APPEAR FOR BORROWER AT ANY TIME AFTER THE OCCURRENCE OF AN
EVENT OF DEFAULT UNDER THE LOAN AGREEMENT OR EXPIRATION OF THE CONTRACT PERIOD
IN ANY ACTION BROUGHT AGAINST BORROWER ON THIS NOTE OR THE LOAN DOCUMENTS AT THE
SUIT OF BANK, WITH OR WITHOUT COMPLAINT OR DECLARATION FILED, WITHOUT STAY OF
EXECUTION, AS OF ANY TERM OR TIME, AND THEREIN TO CONFESS OR ENTER JUDGMENT
AGAINST BORROWER FOR THE ENTIRE UNPAID OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE
AND ALL OTHER SUMS TO BE PAID BY BORROWER TO OR ON BEHALF OF BANK PURSUANT TO
THE TERMS HEREOF OR OF THE LOAN DOCUMENTS AND ALL ARREARAGES OF INTEREST
THEREON, TOGETHER WITH ALL COSTS AND OTHER EXPENSES AND AN ATTORNEY'S COLLECTION
COMMISSION OF FIFTEEN PERCENT (15%) OF THE AGGREGATE AMOUNT OF THE FOREGOING
SUMS, BUT IN NO EVENT LESS THAN $5,000.00; AND FOR SO DOING THIS NOTE OR A COPY
HEREOF VERIFIED BY AFFIDAVIT SHALL BE A SUFFICIENT WARRANT.
THE AUTHORITY GRANTED HEREIN TO CONFESS JUDGMENT SHALL NOT BE EXHAUSTED BY ANY
EXERCISE THEREOF BUT SHALL CONTINUE FROM TIME TO TIME AND AT ALL TIMES UNTIL
PAYMENT IN FULL OF ALL THE AMOUNTS DUE HEREUNDER. BORROWER ACKNOWLEDGES THAT IT
HAS BEEN REPRESENTED BY COUNSEL IN CONNECTION WITH THE EXECUTION AND DELIVERY OF
THIS NOTE AND THAT IT KNOWINGLY WAIVES ITS RIGHT TO BE HEARD PRIOR TO THE ENTRY
OF SUCH JUDGMENT AND UNDERSTANDS THAT, UPON SUCH ENTRY, SUCH JUDGMENT SHALL
BECOME A LIEN ON ALL REAL PROPERTY OF BORROWER IN THE COUNTY WHERE SUCH JUDGMENT
IS ENTERED.
13. Prior Line Note. Borrower acknowledges and agrees that this Note re-
---------------
evidences and increases the indebtedness evidenced by that certain Line Note
from Borrower to Bank dated November 1, 1996 in the face amount of Ten Million
Dollars ($10,000,000.00) (as amended from time to time, the "Prior Line Note")
and is given in substitution of, and not as payment for, the Prior Line Note and
shall not be deemed a novation thereof.
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has
caused this Note to be duly executed the day and year first above written.
-2-
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
By:
---------------------------------------
Name/Title:
-------------------------------
(CORPORATE SEAL)
Attest:
-----------------------------------
Name/Title:
-------------------------------
BLUEGRASS REAL ESTATE COMPANY, INC.
By:
---------------------------------------
Name/Title:
-------------------------------
(CORPORATE SEAL)
Attest:
-----------------------------------
Name/Title:
IMAGINE EDUCATIONAL PRODUCTS, INC.
By:
---------------------------------------
Name/Title:
-------------------------------
(CORPORATE SEAL)
Attest:
-----------------------------------
Name/Title:
-------------------------------
[SIGNATURES CONTINUED NEXT PAGE]
-3-
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
MERRYHILL SCHOOLS, INC.
By:
---------------------------------------
Name/Title:
-------------------------------
(CORPORATE SEAL)
Attest:
-----------------------------------
Name/Title:
-------------------------------
EDUCO, INC.
By:
---------------------------------------
Name/Title:
-------------------------------
(CORPORATE SEAL)
Attest:
-----------------------------------
Name/Title:
-------------------------------
NEDI, INC.
By:
---------------------------------------
Name/Title:
-------------------------------
(CORPORATE SEAL)
Attest:
-----------------------------------
Name/Title:
-------------------------------
MONTESSORI HOUSE, INC.
By:
---------------------------------------
Name/Title:
-------------------------------
(CORPORATE SEAL)
Attest:
-----------------------------------
Name/Title:
-------------------------------
ANOTHER GENERATION ENTERPRISES, INC.
By:
---------------------------------------
Name/Title:
-------------------------------
(CORPORATE SEAL)
Attest:
-----------------------------------
Name/Title:
-------------------------------
-4-
<PAGE>
Exhibit 11
Net Income Per Common Share
- ---------------------------
for the three months ended March 31, 1997
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
--------------- ---------------
(unaudited) (unaudited)
<S> <C> <C>
Net Income Per Common Share Primary:
- -----------------------------------
Net income $ 928,603 $ 866,426
Less preferred dividends 25,500 38,826
---------- ----------
Net income available to common stockholders $ 903,103 $ 827,600
========== ==========
Average shares outstanding 5,831,405 4,995,478
Common stock equivalents-convertible preferred 1,315,807 1,518,203
---------- ----------
Adjusted average shares outstanding 7,147,212 6,513,681
Primary earnings per common share $ 0.13 $ 0.13
========== ==========
Net Income Per Common Share Fully Diluted:
- ------------------------------------------
Net Income $ 928,603 $ 866,426
---------- ----------
Average shares outstanding 5,831,405 4,995,478
Common Stock equivalents and convertible preferred 1,656,136 1,894,911
---------- ----------
Average Shares outstanding assuming full dilution 7,487,541 6,890,389
Fully diluted earnings per share $ 0.12 $ 0.13
========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 1,588 5,252
<SECURITIES> 0 0
<RECEIVABLES> 870 779
<ALLOWANCES> (103) (103)
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,340 8,278
<PP&E> 27,395 26,166
<DEPRECIATION> (7,298) (6,843)
<TOTAL-ASSETS> 58,706 56,833
<CURRENT-LIABILITIES> 10,202 9,629
<BONDS> 0 0
0 0
5 5
<COMMON> 6 6
<OTHER-SE> 33,217 32,312
<TOTAL-LIABILITY-AND-EQUITY> 58,706 56,833
<SALES> 19,027 14,568
<TOTAL-REVENUES> 19,027 14,568
<CGS> 15,708 11,590
<TOTAL-COSTS> 17,012 12,621
<OTHER-EXPENSES> (70) (117)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 460 631
<INCOME-PRETAX> 1601 1409
<INCOME-TAX> 672 542
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 929 866
<EPS-PRIMARY> $0.13 $0.13
<EPS-DILUTED> $0.12 $0.13
</TABLE>
