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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended June 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 [No Fee Required]
Commission File Number 1-1003
NOBEL EDUCATION DYNAMICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2465204
(State or other jurisdiction (IRS Employer
of incorporation or organization Identification No.)
ROSE TREE CORPORATE CENTER II
1400 N. PROVIDENCE ROAD, SUITE 3055
MEDIA, PA 19063
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 891-8200
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE
$.001 PER SHARE
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No_____
-----------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
As of September 16, 1998, 6,121,365 shares of common stock were outstanding.
The aggregate market value of the shares of common stock owned by non-affiliates
of the Registrant as of September 16, 1998 was approximately $33,061,000 (based
upon the closing sale price of these shares as reported by Nasdaq). Calculation
of the number of shares held by non-affiliates is based on the assumption that
the affiliates of the Company include the directors, executive officers and
stockholders who have filed a Schedule 13D or 13G with the Company which
reflects ownership of at least 10% of the outstanding common stock or have the
right to designate a member of the board of directors, and no other persons.
The information provided shall in no way be construed as an admission that any
person whose holdings are excluded from the figure is an affiliate or that any
person whose holdings are included is not an affiliate and any such admission is
hereby disclaimed. The information provided is included solely for record
keeping purposes of the Securities and Exchange Commission.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 19, 1998 (the "Proxy Statement") and to be
filed within 120 days after the registrant's fiscal year ended June 30, 1998 are
incorporated by reference in Part III.
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TABLE OF CONTENTS
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Item
No. Page
PART I
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1. Business........................................................... 1
Executive Officers of the Company.................................. 10
2. Properties......................................................... 12
3. Legal Proceedings.................................................. 12
4. Submission of Matters to a Vote of Security Holders................ 13
PART II
5. Market for Registrant's Common Equity
and Related Stockholder Matters.................................... 14
6. Selected Financial Data............................................ 16
7. Management's Discussion and Analysis
of Financial Condition and Results of Operations................... 17
8. Financial Statements and Supplementary Data........................ 23
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............................. 23
PART III
10. Directors and Executive Officers of the Registrant................. 24
11. Executive Compensation............................................. 24
12. Security Ownership of Certain Owners and Management................ 24
13. Certain Relationships and Related Transactions..................... 24
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 25
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PART I
"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company's Fiscal 1999 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 schools and
performance of recently acquired businesses, which could cause actual results to
differ materially from predicted results.
ITEM 1. BUSINESS.
GENERAL
Nobel Education Dynamics, Inc.'s business mission is to be the leader in
the United States in providing affordable private education from preschool
through eighth grade for the children of middle-income working families. The
Company has been identified as a market leader "Education Management
Organization" (EMO) for preschool through eighth grade. (EMO is a term used in
the investment community to describe companies which manage education businesses
for profit in multiple sites.) The Company's operations include preschools,
elementary schools and middle schools, and several child care centers,
throughout the United States, all operating as part of the "Nobel Learning
Communities." To attain its objectives, Nobel builds on its experience and
expertise both in education and preschool/child care. As an "education company,"
the Company's strategy is to offer practical solutions to a segment of the
education problem in the United States.
Nobel operates nationwide, with 138 schools and centers in 13 states as of
September 19, 1998. In California, Nobel operates the Merryhill Schools, which
is a private school system of 28 preschools, elementary schools and middle
schools. Nationwide, Nobel operates preschools, schools and centers under
various names in Pennsylvania, New Jersey, Virginia, Florida, Maryland, North
Carolina, South Carolina, Illinois, Nevada, Oregon, Washington and Indiana.
School names include Chesterbrook Academy, Evergreen Academy and Another
Generation. Nobel also owns a 20% interest in an elementary school in Florida.
Management is pursuing a three-pronged strategy to take advantage of the
significant growth opportunities in the private education market:
. internal growth at existing schools, including expansions of campus
facilities
. new school development in both existing and new markets
. strategic acquisitions
To facilitate this strategy, Nobel is applying the strengths of its
curriculum-based programs to distinguish itself from its competition. The
strategy also entails geographical clustering of Nobel's preschools to (i)
increase market awareness, (ii) provide a lower risk method for expansion into
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elementary and middle schools by providing a feeder population and (iii) gain
operating efficiencies in both management and costs.
Nobel targets its schools and preschools to meet the needs of middle-income
working parents. Most of Nobel's schools, preschools and child care centers are
open from 6:30 a.m. to 6:00 p.m., allowing early drop-off and late pick-up. In
most locations, programs are available for children starting at six weeks of
age. For basically the same price as standard child care, parents can leave
children of various ages at a Nobel school knowing they will receive a quality
education during the greater part of the day and be engaged in well-supervised
activities the remainder.
To complement its programs, the Company also operates (i) before and after
school programs and (ii) summer camps (both sports and educational) at its
various school facilities. Nobel also seeks to add other services and products
which will add ancillary income and improve overall operating margins.
The Company's financial strength has improved dramatically since 1992, when
there was a change in management. Strategies of new management have included a
change of the Company's focus to education from child care, strengthening of the
Company's financial condition, divestiture of centers in mature markets and,
after the Company's financial stabilization, expansion into growth areas. With
the implementation of these new strategies, the equity of the Company has
increased from a negative net worth of $3.8 million on December 31, 1991 to
positive net worth of $33 million as of June 30, 1998.
The Company's corporate office is located at Rose Tree Corporate Center II,
1400 North Providence Road, Suite 3055, Media, PA 19063. Its telephone number
is (610) 891-8200; its world wide web address is www.nobeleducation.com or
www.educating.com.
EDUCATIONAL PHILOSOPHY AND IMPLEMENTATION
The educational philosophy of the Nobel Learning Communities is based on a
sound research foundation, innovative instructional techniques and quality
practice, and proprietary curricula developed by experienced educational
personnel. Nobel's programs stress the development of the whole child and are
based on concepts of integrated and age-appropriate learning. The curricula
recognize that each child develops according to his or her own abilities and
timetable, but also seek to prepare every student for achievement in accordance
with national content standards and goals. Every child's educational needs are
considered upon entrance into a Nobel school, and progress is regularly
monitored in terms of both the curriculum's objectives and the learner's
cognitive, social, emotional, and physical skill development. The result is the
opportunity for every Nobel student to develop a strong foundation in academic
learning, positive self-esteem, and emotional and physical well-being.
Since 1995, the Company has adapted the Merryhill curriculum for
implementation in its other schools through the conversion of most of its child-
care centers on the East Coast and in the Mid-West. In implementing the
conversions, Nobel conducted staff training sessions to prepare teachers to
present the curriculum-based program in the pre-school as well as at elementary
grade levels. The schools instituted instructional techniques and assessment
practices and adopted particular content materials in the various subject areas.
Also, at conversion, the schools' computer technology was upgraded.
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Under the direction of Nobel's Vice President - Education, the Company
circulates regular "curriculum updates," a publication to assist staff in
planning their daily and weekly programs with current and effective
instructional practices and materials. The Company has also established multi-
media products for a "Learning Lending Library" collection. The library, which
is managed out of the Company's corporate office, is available to all Nobel
schools for student and teacher development and parent interest. Many of these
resources support the Company's curriculum.
In 1996, the Company launched its National Education Advisory Board. Under
the direction of the Vice President - Education, the Board includes five
nationally-known educators each of whom advises Nobel on his or her particular
area of expertise: Dr. Zalman Usiskin of the University of Chicago
(Mathematics); Dr. Cathy Collins Block of Texas Christian University (Reading
and Language Arts); Dr. John N. Mangieri of the Institute for Effective
Management (Educational Administration); Dr. Arthur L. Costa of the University
of California at Sacramento (Curriculum and Teacher Development); and Dr. Drew
H. Gitomer of Educational Testing Service (Testing and Evaluation). The
Advisory Board helps oversee curriculum development in the Company's schools,
advise on the most renowned teaching methods, and assist in finding the best
instructional materials and practices to help students learn effectively and
efficiently. Advisory Board members are also available to work on special
projects and services that enhance the Company's school programs.
The Company maintains that small class sizes are a basic ingredient of
quality education. Nobel's educational philosophy is based on personalized
instruction that leads to a student's active involvement in learning and
understanding. The program for the Company's schools is a strong skills-based,
comprehensive curriculum that is implemented in ways that attract the learner's
curiosity, enhance students' various learning styles, and employ processes that
contribute to lifelong achievement. Academic areas addressed include reading
readiness and reading, spelling, writing, handwriting, mathematics, science,
social studies, visual and graphic arts, music, physical education and health,
and foreign language. Computer literacy and study skills are interrelated into
the program, as appropriate, in all content areas. The schools employ state-of-
the-art technologies, such as interactive CD-ROMs coordinated with classroom
content and networking capacity. Most schools in the Nobel Learning Communities
introduce a second language between the ages of two and three and continue that
instruction into the pre-K, kindergarten and school age programs.
The Company offers sports activities and supplemental programs, which
include day field trips coordinated with the curriculum to such places as zoos,
libraries, museums and theaters, and, at the middle schools, overnight trips to
such places as Yosemite, California and Washington, D.C. Schools also arrange
classroom presentations by parents and other volunteers, as well as organize
youngsters as presenters to community groups and organizations. To enhance
better the child's physical, social, emotional and intellectual growth, schools
are encouraged to provide fee-based experiences specifically tailored to
particular families' interest in such ancillary activities as dance, gymnastics,
and music lessons.
The Company's programs are implemented by experienced principals and
directors and their faculties. They foster open communication, teamwork and the
attention to detail required to provide a superior service. School principals
and directors work closely with regional and corporate management, particularly
in the regular assessment of program quality. In 1996, the groundwork was laid
for a Company-wide Quality Assurance Program and, early in 1997, a Director of
Quality Assurance was appointed to assess systematically each Nobel school and
to provide a procedure for
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internal accreditation. Nobel's Quality Assurance Program sets standards
consistent with the external, national accreditation systems in which the
Company participates with such organizations as the National Association for the
Education of Young Children (NAEYC), the National Independent Private School
Association (NIPSA), and the Commission for International and Trans-Regional
Accreditation (CITA). The Program also provides a formal means to recognize and
reward Nobel Learning Communities educators for their outstanding performance
and achievement. Similarly, the Program also furnishes guidance for the
continued training and staff development of teaching personnel, using both
internal trainers and external consultants.
Nobel has begun development of Nobel Learning Advantage, which will consist
of comprehensive tutorial and diagnostic programs. The tutoring programs of
Nobel Learning Advantage will include adaptive, transitional and enrichment
components within two major content areas: reading and mathematics. Each program
will have a diagnostic and an instructional component that can be delivered in
three grade ranges (K - 2, 3 - 5, and 6 - 8). The Company expects to complete
development of the diagnostic and instructional materials in reading in all
three ranges in 1998 and to implement pilot tryouts in select schools. The
development of the diagnostic and instructional materials in mathematics is
expected to be completed in early 1999 in all three grade ranges. Nobel plans to
implement further piloting and development of full tutoring services and
marketing in 1999.
As part of Nobel Learning Advantage, commencing in September 1998, Nobel
began to offer an assessment designed to respond to the personal needs of
children three to six years old in Nobel schools. As the initial step, a trained
Nobel certified diagnostician administers the Kaufman Survey of Early Academic
and Language Skills (K-SEALS). This test measures skill development in five key
areas critical to academic success. The diagnostician then reviews and
interprets the test results with both the child's parent and teacher.
Recommendations are made to personalize the child's learning program throughout
the school year.
The Company also entered another segment of the education industry - the
education of learning-challenged children. This entry began in August 1998 with
Nobel's acquisition through an 80%-owned joint venture of three Florida schools
for learning-challenged children from Developmental Resource Center, Inc. (DRC).
Nobel's joint venture partner is DRC's former owner, Dr. Deborah Levy, who
joined Nobel as chief education officer for this business - Nobel Learning
Solutions. The mission of Nobel Learning Solutions will be to improve the
learning process and achievement levels of children having such learning
challenges as ADD, ADHD, dyslexia and the developmentally delayed. The Company
intends to develop separate schools for these children within the Nobel school
clusters across the United States.
As of September 19, 1998, the aggregate licensed capacity at the Company's
138 schools and centers was approximately 22,500 children.
OPERATIONS / SCHOOL SYSTEMS
In order to maintain uniform standards, each school and center shares
consistent educational goals and operating procedures. To respond to local
demands, principals are encouraged to tailor curriculums, within Nobel's
standards, to meet regional needs. Management visits all schools and centers on
a regular basis to review program and facility quality.
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Each school and center is staffed with a principal or director, teachers
and teaching assistants. Principals and directors are supervised by executive
directors, who report to either the Vice President - Eastern Operations or the
Vice President - Western Operations. The principal or director is critical to
the success of the school and is provided with ongoing training. Principals and
directors have responsibility for: (i) maintaining the quality of educational
services delivered at their schools, (ii) recommending pricing strategy based
upon school location and local area demographics, (iii) personnel management,
(iv) sales and marketing strategy for their locations and (v) fiscal management.
Principals and directors submit financial reports to the Company's
corporate office and to appropriate district and regional managers each week.
These reports include data on current enrollment, labor costs and cash receipts.
Corporate office personnel then review each report and prepare weekly combined
reports by district, region and for the Company in total. Weekly or monthly
tuition rates and utilization rates are continually monitored. Each school and
center is measured on a monthly basis versus its individual business plan. Nobel
is in the process of evaluating several state-of-the-art computer systems which
would assist the principals in operating schools and provide management with
enhanced operational information.
The Company generally hires experienced individuals and attempts to promote
from within. Employment applicants are reviewed with background checks made to
verify accurate employment history and establish background, reputation and
character. After hiring, the faculty is reviewed and evaluated annually both
through formal evaluation and market surveys. All principals and directors are
eligible for incentive compensation based on the profitability of their schools.
MARKETING AND CUSTOMERS
The Company's management believes that Nobel has a unique position in the
marketplace and has implemented a marketing strategy to capitalize on this
position. Nobel strives to differentiate itself from child care providers. In
contrast with mere custodial child care, Nobel's programs stress educational
development through proven curriculum programs, beginning at the preschool level
and continuing through upper grades.
The Company generates the majority of new enrollments from its reputation
in the community and word-of-mouth recommendations of parents. Further, the
Company is geographically clustering its preschools to increase local market
awareness and to provide a feeder population for Nobel elementary and middle
schools. The Company also markets its services through display ads, listings in
local print and radio media and through distribution of promotional materials in
residential areas. Marketing campaigns are conducted throughout the year,
primarily at the local level by the Company's school directors and principals.
In addition, the various regional offices conduct marketing programs, such as
mass mailings and media advertising.
NEW CENTER AND SCHOOL DEVELOPMENT; ACQUISITIONS
Management expects a significant portion of Nobel's growth for the next few
years to continue to be through the opening of new schools and preschools and
strategic acquisitions of existing schools and preschools.
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New school development offers an attractive growth opportunity for Nobel to
expand into both new and existing markets. Proposed development sites are
presented to the Company through a network of developers across the United
States. After site selection, the Company engages a developer or contractor to
build a facility to the Company's specifications. Nobel currently works with
several developers who purchase the land, build the facility and enter into a
long-term lease with Nobel for the premises. Alternatively, Nobel purchases
land itself, constructs the building with its own or borrowed funds and then
seeks to enter into a sale and lease back transaction with an investor.
In 1997 and fiscal 1998, Nobel opened 14 new schools and preschools. The
Company plans to open approximately eight to 12 new schools and preschools in
fiscal 1999 and 12 to 15 new schools and preschools in fiscal 2000. The
Company's development plans are dependent on the continued availability of such
developer and financing arrangements.
Typically, new schools are single-story stand alone structures located near
residential neighborhoods on acreage appropriate to the nature of the school.
The Company carefully evaluates all proposed development sites and makes a
selection based on a variety of criteria, including: the number and age of
children living in proximity to the site; family income data; incidence of two-
wage earner and single parent families; traffic patterns; wage and fixed cost
structure; competition; price elasticity; family educational data; local
licensing requirements; and real estate costs.
The Company plans to continue to expand the number of grade levels offered
by its existing schools. Upon conversion, current preschools and child care
centers initially offer grade levels through kindergarten or first grade, with
further expansion planned. The Company also is expanding the grades offered by
its other schools. In some locations, this expansion requires the construction
of additions to current facilities or development of a replacement facility.
Acquisition activity in 1997 and 1998 to date consisted of the following:
. In January 1997, the acquisition of six preschools in Florida.
. In March 1997, the acquisition of two elementary and one preschool
located in San Jose, California.
. In September 1997, the acquisition of two preschools and one elementary
school in Las Vegas, Nevada.
. In March 1998, the acquisitions of one elementary school located in each
of Lake Oswego, Oregon; Seattle, Washington and North Lauderdale,
Florida.
. In August 1998, the acquisition through an 80% joint venture entity of
schools located in southern Florida which educate children with learning
disabilities (discussed above).
At the closing of the January 1997 Florida acquisition, Nobel also
purchased a 20% interest in a new elementary school in Florida, and Nobel
entered into a joint venture agreement with the sellers to develop five
additional elementary schools in Florida in which Nobel will have an 80%
interest.
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INDUSTRY AND COMPETITION
Annual spending in education is estimated to exceed $630 billion annually
in the United States or approximately 10% of gross domestic product. Estimates
of spending in education for preprimary grades (preschools and child care) are
$30 billion while estimates of spending for kindergarten through eighth grade
("K -8") are $200 billion. Spending is projected to continue to grow through a
combination of increasing per pupil expenditures and increasing school
enrollments.
It is estimated there are 90,000 schools in the $30 billion preschool/child
care segment with $25 billion spent in the private sector, of which $10 billion
is spent in the for-profit segment. Likewise, it is estimated there are 85,000
schools in the $200 billion K - 8 segment with an estimated $15 billion spent in
the private sector, of which $650 million is spent in the for-profit segment.
The public school market is estimated to be 110,000 schools in total, of
which 76,000 are elementary, 23,000 are secondary and 11,000 are combined
schools. The private school market is estimated to be 26,000 schools, of which
15,500 are elementary, 2,500 are secondary and 8,000 are combined. Of the 26,000
schools in the private school market, an estimated 20,500 are religiously
affiliated and 5,500 are secular. Of the 5,500 secular schools, less than 1,000
are for-profit schools.
Between 1985 and 1995, it is estimated that the public school K - 8 grade
enrollment increased 19.8% from 27.03 million students to 32.38 million students
while the private school K - 8 grade enrollments increased 5.6% from 4.19
million students to 4.43 million students over the same time period. The U.S.
Department of Education projects public school and private school K - 8
enrollment growth between 1996 and 2006 to slow to 2%, a 700,000 enrollment
increase in public schools and a 100,000 enrollment increase in private schools,
respectively. While this increase may not seem large, there is significant
concern that the nation's already overcrowded schools are ill-prepared to handle
it. It is estimated that in excess of 4,000 new K - 8 schools must be built to
relieve current overcrowding and handle the growth. Also, this growth will vary
significantly in different regions of the United States. States such as
California, Florida, Washington and Oregon are projected to experience high
growth. These states are targeted in the Company's expansion plans.
During the 1996 elections, education was the politically "hot issue" in
national and state contests. The broad public debate has shifted from whether
our existing K - 12 system has failed in terms of performance to which reform
movements promise the best and quickest improvements.
Taxpayers have experienced high costs in education expenditures without
positive results. According to a 1995 Gallup poll, 71% of Americans give the
nation's schools a grade of C, D or F generally and 54% give their own schools a
low grade as well. Quality is low; yet, the average annual cost of educating a
Kindergarten through 12/th/ grade student in the United States has risen to over
$6,000 in 1995. Dismal student achievement, a growing minority gap in school
completion rates and student misbehavior causing unsafe school environments are
three commonly mentioned quality measurements that are lacking. Also, corporate
America has become increasingly frustrated by insufficiently equipped students
produced by the nation's public school systems.
Education reform movements in the United States are posing alternatives to
the public schools. These include charter schools, private management of public
schools, vouchers, home schooling and private schools. The Company's strategy is
to provide parents a quality alternative through Nobel's
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privately owned and operated schools utilizing a proven curriculum in a safe and
challenging environment.
For school age children, the Company competes with other for-profit private
schools, with non-profit schools and, in a sense, with public school systems.
The Company anticipates that, given the perceived potential of the education
market, well-financed competition may emerge, including possible competition
from the large for-profit child care companies. Currently, the only for-profit
competitor of which Nobel is aware that competes beyond a regional level is
Children's World, a subsidiary of Aramark Corporation. The Company believes
that the structure of the large for-profit child care companies may make it
difficult for them to implement and develop programs which are based upon
curriculum-intensive goals, which would require significant cultural changes.
The preschool/child care market is a $30 billion highly fragmented
industry, with diverse competition from both public and private sectors.
Approximately eight million children are enrolled in 90,000 centers/schools, of
which less than nine percent are managed by for-profit chains. Revenues of the
20 largest child care/preschool providers represent less than five percent of
total segment revenues. Also seeking enrollments of pre-school age children are
in-home individual child care providers and corporations that provide child care
for their employees.
Only one out of seven early care/education programs is rated good or
excellent by the Carnegie Corporation report; four out of five programs fail
quality standards. The Company believes that persons in its target market --
parents seeking curriculum-based programs for their children -- seek services
not provided by child care providers without a curriculum base. Nobel believes
these parents desire to give their child the best educational advantage
available, since, as educators have found, the learning process should start
earlier, preferably somewhere between the ages of two and three. The Company
offers a national curriculum based program with excellent standards.
The demand for quality preschools is increasing. More than 60% of mothers
with children under six years of age are in the workplace. Both single parents
and dual income families are on the rise. From 1980 to 1990, the percentage of
dual income families rose from 50% to 60%. From 1970 to 1992, the percentage of
married mothers who worked full time increased 16% to 37%. Combined,
approximately 80% of U.S. families are either dual income or single parent
households.
While price is an important factor in competition in both the school age
and preschool markets, the Company believes that other competitive factors also
are important, including: professionally developed educational programs, well
equipped facilities, trained teachers and a broad range of ancillary services,
including transportation and infant care. Particularly in the preschool market,
many of these services are not offered by the Company's competition.
REGULATION
Schools and preschools are subject to a variety of state and local
regulations and licensing requirements. These regulations and licensing
requirements vary greatly from jurisdiction to jurisdiction. Governmental
agencies generally review the safety, fitness and adequacy of the buildings and
equipment, the ratio of staff personnel to enrolled children, the dietary
program, the daily curriculum, compliance with health standards and the
qualifications of the Company's personnel.
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INSURANCE
The Company currently maintains comprehensive general liability, workers'
compensation, automobile liability, property, excess umbrella liability and
student accident insurance. The policies provide for a variety of coverage and
are subject to various limits. Companies involved in the education and care of
children, however, may not be able to obtain insurance for the total risks
inherent in their operations. In particular, general liability coverage can
have sublimits per claim for child abuse. Since 1994, the Company has been able
to increase significantly the sublimit applicable to such coverage. There can
be no assurance that in future years the Company will not again become subject
to lower limits.
SERVICE MARKS
The Company has registered various service marks, including Chesterbrook
Academy(R), Merryhill Country School(R) and The Rocking Horse Child Care
Center(R), in the United States Patent and Trademark Office. The Company
believes that certain of its service marks have substantial value in its
marketing in the respective areas in which its schools operate.
SEASONALITY
Nobel's elementary and middle schools historically have lower operating
revenues in the summer due to lower summer enrollments. Summer revenues of
preschools tend to remain more stable or, in some cases, increase. The Company
is seeking to improve summer results through camps and other programs.
EMPLOYEES
On September 19, 1998, the Company employed approximately 5,200 persons,
approximately 1,700 of which were employed on a part-time basis. Management
believes that its relationship with its employees is satisfactory.
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EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
Name Age Position
- -----------------------------------------------------------------------------
A. J. Clegg 59 Chairman of the Board of Directors,
President and Chief Executive Officer;
Director
John R. Frock 55 Executive Vice President - Corporate
Development; Assistant Secretary; Director
B. Robin Eglin 42 Executive Vice President - Real Estate
Development
William E. Bailey 39 Vice President and Chief Financial Officer
Yvonne DeAngelo 40 Vice President - Administration and
Finance; Secretary
Emily Louviere 54 Vice President - Western Operations
Barbara Z. Presseisen 62 Vice President - Education
Barbara Sell 48 Vice President - Eastern Operations
Barry S. Swirsky 42 General Counsel
The following description contains certain information concerning the
foregoing persons:
A.J. Clegg. Mr. Clegg was named Chairman of the Board and Chief Executive
Officer of the Company on May 29, 1992. Since 1989, Mr. Clegg has also served
on the Advisory Board of Drexel University and, in 1996, was named as a member
of the Board of Trustees of Drexel University. From June 1990 to December 1997
(but involving immaterial amounts of time since 1994), Mr. Clegg also served as
the Chairman and CEO of JBS Investment Banking, Ltd., which provides investment
management and consulting services to businesses and formerly provided services
to the Company through an Administrative Services Agreement. In 1979, he formed
Empery Corporation, an operator of businesses in the cable television and
printing industries, and held the offices of Chairman, President and CEO during
his tenure (1979-1993). In addition, Mr. Clegg served as Chairman and CEO of
TVC, Inc. (1983-1993), a distributor of cable television components; and Design
Mark Industries (1988-1993), a manufacturer of electronic senswitches. Mr.
Clegg has also served on the board of directors of Ferguson International
Holdings, PLC, a United Kingdom company, from March 1990 to April 1991; and was
Chairman and CEO of Globe Ticket and Label Company from December 1984 to
February 1991.
John R. Frock. Mr. Frock was named Executive Vice President - Corporate
Development on August 1, 1994. Mr. Frock was elected to the Board of Directors
of the Company on May 29, 1992. In March 1992, Mr. Frock became the President
and Chief Operating Officer of JBS Investment Banking, Ltd., which provided
investment management and consulting services to businesses (which
10
<PAGE>
included Nobel). During the past five years, Mr. Frock also served as the
Chairman and Chief Executive Officer of Avant Garde Enterprises, Ltd.; President
and Chief Operating Officer of SBF Communications Graphics, a business forms
printer located in Philadelphia, Pennsylvania; President of Globe Ticket and
Label Company; and President of the Graphics Group of Empery Corporation.
B. Robin Eglin. Mr. Eglin joined the Company as Vice President - Real Estate
Development in April 1995 and was named Executive Vice President in September
1998. Mr. Eglin was formerly Vice President of Carefree Learning Centers, Inc.
and Keystone Real Estate Development Company, Inc., wholly-owned for-profit
subsidiaries of Pennsylvania Blue Shield, where he was in charge of all real
estate, finance and accounting activities. Mr. Eglin joined Carefree in 1989.
William E. Bailey. Mr. Bailey joined the Company as Vice President and Chief
Financial Officer in January 1998. Prior to joining the Company, Mr. Bailey was
Vice President / Controller for KinderCare Learning Centers, Inc. (a national
child care company) from 1993 to 1997, Corporate Controller from 1991 to 1993,
and Director of Planning and Analysis from June 1989 to October 1991.
Yvonne DeAngelo. Ms. DeAngelo was appointed Vice President - Finance and
Administration in December 1995. She had served as Controller since March 1989.
Ms. DeAngelo has also served as Secretary since May 1992. Before joining Nobel
Education Dynamics, Inc., she served as Senior Auditor for Coopers and Lybrand
from 1986 to 1989.
Emily Louviere. Ms. Louviere joined the Company as Vice President - Western
Operations in November 1997. Ms. Louviere has over fourteen years of experience
in the education industry, including managing multi-site educational operations,
both preschool and elementary schools. Immediately prior to joining Nobel, from
November 1996 to November 1997, Ms. Louviere served as Regional Vice President
of Operations of Children's World. From October 1982 to March 1995, Ms.
Louviere held various positions, including District Manager, Region Manager and
Western Divisional Vice President at KinderCare, where she managed up to 400
schools with over $185 million in aggregate revenue.
Barbara Z. Presseisen. Dr. Presseisen was named Vice President - Education in
June 1996. Dr. Presseisen served in several positions over 24 years at Research
for Better Schools, one of the ten regional educational laboratories sponsored
by the U.S. Department of Education, located in Philadelphia, Pennsylvania. In
her most recent capacity, Director of National Networking, she worked with
several major school districts on staff development and program improvement, as
well as coordinated training and conferences on curriculum and student
achievement with other laboratories and a number of professional associations
and universities. Dr. Presseisen has authored a number of books and research
reports, and has been an invited lecturer at many national and regional
programs. Most recently, prior to joining Nobel, Dr. Presseisen consulted on
educational design and product development for the Walt Disney Company from
December 1995 to June 1996.
Barbara Sell. Ms. Sell joined the Company in March 1997 as Vice President -
Eastern Operations. Ms. Sell has 23 years of experience in the early childhood
education field. Seventeen years of her career have been spent in operational
management, accomplishing such goals as development and operation of a corporate
child care division and managing an international child care division. Prior to
joining Nobel, Ms. Sell was employed by KinderCare Learning Centers, with whom
she was
11
<PAGE>
employed from 1979 through April 1996. Ms. Sell joined KinderCare in 1979 and
held various positions, including District Manager, Region Manager and Vice
President of Operations for over 300 schools.
Barry S. Swirsky. Mr. Swirsky has been the General Counsel of the Company since
September 1995 (serving as an officer since September 1997). Mr. Swirsky was
previously engaged in private legal practice advising corporations and other
business entities, primarily in corporate and securities matters. Mr. Swirsky
commenced his legal career as an associate with Reavis & McGrath in New York,
New York (since merged with Fulbright & Jaworski) (1981 to 1984), then was an
associate with Dechert Price & Rhoads in Philadelphia, Pennsylvania (1984 to
1992), and then counsel to Bray Berry Martin & Reardon and a shareholder of
Berry & Martin, P.C in Philadelphia, Pennsylvania (1992 to 1995). Mr. Swirsky
received his J.D. from Harvard Law School in 1981.
ITEM 2. PROPERTIES.
At June 30, 1998, the Company operated 132 schools, preschools and child
care centers (hereafter, "schools") in 13 states. At September 18, 1998, the
number of schools totaled 138, located in 13 states.
The Company's schools generally are located in suburban settings. At
September 18, 1998, the Company's schools are geographically located as follows:
37 in California, 19 in North Carolina, 17 in Pennsylvania, 13 in Virginia, 9
each in Indiana and New Jersey, 7 in Illinois, 6 in Florida, 5 in Nevada, 3 in
Washington, 2 each in South Carolina and Oregon and 1 in Maryland.
The Company owns the land and buildings for eight of the schools it
operates. All such properties are subject to mortgages on the real property. In
addition, one school is run by a majority-owned subsidiary and operated jointly
with a sponsoring employer. This subsidiary leases the buildings from a third
party and operates them under a ground lease from the employer. The remaining
schools are leased under long-term leases which are typically triple-net leases
requiring the Company to pay all applicable real estate taxes, utility expenses
and insurance costs. These leases usually contain inflation related rent
escalators.
The Company owns the land and building of three properties in Florida and
Maine, two of which are leased. The Company also from time to time purchases
undeveloped land for future development. At June 30, 1998, the Company owned
one such property in North Carolina and one property in Northern Virginia.
The Company leases 13,837 square feet of space for its corporate offices in
Media, Pennsylvania.
ITEM 3. LEGAL PROCEEDINGS.
The Company is engaged in legal actions arising in the ordinary course of
its business. The Company believes that the ultimate outcome of all such matters
above will not have a material adverse effect on the Company's consolidated
financial position or results of operations. The significance of these matters
on the Company's future operating results and cash flows depends on the level
of future results of operations and cash flows as well as on the timing and
amounts, if any, of the ultimate outcome.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The Company's common stock trades on The Nasdaq Stock Market under the symbol
NEDI. "The Nasdaq Stock Market" or "Nasdaq" is a highly-regulated electronic
securities market comprised of competing market makers whose trading is
supported by a communications network linking them to quotation dissemination,
trade reporting, and order execution systems. This market also provides
specialized automation services for screen-based negotiations of transactions,
on-line comparison of transactions, and a range of information services tailored
to the needs of the securities industry, investors and issuers. The Nasdaq
Stock Market consists of two distinct market tiers: the Nasdaq National
Market/(R)/ (on which the Company's common stock trades) and the Nasdaq SmallCap
Market/SM/. The Nasdaq Stock market is operated by The Nasdaq Stock Market,
Inc., a wholly-owned subsidiary of the National Association of Securities
Dealers, Inc.
The table below sets forth the quarterly high and low sales prices for the
Company's common stock as reported by Nasdaq for each quarter during the period
from January 1, 1996 through June 30, 1998 and for the first quarter to date in
Fiscal 1999.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1996
First Quarter............................. $17 5/8 $13 5/8
Second Quarter............................ 18 1/4 13 3/4
Third Quarter............................. 15 1/4 9 1/4
Fourth Quarter............................ 14 9 1/2
1997
First Quarter............................. 12 5/8 7 7/8
Second Quarter............................ 10 3/8 7 1/2
Third Quarter............................. 9 3/4 8 1/4
Fourth Quarter............................ 9 7/16 4 1/2
Fiscal 1998
First Quarter............................. 9 3/8 4 7/8
Second Quarter............................ 9 3/8 7 7/8
Fiscal 1999
First Quarter (as of September 17, 1998).. 9 3/4 5 7/8
</TABLE>
HOLDERS
At September 7, 1998, there were approximately 580 holders of record of shares
of common stock.
14
<PAGE>
DIVIDEND POLICY
The Company has never paid a dividend on its common stock and does not expect
to do so in the foreseeable future. Although the payment of dividends is at the
discretion of the Board of Directors, the Company intends to retain its earnings
in order to finance its ongoing operations and to develop and expand its
business. The Company's credit facility with its lenders prohibits the Company
from paying dividends on its common stock or making other cash distributions
without the lenders' consent. Further, the Company's financing documents
relating to its private placement of its $10,000,000 Subordinated Note with
Allied Capital Corporation prohibit the Company from paying cash dividends on
its common stock without Allied's approval, and the Company's financing
documents relating to its private placement of the Series C Convertible
Preferred Stock to Edison Venture Fund II, L.P. prohibit the Company from paying
cash dividends on its common stock, unless the dividend is permitted under the
Company's bank agreement and the amount of the dividend is less than or equal to
50% of operating income less income tax.
15
<PAGE>
ITEM 6.
SELECTED FINANCIAL DATA
(in thousands except per share data)
The following table sets forth selected historical financial data of the
Company. This data should be read in conjunction with the Company's Financial
Statements and the Notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
OPERATING DATA JUNE 30, 1998 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 48,995 $80,980 $58,909 $44,154 $34,372 $32,594
School operating expenses 42,142 69,858 48,871 35,762 28,032 26,514
- --------------------------------------------------------------------------------------------------------------------------------
School operating profit 6,853 11,122 10,038 8,392 6,340 6,080
New school development 501 400 207 146 129 29
General and administrative expenses 3,391 5,973 4,190 3,396 2,696 2,555
Restructuring expense - 2,960 - - - -
Litigation expense - - - 500 200 -
- --------------------------------------------------------------------------------------------------------------------------------
Operating income 2,961 1,789 5,641 4,350 3,315 3,496
Interest expense 1,044 2,047 2,004 1,840 1,223 1,718
Other (income) expense (102) (158) (482) (126) 107 (39)
Minority interest 35 86 94 86 83 88
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 1,984 (186) 4,025 2,550 1,902 1,729
Income tax (benefit) expense 833 250 1,562 (1,356) (438) 21
- --------------------------------------------------------------------------------------------------------------------------------
Net income before extraordinary item 1,151 (436) 2,463 3,906 2,340 1,708
Extraordinary item - 449 - 62 - -
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 1,151 (885) 2,463 3,844 2,340 1,708
Preferred dividends 51 102 109 184 199 107
- --------------------------------------------------------------------------------------------------------------------------------
Net income available to common stockholders $ 1,100 $ (987) $ 2,354 $ 3,660 $ 2,141 $ 1,601
================================================================================================================================
EBITDA
(earnings before interest, taxes,
depreciation and amortization expense) $ 5,118 $ 5,099 $ 8,240 $ 5,902 $ 4,188 $ 4,591
- --------------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE (POST SPLIT):
Net income (loss) before extraordinary item $ 0.18 $ (0.09) $0.42 $ 0.79 $0.57 $0.41
Extraordinary item - (0.07) - (0.01) - -
Net income (loss) $ 0.18 $ (0.16) $0.42 $ 0.78 $0.57 $0.41
DILUTIVE EARNINGS PER SHARE (POST SPLIT):
Net income (loss) before extraordinary item $ 0.15 $ (0.09) $0.34 $ 0.64 $0.46 $0.38
Extraordinary item - (0.07) - (0.01) - -
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.15 $ (0.16) $0.34 $ 0.63 $0.46 $0.38
================================================================================================================================
BALANCE SHEET DATA:
Working Capital (deficit) $(10,221) $(7,946) $(1,351) $ (831) $(4,197) $(3,114)
Cost in excess of net assets acquired 41,753 37,439 25,601 17,274 8,888 8,923
Total assets 73,623 74,398 56,833 44,937 23,234 22,613
Short-term debt and
Current portion of long-term debt 2,031 2,793 3,448 1,371 1,768 905
Long-term debt 26,477 28,470 14,226 20,272 7,846 12,545
Stockholders' equity (deficit) 32,736 31,636 32,323 16,121 8,298 3,732
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Six months ended June 30, 1998 ("1998 period") compared to the six months ended
June 30, 1997 ("1997 period")
On December 19, 1997, the Company changed its fiscal year end to the end of
June. Accordingly, the Company's transition period, which ended June 30, 1998,
includes the six months from January 1 to June 30, 1998. To facilitate a
discussion of the Company's operating performance for the 1998 period, the
corresponding period in 1997 is presented.
During the twelve months subsequent to June 30, 1997, the Company acquired the
assets or stock of companies owning eight schools. These acquisitions included:
two preschools and one elementary school in Las Vegas, Nevada; two elementary
and one preschool located in Seattle, Washington; one elementary school in
Portland, Oregon and one elementary school in North Lauderdale, Florida. In
addition, the Company opened 12 new schools, of which six were preschools and
six were elementary schools. The Company also closed nine schools whose leases
expired.
Following is a chart which breaks down revenues, school operating profit and
school operating profit margins for the 1998 and 1997 periods into three
categories: Baseline Schools, Schools Acquired Within the Year and New School
Development (dollars in thousands).
<TABLE>
<CAPTION>
SIX MONTHS % OF SIX MONTHS % OF 1998-1997
JUNE 30, 1998 REVENUE JUNE 30,1997 REVENUE VARIANCE ($)
================================================================================================
<S> <C> <C> <C> <C> <C>
BASELINE SCHOOLS (1)
Revenues $41,113 100.0% $28,517 100.0% $ 12,596
Operating Profit $ 7,534 18.3% $ 5,491 19.3% $ 2,043
- ------------------------------------------------------------------------------------------------
SCHOOLS ACQUIRED
WITHIN THE YEAR (2)
Revenue 3,263 100.0% 7,491 100.0% (4,228)
Operating Profit 460 14.1% 1,551 20.7% ( 1,091)
- ------------------------------------------------------------------------------------------------
NEW SCHOOL
DEVELOPMENT (3)
Revenues 4,619 100.0% 3,656 100.0% 963
Operating Profit (Loss) (396) (8.6)% 261 7.1% (657)
- ------------------------------------------------------------------------------------------------
Total Revenues $48,995 100.0% $39,664 100.0% $ 9,331
================================================================================================
School Operating Profit
Before Amortization
of Goodwill 7,598 15.5% 7,303 18.4% 295
================================================================================================
Less Amortization of Goodwill 745 1.5% 517 1.3% 228
School Operating Profit $ 6,853 14.0% $ 6,786 17.1% $ 67
================================================================================================
</TABLE>
(1) Baseline Schools is defined as all schools, except schools included for the
year in Schools Acquired Within the Year or New School Development (see
footnotes (2) and (3). (Schools which were acquired in 1997 are included in
"Baseline Schools" for 1998 period results and "Schools Acquired Within the
Year" for 1997period results. Schools which were first opened in 1996 are
included in "Baseline Schools" for 1998 period results and "New
Development" for 1997 period results.)
(2) Schools Acquired Within the Year is defined as (i) schools acquired during
the 12 months ended June 30, 1997 for 1997 period results and (ii) schools
acquired during the 12 months ended June 30, 1998 for 1998 period results.
(3) New School Development is defined as schools which have not been opened for
two full fiscal years (i.e., schools opened between July 1, 1995 and June
30, 1997 for 1997 period results and schools opened between July 1, 1996
and June 30, 1998 for 1998 period results).
Revenues in the Baseline Schools increased $12,596,000 or 44.2% from the 1997
to the 1998 period. The increase is a result of the combination of several
factors, including (1) an increase in revenues of $9,440,000 related to
acquisitions completed in fiscal 1997, (2) a $2,803,000 increase related to New
Schools opened in fiscal 1996, and (3) an increase of revenues of $353,000 in
all other schools. Operating profit of the Baseline Schools increased $2,043,000
as a result of (1) a $1,994,000 increase in operating profit related to the
schools acquired in fiscal 1997, (2) a $213,000 increase related to the
operating profit of the fiscal 1996 New Schools offset by (3) a $164,000
decrease related to the decrease in all other schools.
The Company acquired eight schools during the 12 months ended June 30, 1998
with total revenues and school operating profits of $3,263,000 and $460,000
respectively for the 1998 period. The Company acquired thirteen schools during
the 12 months ended June 30, 1997 with total revenues of $7,491,000 and
operating profit of $1,551,000 during the 1997 period. The operating profit
margins of schools included in the 1998 period was 14.1% or 6.6% below the
schools included in the 1997 period. One of the eight schools included in the
1998 period was a new school that opened subsequent to the acquisition. The
start-up losses associated with opening new schools contributed to this decline
in operating margin.
Revenues related to the New Schools opened during the period between July 1,
1996 and June 30, 1998 totaled $4,619,000 in the 1998 period or an increase of
$963,000 or 26.3% compared to the schools opened during the period between July
1, 1995 and June 30, 1997 in the 1997 period. During the 12 months ended June
30, 1998, the Company opened 12 schools, five of which were elementary schools,
and during the 12 months ended June 30, 1997, the Company opened eight schools,
three of which were elementary schools. Operating losses totaled $396,000 in
the 1998 period compared to operating income of $261,000 in the 1997 period.
The increase in the losses is a result of the mix in the type of schools opened
and the timing of the openings. Elementary and middle schools take longer to
become profitable compared to preschools. Elementary schools typically take 24
to 36 months to become profitable compared to 18 to 24 months in a preschool.
Overall, in the 1998 period, the Company's total revenues increased $9,331,000
or 23.5% and school operating profits increased $67,000, compared to the 1997
period. Meanwhile, school profit margins (after goodwill) decreased from 17.1%
in 1996 to 14.0% in the 1997 period as explained above.
New school development costs increased $403,000 in the 1998 period primarily
because of the increase in the number of schools opened. During the 1998
period, the Company opened four elementary and one preschool as compared to two
preschools in the 1997 period. Elementary schools typically have higher start-
up costs than preschools. start-up costs average $225,000 for an elementary
school and $125,000 for a preschool. start-up and development costs include
personnel, marketing and supplies.
General and administrative expenses increased $574,000 or 20.4% to $3,391,000
in the 1998 period. The increase is attributable to the increase in the
Company's infrastructure to support its revenue growth.
17
<PAGE>
During 1997 and 1998, the Company added a Vice President of Marketing, a Human
Resources Manager, a Vice President of Eastern Operations, a Vice President of
Western Operations, a Summer Camp Manager, a Training Manager, several Executive
Directors and other support staff. As a percentage of revenue, general and
administrative expenses decreased from 7.1% of revenues in the 1997 period to
6.9% of revenues in the 1998 period. Management is continuing to build the
foundation needed for growth of the Company and anticipates maintaining the
current level of such general and administrative expenses as a percent of
revenues.
As a result of the factors mentioned above, operating income decreased
$910,000 or 23.5% to $2,961,000 for the 1998 period as compared to the 1997
period.
EBITDA (defined as earnings before interest, income taxes, depreciation and
amortization), totaled $5,118,000 for the 1998 period which was $434,000 or 8.2%
below the 1997 period. As a percentage of revenue, EBITDA for the 1998 period
equaled 10.4% versus 13.3% for the 1997 period. EBITDA is not a measure of
performance under generally accepted accounting principals, however the Company
and the investment community consider it an important indicator.
Interest expense increased by $200,000 or 23.4% for the 1998 period compared
to the 1997 period. The increase in interest expense is a result of increased
borrowings under the Company's senior debt facility and subordinated debt issued
in connection with the Company's acquisitions.
The provision for income taxes of $833,000 for the 1998 period was in excess
of amounts computed by applying statutory federal income tax rates to income
before income taxes due primarily to non-deductible goodwill incurred with
acquisitions for stock and state income taxes. For acquisitions of stock of a
company, purchase accounting applies for accounting purposes; but, for tax
purposes, the Company inherits the historic basis of the purchased company in
its assets, without any goodwill.
The fiscal year ended December 31, 1997 ("1997") compared to the fiscal year
ended December 31, 1996 ("1996")
As of December 31, 1996, the Company operated 107 elementary schools,
preschools and child care centers (sometimes collectively referred to herein as
"schools"). At December 31, 1997, the Company operated 129 schools and owned a
20% interest in one elementary school.
During 1997, the Company acquired the assets or stock of companies owning 17
schools. These acquisitions include: six preschools in Florida and a 20%
interest in an elementary school; two preschools and one elementary school in
Las Vegas, Nevada and two elementary and three preschools located in San Jose,
California. Also considered for the purposes hereof as being acquired in 1997
are one elementary school in Southern California and a preschool and elementary
school in Seattle, Washington acquired at the end of December 1996. In
addition, the Company opened 12 new schools in 1997 of which eight were
preschools and four were elementary schools (two of which were replacement
schools). During 1997, the Company closed seven schools whose leases expired.
Following is a chart which breaks down revenues, school operating profit and
school operating profit margins for the years ended 1997 and 1996 into three
categories: Baseline Schools, Schools Acquired Within the Year and New School
Development (dollars in thousands).
<TABLE>
<CAPTION>
12 MONTHS % OF 12 MONTHS % OF 1997-1996
1997 REVENUE 1996 REVENUE VARIANCE ($)
=========================================================================================================
<S> <C> <C> <C> <C> <C>
BASELINE SCHOOLS (1)
Revenues $59,567 100.0% $49,977 100.0% $ 9,590
Operating Profit $10,176 17.1% $ 9,312 18.6% $ 864
- ---------------------------------------------------------------------------------------------------------
SCHOOLS ACQUIRED
WITHIN THE YEAR (2)
Revenue 14,232 100.0% 3,437 100.0% 10,795
Operating Profit 2,345 16.5% 775 22.6% 1,570
- ---------------------------------------------------------------------------------------------------------
NEW SCHOOL
DEVELOPMENT (3)
Revenues 7,181 100.0% 5,495 100.0% 1,686
Operating Profit (Loss) (410) (5.7)% 586 10.7% (996)
- ---------------------------------------------------------------------------------------------------------
Total Revenues $80,980 100.0% $58,909 100.0% $ 22,071
=========================================================================================================
School Operating Profit
Before Amortization
of Goodwill 12,111 15.0% 10,673 18.1% 1,438
=========================================================================================================
Less Amortization
of Goodwill (989) 1.2% (635) 1.1% (354)
School Operating Profit $11,122 13.7% $10,038 17.0% $ 1,084
=========================================================================================================
</TABLE>
(1) Baseline Schools is defined as all schools, except schools included for the
year in Schools Acquired Within the Year or New School Development (see
footnotes (2) and (3). (Schools which were acquired in 1996 are included in
"Baseline Schools" for 1997 results and "Schools Acquired Within the Year"
for 1996 results. Schools which were first opened in 1995 are included in
"Baseline Schools" for 1997 results and "New Development" for 1996
results.)
(2) Schools Acquired Within the Year is defined as (i) schools acquired in 1996
for 1996 results and (ii) schools acquired in 1997 for 1997 results.
(3) New School Development is defined as schools which have not been opened for
two full fiscal years (i.e., schools opened in 1995 or 1996 for 1996
results and schools opened in 1996 or 1997 for 1997 results.)
Revenues in the Baseline Schools increased $9,590,000 or 19.2% from 1996 to
1997. The increase is a result of the combination of several factors, including
(1) an increase in revenues of $6,173,000 related to acquisitions completed in
1996, (2) a $4,636,000 increase related to New Schools opened in 1995, (3) an
increase of revenues of $643,000 in schools other than Merryhill and South
Carolina, offset by (4) a decrease in Merryhill enrollment resulting in a
$1,003,000 decrease in revenues and (5) a decrease of $859,000 related to the
revenues of six schools closed in South Carolina in 1996. Operating profit of
the Baseline Schools increased $864,000 or 9.3% as a result of (1) a $1,383,000
increase in operating profit related to the schools acquired in 1996, (2) a
$850,000 increase related to the operating profit of the 1995 New Schools offset
by (3) a $949,000 decrease related to the decrease in the Merryhill schools and
by (4) a $420,000 decrease in the remaining schools.
The Company experienced both a decline in enrollment and operating profit of
the Merryhill Schools located in California. The Company believes that the
decrease is primarily due to the effect of the California public school
initiative to decrease student/teacher class size ratios in Kindergarten to
third grade classes and a weak summer program. The public school 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 salary increased. In addition to the
effect of the initiative, rent expense in some of the Merryhill Schools is
increasing because of recently built replacement schools, which expanded
capacity. The Company has taken several steps to improve the situation. In the
fourth quarter of 1997, the Company hired a Vice President of Western Operations
and a Summer Camp Manager. The Company restructured operations management by
adding experienced Executive Directors and other management personnel and
reducing responsibility of each Executive Director to a maximum of ten schools.
In 1997, the Company acquired seventeen schools with total revenues and school
operating profits of $14,232,000 and $2,345,000, respectively.
18
<PAGE>
This is an increase in acquisition activity totaling $10,795,000 in revenues and
$1,570,000 in operating profit compared to schools acquired in 1996. In 1996,
the Company acquired seven schools with revenue of $3,437,000 and operating
profit of $775,000. The operating profit margins of schools acquired decreased
6.1% from 22.6% in 1996 to 16.5% in 1997. The decrease in the margins of the
schools acquired is related primarily to the lack of summer programs at some of
these elementary schools. The elementary schools acquired in 1997 did not
typically have strong summer programs. The Company initiated summer programs,
but it takes time for enrollment to build.
Revenues related to the New Schools built in 1996 and 1997 totaled $7,181,000
in 1997 or an increase of $1,686,000 or 30.7% compared to 1995 and 1996. In
1997, the Company built 12 schools and in 1996 the Company built seven schools.
Operating loss totaled $410,000 in 1997 compared to operating income of $586,000
in 1996. The increase in the loss is a result of the mix in the type of schools
opened and the timing of the openings. Elementary and middle schools take longer
to become profitable compared to preschools. In 1997, the Company opened four
elementary/middle schools as compared to three in 1996. Elementary schools
typically take 24 to 36 months to become profitable compared to 18 to 24 months
in a preschool.
Overall, in 1997 the Company's total revenues increased $22,071,000 or 37.5%
and school operating profits increased $1,084,000 compared to 1996. Meanwhile,
school operating profit margins (after goodwill) decreased from 17.0% in 1996 to
13.7% in 1997 as explained above.
New School development costs nearly doubled, increasing $193,000 or 93% to
$401,000 in 1997, primarily because of the increase in the number of schools
opened. The Company opened eight preschools and four elementary/middle schools
for a total of twelve schools as compared to four preschools and three
elementary/middle schools for a total of seven in 1996. Additionally,
elementary/middle schools typically have higher start-up costs than preschools.
start-up costs average $225,000 for an elementary school and $125,000 for a
preschool. start-up and development costs include personnel, marketing and
supplies.
General and administrative expenses increased $1,783,000 or 42.6% to
$5,973,000 in 1997. The increase is attributable to the increase in the
Company's infrastructure to support its revenue growth. In 1997, the Company
added a Chief Financial Officer, a Vice President of Marketing, a Human
Resources Manager, a Vice President of Eastern Operations, a Vice President of
Western Operations, a Summer Camp Manager, a Training Manager, several Executive
Directors and other support staff. In addition, the Company selected and
launched an Education Advisory board to oversee and assist in curriculum
development. As a percentage of revenue, general and administrative expenses
increased only slightly from 7.1% of revenues in 1996 to 7.4% of revenues in
1997. Management is continuing to build the foundation needed for growth of the
Company and anticipates maintaining the current level of such general and
administrative expenses as a percent of revenues.
In 1997, the Company recorded a restructuring charge totaling $2,960,000
related to a combination of factors. Of the $2,960,000, $2,000,000 was related
to the write-off of the goodwill recorded in connection with the acquisition of
the nine schools located in Indianapolis, $789,000 was related to the write down
of the book value and an accrual for lease obligations of several non-performing
schools held for sale or that are scheduled to close when their leases expire,
and $171,000 is related to the restructuring of management that took place in
1997 and early 1998. The schools in Indianapolis are currently for sale.
As a result of the factors mentioned above, operating income decreased
$3,852,000 or 68% to $1,789,000 in 1997 compared to the same period in 1996.
Adjusted operating income, defined as operating income before the restructuring
charge, totaled $4,749,000 in 1997, which represents a decrease of $892,000 or
15.8% compared to the prior year.
In 1997 EBITDA (defined as earnings before interest, income taxes,
depreciation and amortization), totaled $5,099,000 which was $3,140,000 or 38%
below the prior year. As a percentage of revenue, EBITDA for 1997 equaled 6.3%
versus 14.0% for 1996. Adjusted EBITDA (defined as EBITDA before the
restructuring charge) equaled $8,059,000 which was $180,000 or 2% below
$8,239,000 for 1996. As a percentage of revenues, adjusted EBITDA equaled 10.0%
for 1997 as compared to 13.9% for the prior year. The decrease as a percentage
of revenues is a result of lower operating margins and higher general and
administrative expense. EBITDA is not a measure of performance under generally
accepted accounting principles, however the Company and the investment community
consider it an important indicator.
Interest expense increased slightly by $42,000 or 2.1% for 1997 compared to
1996. While the principal amount of indebtedness outstanding under the Company's
senior loan facilities increased in the fourth quarter, this increase was offset
by a decrease in the interest rate, as a result of amendments to the loan
documents governing the Company's principal debt facilities. Debt increased as
a result of the acquisition of the Las Vegas schools and new school development
which occurred during 1997. Cash raised through the private placement of common
stock was used in the first half of 1997 to complete the acquisitions of Another
Generation and Rainbow Bridge schools.
Other income decreased $324,000 or 67% for 1997 totaling $158,000 compared to
1996 of $483,000. The decrease is primarily related to the decrease in interest
income. During 1996, the Company raised $11,600,000 of net proceeds through a
private issuance of common stock. The Company earned interest on these funds
during the second half of 1996. The cash was used for acquisitions and the
building of new schools during the later part of 1996 and early 1997.
The provision for income taxes totaled $250,000 for 1997. The Company was in a
pretax loss position. However, the Company recorded income taxes, primarily
relating to non-deductible goodwill amortization and state and local taxes. (In
the acquisition of the stock of a company, purchase accounting applies for
accounting purposes; but, for tax purposes, the Company inherits the historic
basis of the purchased company in its assets, without any good will.) The
adjusted income tax provision (income tax before the restructuring charge)
equaled $1,165,000 which represents a 42% tax rate. This represented a decrease
of $397,000 or 25% compared to $1,562,000 for 1996. The tax rate in 1996 was
39%.
In 1997, the Company recorded a $449,000 extraordinary expense. In December
1997, the Company refinanced its principal debt facility which combined the Term
Loans with scheduled principal payments and the existing Revolving Line of
Credit into Revolving Credit and Term Facilities which extends principal payment
to begin in the year 2001. The change in the terms enables the Company to use
cash from operations and the unused portion of the line for growth through
acquisitions and New School development. Because the new loan facility terms
vary significantly from the existing credit facility, the Company was required
to write off the deferred financing costs which were being amortized over the
term of the original loan.
In the fourth quarter of 1997, the Company adopted FAS No. 128 "Earnings Per
Share" which changed the earnings per share calculation. The
19
<PAGE>
Company restated the prior year calculation as required. Basic Earnings Per
Share before the Extraordinary Item equaled ($0.09) for 1997 as compared to
$0.42 for 1996, which resulted in a $0.51 decrease per share. Basic Earnings
(Loss) per Share equaled ($0.16) for 1997 as compared to $0.42 for 1996 or a
$0.58 decline. Adjusted Basic Earnings per Share (before the restructuring
charge and extraordinary item) equaled $0.25 for 1997 as compared to $0.42 for
1996 which represents a $0.17 decrease. Dilutive Earnings (Loss) per Share
before the Extraordinary Item equaled ($0.09) for 1997 as compared to $0.34 for
1996, or a $0.43 decrease. Adjusted Dilutive Earnings per Share equaled $0.22 in
1997 as compared to $0.34 in 1996 or a $0.12 per share decrease.
The fiscal year ended December 31, 1996 ("1996") compared to December 31, 1995
("1995")
As of December 31, 1995 the Company operated 101 schools. At December 31,
1996, the Company operated 107 schools.
During 1996, the Company acquired the assets or stock of companies owning
seven schools. These acquisitions included: five preschools in Virginia and two
preschools in North Carolina. (In late December 1996, the Company also acquired
two schools located in Seattle, Washington and one school in Coto de Caza,
California; however, for purposes hereof, these are treated as being acquired in
1997.) In addition, during 1996, the Company opened seven new schools, two of
which were replacement schools. Leases of six non-core schools located in South
Carolina expired and were not renewed, as planned in the 1992 restructuring of
the Company.
Following is a chart which breaks down revenues, school operating profit and
school operating profit margins for 1996 and 1995 into three categories,
Baseline Schools, Schools Acquired Within the Year and New School Development
(dollars in thousands).
<TABLE>
<CAPTION>
12 MONTHS % OF 12 MONTHS % OF 1996-1995
ENDED 1996 REVENUE ENDED 1995 REVENUE VARIANCE ($)
=============================================================================================
<S> <C> <C> <C> <C> <C>
BASELINE SCHOOLS (1)
Revenues $49,977 100.0% $32,383 100.0% $ 17,594
Operating Profit $ 9,312 18.6% $ 7,010 21.6% 2,302
- ---------------------------------------------------------------------------------------------
SCHOOLS ACQUIRED
WITHIN THE YEAR (2)
Revenue 3,437 100.0% 7,102 100.0% (3,665)
Operating Profit 775 22.6% 855 12.1% (80)
- ---------------------------------------------------------------------------------------------
NEW SCHOOL DEVELOPMENT (3)
Revenues 5,495 100.0% 4,672 100.0% 823
Operating Profit 586 10.7% 859 18.4% (273)
- ---------------------------------------------------------------------------------------------
Total Revenues $58,909 100.0% $44,157 100.0% $ 14,752
=============================================================================================
School Operating Profit
Before Amortization
of Goodwill 10,673 18.1% 8,724 19.8% 1,949
=============================================================================================
Less Amortization of Goodwill (635) (1.1)% (332) (0.8)% (303)
School Operating Profit $10,038 17.0% $ 8,392 19.0% $ 1,646
=============================================================================================
</TABLE>
(1) Baseline Schools is defined as all schools, except schools included for the
year in Schools Acquired Within the Year or New School Development (see
footnotes (2) and (3). (Schools which were acquired in 1995 are included in
"Baseline Schools" for 1996 results and "Schools Acquired Within the Year"
for 1995 results. Schools which were first opened in 1994 are included in
"Baseline Schools" for 1996 results and "New Development" for 1995
results.)
(2) Schools Acquired Within the Year is defined as (i) schools acquired in 1995
for 1995 results and (ii) schools acquired in 1996 for 1996 results.
(3) New School Development is defined as schools which have not been opened for
two full fiscal years (i.e., schools opened in 1995 or 1996, for 1996
results and (ii) schools opened in 1994 or 1995, for 1995 results).
Revenues of the Baseline Schools increased $17,594,000 or 54.3% from 1995 to
1996. The increase is a result of several factors including (1) revenues
related to the 1995 acquisition totaling $14,400,000, (2) revenues related to
the 1994 New Schools totaling $3,142,000 and (3) a slight increase in the
remaining schools of $52,000. The increase in the remaining schools was the
result of a combination of the divestiture of six South Carolina schools in 1996
and one Florida school in 1995 creating a $712,000 revenue decrease offset by a
$725,000 increase in the remaining schools which was a result of enrollment and
tuition increases. The operating profit of the Baseline Schools increased
$2,302,000 or 32.8% for the year ended December 31, 1996 compared to 1995. The
increase is a result of (1) $1,635,000 related to the acquisitions which
occurred in 1995, (2) $707,000 is related to the operating profit of the New
Schools opened in 1994 and (3) offset by a slight decrease of $40,000 which was
related to the remaining schools. The decrease in the remaining schools
operating profit is a result of an increase in personnel costs.
The operating profit margin of the Baseline Schools decreased 3.0% from 21.6%
for 1995 to 18.6% for 1996. The decrease in the operating margins is the result
of losses associated with the 1995 acquisition of certain schools in the
Indianapolis area, and lower margins of schools acquired in the 1995 acquisition
of Educo, Inc. The lower margins in the acquisitions is a result primarily of
lower than expected summer performance in the Educo schools and a slower than
anticipated turnaround of the Indianapolis schools.
In 1996, the Company acquired seven schools with total revenues of $3,437,000
and operating profit of $775,000 for 1996. Five of the seven schools (the
Virginia acquisition) were acquired in February 1996 and two of the schools
located in North Carolina were acquired in November of 1996. In 1995, the
Company acquired 25 schools with revenues of $7,102,000 and operating profit of
$855,000 for 1995. The Company acquired six Pennsylvania schools in March 1995
and acquired the ten Educo schools and nine Indianapolis schools in September
1995. The operating margin of the schools acquired in 1996 equaled 22.6% as
compared to the operating margins of the schools acquired in 1995 which equaled
12.1%. The 1995 acquisitions include the Indianapolis area schools which
operated at a loss and the Educo schools which operated at a 12% operating
margin. When making acquisitions, the Company takes steps to increase operating
margins of Acquired Schools over a 12 to 36 month period as it implements cost
controls, systems and marketing strategies.
In 1996 and 1995, the Company opened 14 new schools with revenues of
$5,495,000 and operating profit of $586,000 for 1996. In 1994 and 1995, the
Company opened 11 new schools with revenues of $4,672,000 and operating profit
of $859,000 for 1995. The operating margins in 1996 of the schools opened in
1996 and 1995 equaled 10.7%. The operating margins in 1995 of the schools opened
in 1995 and 1994 schools equaled 18.4%. The variance in the margins is a result
of the mix and timing of schools opened. In 1996, the Company opened three
elementary/middle schools and four preschools. In 1995 the Company opened seven
preschools, and in 1994 the Company opened four preschools. Generally, the
Company experiences smaller losses in opening preschools as compared to
elementary/middle schools and is able to reach profitability in the preschool in
six to nine months as compared to elementary/middle schools which can take 12 to
36 months to become profitable.
Overall, in 1996 the Company's total revenues increased $14,752,000 and
operating profits increased $1,646,000, compared to 1995. Meanwhile, school
operating profit margins decreased from 19.0% in 1995 to 17.0% in 1996, as
explained above.
20
<PAGE>
General and administrative expenses increased $794,000 or 23% to $4,190,000
for 1996; however, as a percentage of revenue, general and administrative
expenses decreased from 7.7% of revenues in 1995 to 7.1% of revenues in 1996.
The Company enjoyed efficiencies from its growth through acquisitions.
Management is continuing to build the foundation needed for growth of the
Company and anticipates maintaining the current level of such general and
administrative expenses as a percent of revenues.
Operating income increased $1,291,000 or 29% to $5,641,000 for 1996. The
increase is a result primarily of the increase in school operating profit. In
1995, the Company recorded $500,000 in litigation expense related to a claim by
former officers of the Company which was settled. As a percent of revenue,
operating income decreased slightly from 9.8% for 1995 to 9.6% for 1996, which
is a result of the decrease in school operating profit margins described above.
Another key measure of the Company's cash generating ability is its EBITDA
(earnings before interest, taxes, depreciation and amortization expenses).
EBITDA increased to $8,239,000 in 1996 from $5,902,000 in 1995 which was a 40%
increase. EBITDA is not a measure of performance, under generally accepted
accounting principles, however the Company and the investment community consider
it an important indicator.
Interest expense increased $165,000 or 9% to $2,004,000 for 1996, which was
due to increased debt relating to the acquisitions and new school development.
Other income increased $357,000 or more than 250% to $483,000, which was due
to interest income earned on the proceeds of the private placement of
approximately $11,600,000 in March 1996.
Income tax expense increased $2,917,000 to $1,562,000 for 1996. The increase
in taxes was due to the Company being fully taxed in 1996 as compared to
recording a tax benefit in 1995 of $2,105,000. This credit was based upon the
adoption of SFAS 109 "Accounting for Income Taxes" in 1992 and the subsequent
reduction of the Company's valuation allowance due to its more recent historical
profitable operating performance and its projections for the future.
Consequently, 1996 was the first year the Company was fully taxable. The Company
anticipates this trend to continue.
Net income decreased $1,381,000 or 36% to $2,463,000 for 1996 as a result of
the Company reversing the valuation allowance in 1995 and recording taxes in
1996 at a 38.8% rate as described above. If pretax net income in 1995 were taxed
at an effective rate of 38.8%, on a pro forma basis, net income would have
increased $964,000 or 64%.
LIQUIDITY AND CAPITAL RESOURCES
Management is continuing to pursue a three-pronged growth strategy for the
Company, which includes (1) internal growth of existing schools through the
expansion of certain facilities, (2) new school development in both existing and
new markets and (3) strategic acquisitions. The Company's principal sources of
liquidity are (1) cash flow generated from operations, (2) future borrowings
under the Company's $25,000,000 revolving line of credit, (3) the use of site
developers to build schools and lease them to the Company, and (4) issuance of
subordinated indebtedness or shares of common stock to sellers in acquisition
transactions.
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 working
capital needs, capital expenditures and renovations and the building of new
schools in the near term future.
The Company continues to look for quality acquisition candidates. The Company
identifies growth markets through both extensive demographic studies and an
analysis of the existing educational systems in the area. The Company seeks to
grow through a cluster approach whereby several preschools feed into an
elementary school. In order for the Company to continue its acquisition
strategy, the Company will seek additional funds through debt or equity
financing.
In 1997, the Company amended its credit agreement three times, the most
significant of which occurred in December with the execution of the Seventh
Amendment and Modification to the Loan and Security Agreement. These amendments:
(1) increased the Company's borrowing capacity to $25,000,000, (2) changed the
prior fixed interest rates (applicable to term loans) to variable rates, (3)
provided that all revolving debt will convert to a term loan in January 2001,
(4) extended terms for an additional five years for the prior term loan and six
years for the prior revolving line of credit and (5) increased the number of
permitted new school construction projects. Two facilities are established
under the Seventh Amendment: a $3,000,000 facility (Revolving and Term Facility
A) and a $22,000,000 facility (Revolving and Term Facility B). Amounts
outstanding under term loans at the time of the restructuring were treated as
initial outstanding balances under the new Revolving and Term Facilities. Under
the new arrangements, no principal payments are required until January 1, 2001.
Commencing on January 1, 2001, the Company must pay outstanding principal
balance of the Revolving and Term Facilities in 60 equal monthly installments.
The Company may elect to convert to a term loan portions of the Revolving and
Term Facility B in increments of $2,500,000. Such term loans would be payable
over sixty months.
By postponing the dates of required principal payments under the Company's
loans, the Seventh Amendment significantly improved the Company's cash flow
requirements under these loans. The restructuring allows the Company greater
flexibility in managing its cash flow and allows greater ability to use
available funds to grow the Company.
At June 30, 1998 and December 31, 1997, the principal amounts outstanding
under the Revolving and Term Facility B were $19,426,000 and $21,576,000, and no
amounts were outstanding under the Revolving and Term Facility A.
In July 1998, the Company issued a $10,000,000 senior subordinated note to
Allied Capital Corporation ("Note"). The net proceeds were used to reduce the
Company's Revolving and Term Facility A outstanding balance. The Note bears
interest at 10%. The Note matures in two installments of principal: $5,000,000
in 2004 and $5,000,000 in 2005. In connection with the financing transaction,
the Company also issued to Allied Capital Corporation warrants to acquire
531,255 shares of the Company's common stock at $8.5625 per share. The Company
recorded a debt discount and allocated $900,000 of the proceeds of the
transaction to the value of the warrants. This debt discount is being amortized
to interest expense over the term of the Note.
Total cash and cash equivalents decreased $2,197,000 from $2,605,000 at
December 31, 1997 to $408,000 at June 30, 1998. The net decrease was due
primarily to (1) cash used for acquisitions totaling approximately $3,457,000,
(2) approximately $3,498,000 used for the building of New Schools and
acquisition of land parcels and (3) repayment of long term debt of $14,474,000.
These decreases were offset by (1) cash flow from operations of $3,299,000, (2)
proceeds from the sale of property totaling
21
<PAGE>
$6,948,000 and (3) proceeds from borrowings under the principal credit facility
of $12,526,000.
The working capital deficit increased $2,275,000 from $7,946,000 at December
31, 1997 to $10,221,000 at June 30, 1998. The increase is primarily the result
of the decrease in cash and cash equivalents of $2,197,000 as discussed above.
CAPITAL EXPENDITURES
The Company is continuously maintaining and upgrading the property and
equipment of each school. During the six months ended June 30, 1998, the Company
spent $4,952,000 on capital expenditures, which included $3,498,000 for new
school development and $1,454,000 on upgrading existing facilities. During 1997,
the Company spent approximately $15,221,000 on capital expenditures, which
included $11,137,000 on new school development and $4,184,000 on upgrading
existing facilities.
During the six months ended June 30, 1998 and 1997, the Company received
$6,948,000 and $7,451,000, respectively, from sale and leaseback transactions of
new schools.
TRENDS
During the twelve months ended December 31, 1997, the Company experienced a
decrease in enrollment at its Merryhill schools, located in California, coupled
with a weaker summer program in several elementary schools. As discussed
herein, the Company believes that this decrease is primarily due to the effect
of California public schools' initiative to decrease student/teacher class size
ratios in Kindergarten to 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 increased because of recently built replacement schools, which expanded
capacity. Fall enrollment for the 1997-1998 school year were down from the
previous year. This 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, with the
Executive Director position replacing the Regional Manager and District Manager
positions. The number of schools reporting to each Executive Director has been
reduced so that each manager can spend more time in the schools. In addition,
the Company has hired a Vice President of Western Operations. 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
will prove warranted.
The Company plans to respond to 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 opened four newly constructed
elementary schools in 1998, and plans to continue to development elementary
schools in 1999.
INFLATION
The Company has not been significantly affected by inflation.
INSURANCE
Companies involved in the education and care of children may not be able to
obtain insurance for the total risks inherent in their operations. In
particular, general liability coverage can have sublimits per claim for child
abuse. Since 1995, the Company has been able to increase significantly the
sublimit applicable to such coverage. The Company believes it has adequate
insurance coverage at this time. There can be no assurance that in future years
the Company will not again become subject to lower limits.
YEAR 2000 COMPLIANCE
Management has implemented measures to ensure that the Company's information
systems and applications will recognize and process information pertaining to
the Year 2000. The measures being conducted utilize both internal and external
resources and are directed at risk assessments, remediation, acquisition of new
systems and applications, and testing of the systems and application for Year
2000 compliance.
The Company believes that the only computer systems that are critical to its
operations are certain accounting and payroll software. The Company licenses
such software from two outside vendors. Both of these vendors have publicized
reports giving assurances that the software used by the Company is Year 2000
compliant. The Company will be testing the software to assure compliance and
will complete the testing by March 1999. The Company has completed an inventory
of all hardware, primarily personal computers and corporate network equipment.
All non-compliant hardware will be replaced by March 1999.
Concurrent with the Company's Year 2000 compliance efforts, the Company is
upgrading its management information system to link the schools to the home
office as well as to other schools. This process includes purchasing new and
replacing old equipment and software to improve management efficiencies as well
as ensure Year 2000 compliance. Management anticipates that the process will be
complete by December 1999 and projects spending between $1,500,000 and
$2,000,000 on this project.
Although the Company could be affected by the systems of other companies with
which it does business, management does not believe that the Company's business
will be materially adversely affected by the failure of third parties to be Year
2000 compliant. Because of the geographical distribution of the Company's
schools, the Company is not dependent on any one or a small group of vendors and
the needs of the Company's customers for its services should not be adversely
affected by Year 2000 issues.
Management expects that the Company will be Year 2000 compliant by the end of
1999. A failure to meet this deadline should not disrupt the Company's delivery
of its services to customers. However, a failure of the Company's system could
indirectly significantly impact operations, as for example, by an inability to
pay employees and vendors in a timely manner.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information". This statement establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The Company believes it is a one segment company.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary financial information specified by this
Item, together with the Reports of the Company's independent accountants
thereon, are included in this Annual Report on Form 10-K on pages F-1 through F-
14 below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
23
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item with respect to the directors of the
Company is incorporated herein by reference to the information set forth in the
Proxy Statement. The information required by this Item with respect to
executive officers of the Company is furnished in a separate item captioned
"Executive Officers of the Company" and included in Part I of this Annual Report
on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by reference to
the information set forth in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to
the information set forth in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein by reference to
the information set forth in the Proxy Statement.
24
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS A PART OF THIS REPORT:
<TABLE>
<CAPTION>
Page
----
<S> <C>
(1) Financial Statements.
Report of Independent Accountants............................. F-1
Consolidated Balance Sheets................................... F-2
Consolidated Statements of Income............................. F-3
Consolidated Statements of Stockholders' Equity............... F-4
Consolidated Statements of Cash Flows......................... F-5
Supplemental Schedules for Consolidated Statements of Cash
Flow.......................................................... F-6
Notes to Consolidated Financial Statements.................... F-7
(2) Financial Statement Schedules.
</TABLE>
Financial Statement Schedules have been omitted as not applicable or not
required under the instructions contained in Regulation S-X or the information
is included elsewhere in the financial statements or notes thereto.
(B) REPORTS ON FORM 8-K.
None.
(C) EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K.
Exhibit
Number Description of Exhibit
3.1 Registrant's Certificate of Incorporation, as amended and restated.
(Filed as Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, and incorporated herein by
reference.)
3.2 Registrant's Certificate of Designation, Preferences and Rights of
Series A Convertible Preferred Stock. (Filed as Exhibit 7(c) to the
Registrant's Current Report on Form 8-K filed on June 14, 1993 and
incorporated herein by reference.)
3.3 Registrant's Certificate of Designation, Preferences and Rights of
Series C Convertible Preferred Stock. (Filed as Exhibit 4(ae) to the
Registrant's Quarterly Report on Form 10-Q with respect to the quarter
ended June 30, 1994 and incorporated herein by reference.)
3.4 Registrant's Certificate of Designation, Preferences and Rights of
Series D Convertible Preferred Stock. (Filed as Exhibit 4E to the
Registrant's Current Report on Form 8-K filed on September 11, 1995,
date of earliest event reported August 25, 1995, and incorporated
herein by reference.)
25
<PAGE>
3.5 Registrant's Amended and Restated By-laws. (Filed as Exhibit 3.4 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996, and incorporated herein by reference.)
4.1 Loan and Security Agreement dated August 30, 1995 (the "Loan and Security
Agreement") among the Registrant, certain subsidiaries of the Registrant
and Summit Bank (formerly First Valley Bank). (Filed as Exhibit 4F to the
Registrant's Current Report on Form 8-K filed on September 11, 1995, date
of earliest event reported August 25, 1995, and incorporated herein by
reference.)
4.2 Second Amendment and Modification dated April 4, 1996 and Third Amendment
and Modification dated July 2, 1996 to the Loan and Security Agreement.
(Filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, and incorporated herein by
reference.)
4.3 Fourth Amendment and Modification dated November 1, 1996 to Loan and
Security Agreement. (Filed as Exhibit 4.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996, and
incorporated herein by reference.)
4.4 Fifth Amendment and Modification dated March 20, 1997 to Loan and
Security Agreement. (Filed as Exhibit 4.4 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, and
incorporated herein by reference.)
4.5 Sixth Amendment and Modification dated May 5, 1997 to Loan and Security
Agreement. (Filed as Exhibit 4.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997, and incorporated herein
by reference.)
4.6 Seventh Amendment and Modification dated December 22, 1997 to Loan and
Security Agreement. (Filed as Exhibit 4.6 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, and
incorporated herein by reference.)
4.7 Eighth Amendment and Modification dated April __, 1998 to Loan and
Security Agreement.
4.8 Ninth Amendment and Modification dated as of June 30, 1998 to Loan and
Security Agreement.
4.9 Revolving and Term Facility Note A dated December 22, 1997 in the
principal sum of $22,000,000 payable to the order of Summit Bank. (Filed
as Exhibit 4.7 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, and incorporated herein by
reference.)
4.10 Revolving and Term Facility Note B dated December 22, 1997 in the
principal sum of $3,000,000 payable to the order of Summit Bank. (Filed
as Exhibit 4.8 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, and incorporated herein by
reference.)
4.11 Investment Agreement dated as of June 30, 1998 between Registrant and its
subsidiaries and Allied Capital Corporation
4.12 Senior Subordinated Note dated as of June 30, 1998 in the principal
amount of $10,000,000 payable to the order of Allied Capital Corporation.
The Registrant has omitted certain instruments defining the rights of
holders of long-term debt in cases where the indebtedness evidenced by
such instruments does not exceed
26
<PAGE>
10% of the Registrant's total assets. The Registrant agrees to furnish a
copy of each of such instruments to the Securities and Exchange
Commission upon request.
10.1 1986 Stock Option and Stock Grant Plan of the Registrant, as amended.
(Filed as Exhibit 10(1) to the Registrant's Registration Statement on
Form S-1 (Registration Statement No. 33-1644) filed on August 12, 1987
(the "Form S-1") and incorporated herein by reference.)
10.2 1988 Stock Option and Stock Grant Plan of the Registrant. (Filed as
Exhibit 19 to the Registrant's Quarterly Report on Form 10-Q dated March
31, 1988 and incorporated herein by reference.)
10.3 1995 Stock Incentive Plan of the Registrant, as amended.
10.4 Form of Stock Option Agreement, for stock option grants under 1995 Stock
Incentive Plan.
10.5 Stock and Warrant Purchase Agreement between the Registrant and various
investors, dated April 14, 1992. (Filed as Exhibit 10(r) to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1991 and incorporated herein by reference.)
10.6 Registration Rights Agreement dated May 28, 1992 among the Registrant,
JBS Investment Banking, Ltd., and Pennsylvania Merchant Group, Ltd.
(Filed as Exhibit 4(a) to the Registrant's Current Report on Form 8-K
dated June 11, 1992, date of earliest event reported May 28, 1992, and
incorporated herein by reference.)
10.7 Stock Purchase Agreement dated May 28, 1992 between Registrant and a
limited number of accredited investors at $0.50 per share totaling
3,200,000 shares of common stock. (Filed as Exhibit 4(d) to the
Registrant's Current Report on Form 8-K dated June 11, 1992, date of
earliest event reported May 28, 1992, and incorporated herein by
reference.)
10.8 Series 1 Warrants for shares of Common Stock issued to Edison Venture
Fund II, L.P. and Edison Venture Fund II-PA, L.P. (Filed as Exhibit 4(ad)
to the Registrant's Quarterly Report on Form 10-Q with respect to the
quarter ended June 30, 1994 and incorporated herein by reference.)
10.9 Registration Rights Agreement between Registrant and Edison Venture Fund
II, L.P. and Edison Venture Fund II-PA, L.P. (Filed as Exhibit 4(af) to
the Registrant's Quarterly Report on Form 10-Q with respect to the
quarter ended June 30, 1994 and incorporated herein by reference.)
10.10 Amendment dated February 23, 1996 to Registration Rights Agreement
between Registrant and Edison Venture Fund II, L.P. and Edison Venture
Fund II-PA, L.P. (Filed as Exhibit 10.14 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995 and incorporated
herein by reference.)
10.11 Investment Agreement dated as of August 30, 1995 by and among the
Registrant, certain subsidiaries of the Registrant and Allied Capital
Corporation and its affiliated funds. (Filed as Exhibit 4A to the
Registrant's Current Report on Form 8-K dated September 11, 1995, date of
earliest event reported August 25, 1995, and incorporated herein by
reference.)
10.12 Common Stock Purchase Warrant dated August 30, 1995 entitling Allied
Capital Corporation to purchase up to 92,172.25 shares (subject to
adjustment) of the Common
27
<PAGE>
Stock of the Registrant. (Filed as Exhibit 4C to the Registrant's Current
Report on Form 8-K dated September 11, 1995, date of earliest event
reported August 25, 1995, and incorporated herein by reference.)
Exhibit 10.12 is one in a series of four Common Stock Purchase Warrants issued
pursuant to the Investment Agreement dated as of August 30, 1995 that are
identical except for the Warrant No., the original holder thereof and the number
of shares of Common Stock of the Registrant for which the Warrant may be
exercised, which are as follows:
<TABLE>
<CAPTION>
Number of Shares
of Common Stock
Warrant No. Holder (subject to adjustment)
----------- ------ -----------------------
<S> <C> <C>
2 Allied Capital Corporation II 142,932.25
3 Allied Investment Corporation 92,713
4 Allied Investment Corporation II 50,219.5
</TABLE>
10.13 Common Stock Purchase Warrant dated as of June 30, 1998 entitling Allied
Capital Corporation to purchase up to 531,255 shares (subject to
adjustment) of the Common Stock of the Registrant.
10.14 First Amended and Restated Registration Rights Agreement dated as of June
30, 1998 by and between the Registrant and Allied Capital Corporation.
10.15 Nobel Education Dynamics, Inc. Executive Severance Pay Plan Statement and
Summary Plan Description, Issued February, 1997, as amended on June 11,
1998.
10.16 Employment Agreement dated June 4, 1996 between Registrant and Barbara Z.
Presseisen. (Filed as Exhibit 10.21 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996 and incorporated herein by
reference.)
10.17 Noncompete Agreement dated as of March 11, 1997 between John R. Frock and
the Registrant. (Filed as Exhibit 10.22 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996 and incorporated
herein by reference.)
10.18 Contingent Severance Agreement dated as of March 11, 1997 between John R.
Frock and the Registrant. (Filed as Exhibit 10.23 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.)
21 List of subsidiaries of the Registrant.
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
Certain schedules (and similar attachments) to Exhibits 4.1 through 4.8 and
Exhibits 4.11 and 10.11 have not been filed. The Registrant will furnish
supplementally a copy of any omitted schedules or attachments to the Commission
upon request.
(D) FINANCIAL STATEMENT SCHEDULES.
None.
28
<PAGE>
QUALIFICATION BY REFERENCE
Information contained in this Annual Report on Form 10-K as to a contract
or other document referred to or evidencing a transaction referred to is
necessarily not complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to this Annual Report or
incorporated herein by reference, all such information being qualified in its
entirety by such reference.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: September 25, 1998 NOBEL EDUCATION DYNAMICS, INC.
By: /s/ A. J. Clegg
----------------------------------
A. J. Clegg
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Position Date
Chairman of the Board, September 25, 1998
/s/ A. J. Clegg
- -----------------------
A. J. Clegg President and Chief
Executive Officer and Director
/s/ William Bailey Vice President, September 25, 1998
- -----------------------
William Bailey Chief Financial Officer
(Principal Financial Officer)
/s/ Yvonne DeAngelo Vice President - Finance September 25, 1998
- -----------------------
Yvonne DeAngelo and Administration
(Principal Accounting Officer)
/s/ Edward H. Chambers Director September 25, 1998
- -----------------------
Edward H. Chambers
/s/ John R. Frock Executive Vice President September 25, 1998
- -----------------------
John R. Frock and Director
/s/ Morgan R. Jones Director September 25, 1998
- -----------------------
Morgan R. Jones
30
<PAGE>
Director September 25, 1998
_______________________
Peter H. Havens
/s/ John H. Martinson Director September 25, 1998
- -----------------------
John H. Martinson
/s/ Eugene G. Monaco Director September 25, 1998
- -----------------------
Eugene G. Monaco
Director September 25, 1998
- -----------------------
Robert Zobel
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and the Board of Directors of Nobel Education Dynamics,
Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and retained earnings and of cash flows
present fairly, in all material respects, the consolidated financial position of
Nobel Education Dynamics, Inc. and its subsidiaries at June 30, 1998 and
December 31, 1997 and 1996, and the results of their operations and their cash
flows for the six months ended June 30, 1998 and each of the three years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
August 7, 1998,
except for Note 17 as to which the date is August 17, 1998
F-1
<PAGE>
NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents $ 408 $ 2,605 $ 5,252
Accounts receivable, less allowance for doubtful accounts
of $133 in 1998 and 1997 and $103 in 1996 1,130 1,091 779
Prepaid rent 1,276 1,046 734
Prepaid insurance and other 738 952 622
Deferred taxes -- -- 891
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 3,552 5,694 8,278
- -----------------------------------------------------------------------------------------------------------------------------------
Property and equipment, at cost 31,601 33,030 26,166
Accumulated depreciation (9,226) (7,856) (6,843)
- -----------------------------------------------------------------------------------------------------------------------------------
22,375 25,174 19,323
Property and equipment held for sale 1,371 1,495 1,111
Note receivable -- -- 425
Cost in excess of net assets acquired 41,753 37,439 25,601
Deposits and other assets 3,541 3,288 1,978
Deferred taxes 1,031 1,308 117
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 73,623 $ 74,398 $ 56,833
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
Current portion of long-term obligations $ 2,031 $ 2,793 $ 3,448
Accounts payable and other current liabilities 8,147 7,981 4,465
Unearned income 3,595 2,866 1,716
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 13,773 13,640 9,629
- -----------------------------------------------------------------------------------------------------------------------------------
Long-term obligations 20,311 22,497 10,808
Long-term subordinated debt 6,166 5,973 3,418
Capital lease obligations 162 208 290
Deferred gain on sale/leaseback 35 39 47
Minority interest in consolidated subsidiary 440 405 318
Total Liabilities 40,887 42,762 24,510
Commitments and Contingencies (Notes 3, 6, 9, and 16) Stockholders' Equity:
Preferred stock, $.001 par value; 10,000,000 shares authorized, issued
and outstanding 4,593,542 in 1998 and in 1997 and 4,697,542 in 1996
$5,530 aggregate liquidation preference at June 30, 1998 and
December 31, 1997 and $5,634 in 1996 5 5 5
Common stock, $.001 par value, 20,000,000 shares authorized, issued
and outstanding 6,121,365 in 1998 and in 1997 and 5,831,055 in 1996 6 6 6
Treasury Stock, cost; 36,810 shares (375) (375) --
Additional paid-in capital 38,340 38,340 37,665
Accumulated deficit (5,240) (6,340) (5,353)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 32,736 31,636 32,323
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 73,623 $ 74,398 $ 56,833
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
For the Six Months For the Year Ended December 31,
----------------------------------------------
Ended June 30, 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 48,995 $ 80,980 $ 58,909 $ 44,154
- ---------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Personnel costs 23,368 38,557 26,777 19,664
Center operating costs 7,023 11,932 8,755 6,640
Insurance, taxes, rent and other 9,661 16,131 11,128 7,946
Depreciation and amortization 2,090 3,238 2,211 1,512
- ---------------------------------------------------------------------------------------------------------------------------
42,142 69,858 48,871 35,762
- ---------------------------------------------------------------------------------------------------------------------------
School operating profit 6,853 11,122 10,038 8,392
- ---------------------------------------------------------------------------------------------------------------------------
New school development 501 400 207 146
General and administrative expenses 3,391 5,973 4,190 3,396
Litigation claim -- -- -- 500
Restructuring expense -- 2,960 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Operating income 2,961 1,789 5,641 4,350
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense 1,044 2,047 2,004 1,840
Other (income) expense (102) (158) (482) (126)
Minority interest in income of
consolidated subsidiary 35 86 94 86
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 1,984 (186) 4,025 2,550
Income tax (benefit) expense 833 250 1,562 (1,356)
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) before extraordinary item 1,151 (436) 2,463 3,906
- ---------------------------------------------------------------------------------------------------------------------------
Extraordinary loss on early extinguishment of
debt, (net of income tax benefit of $330
and $27 in 1997 and 1995, respectively) -- 449 -- 62
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) 1,151 (885) 2,463 3,844
Preferred stock dividends 51 102 109 184
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) available
to common stockholders $ 1,100 $ (987) $ 2,354 $ 3,660
===========================================================================================================================
Basic earnings (loss) per share
Net income (loss) before extraordinary item $ 0.18 $ (0.09) $ 0.42 $ 0.79
Extraordinary item -- (0.07) -- (0.01)
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.18 $ (0.16) $ 0.42 $ 0.78
===========================================================================================================================
Dilutive earnings (loss) per share
Net income (loss) before extraordinary item $ 0.15 $ (0.09) $ 0.34 $ 0.64
Extraordinary item -- (0.07) -- (0.01)
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.15 $ (0.16) $ 0.34 $ 0.63
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
TREASURY AND
ADDITIONAL COMMON
PREFERRED STOCK COMMON STOCK PAID-IN STOCK
-------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL ISSUABLE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1995 4,984,320 $ 5 15,445,063 $ 15 $ 19,645 $ --
Stock options exercised -- -- 150,000 -- 113 --
Warrants exercised -- -- 100,000 -- 50 --
Common shares issuable -- -- -- -- -- 2,000
Issuance of preferred stock 1,063,830 1 -- -- 1,999 --
Conversion of preferred stock (543,000) 638,568 1 (1) --
One-for-four reverse stock split -- -- (12,238,537) (12) 12 --
Preferred dividends -- -- -- -- -- --
Net income
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1995 5,505,150 $ 6 4,095,094 $ 4 $ 21,818 $ 2,000
====================================================================================================================================
Stock options and warrants
exercised and -- -- 63,750 -- 500 --
related tax benefit
Common shares issuable -- -- 312,500 1 1,999 (2,000)
Common shares issued -- -- 122,270 -- 1,740 --
Private placement of
common stock, net of
transaction costs -- -- 1,000,000 1 11,607 --
Conversion of preferred stock (807,608) (1) 237,441 -- 1 --
Preferred dividends -- -- -- -- -- --
Net income -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1996 4,697,542 $ 5 5,831,055 $ 6 $ 37,665 --
====================================================================================================================================
Stock options and warrants
exercised and -- -- 256,750 -- 682 --
related tax benefit
Conversion of preferred stock (104,000) -- 33,560 -- -- --
Other -- -- -- (7) --
Treasury stock
Preferred dividends -- -- -- -- -- --
Net loss -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 4,593,542 $ 5 6,121,365 $ 6 $ 38,340 $(375)
====================================================================================================================================
Preferred dividends -- -- -- -- -- --
Net income -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 1998 4,593,542 $ 5 6,121,365 $ 6 $ 38,340 $(375)
====================================================================================================================================
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance as of January 1, 1995 $ (11,367) $ 8,298
Stock options exercised -- 113
Warrants exercised -- 50
Common shares issuable -- 2,000
Issuance of preferred stock -- 2,000
Conversion of preferred stock -- --
One-for-four reverse stock split -- --
Preferred dividends (184) (184)
Net income 3,844 3,844
- ---------------------------------------------------------------------------------------------------
December 31, 1995 $ (7,707) $ 16,121
===================================================================================================
Stock options and warrants
exercised and -- 500
related tax benefit -- --
Common shares issuable -- --
Common shares issued -- 1,740
Private placement of
common stock, net of
transaction costs -- 11,608
Conversion of preferred stock -- --
Preferred dividends (109) (109)
Net income 2,463 2,463
- ---------------------------------------------------------------------------------------------------
December 31, 1996 $ (5,353) $ 32,323
===================================================================================================
Stock options and warrants
exercised and -- 682
related tax benefit
Conversion of preferred stock -- --
Other -- 7
Treasury stock -- (375)
Preferred dividends (102) (102)
Net loss (885) (885)
- ---------------------------------------------------------------------------------------------------
December 31, 1997 $ (6,340) $ 31,636
===================================================================================================
Preferred dividends (51) (51)
Net income 1,151 1,151
- ---------------------------------------------------------------------------------------------------
June 30, 1998 $ (5,240) $ 32,736
===================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flow
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Six Months For the Year Ended December 31,
---------------------------------------
Ended June 30, 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 1,151 $ (885) $ 2,463 $ 3,844
- -------------------------------------------------------------------------------------------------------------------------------
Adjustment to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation and amortization 1,964 3,230 2,202 1,586
Provision for losses on accounts receivable 96 345 87 97
Provision for restructuring 0 2,960 0 0
Provision for deferred taxes 277 (300) 1,207 0
Minority interest in income 35 86 94 86
Early extinguishment of debt 0 779 0 89
Reversal of tax valuation allowance 0 0 0 (1,481)
Changes in Assets and Liabilities Net of Acquisitions:
Accounts receivable (134) (612) (139) (128)
Prepaid assets (17) (641) (74) (188)
Other assets and liabilities 1,088 (228) (243) (176)
Unearned income (562) 213 (133) 46
Accounts payable and accrued expenses (599) 2,400 (689) 262
- -------------------------------------------------------------------------------------------------------------------------------
Total Adjustments 2,148 8,232 2,312 193
- -------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 3,299 7,347 4,775 4,037
- -------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital expenditures (4,952) (15,221) (12,776) (2,052)
Proceeds from sale of property and equipment 6,948 7,451 8,636 251
Payment for acquisitions net of cash acquired (3,457) (10,145) (4,968) (9,101)
Payment of earn out related to acquisition (1,500) 0 0 0
Other 0 0 0 (146)
- -------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (2,961) (17,915) (9,108) (11,048)
- -------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from term loan and revolving line of credit 12,526 18,641 6,000 7,500
Proceeds from subordinated debt 0 0 0 6,000
Proceeds from real estate mortgage 0 0 0 3,567
Proceeds from other debt 0 0 1,500 3,672
Transaction costs related to issuance of debt and stock 0 0 0 (1,091)
Proceeds from issuance of common stock 0 0 11,608 163
Repayment of long term debt (14,474) (9,682) (7,023) (11,699)
Repayment of subordinated debt (497) (1,164) (6,334) 0
Repayment of capital lease obligation (39) (71) (50) (56)
Proceeds from issuance of preferred stock 0 0 0 2,000
Dividends paid to preferred stockholders (51) (102) (108) (184)
Proceeds from exercise of stock options 0 299 277 0
- -------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities (2,535) 7,921 5,870 9,872
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (2,197) (2,647) 1,537 2,861
Cash and cash equivalents at beginning of year 2,605 5,252 3,715 854
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 408 $ 2,605 $ 5,252 $ 3,715
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULES FOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Six Months For the Year Ended December 31,
------------------------------------------------
Ended June 30, 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental Disclosures of Cash
Flow Information
Cash paid during year for:
Interest $ 992 $ 2,005 $ 1,973 $ 1,824
Income taxes 157 728 434 137
Noncash financing and investing activities
Tax benefit related to exercise of
stock options and warrants -- -- 224 --
Acquisitions
Fair value of tangible assets acquired 1,432 2,404 841 6,848
Cost in excess of net assets acquired 4,876 14,844 8,979 8,727
Cash acquired -- -- (573) (30)
Liabilities assumed (1,291) (1,352) (685) (934)
Notes issued (1,560) (5,751) (1,854) (3,310)
Escrow held -- -- -- (200)
Common shares issued -- -- (1,740) (2,000)
- -----------------------------------------------------------------------------------------------------------------
Total cash paid for acquisitions $ 3,457 $ 10,145 $ 4,968 $ 9,101
=================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND COMPANY BACKGROUND:
Nobel Education Dynamics, Inc. (the "Company") was founded in 1982 and
commenced operations in 1984. The Company operates private pre-schools,
elementary schools and middle schools located in California, the Mid-
Atlantic states, North Carolina, South Carolina, Virginia, Illinois,
Indiana, Washington, Florida, Oregon and Nevada.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries and majority-owned subsidiary. All
significant intercompany balances and transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECOGNITION OF REVENUES:
Revenue is recognized as the services are performed.
CASH AND CASH EQUIVALENTS
The Company considers cash on hand, cash in banks, and cash investments
with maturities of three months or less when purchased as cash and cash
equivalents. The Company maintains funds in accounts in excess of FDIC
insurance limits; however, the Company minimizes the risk by maintaining
deposits in high quality financial institutions.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the related assets as follows:
Buildings 40 years
Leasehold improvements The shorter of the leasehold
period or useful life
Furniture and equipment 3 to 10 years
Maintenance, repairs and minor renewals are expensed as incurred. Upon
retirement or other disposition of buildings and furniture and equipment,
the cost of the items, and the related accumulated depreciation are removed
from the accounts and any gain or loss is included in operations.
COST IN EXCESS OF NET ASSETS ACQUIRED:
The Company's policy is to amortize cost in excess of net assets acquired
related to acquisitions over 30 years for preschools and 40 years for
elementary schools. Management has evaluated the life cycles of similar
schools and determined that these lives are consistent with a historical
range for private elementary education. In evaluating potential
acquisitions of child care centers, management considers not only the
current child care operations but also the outlook for these centers as
elementary schools. The excess of purchase price over net assets acquired
is amortized on a straight-line basis.
Amortization expense amounted to $591,000, $1,005,000, $651,000, and
$342,000 for the six months ended June 30, 1998 and the years ended
December 31, 1997, 1996, and 1995, respectively. Accumulated amortization
at June 30, 1998, December 31, 1997 and 1996 was $3,745,691, $3,170,262 and
$2,289,599, respectively.
The Company reviews its long-lived assets for impairment on an exception
basis whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable through future cash
flows in accordance with FAS 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of". If it is
determined that an impairment loss has occurred based on expected future
cash flows, then the loss is recognized in the income statement and certain
disclosures regarding the impairment are made in the financial statements.
INCOME TAXES:
The Company accounts for income taxes using the asset and liability method,
in accordance with FAS 109, "Accounting for Income Taxes". Under the asset
and liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities. The effect on deferred taxes of a change in tax rate is
recognized in income in the period of enactment. A valuation allowance is
recorded based on the uncertainty regarding the ultimate realizability of
deferred tax assets.
REVERSE STOCK SPLIT:
On September 22, 1995, the stockholders approved a one-for-four reverse
stock split of the Company's common stock. The Company effected the reverse
split on September 28, 1995. For every four shares of common stock, each
stockholder received one share of common stock. All historical share and
per share amounts reflect the reverse stock split (except for the
consolidated statement of stockholders' equity).
EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share", which established new standards for
computations for earnings per share. The Company adopted the new standard
effective December 31, 1997 and restated the prior years calculation
accordingly. The restatement did not result in a material change from
amounts previously reported.
Earnings per share are based on the weighted average number of shares
outstanding and common stock equivalents during the period. In the
calculation of dilutive earnings per share, shares outstanding are adjusted
to assume conversion of the Company's non-dividend bearing convertible
preferred stock if they are dilutive. In the calculation of basic earnings
per share, weighted average number of shares outstanding are used as the
denominator.
F-7
<PAGE>
Earnings per share are computed as follows (dollars in thousands except per
share data):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic (loss) earnings per share:
Net (loss) income $ 1,151 $ (885) $ 2,463 $ 3,844
Less preferred
stock dividends 51 102 109 184
----------------------------------------------------------------------------------------------------
Net income available
for common stock 1,100 (987) 2,354 3,660
Average common
stock outstanding 6,121,365 6,052,625 5,545,605 4,688,355
Basic earnings (loss)
per share $ 0.18 $ (0.16) $ 0.42 $ 0.78
Diluted earnings (loss) per share:
Net (loss) income available
for common stock and
dilutive securities $ 1,151 $ (987) $ 2,463 $ 3,844
Average common
stock outstanding 6,121,365 6,052,625 5,545,605 4,688,355
Additional common
shares resulting from
dilutive securities:
Options, warrants
and convertible
preferred stock 1,395,686 N/A 1,717,178 1,440,786
----------------------------------------------------------------------------------------------------
Average common
stock and dilutive
securities outstanding 7,517,051 6,052,625 7,262,783 6,129,141
Diluted earnings
(loss) per share $ 0.15 $ (0.16) $ 0.34 $ 0.63
</TABLE>
CONCENTRATIONS OF CREDIT RISK
The Company provides its services to the parents and guardians of the
children attending the schools. The Company does not extend credit for an
extended period of time, nor does it require collateral. Exposure to losses
on receivables is principally dependent on each person's financial
condition. The Company monitors its exposure for credit losses and
maintains allowances for anticipated losses.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified in the current year for
comparative purposes.
(2) CHANGE IN FISCAL YEAR
In the last quarter of 1997, the Company changed its fiscal year end to the
end of June. Accordingly, the Company's transition period, which ended June
30, 1998 includes the six months from January 1 to June 30, 1998. There
were 52 weeks in each of fiscal 1997, 1996 and 1995 and 26 weeks in fiscal
1998.
The following unaudited results of operations for the six months ending
June 30, 1997 are presented for comparative purposes and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for that period (dollars in thousands, except
per share data).
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
(unaudited)
--------------------------------------------------------------------------------------------
<S> <C>
Revenues $39,664
Operating expenses 32,878
--------------------------------------------------------------------------------------------
School operating profit 6,786
New school development 98
General and administrative expenses $ 2,817
--------------------------------------------------------------------------------------------
Operating income 3,871
--------------------------------------------------------------------------------------------
Interest expense 854
Other income (5)
Minority interest in earnings of consolidated subsidiary 49
--------------------------------------------------------------------------------------------
Income before income taxes 2,973
Income tax expense 1,249
--------------------------------------------------------------------------------------------
Net income 1,724
--------------------------------------------------------------------------------------------
Preferred stock dividends 51
--------------------------------------------------------------------------------------------
Net income available to common stockholders $ 1,673
============================================================================================
Basic earnings per share $0.28
============================================================================================
Dilutive earnings per share $0.23
============================================================================================
</TABLE>
(3) ACQUISITIONS:
During the six months ended June 30, 1998 and the years ended December 31,
1997 and 1996, the Company completed various acquisitions, all of which are
accounted for using the purchase method, which are described below. The
results of operations for all acquisitions are included in the Consolidated
Statement of Income from the date of acquisition.
1998 ACQUISITIONS
In March and May 1998, the Company completed the acquisition of four
elementary schools and one preschool. The Company acquired the assets of
Touchstone Elementary School in Lake Oswego, Oregon, which has a capacity
for 150 students. The Company acquired the stock of Lake Forest Park
Montessori School, Inc., owner of Lake Forest Park Montessori School, in
Seattle, Washington, which has a capacity of 250 students. The Company
acquired the assets of the Western School, located in North Lauderdale,
Florida, which has a capacity for 350 children. Lastly, the Company
acquired the Brighton Schools in Seattle, Washington. The Brighton Schools
consist of an elementary school and a preschool with a combined capacity of
319 students. The aggregate purchase price for the four acquisitions
equaled $3,457,000 in cash, $1,560,000 in subordinated notes payable over
five years and approximately $1,291,000 in assumed liabilities.
1997 ACQUISITIONS:
ACQUISITION OF ANOTHER GENERATION ENTERPRISES INC.
In January 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. 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.
Also in January 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
F-8
<PAGE>
School is an elementary school with a capacity of 340 students 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
In April 1997, the Company acquired the Rainbow Bridge schools located in
San Jose, California. Rainbow Bridge schools include two private elementary
and middle schools and three preschools, with combined licensed capacity of
950. The purchase price of the acquisitions totaled $7,508,000, $5,140,000
paid in cash and $2,368,000 paid in notes (including amounts paid on an
"earn out" based on achievement of certain earnings targets).
ACQUISITION OF LAS VEGAS SCHOOLS
In September 1997, the Company purchased three schools located in Las
Vegas, Nevada, formerly operating as Hillpointe Elementary School and
Warren Walker Preschools, with current combined licensed capacity of 670.
The Hillpointe Elementary School is a new school which opened in September
1997. The 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.
1996 ACQUISITIONS:
ACQUISITION OF VIRGINIA PRESCHOOLS:
Pursuant to an acquisition agreement in February 1996, the Company acquired
all the assets of four Virginia corporations, each of which operates a
preschool in Virginia. The purchase price consisted of (i) $3,200,000 in
cash, (ii) a five-year note in the principal amount of $337,000 bearing
interest at the rate of 7% per annum and (iii) a cash earn-out payment of
$25,000 paid in October 1996. The Company also entered into a five year
non-compete agreement that requires monthly payments of $1,667 through
February 2001. Also in February 1996, the Company acquired the assets of a
fifth Virginia preschool for 96,192 shares of the Company's common stock
(valued at $1,500,000 for financial statement purposes), and a cash earn-
out payment of $12,500 paid in October 1996.
ACQUISITION OF MACGREGOR CREATIVE SCHOOLS, OAK RIDGE PRIVATE SCHOOL AND
EVERGREEN ACADEMY:
In November 1996, the Company acquired the assets of MacGregor Creative
Schools located in Cary, North Carolina. MacGregor Creative Schools
consisted of two preschools with aggregate capacity of 408 children. In
December 1996, the Company acquired the assets of Oak Ridge Private School,
an elementary school located in Coto de Caza, California. Oak Ridge Private
School has potential licensed capacity of 198 children. In December 1996,
the Company acquired the stock of Montessori House, Inc., which owned
Evergreen Academy located in Seattle, Washington. Evergreen Academy
consists of one elementary/middle school and one preschool with aggregate
licensed capacity of 400 children. A portion of the purchase price for this
transaction was paid on January 2, 1997. The purchase prices of these three
transactions totaled approximately $2,560,000 in cash, $780,000 in
subordinated notes, $240,000 in stock (26,078 shares) and approximately
$300,000 in assumed liabilities.
UNAUDITED PRO FORMA INFORMATION:
The operating results of all acquisitions are included in the Company's
consolidated results of operations from the date of acquisition. The
following pro forma financial information assumes the acquisitions which
closed during 1998, 1997 and 1996 all occurred at the beginning of 1996.
These results have been prepared for comparative purposes only and do not
purport to be indicative of what would have occurred had the acquisitions
been made at the beginning of 1996, or of the results which may occur in
the future. Further, the information gathered from some acquired companies
are estimates since some acquirees did not maintain information on a period
comparable with the Company's fiscal year-end (dollars in thousands).
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996
(UNAUDITED) (UNAUDITED)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $50,747 $90,283 $81,700
Net income
before extraordinary item 1,279 252 3,242
Earning per share
Basic $ 0.21 $ 0.04 $ 0.58
Diluted $ 0.17 $ 0.03 $ 0.44
</TABLE>
(4) CASH EQUIVALENTS:
The Company has an agreement with its primary bank that allows the bank to
act as the Company's principal in making daily investments with available
funds in excess of a selected minimum account balance. This investment
amounted to $2,364,000, $6,000,000 and $3,040,000 at June 30, 1998,
December 31, 1997 and 1996, respectively. The Company's funds were invested
in money market accounts which exceed federally insured limits. The Company
believes it is not exposed to any significant credit risk on cash and cash
equivalents as such deposits are maintained in high quality financial
institutions.
(5) PROPERTY AND EQUIPMENT:
The balances of major property and equipment classes, excluding property
and equipment held for sale, were as follows (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 3,147 $ 3,461 $ 4,105
Buildings 6,154 6,685 8,936
Assets under capital
lease obligations 913 913 913
Leasehold improvements 5,947 5,358 4,477
Furniture and equipment 12,573 10,593 7,723
Construction in progress 2,867 6,020 12
----------------------------------------------------------------------------------------
31,601 33,030 26,166
Accumulated depreciation (9,226) (7,856) (6,843)
----------------------------------------------------------------------------------------
$22,375 $25,174 $19,323
========================================================================================
</TABLE>
Depreciation expense was $1,325,000, $2,096,000, $1,560,000, and $1,150,000
for the six months ended June 30, 1998 and for the years 1997, 1996 and
1995, respectively. Amortization of capital leases included in depreciation
expense amounted to $7,320 in the six months ended June 30, 1998, and
$14,640 in each of the years 1997, 1996, and 1995. Accumulated amortization
of capital leases
F-9
<PAGE>
amounted to $468,000, $461,000, and $446,000 as of June 30, 1998, December
31, 1997, and 1996, respectively.
(6) RESTRUCTURING AND PROPERTY AND EQUIPMENT HELD FOR SALE
In the fourth quarter of 1997 the Company approved a restructuring plan
which included (1) reorganization of the geographic school districts, (2)
reorganization of the structure of operations management, (3) the decision
to close several schools and to write down the book value of the assets of
schools which are non-performing, (4) placing non-performing schools for
sale and (5) hiring of a Chief Operating Officer (President). In an effort
to improve Company performance, the Company restructured its existing
operations management. The Executive Director position replaced both the
Regional Manager and the District Manager positions. The number of schools
for which each manager is responsible has been reduced so that each can
spend more time in the schools.
In conjunction with the restructuring, the Company recorded a $2,960,000
charge in December 1997. The restructuring charge included (1) a $2,000,000
write down of the cost in excess of net assets acquired related to schools
located in Indianapolis, (2) $789,000 related to the closing of non-
performing schools, and (3) $171,000 related to the costs associated with
the restructuring of the management team.
The write down of fixed assets and cost in excess of net assets acquired
was determined based on the estimated selling prices of these assets based
on prior experience from comparable situations and information provided by
outside brokers.
Non cash charges included in the $2,960,000 charge were $2,269,019. During
the six months ended June 30, 1998, cash payments related to the closing of
non-performing schools and cost associated with the restructuring of the
management team were $144,897 and $129,837, respectively.
The amounts reflected in the table below for 1996 reflect certain
properties located in the Southeast related to a prior restructuring.
The balances of major property and equipment held for sale were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 219 $ 219 $ 512
Buildings 741 741 940
Leasehold improvements 936 623 -
Furniture and equipment 629 1,030 374
Accumulated depreciation (1,154) (1,118) (715)
--------------------------------------------------------------------------------
$ 1,371 $ 1,495 $ 1,111
================================================================================
</TABLE>
(7) DEBT:
Debt consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM OBLIGATIONS:
Revolving and Term
Credit Facility $19,427 $21,574 $11,770
1st mortgages, due in varying
installments over three to
twenty years with fixed interest
rates ranging from 11% to 12%. 281 301 1,002
Notes payable to sellers from
various acquisitions, due in
varying installments over three to
fifteen years with fixed interest
rates varying from 8% to 12%. 257 288 644
Other 758 484 239
-------------------------------------------------------------------------------------------------
Total long term obligations $20,723 $22,647 $13,655
Less current portion (412) (150) (2,847)
-------------------------------------------------------------------------------------------------
$20,311 $22,497 $10,808
=================================================================================================
SUBORDINATED DEBT:
Subordinated debt agreements, due
in varying installments over five
to ten years with fixed interest
rates varying from 7% to 8%. $ 7,697 $ 8,534 $ 3,947
-------------------------------------------------------------------------------------------------
Less current portion (1,531) (2,561) (529)
-------------------------------------------------------------------------------------------------
$ 6,166 $ 5,973 $ 3,418
=================================================================================================
</TABLE>
DEBT:
On August 31, 1995, the Company completed a $23,000,000 refinancing (the
"Refinancing") which consisted of the placement of: (1) a $7,500,000
revolving line of credit and a $7,500,000 term loan, both financed through
Summit Bank (the "Credit Agreement"); (2) $6,000,000 of subordinated
debentures with Allied Capital Corporation and affiliated entities
(collectively, "Allied"); (3) 1,063,830 shares of Series D Convertible
Preferred Stock sold to Allied for a purchase price of $2,000,000; and (4)
warrants sold to Allied to acquire an aggregate of 309,042 shares of the
Company's Common Stock, subject to certain adjustments under anti-dilution
provisions, for a purchase price of $100. The Refinancing resulted in an
extraordinary loss of $62,000 related to the write-off of the unamortized
loan origination fees in 1995.
On November 1, 1996, the Company amended the Credit Agreement which
increased the Company's revolving line of credit from $7,500,000 to
$10,000,000 and extended the maturity dates of the loans.
F-10
<PAGE>
In 1997, the Company amended its credit agreement three times, the most
significant of which occurred in December with the execution of the Seventh
Amendment and Modification to the Credit Agreement. These amendments: (1)
increased the Company's borrowing capacity to $25,000,000, (2) changed the
prior fixed interest rates (applicable to term loans) to variable rates,
(3) provided that all revolving debt will convert to a term loan in January
2001, (4) extended terms for an additional five years for the prior term
loan and six years for the prior revolving line of credit and (5) increased
the number of permitted new school construction projects. Two facilities
are established under the Seventh Amendment: a $3,000,000 facility
(Revolving and Term Facility A) and a $22,000,000 facility (Revolving and
Term Facility B). Amounts outstanding under term loans at the time of the
restructuring were treated as initial outstanding balances under the new
Revolving and Term Facilities. Under the new arrangements, no principal
payments are required until January 1, 2001. Commencing on January 1, 2001,
the Company must pay outstanding principal balance of the Revolving and
Term Facilities in 60 equal monthly installments.
Interest on the unpaid principal balance of Revolving and Term Facility A
accrues at a variable interest rate ("Floating Rate") equal to the base
rate of Summit Bank plus 25 basis points (subject to reduction, based on
performance). Interest on the unpaid principal balance of Revolving and
Term Facility B accrues at a variable interest rate equal to the Floating
Rate or a LIBOR-based rate (at the Company's option, chosen at the
beginning of any interest rate period). Interest rates on the outstanding
borrowings as of June 30, 1998 ranged from 8.0% to 8.5% with an effective
weighted average rate of 8.5%.
The Company may elect to convert to a term loan portions of the Revolving
and Term Facility B in increments of $2,500,000. Such term loans would be
payable over sixty months.
By postponing the dates of required principal payments under the Company's
loans, the Seventh Amendment significantly improved the Company's cash flow
requirements under these loans. The restructuring allows the Company
greater flexibility in managing its cash flow and allows greater ability to
use available funds to grow the Company. Because of the significant change
in the repayment terms of the senior loan, in accordance with Emerging
Issue Task Force Issue 96-19 "Debtors Accounting for Modification of Debt
Instrument", the Company wrote off the financing fees related to the prior
financing totaling $779,000 on a pretax basis. The charge was recorded as
an extraordinary item and accordingly shown tax effected.
At June 30, 1998 and December 31, 1997, the principal amounts outstanding
under the Revolving and Term Facility B were $19,427,000 and $21,574,000,
and no amounts were outstanding under the Revolving and Term Facility A.
The Company's debt agreements contain restrictive covenants regarding the
payment of common stock dividends and the maintenance of ratios related to
debt to earnings before interest, taxes, depreciation and amortization.
Maturities of long-term obligations are as follows: $1,943,000 in 1999,
$2,000,000 in 2000, $1,978,000 in 2001, $1,792,000 in 2002, $878,000 in
2003, and $401,000 in 2004 and thereafter. The terms of the Company's
credit facility with Summit Bank, as amended, require principal payments
commencing January 1, 2001. The Company borrows and repays on the
facilities from time to time, as cash becomes available or is needed.
Therefore, the maturities of the Revolving and Term Credit Facilities have
not been included in the above figures.
8) ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES:
Accounts payable and other current liabilities were as follows (dollars in
thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts payable $1,029 $1,508 $ 788
Reserve for closed centers 644 832 100
Accrued payroll and related items 1,791 1,673 1,189
Accrued rent 600 563 420
Accrued property taxes 1,514 1,063 1,065
Other accrued expense 2,569 2,342 903
--------------------------------------------------------------------------------------------------
$8,147 $7,981 $4,465
==================================================================================================
</TABLE>
(9) LEASE OBLIGATIONS:
Future minimum rentals, for the real properties utilized by the Company and
its subsidiaries, by year and in the aggregate, under the Company's capital
leases and noncancellable operating leases, excluding leases assigned,
consisted of the following at June 30, 1998 (dollars in thousands):
OPERATING LEASES
<TABLE>
<CAPTION>
SCHOOLS
CLOSED TO BE CONTINUING
SCHOOLS DIVESTED SCHOOLS TOTAL
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 $ 253 $ 591 $ 15,072 $ 15,916
2000 200 591 14,319 15,110
2001 176 590 13,940 14,706
2002 172 573 13,180 13,925
2003 132 485 12,490 13,107
2004 and thereafter 224 3,477 89,870 93,571
-------------------------------------------------------------------------
Total minimum
lease obligations $1,157 $6,307 $158,871 $166,335
=========================================================================
CAPITAL LEASES
1999 $ 116
2000 105
2001 77
2002 0
-------------------------------------------------------------------------
Total minimum lease obligations $ 298
-------------------------------------------------------------------------
Less amount representing interest 48
-------------------------------------------------------------------------
Present value of capital lease obligations 250
-------------------------------------------------------------------------
Less current portion 88
-------------------------------------------------------------------------
$ 162
=========================================================================
</TABLE>
Most of the above leases contain annual rental increases based on changes
in consumer price indexes, which are not reflected in the above schedule.
Rental expense for all operating leases was $7,103,000, $11,157,000,
$8,113,000, and $5,829,000 for the six months ended June 30, 1998 and the
years ended December 31, 1997,
F-11
<PAGE>
1996 and 1995, respectively. These leases are typically triple-net leases
requiring the Company to pay all applicable real estate taxes, utility
expenses and insurance costs.
The Company entered into agreements to assign or sublease leases for five
centers under development and nine centers which were operating. The 14
assigned leases have remaining terms from four years to 14 years. Under the
agreements, the Company is contingently liable if the assignee is in
default under the lease. Contingent future rental payments under the
assigned leases are as follows (dollars in thousands):
1999 $ 674
2000 $ 657
2001 $ 595
2002 $ 589
2003 and thereafter $1,798
(10) STOCKHOLDERS' EQUITY:
PREFERRED STOCK:
In connection with the Refinancing (see Note 7), on August 31, 1995, the
Company issued 1,063,830 shares of the Company's Series D Convertible
Preferred Stock for a purchase price of $2,000,000. The Series D Preferred
Stock is convertible to Common Stock at a conversion rate, subject to
adjustment, of 1/4 share of Common Stock for each share of Series D
Convertible Preferred Stock. Holders of Series D are not entitled to
dividends, unless dividends are declared on the Company's Common Stock.
Upon liquidation, the holders of shares of Series D Convertible Preferred
Stock are entitled to receive, before any distribution or payment is made
upon any Common Stock, $1.88 per share plus any unpaid dividends. At June
30, 1998, December 31, 1997 and 1996, 1,063,830 shares were outstanding.
On August 22, 1994, the Company completed a private placement of an
aggregate of 2,500,000 shares of Series C Convertible Preferred Stock and
the Series 1 Warrants and Series 2 Warrants discussed below under "Common
Stock Warrants" for an aggregate purchase price of $2,500,000. The Series C
Preferred Stock is convertible into Common Stock at a conversion rate,
subject to adjustment, of 1/4 share of Common Stock for each share of
Series C Convertible Preferred Stock. Holders of shares of Series C
Convertible Preferred Stock are not entitled to dividends unless dividends
are declared on the Company's Common Stock. Upon liquidation, the holders
of shares of Series C Convertible Preferred Stock are entitled to receive,
before any distribution or payment is made upon Common Stock, $1.00 per
share plus any unpaid dividends. At June 30, 1998, December 31, 1997 and
1996, 2,500,000 shares were outstanding.
On July 20, 1993, the Company completed a private placement of 2,484,320
shares of its Series A Convertible Preferred Stock at a purchase price of
$1.00 per share. The Series A Preferred Stock is convertible into Common
Stock at a conversion rate, subject to adjustment, of .2940 shares of
Common Stock for each share of Series A Preferred Stock. The Series A
Preferred Stock is redeemable by the Company at any time after the fifth
anniversary of its issuance at a redemption price of $1.00 per share plus
cumulative unpaid dividends. The Preferred Stock is not redeemable at the
option of the holders. Upon liquidation, the holders of shares of Series A
Preferred Stock are entitled to receive, before any distribution or payment
is made upon any Common Stock, $1.00 per share plus all accrued and unpaid
dividends. At June 30, 1998, December 31, 1997 and 1996, 1,029,712,
1,029,712 and 1,133,712 shares were outstanding, respectively. Each share
of Series A Preferred Stock entitles the holder to an $.08 per share annual
dividend.
Each share of Series A Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock entitles the holder to a number of votes equal to the
number of full shares of Common Stock into which such share is convertible.
Except as otherwise required by law, holders of Preferred Stock vote
together with the Common Stock, and not as a separate class, in the
election of directors and on each other matter submitted to a vote of the
stockholders.
PRIVATE PLACEMENT OF COMMON STOCK:
On March 5, 1996, the Company raised approximately $11,600,000 net proceeds
through the issuance of 1,000,000 shares of common stock at $12 per share.
COMMON STOCK WARRANTS:
In connection with the Refinancing (see Note 7) on August 31, 1995, the
Company issued to Allied warrants to acquire an aggregate of 309,042 shares
of the Company's Common Stock.
On May 28, 1997, Mr. Clegg exercised a warrant to purchase 187,500 shares
at a purchase price of $2.00 per share. Mr. Clegg paid the exercise price
of the warrant by delivery of 36,810 shares of Common Stock valued at
$10.19 per share, which was the fair market value of the Common Stock on
the date of the exercise. Accordingly, the Company recorded the shares
acquired from Mr. Clegg as treasury stock on the balance sheet.
1995 STOCK INCENTIVE PLAN
On September 22, 1995, the stockholders approved the 1995 Stock Incentive
Plan. On September 19, 1997, the stockholders approved amendments to the
1995 Stock Incentive Plan, including an increase in the number of shares of
common stock available for issuance under the Plan to 750,000. Under the
Plan, common stock may be issued in connection with stock grants, incentive
stock options and non-qualified stock options. The purpose of the Plan is
to attract and retain quality employees. All grants to date under the Plan
(other than a certain stock grant which was terminated) have been non-
qualified stock options which vest over three years (except that options
issued to directors vest in full six months following the date of grant).
1988 STOCK OPTION AND STOCK GRANT PLAN:
During 1988, the Company established the 1988 stock option and stock grant
plan. This plan reserved up to an aggregate of 125,000 shares of common
stock of the Company for issuance in connection with stock grants,
incentive stock options and non-qualified stock options.
1986 STOCK OPTION AND STOCK GRANT PLAN:
During 1986, the Company established a stock option and stock grant plan,
which was amended in 1987. The 1986 Plan, as amended, reserved up to an
aggregate of 216,750 shares of common stock of the Company for issuance in
connection with stock grants, incentive stock options and non-qualified
stock options.
The number of options granted under the 1995 Stock Incentive Plan is
determined from time to time by the Compensation Committee of the Board of
Directors, except for options granted to non-employee directors, which is
determined by a formula set forth in the Plan. Incentive stock options are
granted at market value or
F-12
<PAGE>
above, and non-qualified stock options are granted at a price fixed by the
Compensation Committee at the date of grant. Options are exercisable for up
to ten years from date of grant.
Option activity (adjusted for the 4:1 reverse split) with respect to the
Company's stock incentive plans and other employee options was as follows:
OUTSTANDING OPTIONS
WEIGHTED AVERAGE
NUMBER RANGE EXERCISE PRICE
-------------------------------------------------------------------
Balance,
January 1, 1995 79,775 $ 3.00 to $ 13.00 $ 4.57
-------------------------------------------------------------------
Granted 102,950 $11.625 $11.625
Canceled - - - -
Exercised (37,500) $ 3.00 to $ 4.00 $ 3.75
-------------------------------------------------------------------
Balance,
December 31, 1995 145,225 $ 3.00 to $ 13.00 $ 9.78
===================================================================
Granted 60,500 $ 10.50 to $ 15.81 $ 11.52
Canceled (28,175) $11.625 $11.625
Exercised (28,750) $ 4.00 to $ 6.00 $ 3.75
-------------------------------------------------------------------
Balance,
December 31, 1996 148,800 $ 3.00 to $ 15.81 $ 12.67
===================================================================
Granted 183,200 $ 7.88 to $ 10.50 $ 9.48
Canceled (54,575) $ 3.00 to $ 13.00 $ 11.50
Exercised ( 6,250) $ 3.50 to $ 13.50 $ 11.50
-------------------------------------------------------------------
Balance,
December 31, 1997 271,175 $ 3.00 to $ 16.50 $ 10.75
===================================================================
Granted 156,507 $ 5.06 to $ 9.250 $ 5.90
Canceled (13,250) $ 7.87 to $11.625 $ 10.02
Exercised 0 $ - to $ - $ -
-------------------------------------------------------------------
Balance,
June 30, 1998 414,432 $ 3.00 to $ 16.50 $ 8.15
===================================================================
At June 30, 1998, December 31, 1997 and 1996, 417,943, 545,940 and 269,813
shares, respectively, remained available for options or stock grants under
the 1995 Stock Incentive Plan and 77,191 options were exercisable under
such Plan and earlier stock option plans.
The Company has adopted the disclosure only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation." Accordingly, no compensation
cost has been recognized for the Company's stock option plans. Had
compensation cost for the Company's stock option plans been determined
based on the fair value at the grant date for awards in 1996 and 1995
consistent with the provisions of SFAS No. 123, the Company's net income
and net income per share would have been decreased to the pro forma amounts
indicated below (dollars in thousands except per share data):
JUNE 30, YEAR ENDED DECEMBER 31,
1998 1997 1996 1995
-----------------------------------------------------------------------
Net (loss) income
- as reported 1,151 $ (885) $2,463 $3,844
Net (loss) income
- pro forma 863 (1,222) 2,365 3,841
Net (loss) income per share
- as reported $ .018 $ (0.16) $ 0.42 $ 0.78
Net (loss) income per share
- pro forma $ 0.14 $ (0.20) $ 0.41 $ 0.78
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996:
Expected dividend yield 0%
Expected stock price volatility 39.23%
Risk-free interest rate 5.42 - 5.80%
Expected life of options 3 years
Activity (adjusted for the 4:1 reverse split) with respect to warrants
outstanding at June 30, 1998 is as follows:
<TABLE>
<CAPTION>
NUMBER RANGE
<S> <C> <C>
------------------------------------------------------------------------------------------------
Balance, January 1, 1995 430,000 $2.00 to $4.00
Granted 309,042 $7.52
Canceled - - -
Exercised (25,000) $2.00
------------------------------------------------------------------------------------------------
Balance, December 31, 1995 714,042 $2.00 to $7.52
------------------------------------------------------------------------------------------------
Granted - - -
Canceled - - -
Exercised (25,000) $4.13 -
------------------------------------------------------------------------------------------------
Balance, December 31, 1996 689,042 $2.00 to $7.52
------------------------------------------------------------------------------------------------
Granted - - -
Canceled (5,000) $2.00 to $7.52
Exercised (250,000) $2.00
------------------------------------------------------------------------------------------------
Balance, December 31, 1997 434,042 $4.00 to $7.52
------------------------------------------------------------------------------------------------
Granted -
Canceled -
Exercised -
------------------------------------------------------------------------------------------------
Balance, June 30, 1998 434,042 $4.00 to $7.52
------------------------------------------------------------------------------------------------
</TABLE>
(11) OTHER (INCOME) EXPENSE:
Other (income) expense consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ (95) $(179) $(470) $(142)
Rental income (17) (77) (143) (194)
Depreciation related to
rental properties 9 33 73 82
Other projects - (2) - 29
Costs related to centers
held for sale 1 67 58 99
---------------------------------------------------------------------------------------------------
$ (102) $(158) $(482) $(126)
===================================================================================================
</TABLE>
(12) RELATED-PARTY TRANSACTIONS:
Legal services were rendered to the Company by Drinker Biddle & Reath, of
which a director of the Company is a partner. The Company expects this firm
to continue to provide such services during 1998. Fees paid to the firm for
the six months ended June 30, 1998 and for the years 1997, 1996 and 1995
totaled $2,028, $36,000, $128,000, and $704,000, respectively.
F-13
<PAGE>
(13) INCOME TAXES:
Current tax provision (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal $467 $ 26 $ 62 $ 34
States 89 194 293 91
-----------------------------------------------------------------------------------------------
$556 $ 220 $ 355 $ 125
Deferred tax provision 277 30 $ 1,207 (1,481)
-----------------------------------------------------------------------------------------------
$833 $ 250 $ 1,562 $(1,356)
===============================================================================================
</TABLE>
The difference between the actual income tax rate and the statutory U.S.
federal income tax rate is attributable to the following (dollars in
thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, 1998 1997 1996 1995
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. federal statutory rate $674 ($ 63) $ 1,364 $ 867
State taxes, net of
federal tax benefit 54 $ 137 $ 119 $ 127
Benefit from realization
of net operating losses 0 0 0 ($996)
Reduction in valuation allowance 0 0 0 $(1,481)
Goodwill and other 105 176 79 127
-------------------------------------------------------------------------------------------
$833 $ 250 $ 1,562 $(1,356)
===========================================================================================
</TABLE>
Deferred income taxes reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws.
Temporary differences and carry forwards which give rise to a significant
portion of deferred tax assets and liabilities are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED JUNE 30, 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX ASSETS TAX ASSETS TAX ASSETS TAX ASSETS
(LIABILITIES) (LIABILITIES) (LIABILITIES) (LIABILITIES)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation ($725) ($576) $ (383) $ (241)
Provision for center
closings and
other restructurings 1,534 1,635 379 1,270
Net operating losses 0 0 801 720
AMT credit carryforward 95 94 90 126
Other 127 155 121 116
------------------------------------------------------------------------------------------------------------
Net deferred tax asset $1,031 $1,308 $1,008 $1,991
============================================================================================================
</TABLE>
In 1995, based on three years of positive net income and the analysis of
projections for the years 1996 through 1999, the Company removed the
remaining valuation allowance. Accordingly, such amounts were recorded as a
credit to income tax expense in the respective periods.
(14) EMPLOYEE BENEFIT PLANS:
The Company has a 401(k) Plan whereby eligible employees may elect to
enroll after one year of service. The Company matches 25% of an employee's
contribution to the Plan of up to 6% of the employee's salary. Nobel's
matching contributions under the Plan were $60,000, $90,000, $74,000 and
$61,000 for the six months ended June 30, 1998 and the years ended December
31, 1997, 1996 and 1995, respectively.
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair value of financial instruments approximates carrying value. The
following methods and assumptions were considered by the Company in
determining its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet approximates fair value.
Debt: The estimated fair value of the Company's debt as a whole was based
on the discounted cash flows of all debt instruments.
(16) COMMITMENTS AND CONTINGENCIES:
The Company is engaged in other legal actions arising in the ordinary
course of its business. The Company believes that the ultimate outcome of
all such matters above will not have a material adverse effect on the
Company's consolidated financial position. The significance of these
matters on the Company's future operating results and cash flows depends on
the level of future results of operations and cash flows as well as on the
timing and amounts, if any, of the ultimate outcome.
The Company carries fire and other casualty insurance on its centers and
liability insurance in amounts which management believes is adequate for
its operations. As is the case with other entities in the education and
preschool industry, the Company cannot effectively insure itself against
certain risks inherent in its operations. Some forms of child abuse have
sublimits per claim in the general liability coverage.
(17) SUBSEQUENT EVENTS
DEBT
In July 1998, the Company issued a $10,000,000 senior subordinated note to
Allied Capital Corporation. The senior subordinated note bears interest at
10.0% and matures in two installments of principal, $5,000,000 in 2004 and
$5,000,000 in 2005. Payments on the note are subordinate to the Company's
senior bank debt. In connection with the financing transaction, the Company
also issued to Allied Capital Corporation warrants to acquire 531,255
shares of the Company's common stock at $8.5625 per share. The Company
recorded a debt discount and allocated $900,000 of the proceeds of the
transaction to the value of the warrants. This debt discount is being
amortized to interest expense over the term of the note.
FORMATION OF SUBSIDIARY AND ACQUISITION
On August 17, 1998, the Company entered into a joint venture transaction
with Developmental Resource Center, Inc. (DRC), which is owned 80% by Nobel
Education Dynamics, Inc. and 20% by Dr. Deborah Levy, a recognized leader
in the field of special education programs. The joint venture, Nobel
Learning Solutions, LLC acquired the assets of DRC. The three schools,
located in Florida, specialize in full day programs, summer camps, testing
services and clinics for K-8th grade students who have learning challenges
such as dyslexia, attention deficit disorder (ADD and ADHD), and other
learning disabilities.
F-14
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description of Exhibit
3.1 Registrant's Certificate of Incorporation, as amended and restated.
(Filed as Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, and incorporated herein by
reference.)
3.2 Registrant's Certificate of Designation, Preferences and Rights of
Series A Convertible Preferred Stock. (Filed as Exhibit 7(c) to the
Registrant's Current Report on Form 8-K filed on June 14, 1993 and
incorporated herein by reference.)
3.3 Registrant's Certificate of Designation, Preferences and Rights of
Series C Convertible Preferred Stock. (Filed as Exhibit 4(ae) to the
Registrant's Quarterly Report on Form 10-Q with respect to the quarter
ended June 30, 1994 and incorporated herein by reference.)
3.4 Registrant's Certificate of Designation, Preferences and Rights of
Series D Convertible Preferred Stock. (Filed as Exhibit 4E to the
Registrant's Current Report on Form 8-K filed on September 11, 1995,
date of earliest event reported August 25, 1995, and incorporated
herein by reference.)
3.5 Registrant's Amended and Restated By-laws. (Filed as Exhibit 3.4 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, and incorporated herein by reference.)
4.1 Loan and Security Agreement dated August 30, 1995 (the "Loan and
Security Agreement") among the Registrant, certain subsidiaries of the
Registrant and Summit Bank (formerly First Valley Bank). (Filed as
Exhibit 4F to the Registrant's Current Report on Form 8-K filed on
September 11, 1995, date of earliest event reported August 25, 1995,
and incorporated herein by reference.)
4.2 Second Amendment and Modification dated April 4, 1996 and Third
Amendment and Modification dated July 2, 1996 to the Loan and Security
Agreement. (Filed as Exhibit 4.1 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996, and incorporated
herein by reference.)
4.3 Fourth Amendment and Modification dated November 1, 1996 to Loan and
Security Agreement. (Filed as Exhibit 4.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, and incorporated herein by reference.)
4.4 Fifth Amendment and Modification dated March 20, 1997 to Loan and
Security Agreement. (Filed as Exhibit 4.4 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, and
incorporated herein by reference.)
4.5 Sixth Amendment and Modification dated May 5, 1997 to Loan and
Security Agreement. (Filed as Exhibit 4.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997,
and incorporated herein by reference.)
4.6 Seventh Amendment and Modification dated December 22, 1997 to Loan and
Security Agreement. (Filed as Exhibit 4.6 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, and
incorporated herein by reference.)
4.7 Eighth Amendment and Modification dated April __, 1998 to Loan and
Security Agreement.
4.8 Ninth Amendment and Modification dated as of June 30, 1998 to Loan and
Security Agreement.
4.9 Revolving and Term Facility Note A dated December 22, 1997 in the
principal sum of $22,000,000 payable to the order of Summit Bank.
(Filed as Exhibit 4.7 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, and incorporated herein
by reference.)
4.10 Revolving and Term Facility Note B dated December 22, 1997 in the
principal sum of $3,000,000 payable to the order of Summit Bank.
(Filed as Exhibit 4.8 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, and incorporated herein
by reference.)
4.11 Investment Agreement dated as of June 30, 1998 between Registrant and
its subsidiaries and Allied Capital Corporation
4.12 Senior Subordinated Note dated as of June 30, 1998 in the principal
amount of $10,000,000 payable to the order of Allied Capital
Corporation.
The Registrant has omitted certain instruments defining the rights of
holders of long-term debt in cases where the indebtedness evidenced by
such instruments does not exceed
<PAGE>
10% of the Registrant's total assets. The Registrant agrees to furnish
a copy of each of such instruments to the Securities and Exchange
Commission upon request.
10.1 1986 Stock Option and Stock Grant Plan of the Registrant, as amended.
(Filed as Exhibit 10(1) to the Registrant's Registration Statement on
Form S-1 (Registration Statement No. 33-1644) filed on August 12, 1987
(the "Form S-1") and incorporated herein by reference.)
10.2 1988 Stock Option and Stock Grant Plan of the Registrant. (Filed as
Exhibit 19 to the Registrant's Quarterly Report on Form 10-Q dated
March 31, 1988 and incorporated herein by reference.)
10.3 1995 Stock Incentive Plan of the Registrant, as amended.
10.4 Form of Stock Option Agreement, for stock option grants under 1995
Stock Incentive Plan.
10.5 Stock and Warrant Purchase Agreement between the Registrant and
various investors, dated April 14, 1992. (Filed as Exhibit 10(r) to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 and incorporated herein by reference.)
10.6 Registration Rights Agreement dated May 28, 1992 among the Registrant,
JBS Investment Banking, Ltd., and Pennsylvania Merchant Group, Ltd.
(Filed as Exhibit 4(a) to the Registrant's Current Report on Form 8-K
dated June 11, 1992, date of earliest event reported May 28, 1992, and
incorporated herein by reference.)
10.7 Stock Purchase Agreement dated May 28, 1992 between Registrant and a
limited number of accredited investors at $0.50 per share totaling
3,200,000 shares of common stock. (Filed as Exhibit 4(d) to the
Registrant's Current Report on Form 8-K dated June 11, 1992, date of
earliest event reported May 28, 1992, and incorporated herein by
reference.)
10.8 Series 1 Warrants for shares of Common Stock issued to Edison Venture
Fund II, L.P. and Edison Venture Fund II-PA, L.P. (Filed as Exhibit
4(ad) to the Registrant's Quarterly Report on Form 10-Q with respect
to the quarter ended June 30, 1994 and incorporated herein by
reference.)
10.9 Registration Rights Agreement between Registrant and Edison Venture
Fund II, L.P. and Edison Venture Fund II-PA, L.P. (Filed as Exhibit
4(af) to the Registrant's Quarterly Report on Form 10-Q with respect
to the quarter ended June 30, 1994 and incorporated herein by
reference.)
10.10 Amendment dated February 23, 1996 to Registration Rights Agreement
between Registrant and Edison Venture Fund II, L.P. and Edison Venture
Fund II-PA, L.P. (Filed as Exhibit 10.14 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference.)
10.11 Investment Agreement dated as of August 30, 1995 by and among the
Registrant, certain subsidiaries of the Registrant and Allied Capital
Corporation and its affiliated funds. (Filed as Exhibit 4A to the
Registrant's Current Report on Form 8-K dated September 11, 1995, date
of earliest event reported August 25, 1995, and incorporated herein by
reference.)
10.12 Common Stock Purchase Warrant dated August 30, 1995 entitling Allied
Capital Corporation to purchase up to 92,172.25 shares (subject to
adjustment) of the Common
<PAGE>
Stock of the Registrant. (Filed as Exhibit 4C to the Registrant's
Current Report on Form 8-K dated September 11, 1995, date of earliest
event reported August 25, 1995, and incorporated herein by reference.)
Exhibit 10.12 is one in a series of four Common Stock Purchase Warrants issued
pursuant to the Investment Agreement dated as of August 30, 1995 that are
identical except for the Warrant No., the original holder thereof and the number
of shares of Common Stock of the Registrant for which the Warrant may be
exercised, which are as follows:
<TABLE>
<CAPTION>
Number of Shares
of Common Stock
Warrant No. Holder (subject to adjustment)
----------- ------ -----------------------
<S> <C> <C>
2 Allied Capital Corporation II 142,932.25
3 Allied Investment Corporation 92,713
4 Allied Investment Corporation II 50,219.5
</TABLE>
10.13 Common Stock Purchase Warrant dated as of June 30, 1998 entitling
Allied Capital Corporation to purchase up to 531,255 shares (subject
to adjustment) of the Common Stock of the Registrant.
10.14 First Amended and Restated Registration Rights Agreement dated as of
June 30, 1998 by and between the Registrant and Allied Capital
Corporation.
10.15 Nobel Education Dynamics, Inc. Executive Severance Pay Plan Statement
and Summary Plan Description, Issued February, 1997, as amended on
June 11, 1998.
10.16 Employment Agreement dated June 4, 1996 between Registrant and Barbara
Z. Presseisen. (Filed as Exhibit 10.21 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.)
10.17 Noncompete Agreement dated as of March 11, 1997 between John R. Frock
and the Registrant. (Filed as Exhibit 10.22 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.)
10.18 Contingent Severance Agreement dated as of March 11, 1997 between John
R. Frock and the Registrant. (Filed as Exhibit 10.23 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1996 and incorporated herein by reference.)
21 List of subsidiaries of the Registrant.
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
Certain schedules (and similar attachments) to Exhibits 4.1 through 4.8 and
Exhibits 4.11 and 10.11 have not been filed. The Registrant will furnish
supplementally a copy of any omitted schedules or attachments to the Commission
upon request.
<PAGE>
EXHIBIT 4.7
EIGHTH AMENDMENT AND MODIFICATION
TO LOAN AND SECURITY AGREEMENT
------------------------------
THIS EIGHTH AMENDMENT AND MODIFICATION TO LOAN AND SECURITY AGREEMENT (the
"AMENDMENT") is made effective as of the ____ day of April, 1998, by and among
NOBEL EDUCATION DYNAMICS, INC. ("NOBEL"), IMAGINE EDUCATIONAL PRODUCTS, INC.
("IMAGINE"), MERRYHILL SCHOOLS, INC. ("MERRYHILL"), NEDI, INC. ("NEDI"),
MERRYHILL SCHOOLS NEVADA, INC. ("MERRYHILL NEVADA") and LAKE FOREST PARK
MONTESSORI SCHOOL, INC. ("LAKE FOREST") (collectively, the "OBLIGORS") and
SUMMIT BANK, formerly known as First Valley Bank ("BANK").
BACKGROUND
----------
A. Nobel, Imagine, Merryhill, NEDI and Bank are parties to that certain
Loan and Security Agreement dated August 30, 1995, as amended by amendments
dated September 1, 1995, April 4, 1996, July 23, 1996, November 1, 1996, March
20, 1997, May 5, 1997 and December 22, 1997 (as amended, the "LOAN AGREEMENT").
B. EDUCO, Inc., Montessori House, Inc. and Another Generation
Enterprises, Inc. were also parties to the Loan Agreement. However, (i) EDUCO,
Inc. and Another Generation Enterprises, Inc. have merged into Nobel with Nobel
being the surviving entity and (ii) Montessori House, Inc. merged into Merryhill
with Merryhill being the surviving entity.
C. Obligors and Bank desire to further amend the Loan Agreement in
accordance with the terms and conditions hereof.
D. Capitalized terms used herein and not otherwise defined shall have the
meanings provided for such terms in the Loan Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
agree as follows:
1. ADDITIONAL OBLIGORS. From and after the date hereof, Merryhill Nevada
-------------------
and Lake Forest shall each be an "OBLIGOR" under the Loan Agreement and shall be
bound by all the terms and conditions thereof. Unless otherwise specifically
restated for Merryhill Nevada and Lake Forest hereunder, all representations,
warranties and covenants under the Loan Agreement shall be deemed to be the
representations, warranties and covenants of Merryhill Nevada and Lake Forest as
if Merryhill Nevada and Lake Forest were originally named as an "OBLIGOR" under
the Loan Agreement. All references to Obligors in the Loan Agreement and the
other Loan Documents shall hereafter be deemed to include both Merryhill Nevada
and Lake Forest.
2. SECURITY. As security for the full and timely payment and performance
--------
of all Bank Indebtedness, Merryhill Nevada and Lake Forest hereby grant to Bank
a security interest in all of the following:
a. All of such Obligor's present and future accounts, contract
rights, chattel paper, instruments and documents and all other rights to
the payment of money whether or not yet earned, for services rendered or
goods sold, consigned, leased or furnished by such parties or otherwise,
together with (i) all goods (including any returned, rejected, repossessed
or consigned goods), the sale, consignment, lease or other furnishings of
which shall be given or may give rise to any of the foregoing, (ii) all of
such Obligor's rights as a consignor, consignee, unpaid vendor or other
lienor in connection therewith, including stoppage in transit, set-off,
detinue, replevin and reclamation, (iii) all general intangibles related
thereto, (iv) all guaranties, mortgages, security interests, assignments,
and other encumbrances on real or personal property, leases and other
agreements or property
<PAGE>
securing or relating to any accounts, (v) choses-in-action, claims and
judgments, (vi) any return or unearned premiums, which may be due upon
cancellation of any insurance policies, and (vii) all products and proceeds
of any of the foregoing.
b. All of such Obligor's present and future inventory (including but
not limited to goods held for sale or lease or furnished or to be furnished
under contracts for service, raw materials, work-in-process, finished goods
and goods used or consumed in such Obligor's business) whether owned,
consigned or held on consignment, together with all merchandise, component
materials, supplies, packing, packaging and shipping materials, and all
returned, rejected or repossessed goods sold, consigned, leased or
otherwise furnished by such parties and all products and proceeds of any of
the foregoing.
c. All of such Obligor's present and future general intangibles
(including but not limited to tax refunds and rebates, manufacturing and
processing rights, designs, patent rights and applications therefor,
trademarks and registration or applications therefor, trade names, brand
names, logos, inventions, copyrights and all applications and registrations
therefor), licenses, permits, approvals, software and computer programs,
license rights, royalties, trade secrets, methods, processes, know-how,
formulas, drawings, specifications, descriptions, label designs, plans,
blueprints, patterns and all memoranda, notes and records with respect to
any research and development, and all products and proceeds of any of the
foregoing.
d. All of such Obligor's present and future machinery, equipment,
furniture, fixtures, motor vehicles, tools, dies, jigs, molds and other
articles of tangible personal property of every type together with all
parts, substitutions, accretions, accessions, attachments, accessories,
additions, components and replacements thereof, and all manuals of
operation, maintenance or repair, and all products and proceeds of any of
the foregoing.
e. All of such Obligor's present and future general ledger sheets,
files, records, customer lists, books of account, invoices, bills,
certificates or documents of ownership, bills of sale, business papers,
correspondence, credit files, tapes, cards, computer runs and all other
data and data storage systems whether in the possession of such parties or
any service bureau.
f. All letters of credit now existing or hereafter issued naming such
parties as beneficiaries or assigned to such parties, including the right
to receive payment thereunder, and all documents and records associated
therewith.
g. All deposits, funds, instruments, documents, policies and evidence
and certificates of insurance, securities, chattel paper and other assets
of such parties or in which such parties have an interest and all proceeds
thereof, now or at any time hereafter on deposit with or in the possession
or control of Bank or owing by Bank to such parties or in transit by mail
or carrier to Bank or in the possession of any other Person acting on
Bank's behalf, without regard to whether Bank received the same in pledge,
for safekeeping, as agent for collection or otherwise, or whether Bank has
conditionally released the same, and in all assets of such parties in which
Bank now has or may at any time hereafter obtain a lien, mortgage, or
security interest for any reason.
3. ADDITIONAL DOCUMENTS. Merryhill Nevada and Lake Forest covenant and
--------------------
agree to execute and deliver or cause to be executed and delivered to Bank any
and all documents, agreements, corporate resolutions, certificates and opinions
as Bank shall request in connection with the execution and delivery of this
Amendment or any other documents in connection herewith, including, without
limitation, an Allonge to Revolving and Term Facility Note A and Revolving and
Term Facility Note B.
4. FURTHER AGREEMENTS AND REPRESENTATIONS. Obligors do hereby:
--------------------------------------
2
<PAGE>
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;
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. represent and warrant that no Event of Default 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;
e. 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
f. 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.
5. 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 out-of-pocket expenses.
6. 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.
7. 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.
8. 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.
9. BINDING EFFECT. This Amendment shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective successors and assigns.
10. GOVERNING LAW. This Amendment shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Pennsylvania.
11. 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.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of the date first above written.
NOBEL EDUCATION DYNAMICS, INC.
[CORPORATE SEAL] By: __________________
Name/Title: ____________________________
IMAGINE EDUCATIONAL PRODUCTS, INC.
[CORPORATE SEAL] By: __________________
Name/Title: ____________________________
MERRYHILL SCHOOLS, INC.
[CORPORATE SEAL] By: ___________________________________
Name/Title: ____________________________
NEDI, INC.
[CORPORATE SEAL] By: ___________________________________
Name/Title: ____________________________
MERRYHILL SCHOOLS NEVADA, INC.
[CORPORATE SEAL] By: ___________________________________
Name/Title: ____________________________
LAKE FOREST PARK MONTESSORI SCHOOLS,
INC.
[CORPORATE SEAL] By: ___________________________________
Name/Title: _____________________________
SUMMIT BANK
By: ___________________________________
Janet L. Helms, Vice-President
4
<PAGE>
EXHIBIT 4.8
NINTH AMENDMENT AND MODIFICATION
TO LOAN AND SECURITY AGREEMENT
------------------------------
THIS NINTH AMENDMENT AND MODIFICATION TO LOAN AND SECURITY AGREEMENT (the
"AMENDMENT") is made effective as of the 30th day of June, 1998, by and among
NOBEL EDUCATION DYNAMICS, INC. ("NOBEL"), IMAGINE EDUCATIONAL PRODUCTS, INC.
("IMAGINE"), MERRYHILL SCHOOLS, INC. ("MERRYHILL"), NEDI, INC. ("NEDI"),
MERRYHILL SCHOOLS NEVADA, INC. ("MERRYHILL NEVADA"), LAKE FOREST PARK MONTESSORI
SCHOOL, INC. ("LAKE FOREST"), NOBEL LEARNING SOLUTIONS, L.L.C. ("LEARNING
SOLUTIONS") and NOBEL EDUCATION DYNAMICS FLORIDA, INC. ("NOBEL FLORIDA")
(collectively, the "OBLIGORS") and SUMMIT BANK, formerly known as First Valley
Bank ("BANK").
BACKGROUND
----------
A. Nobel, Imagine, Merryhill, NEDI, Merryhill Nevada, Lake Forest and
Bank are parties to that certain Loan and Security Agreement dated August 30,
1995, as amended by amendments dated September 1, 1995, April 4, 1996, July 23,
1996, November 1, 1996, March 20, 1997, May 5, 1997, December 22, 1997 and April
___, 1998 (as amended, the "LOAN AGREEMENT").
B. EDUCO, Inc., Montessori House, Inc. and Another Generation
Enterprises, Inc. were also parties to the Loan Agreement. However, (i) EDUCO,
Inc. and Another Generation Enterprises, Inc. have merged into Nobel with Nobel
being the surviving entity and (ii) Montessori House, Inc. merged into Merryhill
with Merryhill being the surviving entity.
C. Obligors and Bank desire to further amend the Loan Agreement in
accordance with the terms and conditions hereof.
D. Capitalized terms used herein and not otherwise defined shall have the
meanings provided for such terms in the Loan Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
agree as follows:
1. CONSENT TO TRANSACTION.
----------------------
a. Nobel (i) has entered into that certain Agreement and Plan of
Organization ("AGREEMENT OF ORGANIZATION") with Developmental Resource
Center, Inc. ("DRC") and Dr. Deborah Levy dated June 19, 1998, and (ii)
intends to enter into that certain Agreement of Operation of Nobel Learning
Solutions, L.L.C. ("AGREEMENT OF OPERATION") with DRC subsequent to the
date hereof, pursuant to which, inter alia, Nobel and DRC will each acquire
a membership interest in Learning Solutions.
b. In exchange for its membership interest in Learning Solutions,
Nobel intends to contribute to the capital of Learning Solutions an amount
equal to Four Million Five Hundred Thousand ($4,500,000.00) as follows:
i. Cash in the amount of Three Million Six Hundred Thousand
Dollars ($3,600,000.00); and
ii. A promissory note payable to Learning Solutions in the
original principal amount of Nine Hundred Thousand Dollars
($900,000.00) (the "LEARNING SOLUTIONS NOTE").
<PAGE>
c. DRC intends to transfer to Learning Solutions substantially all
of DRC's assets in exchange for (i) cash in the amount of Three Million Six
Hundred Thousand Dollars ($3,600,000.00), (ii) a promissory note from Learning
Solutions payable to DRC in the original principal amount of Nine Hundred
Thousand Dollars ($900,000.00) (the "DRC NOTE") and (iii) DRC's membership
interest in Learning Solutions. The obligations of Learning Solutions under the
DRC Note will be guaranteed by Nobel pursuant to a certain Guaranty of Payment
and Performance (the "NOTE GUARANTY").
d. Learning Solutions intends to lease certain property pursuant to
a certain Lease between Learning Solutions, as Tenant, and Levy Children's
Trust, Joseph Wolfe, Trustee and Elliot G. and Deborah L. Levy, as Landlords
(the "LEASE"). The obligations of Learning Solutions under the Lease will be
guaranteed by Nobel pursuant to a certain Guaranty of Payment and Performance
(the "LEASE GUARANTY").
e. Learning Solutions intends to enter into a certain Employment
Agreement with Dr. Deborah Levy (the "EMPLOYMENT AGREEMENT"). The obligations
of Learning Solutions under the Employment Agreement will be guaranteed by Nobel
pursuant to a certain Guaranty of Payment and Performance (the "EMPLOYMENT
AGREEMENT GUARANTY").
f. Nobel has delivered to Bank a fully executed copy of the
Agreement of Organization and true and complete copies of drafts of each of the
Agreement of Operation, Learning Solutions Note, DRC Note, Note Guaranty, Lease,
Lease Guaranty, Employment Agreement and Employment Agreement Guaranty
(collectively, the "TRANSACTION DOCUMENTS"). Bank consents to the execution and
delivery of the Transaction Documents, in the forms as previously delivered to
Bank, by the applicable Obligors and the performance by such Obligors of their
respective obligations thereunder, subject to the terms and conditions set forth
in such documents. Nobel will not agree to any amendments to the Transaction
Documents without first obtaining the prior written consent of Bank.
2. CONSENT TO SUBORDINATED DEBT.
----------------------------
a. Obligors have entered into that certain Investment Agreement with
Allied Capital Corporation ("ALLIED") dated June 30, 1998 (the "ALLIED
INVESTMENT AGREEMENT") in connection with the extension by Allied to
Obligors of a loan in the original principal amount of Ten Million Dollars
($10,000,000.00) (the "ALLIED LOAN").
b. Obligors' obligation to repay the Allied Loan and all interest
thereon is evidenced by that certain Senior Subordinated Note dated June
30, 1998 from the Obligors to Allied in the original principal amount of
Ten Million Dollars ($10,000,000.00) (the "ALLIED NOTE").
c. Obligors have delivered to Bank true and complete copies of the
Allied Investment Agreement and the Allied Note (collectively, the "ALLIED
DOCUMENTS").
d. Obligors, Allied and Bank have entered into that certain
Subordination Agreement dated June 30, 1998 (the "SUBORDINATION
AGREEMENT").
e. Bank consents to the execution and delivery of the Allied
Documents by the Obligors and the performance by the Obligors of their
obligations thereunder, subject to the terms and conditions set forth in
the Subordination Agreement.
3. ADDITIONAL OBLIGORS. From and after the date hereof, Nobel Florida
-------------------
and Learning Solutions shall each be an "OBLIGOR" under the Loan Agreement and
shall be bound by all the terms and conditions thereof. Unless otherwise
specifically restated for Nobel Florida and Learning Solutions hereunder, all
representations, warranties and covenants under the Loan Agreement shall be
deemed to be the representations, warranties and covenants of Nobel Florida and
2
<PAGE>
Learning Solutions as if Nobel Florida and Learning Solutions were originally
named as an "OBLIGOR" under the Loan Agreement, with such modifications thereto
as may be necessary resulting from Learning Solutions' structure as a limited
liability company. All references to Obligors in the Loan Agreement and the
other Loan Documents shall hereafter be deemed to include Nobel Florida and
Learning Solutions.
4. SECURITY. As security for the full and timely payment and performance
--------
of all Bank Indebtedness, Nobel Florida and Learning Solutions hereby grant to
Bank a security interest in all of the following:
a. All of such Obligor's present and future accounts, contract
rights, chattel paper, instruments and documents and all other rights to
the payment of money whether or not yet earned, for services rendered or
goods sold, consigned, leased or furnished by such parties or otherwise,
together with (i) all goods (including any returned, rejected, repossessed
or consigned goods), the sale, consignment, lease or other furnishings of
which shall be given or may give rise to any of the foregoing, (ii) all of
such Obligor's rights as a consignor, consignee, unpaid vendor or other
lienor in connection therewith, including stoppage in transit, set-off,
detinue, replevin and reclamation, (iii) all general intangibles related
thereto, (iv) all guaranties, mortgages, security interests, assignments,
and other encumbrances on real or personal property, leases and other
agreements or property securing or relating to any accounts, (v) choses-in-
action, claims and judgments, (vi) any return or unearned premiums, which
may be due upon cancellation of any insurance policies, and (vii) all
products and proceeds of any of the foregoing.
b. All of such Obligor's present and future inventory (including but
not limited to goods held for sale or lease or furnished or to be furnished
under contracts for service, raw materials, work-in-process, finished goods
and goods used or consumed in such Obligor's business) whether owned,
consigned or held on consignment, together with all merchandise, component
materials, supplies, packing, packaging and shipping materials, and all
returned, rejected or repossessed goods sold, consigned, leased or
otherwise furnished by such parties and all products and proceeds of any of
the foregoing.
c. All of such Obligor's present and future general intangibles
(including but not limited to tax refunds and rebates, manufacturing and
processing rights, designs, patent rights and applications therefor,
trademarks and registration or applications therefor, trade names, brand
names, logos, inventions, copyrights and all applications and registrations
therefor), licenses, permits, approvals, software and computer programs,
license rights, royalties, trade secrets, methods, processes, know-how,
formulas, drawings, specifications, descriptions, label designs, plans,
blueprints, patterns and all memoranda, notes and records with respect to
any research and development, and all products and proceeds of any of the
foregoing.
d. All of such Obligor's present and future machinery, equipment,
furniture, fixtures, motor vehicles, tools, dies, jigs, molds and other
articles of tangible personal property of every type together with all
parts, substitutions, accretions, accessions, attachments, accessories,
additions, components and replacements thereof, and all manuals of
operation, maintenance or repair, and all products and proceeds of any of
the foregoing.
e. All of such Obligor's present and future general ledger sheets,
files, records, customer lists, books of account, invoices, bills,
certificates or documents of ownership, bills of sale, business papers,
correspondence, credit files, tapes, cards, computer runs and all other
data and data storage systems whether in the possession of such parties or
any service bureau.
f. All letters of credit now existing or hereafter issued naming
such parties as beneficiaries or assigned to such parties, including the
right to receive payment thereunder, and all documents and records
associated therewith.
3
<PAGE>
g. All deposits, funds, instruments, documents, policies and
evidence and certificates of insurance, securities, chattel paper and other
assets of such parties or in which such parties have an interest and all
proceeds thereof, now or at any time hereafter on deposit with or in the
possession or control of Bank or owing by Bank to such parties or in
transit by mail or carrier to Bank or in the possession of any other Person
acting on Bank's behalf, without regard to whether Bank received the same
in pledge, for safekeeping, as agent for collection or otherwise, or
whether Bank has conditionally released the same, and in all assets of such
parties in which Bank now has or may at any time hereafter obtain a lien,
mortgage, or security interest for any reason.
5. PLEDGE OF MEMBERSHIP INTEREST. As further security for the full and
------------------------------
timely payment of all Bank Indebtedness, Nobel shall grant to Bank a security
interest in Nobel's membership interest in Learning Solutions. In connection
therewith, Nobel shall execute and deliver to Bank all such documents as Bank
may require including, with out limitation, the original of all certificates
evidencing such membership interest. The term "COLLATERAL", as used in the Loan
Agreement, shall hereafter be deemed to include, without limitation, all of the
additional security described in this Amendment.
6. ADDITIONAL DOCUMENTS. Nobel Florida and Learning Solutions covenant
--------------------
and agree to execute and deliver or cause to be executed and delivered to Bank
any and all documents, agreements, corporate resolutions, certificates and
opinions as Bank shall request in connection with the execution and delivery of
this Amendment or any other documents in connection herewith, including, without
limitation, an Allonge to Revolving and Term Facility Note A and Revolving and
Term Facility Note B.
7. 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;
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. represent and warrant that no Event of Default 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;
e. 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
f. 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.
8. 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 out-of-pocket expenses.
4
<PAGE>
9. 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.
10. 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.
11. 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.
12. BINDING EFFECT. This Amendment shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective successors and assigns.
13. GOVERNING LAW. This Amendment shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Pennsylvania.
14. 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.
[CORPORATE SEAL] By:_______________________________________
Name/Title:_______________________________
IMAGINE EDUCATIONAL PRODUCTS, INC.
[CORPORATE SEAL] By:_______________________________________
Name/Title:________________________________
MERRYHILL SCHOOLS, INC.
[CORPORATE SEAL] By:________________________________________
Name/Title:________________________________
NEDI, INC.
[CORPORATE SEAL] By:________________________________________
Name/Tiltle
5
<PAGE>
MERRYHILL SCHOOLS NEVADA, INC.
[CORPORATE SEAL] By:_______________________________________________
Name/Title:_______________________________________
LAKE FORESTPARK MONTEMERRYHILL SCHOOLS NEVADA,
INC.
[CORPORATE SEAL] By:_______________________________________________
Name/Title:_______________________________________
NOBEL LEARNING SOLUTIONS, L.L.C.
[CORPORATE SEAL] By:_______________________________________________
Name/Title:_______________________________________
NOBEL EDUCATION DYNAMICS FLORIDA, INC.
[CORPORATE SEAL] By:_______________________________________________
Name/Title:_______________________________________
SUMMIT BANK
By:_______________________________________________
Janet L. Helms, Vice-President
6
<PAGE>
EXHIBIT 4.11
_______________________________________
_______________________________________
NOBEL EDUCATION DYNAMICS, INC.
INVESTMENT AGREEMENT
$10,000,000 SENIOR SUBORDINATED NOTE
DATED AS OF
JUNE 30, 1998
FUNDS PROVIDED BY
ALLIED CAPITAL CORPORATION
_______________________________________
_______________________________________
<PAGE>
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT (this "Agreement") is made as of the 30th
day of June, 1998 by and among: (i) Bad News Bears, Inc.Nobel Education
Dynamics, Inc., a Delaware a California limited liability company corporation
("Nobel"); (ii) Imagine Educational Products, Inc., a Delaware corporation,
Merryhill Schools, Inc., a California corporation, Merryhill Schools Nevada,
Inc., a Nevada corporation, NEDI, Inc., a California corporation and Lake Forest
Park Montessori School, Inc., a Washington corporation (collectively, the
entities listed in this clause (ii) shall be referred to as the "Subsidiaries")
(Nobel and the Subsidiaries, on a consolidated basis, being collectively
referred to as the "Company"); and (iii) ALLIED CAPITAL CORPORATION and its
successors and assigns ("Lender").
RECITALS:
A. Lender wishes to invest the aggregate sum of Ten Million Dollars
($10,000,000) in the Company in exchange for a Senior Subordinated Note and
certain warrants to purchase shares of Common Stock of the Company.
B. The parties desire to set forth herein their understandings and
agreements pertaining to this transaction.
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants contained herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Lender and the
Company hereby agree as follows:
ARTICLE I: DEFINITIONS
1.01 Definitions. In addition to the terms defined elsewhere herein,
-----------
when used herein, the following capitalized terms shall have the meanings
indicated:
"Act of Bankruptcy," when used in reference to any Person, shall mean
the occurrence of any of the following with respect to such Person: (i) such
Person shall have made an assignment for the benefit of his or its creditors;
(ii) such Person shall have admitted in writing his or its inability to pay his
or its debts as they become due; (iii) such Person shall have filed a voluntary
petition in bankruptcy; (iv) such Person shall have been adjudicated a bankrupt
or insolvent; (v) such Person shall have filed any petition or answer seeking
for himself or itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future Applicable Law pertinent to such circumstances; (vi) such Person shall
have filed or shall file any answer admitting or not contesting the material
allegations of a bankruptcy, insolvency or similar petition filed against such
Person; (vii) such Person shall have sought or consented to, or acquiesced in,
the appointment of any trustee, receiver, or liquidator of such Person or of all
or any substantial part (20% or more) of the properties of such Person; (viii)
60 days shall have elapsed after the commencement of an action
<PAGE>
against such Person seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future Applicable Law without such action having been dismissed or without all
orders or proceedings thereunder affecting the operations or the business of
such Person having been stayed, or if a stay of any such order or proceedings
shall thereafter be set aside and the action setting it aside shall not be
timely appealed; or (ix) 60 days shall have expired after the appointment,
without the consent or acquiescence of such Person of any trustee, receiver or
liquidator of such Person or of all or any substantial part of the assets and
properties of such Person without such appointment having been vacated.
"Act of Dissolution," when used in reference to any Person (other than
an individual) shall mean the occurrence of any action initiating, or any event
that results in, the dissolution, liquidation, winding-up or termination of such
Person.
"Affiliate," when used in reference to any Person, shall mean any
Person that controls, is controlled by, or is under common control of, the
Person in question. For purposes of this definition, "control" shall mean the
holding of 20% or more of the equity interest of the Person in question or the
direct or indirect ability to manage the business and affairs of the Person in
question.
"Applicable Law(s)," when used in the singular, shall mean any
applicable federal, state or local law, ordinance, order, regulation, rule or
requirement of any governmental or quasi-governmental agency, instrumentality,
board, commission, bureau or other authority having jurisdiction, and, when used
in the plural, shall mean all such applicable federal, state and local laws,
ordinances, orders, regulations, rules and requirements.
"Bank" shall mean Summit Bank.
"Bank Loan Agreement" shall mean the Loan and Security Agreement dated
as of August 30, 1995, as amended, between Nobel and the Bank in the principal
amount of not more than $35,000,000 for the revolving line of credit and in
principal amount of not more than $35,000,000 for the term loan, together with
interest, fees and expenses not in excess of the limits contained in the
subordination agreement related thereto, and any modifications, renewals,
extensions and refinancings of any such indebtedness.
"Current Portion of Long Term Debt" shall mean the portion of the
Company's long term debt that must be discharged within a one year period,
determined in accordance with generally accepted accounting principles
consistently applied.
"Debt for Borrowed Money" shall mean total liabilities for borrowed
money including the current and long-term portion of all senior debt,
subordinated debt, seller notes arising from the Company's purchase of property
or business assets, capital leases and other funded debts of the Company
determined in accordance with generally accepted accounting principles
consistently applied.
-2-
<PAGE>
"Debt Service Coverage Ratio" shall mean EBITDA divided by Total Debt
Service.
"EBITDA" shall mean the Company's consolidated earnings before
interest expense, tax expense on federal, state and local income taxes,
depreciation expense and amortization expense, calculated in accordance with
generally accepted accounting principles, consistently applied.
"Exercise Price" shall mean the price of the Company's common stock
equal to the trailing 30 day average of the high and low price in the Company's
common stock on the date of Closing.
"Existing Secured Debt" shall mean the secured indebtedness of the
Company outstanding on the Closing Date in an aggregate principal amount of
$21,504,735, as set forth on Exhibit 1.01A, which exhibit shall describe the
-------------
lender, the borrower, the principal amount, the repayment terms and the
collateral relating to each debt.
"Loan Documents" shall mean, collectively, this Agreement, the Note
and all other instruments and documents executed and delivered in connection
with the Loan.
"Loan Party(ies)" when used in the singular, shall mean the Company
and any other party (other than the Lender) to any of the Loan Documents, and
when used in the plural, shall mean the Company and all other parties to any of
the Loan Documents (other than the Lender).
"Net Income" shall mean the excess of revenues and gains of the
Company for a period over all expenses and losses for the period of the Company,
determined in accordance with generally accepted accounting principles
consistently applied.
"Net Worth" shall mean the excess of all tangible and intangible
assets of the Company for a period over all liabilities of the Company for the
period, determined in accordance with generally accepted accounting principles
consistently applied.
"Non Cash Expense" shall mean the Company's expenses for a period that
do not require the expenditure of cash in such period, determined in accordance
with generally accepted accounting principles consistently applied.
"Obligations" shall mean, collectively, all of the Company's
indebtedness, liabilities and obligations arising under this Agreement and each
of the other Loan Documents and any renewals, modifications, and extensions
thereof, including, but not limited to, the principal, interest, late charges
and other sums due and owing under the Note and any other obligations of the
Company to the Lender, including such other or additional financing that the
Lender may extend to the Company at any time in the Lender's sole discretion.
-3-
<PAGE>
"Permitted Encumbrances" shall mean any lien, mortgage, security
interest or other encumbrance that results from any of the following: (i) liens
for taxes and assessments not delinquent or actively being contested in good
faith by the Company; (ii) deposits or pledges for goods or services made in the
ordinary course of the Company's business; (iii) title of a bona fide lessor of
tangible personal property to the Company; (iv) customary liens in favor of
mechanics and materialmen which arise by operation of law and not by Company's
agreement incurred in the ordinary course of Company's business; (v) liens,
mortgages or security interests securing purchase money obligations, including
Permitted Seller Debt, as defined below; (vi) liens, mortgages or security
interests securing the Permitted Senior Debt, as defined below; (vii) liens,
mortgages or security interests securing the Existing Secured Debt, as defined
above; (viii) encumbrances created or arising pursuant to operating leases
entered into in connection with real property constructed to the Company's
specifications; and (ix) those liens and encumbrances described on Exhibit 1B
----------
attached hereto.
"Permitted Seller Debt" shall mean all indebtedness of the Company to
the seller of property to the Company which indebtedness is: (i) evidenced by
that certain subordinated promissory note made by Nobel to Corydon Day Care
Center, Inc., in the principal amount of $1,125,000 dated August 25, 1995; or
(ii) evidenced by those certain subordinated promissory notes made by Nobel to
Richard Goldman, Renee Goldman and Libo Fineberg in the aggregate principal
amount of $750,000 each dated January 7, 1977.
"Permitted Senior Debt" shall mean all indebtedness (as initially
incurred or as refinanced) of the Company to a bank or other financial
institution (whether funded or available pursuant to a written commitment, loan
agreement, or other obligation) which as of the Closing Date is (i) secured by
liens on all or a part of the property of the Company, (ii) a full recourse
obligation of the Company, (iii) senior in right of repayment and lien priority
to the Obligations hereunder and under the Note, pursuant to a subordination
agreement executed by Lender, and (iv) in aggregate principal amount as
specified in the Subordination Agreement, which principal amount may be
increased following the Closing Date subject to the conditions set forth in
Section 6.10(a).
"Person" shall mean any individual, corporation, partnership, joint
venture, limited liability company, unincorporated association, trust, or other
legal entity.
"Total Debt Service" shall mean the aggregate amount of installment
payments of principal and interest paid or payable on Debt for Borrowed Money
during the relevant period.
"Transfer of Company's Business" shall mean one or more transactions
undertaken by the Company resulting in either: (i) the Transfer (as defined
below) of all or substantially all of the assets of the Company to any other
Person (as defined above), other than a Wholly-Owned Affiliate of the Company
existing as of the date hereof; (ii) a merger or consolidation of the Company
with another Person where the Company is not the surviving or successor entity
(other than a merger or consolidation of the Company into or with a Wholly-Owned
Affiliate of the Company existing as of the date hereof) which results in a
Person or
-4-
<PAGE>
group of Persons acting in concert (other than any stockholders of the Company
that own as of the date hereof in excess of 30% of the issued and outstanding
Common Stock of the Company) owning stock in the surviving entity having more
than 50% of the voting power in the election of directors; or (iii) 3the
Transfer by any of the stockholders of the Company of any of his, its or their
ownership interest in the Company, or the issuance or sale by the Company of any
capital stock or securities convertible into or exchanged for capital stock,
which results in a Person or group of Persons acting in concert (other than any
stockholders of the Company that own as of the date hereof in excess of 30% of
the issued and outstanding Common Stock of the Company) owning in excess of 50%
of the outstanding capital stock of the Company.
"Transfer" shall mean the sale, assignment, lease, transfer,
mortgaging, encumbering or other disposition, whether voluntary or involuntary,
and whether or not consideration is received therefor.
"Wholly-Owned Affiliate," when used in reference to a particular
Person, shall mean an Affiliate of that Person, where the Person in question
holds 100% of the legal and beneficial interests in the Affiliate.
ARTICLE II: LOAN TERMS
2.01 Funding. At the closing under this Agreement (the "Closing"),
-------
Nobel and the Subsidiaries, jointly and severally, will borrow, and the Lender
will lend, in immediately available funds, the aggregate sum of Two Million Six
Hundred Fifty-Five Thousand and 00/100 DollarsTWO MILLION SIX HUNDRED FIFTY-FIVE
THOUSAND AND 00/100 DOLLARS ($10,000,000) (the "Loan"), such indebtedness to be
evidenced by, and to be repaid according to the terms of, a Senior Subordinated
Note (the "Note") in the form attached hereto as Exhibit 2.01. The entire
------------
principal sum will be advanced at Closing.
2.02 Permitted Senior Debt; Permitted Seller Debt and Existing
---------------------------------------------------------
Secured Debt. The indebtedness under the Note and the Lender's rights herein
- ------------
and therein shall be subordinate as to right of payment only to Permitted Senior
Debt. In connection therewith, the Bank and the Lender have entered into a
Subordination Agreement in the form of Exhibit 2.02 (the "Subordination
------------
Agreement").
2.03 Prepayment. The Note may be prepaid at any time, in whole or in
----------
part, without premium or penalty.
2.04 Due On Sale or Change in Control. The Company's obligations
--------------------------------
under the Note and this Agreement are not assumable, and to the extent provided
in the Note, the Note and all of the other Obligations are payable in full in
connection with a Transfer of Company's Business.
2.05 Closing. Closing must occur on or before the close of business
-------
on the date hereof, unless extended in writing by Lender, in Lender's sole
discretion.
-5-
<PAGE>
2.06 Conditions Precedent to Lender's Obligations. The obligation of
--------------------------------------------
Lender to make the Loan is subject to the satisfaction of the following
conditions precedent at or prior to Closing (unless waived in writing by Lender
prior to Closing):
(a) Each of the representations and warranties contained in this
Agreement must be true and accurate in all material respects as of the date of
Closing, and the Company and all other Loan Parties (if any) must have performed
all of their respective obligations hereunder, including execution and delivery
of all of the documents, instruments, opinions and certificates required by this
Agreement in such forms as are satisfactory to Lender and its counsel; and
(b) Lender shall have completed a due diligence report that
reflects favorably on the Company and its management. In this regard, the
Company covenants and agrees to furnish to Lender such information as Lender may
request in order to enable Lender to complete the required due diligence.
2.07 Funding; Remittance to Nobel as Agent. The Loan will be fully
-------------------------------------
funded at Closing. All funding of the Loan shall be made by disbursement to
Nobel, as agent for all of the Subsidiaries, and each of the Subsidiaries
expressly consents to such funding arrangement and appoints Nobel as its
attorney-in-fact to receive the proceeds of the Loan on its behalf.
2.08 Representations and Warranties of Lender. Lender represents and
----------------------------------------
warrants to the Company that:
(a) it was not organized for the specific purpose of purchasing
the Note and Warrants purchased by it hereunder;
(b) the address of its principal place of business is 1666 K
St., Suite 901, Washington, D.C. 20006;
(c) the Note and Warrants to be purchased by it, and any shares
of Common Stock (the "Warrant Shares") acquired upon exercise of such Warrants
(collectively, the "Securities") are being or will be, as the case may be,
acquired by Lender for its own account, not as a nominee or agent, and not with
a view to resale or distribution within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
thereunder, and Lender will not distribute the Note, Warrants or Warrant Shares
in violation of the Securities Act;
(d) it understands that (i) the Securities have not been
registered under the Securities Act by reason of their issuance in a transaction
exempt from the registration requirements of the Securities Act; (ii) the
Securities must be held indefinitely unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from such registration; and
(iii) the Securities will bear a legend as follows:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, NOR UNDER
-6-
<PAGE>
STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
OR SUCH STATE SECURITIES LAWS COVERING SUCH SECURITIES, OR AN OPINION
OF COUNSEL TO THE COMPANY STATING WITHOUT RESERVATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
(e) it is an "accredited investor" as such term is defined in
Rule 501 promulgated under the Securities Act, and an "institutional investor"
within the meaning of the Pennsylvania Securities Act of 1972 and the
regulations promulgated thereunder;
(f) its financial situation is such that it can afford to bear
the economic risk of holding the Securities for an indefinite period of time;
(g) its knowledge and experience in financial and business
matters are such that it is capable of evaluating the merits and risks of its
purchase of the Securities as contemplated by this Agreement; and
(h) the purchase of the Securities by it has been duly and
properly authorized and this Agreement has been duly executed by it or on its
behalf.
ARTICLE III: EQUITY
3.01 Sale of Warrants. At Closing, Nobel will issue and sell to
----------------
Lender certain Stock Purchase Warrants (the "Warrants") to acquire shares of
Nobel's Common Stock, par value $.001 (the "Common Stock"), the form of which is
set forth as Exhibit 3.01(b), which will entitle Lender to purchase 531,255
---------------
shares of Nobel's authorized but unissued Common Stock at the Exercise Price at
any time after Closing.
3.02 Registration Rights. At Closing, Nobel and Lender will execute
-------------------
the First Amended and Restated Registration Rights Agreement, the form of which
is set forth as Exhibit 3.02.
------------
3.03 Put Rights.
----------
(a) Price. At any time after that date which is five years from
-----
the date of Closing and prior to the Expiration Date (as defined in the Warrant)
if Nobel's Common Stock is not listed on a national stock exchange or included
on The Nasdaq Stock Market, Lender may by written demand require Nobel to
purchase all or a portion of its Warrants and the shares of stock issued
thereunder at the highest of the following prices (the "Put Price") (in each
case deducting the Exercise Price of the Warrant to determine the Put Price),
determined at the time of the exercise of this right:
-7-
<PAGE>
(i) five times EBITDA for the year just ended, plus cash but
less total debt, times the Lender's percentage of equity
ownership or potential equity ownership of Nobel's capital
stock, as the case may be, as determined on a fully diluted
basis and expressed as a decimal fraction;
(ii) 15 times the Company's profits after taxes for the year
just ended, times the Lender's percentage of equity
ownership or potential equity ownership of Nobel's capital
stock, as the case may be, as determined on a fully diluted
basis and expressed as a decimal fraction; or
(iii) The Appraised Value, pursuant to Section 3.03(b) below, of
the Lender's equity ownership and potential equity
ownership of Nobel's capital stock, as the case may be,
which appraisal shall be based on determinations of
earnings and book value and other appropriate items.
The rights set forth in this Section 3.03 (a) shall not be
effective following the occurrence of an event contemplated by Section 4 of the
Warrant, unless the property thereupon issuable upon exercise or conversion of
the Warrant includes common stock or other securities convertible into or
exercisable for common stock.
(b) Appraised Value. The "Appraised Value" shall be determined
---------------
by the following method:
(i) Each of the Company and Lender shall select an appraiser
who shall each determine a value;
(ii) If the values determined by such two appraisers are the
same (or the lower value determined by an appraiser is
within one percent of the value determined by the other),
then such value (or the average of such two values) shall
be the Appraised Value;
(iii) If the foregoing two appraisals are not the same and the
lower value determined by an appraiser differs by more than
one percent of the value determined by the other, then the
appraisers shall together select a third appraiser to
determine a value;
(iv) If the determination of the third appraiser is greater than
the largest of the first two appraisals or less than the
smallest of the first two appraisals, then the average of
the first two appraisals shall be the Appraised Value; and
-8-
<PAGE>
(v) If the determination of the third appraiser is between the
first two appraisals, then the average of the third
appraisal and the closest of the first two appraisals shall
be the Appraised Value.
Each party shall pay the fees and costs of the appraiser it selects, and the
fees and costs of the third appraiser, if any, shall be paid equally by Company
and Lender.
(c) Remedies. Failure to comply with the terms of the put right
--------
set forth in this Section 3.03 within 30 days of Lender's demand thereunder
shall entitle Lender to all of the rights and remedies available to Lender under
this Agreement and at law or equity, including, without limitation, the right of
specific performance.
(d) Financing of Put. Upon the exercise of the put rights
----------------
described in this section, the Company shall pay the Put Price in cash, to the
extent the Company (i) has funds legally available, and (ii) has available cash
or short term investments which may be liquidated. To the extent the Company is
unable to pay the Put Price in cash, Lender will provide financing to the
Company to pay the Put Price through subordinated debt without equity at an
interest rate of 12% and on other commercially reasonable terms. The Company
shall not be required to finance the Put Price by issuing additional equity
securities.
(e) Limitation on Exercise of Put. In no event may Lender
-----------------------------
exercise its rights hereunder if doing so would cause the Company to violate the
terms of the Bank Loan Agreement, or any successor document, or any similar
agreement entered into by the Company with a lender of Permitted Senior Debt.
3.04 Personal Gain Upon Sale. In the event of a Transfer of
-----------------------
Company's Business, then any personal gain relating to such Transfer of
Company's Business and flowing to any officer, director or principal shareholder
of the Company otherwise than through direct payment for their equity ownership
in the Company, or through dividends or return of capital paid in respect
thereof or through severance arrangements entered into prior to commencement of
negotiations with respect to such Transfer, shall be added to the direct
consideration for the sale in calculating the total sale price for purposes of
determining any share thereof which the Lender may be entitled to receive. Such
personal gain shall include without limitation any salaries or consulting fees
in excess of fair market compensation payable in connection with the Company's
operations after such sale or any points or fees paid to induce such sale. In
the event of any disputes arising hereunder, the parties shall obtain a fairness
opinion from an investment banker chosen by the parties. In the event the
parties cannot agree on an investment banker, the Company shall select one
investment banker, Lender shall select one investment banker and the two
investment bankers shall select a third investment banker who shall be retained
to render the fairness opinion. The Company and Lender shall equally share the
expenses related hereto.
-9-
<PAGE>
ARTICLE IV: REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into this transaction, the Company
represents and warrants to Lender as follows (which representations and
warranties shall survive the execution and delivery of this Agreement):
4.01 Organization.
------------
(a) Nobel and each of the Subsidiaries is a corporation formed,
validly existing and in good standing under the laws of the jurisdiction of its
formation. Attached hereto as Exhibit 4.01(a) are true, correct and complete
---------------
copies of the certificate of incorporation, bylaws, all amendments to the
foregoing and all other constituent documents of the Company, and all
amendments and supplements to any of the foregoing (collectively, the "Company
Constituent Documents"). All of the Company Constituent Documents are in full
force and effect as of the date hereof.
(b) The authorized capital stock of Nobel (immediately prior to
the Closing) consists of 20,000,000 shares of Common Stock, $.001 par value per
share of which 6,121,365 shares are issued and outstanding; and 10,000,000
shares of Preferred Stock, $.001 par value per share, of which (i) 2,500,000
shares are classified as Series A Convertible Preferred Stock, 1,028,694.11 of
which shares are issued and outstanding; (ii) 2,500,000 shares are classified as
Series C Convertible Preferred Stock of which 2,500,000 shares are issued and
outstanding; and (iii) 1,063,830 shares are classified as Series D Convertible
Preferred Stock, 1,063,830 of which are issued and outstanding.
All of the issued and outstanding shares of Common Stock and Preferred
Stock have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in Exhibit 4.01(b) hereto or provided in
---------------
this Agreement, (i) no subscription, warrant, option, convertible security or
other right (contingent or otherwise) to purchase or acquire any shares of
capital stock of the Company is authorized or outstanding, (ii) there is no
commitment of the Company to issue any subscription, warrant, option,
convertible security or other such right or to issue or distribute to holders of
any shares of its capital stock any evidences of indebtedness or assets of the
Company, and (iii) the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. Except as provided in this Agreement or as disclosed in the
Exhibits hereto, no person or entity is entitled to (x) any preemptive or
similar right with respect to the issuance of any capital stock of the Company,
or (y) any rights with respect to the registration of any capital stock of the
Company under the Securities Act. All of the issued and outstanding shares of
Common Stock and Preferred Stock have been offered, issued and sold by the
Company in compliance with applicable Federal and state securities laws.
4.02 Qualification. The Company is duly qualified to conduct
-------------
business as it is currently being conducted and is in good standing as a foreign
corporation in all jurisdictions in which the nature of its business or location
of its properties require such qualification, except
-10-
<PAGE>
where failure to be so qualified or in good standing would not have a materially
adverse effect on the Company's business or financial condition, and except as
set forth on Exhibit 4.02 hereto.
------------
4.03 Power and Authority. The Company has full corporate power and
-------------------
authority to enter into this Agreement and each of the other Loan Documents, to
incur the Obligations as contemplated hereby, and to carry out the provisions of
this Agreement and each of the other Loan Documents. The Company has taken all
corporation action necessary for the execution and delivery of this Agreement
and each of the other Loan Documents and for the performance by Company of each
of its obligations hereunder and thereunder, as evidenced by the resolution(s)
of the Company's Board of Directors or other authorization set forth in Exhibit
-------
4.03 attached hereto.
- ----
4.04 Enforceability. Upon execution and delivery by each of the
--------------
parties thereto, this Agreement and each of the other Loan Documents shall be
the legal, valid and binding obligations of the Company and each other Loan
Party, to the extent the Company or such other Loan Party(ies) is a party
thereto and shall be enforceable against the Company and such other Loan
Party(ies) in accordance with its respective terms. The Company has caused its
counsel to deliver an opinion of counsel in the form attached hereto as Exhibit
-------
4.04.
- ----
4.05 Litigation. The Company has not been made a party to or, to the
----------
best of the Company's knowledge, threatened by any suits, actions, claims,
investigations by governmental bodies or legal, administrative, arbitration or
mediation proceedings, except as set forth in the schedule of litigation
attached hereto as Exhibit 4.05 ("Litigation Schedule"), and except where such
------------
litigation would not have a materially adverse effect on the Company's business
or financial condition. The Company does not know of any basis or grounds for
any such suit, action, claim, investigation or proceeding.
4.06 Orders; Decrees; Judgments. Except as set forth on Exhibit
-------------------------- -------
4.06, there are no outstanding orders, judgments, writs, injunctions or decrees
- ----
of any court, government agency or arbitration or mediation panel or tribunal
against or affecting the Company any other Loan Party, or any of the other
properties, assets or business of the Company or any other Loan Party.
4.07 Non-Contravention. Except for matters set out in the Litigation
-----------------
Schedule, neither the Company nor any other Loan Party is in breach of, default
under, or in violation of: (a) any Applicable Law, decree, or order which may
materially and adversely affect them; or (b) any deed, lease, loan agreement,
commitment, bond, note, deed of trust, restrictive covenant, license, indenture,
contract, or other agreement, instrument or obligation to which any of them is a
party or by which any of them is bound or to which any of their respective
assets are subject, except where such breach, default or violation would not
have a material and adverse effect on the Company's business or financial
condition. Neither the execution and delivery of this Agreement and the Loan
Documents nor the performance by the Company or any other Loan Party of their
respective obligations hereunder and thereunder will cause any such breach,
default or violation or will require the consent or approval of any court,
governmental or regulatory agency or body, except as expressly contemplated by
the terms of this Agreement.
-11-
<PAGE>
4.08 Company's Business. The Company is primarily engaged in the
------------------
business of operating educational institutions and child care facilities.
4.09 Title. The Company has good, complete, indefeasible and
-----
marketable title to, and ownership of, all of the real or personal property it
purports to own (if any), free and clear of all liens, defects, claims, security
interests and encumbrances other than the Permitted Encumbrances.
4.10 Taxes. The Company has filed all federal, state and local tax
-----
returns which are required to be filed, and the Company has duly paid or fully
reserved for all taxes or installments thereof (including any interest or
penalties) as and when due pursuant to the filed returns or pursuant to any levy
or assessment received by the Company. The Company has previously delivered to
Lender true, correct and complete copies of all tax returns (including all
required schedules) for the Company for tax year 1997.
4.11 Financial Condition.
-------------------
(a) Attached hereto as Exhibit 4.11(a) is a true and complete
---------------
copy of the audited consolidated financial statements summarizing the financial
results of operation of the Company for the fiscal year ending December 31, 1997
provided to Lender by the Company (the "Audited Financials"). The Audited
Financials were prepared in accordance with generally accepted accounting
principles consistently applied, and present fairly, in all material respects,
the consolidated financial position of the Company and the results of its
operations at such dates and for the periods then ended. The auditors have
issued an unqualified statement to the Company concerning the Audited
Financials, a copy of which is included with the Audited Financials in Exhibit
-------
4.11(a) attached hereto; and
- -------
(b) Attached hereto as Exhibit 4.11(b) is a true and complete copy of
---------------
preliminary, unaudited consolidated financial statements summarizing the
financial results of operation of the Company for the three-month period ended
March 31, 1998 (the "Interim Financials"). The Interim Financials were prepared
in accordance with generally accepted accounting principles consistently
applied, and present fairly, in all material respects, the consolidated
financial position of the Company and the results of its operations at such
dates and for the periods then ended, subject to normal year-end adjustments.
4.12 Solvency. As of the date hereof, giving effect to the
--------
transactions contemplated by this Agreement, the present fair saleable value of
the Company's assets as a going concern is greater than the amount required to
pay the Company's total indebtedness (contingent or otherwise), and is greater
than the amount that will be required to pay such indebtedness as it matures and
as it becomes absolute and matured. The transactions contemplated hereby were
effectuated without actual intent to hinder, delay or defraud present or future
creditors of the Company; it is the Company's express intention that it will
maintain a solvent financial condition, giving effect to the debt incurred
hereunder, as long as any of the Obligations remain outstanding or the Company
is obligated to the Lender in any other manner
-12-
<PAGE>
whatsoever. The Company has sufficient capital to carry on its business and
transactions as now conducted and as planned to be conducted in the future.
4.13 Material Leases. Attached hereto as Exhibit 4.13 is an accurate
--------------- ------------
and complete list of all material leases of Real Property to which the Company
is a party or by which the Company or any of the Company's assets is bound,
together with all amendments or supplements thereto (collectively, the "Leases")
which list provides with respect to each lease the landlord, commencement date,
rent and termination date. True and complete copies of each of the Leases have
been made available to Lender prior to the date hereof. To the best of the
Company's knowledge, each of the Leases is valid, binding and enforceable in
accordance with its terms and remains in full force and effect. Except as set
forth on Exhibit 4.13, the Company is not in default or alleged to be in default
------------
with respect to any of its obligations under any of the Leases (nor would be in
default or alleged to be in default with the giving of notice, passage of time,
or both), and, to the best of the Company's knowledge, no party other than the
Company is in default with respect to such party's obligations under any of the
Leases (or would be in default or alleged to be in default with the giving of
notice, passage of time, or both). The Company's possession of any property
leased by it has not been disturbed, nor has any claim been asserted against the
Company that is or could be adverse to the Company's interests under any of the
Leases. None of the Leases is subject to any rights of set-off, recoupment or
similar deduction or offset. Except as disclosed on Exhibit 4.13, the Company
------------
has not assigned or encumbered any of its rights, title or interest in or under
any of the Leases nor agreed to any oral modifications of any of the provisions
of any of the Leases.
4.14 Material Contracts. To the Company's knowledge, it is not in
------------------
default with respect to any of its obligations under any material contract. No
claim has been asserted against the Company that is or could be adverse to the
Company's interest thereunder. The Company has previously delivered to Lender
an accurate and complete list of all facilities for borrowed money in existence
on the date hereof and not being paid off on or prior to the date of the
Closing, including financing arrangements with sellers in connection with
acquisitions by the Company.
4.15 [INTENTIONALLY DELETED.]
4.16 [INTENTIONALLY DELETED.]
4.17 No Untrue Statements or Omissions. Neither this Agreement nor
---------------------------------
the Exhibits attached hereto contains any untrue statement of material fact or,
to the best of the Company's knowledge, omits any statement of material fact
necessary to make the statements contained herein or therein not misleading.
4.18 Management History. Except as set forth on Exhibit 4.18, during
------------------ ------------
the past five years (with respect to non-management directors) and during the
past ten years (with respect to management directors), no director, officer or
member of management of the Company (including, but not limited to, any other
Loan Party) has been arrested for, or convicted of, any criminal offense, has
been the subject of an Act of Bankruptcy or has served as an officer, director,
general partner, member, or manager of any Person that has been or is the
subject of an Act of Bankruptcy or an Act of Dissolution. With respect to non-
management directors, this
-13-
<PAGE>
representation is made to the extent of the Company's knowledge, and based
solely on questionnaires completed in February 1998 by such non-management
directors.
4.19 Nobel Affiliates and Subsidiaries. Attached hereto as Exhibit
--------------------------------- -------
4.19 is an accurate and complete list of all Affiliates of Nobel, including all
- ----
of its subsidiaries.
4.20 Other Debts. Except for the debts reflected on the balance
-----------
sheets included in the Audited Financials and Interim Financials attached hereto
as Exhibit 4.11(a) and Exhibit 4.11(b), respectively, the Company has no
--------------- ---------------
indebtedness, liabilities or obligations of any nature at the dates of the
balance sheets included in such Audited Financials and Interim Financials that
were required under generally accepted accounting principles to be reflected on
such balance sheets on such dates (whether liquidated or unliquidated, mature or
not yet mature, absolute or contingent, secured or unsecured).
4.21 Ownership and Control. Attached hereto as Exhibit 4.21 is an
--------------------- ------------
accurate and complete list of the following information: a list of all
officers, directors and stockholders of the Company that, to the best of the
Company's knowledge, hold greater than five percent (5%) of the capital stock of
Nobel on a fully-diluted basis. Except as listed in Exhibit 4.01(b) attached
---------------
hereto, there are no outstanding options, rights of first refusal or other
preemptive rights with respect to equity securities granted or conveyed by the
Company to any person as of the date hereof.
4.22 No Material Change. Except as set forth on Exhibit 4.22
------------------ ------------
attached hereto, or elsewhere in this Agreement or any Exhibit to this
Agreement, since the ending date of the Interim Financials, the Company has not:
(i) suffered any material change in its condition (financial or otherwise) or
its overall business prospects; (ii) entered into any material transactions or
incurred any debt for borrowed money other than the Obligations; (iii) sustained
any material loss or damage to its real property or personal property, whether
or not insured; (iv) suffered any material interference with its business or
operations, present or proposed; and (v) made any Transfer, abandonment or other
disposition of any of its real property or personal property or any interest
therein or relating thereto, that is material to the financial position or
prospects of the Company.
4.23 No Side Agreements. Neither the Company nor any director,
------------------
officer nor members of management of the Company (collectively, "Company
Management") are party to any material agreement outside the ordinary course of
the Company's business with any Person (including Lender) other than pursuant to
formal, written contracts executed by the Company. Other than this Agreement,
the other Loan Documents, and documents relating to transactions described
herein, the Company's SEC filings and in the Exhibits, neither the Company, nor
Company Management is a party to any material agreement calling for any action
by the Company or such party outside the ordinary course of their respective
businesses. To the best of the Company's knowledge, there exists no agreement
or understanding calling for any payment or consideration from a customer or
supplier of the Company to the Company Management with respect to any
transaction between the Company and such supplier or customer. Except for
arrangements attached hereto as Exhibit 4.23, no Affiliate of the Company (other
------------
than the
-14-
<PAGE>
subsidiaries (whether or not Subsidiaries) and The Sagemont School, L.L.C.)
directly or indirectly, transacts any business with the Company, except for
employment arrangements covered by the terms of Section 6.08 below.
4.24 SBA Forms and Representations. Attached hereto as Exhibits
----------------------------- --------
4.24(a), 4.24(b), 4.24(c) and 4.24(d), respectively, are complete copies of the
- -------------------------------------
Size Status Declaration (SBA Form 480), the Assurance of Compliance for Non-
Discrimination (SBA Form 652), the Portfolio Financing Report (SBA Form 1031)
and the Economic Impact Assessment signed where required by the Company and
furnished to Lender (collectively, the "SBA Forms").
4.25 Investment Company Act Representations. The Company is not and
--------------------------------------
does not intend to become, an "investment company", as such term is defined in
the Investment Company Act of 1940, as amended (the "40 Act"), and neither the
Company nor any of its officers, directors, partners or controlling persons is
an "associate" of any Lender, as such terms are defined in Section 107.3 of the
amended Regulations promulgated under the SBA Act, nor an "affiliated person" of
any Lender, as such term is defined in Section 2(a)(3) of the 40 Act.
4.26 General Legal Compliance. To the best of the Company's
------------------------
knowledge, the Company is not in violation of any Applicable Law that would
apply to it or to its business, the violation of which would have a material
adverse effect on the Company, its business, or its prospects.
4.27 Environmental Legal Compliance. Without limiting the generality
------------------------------
of the representation and warranty made in Section 4.26 above, to the best of
the Company's knowledge, the Company is not in violation of any applicable
Environmental Law, which violation would have a material adverse effect on the
Company or its business or prospects, and the Company has not been notified of
any action, suit, proceeding or investigation which calls into question
compliance by the Company with any Environmental Laws or which seeks to suspend,
revoke or terminate any license, permit or approval necessary for the
generation, handling, storage, treatment or disposal of any Hazardous Material.
As used in this Agreement, the term "Environmental Law" shall mean,
collectively, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. (S)9601 et seq. ("CERCLA"); the
Solid Waste Disposal Act, as amended, 42 U.S.C. (S)6901 et seq.("SWDA")
including the Resource Conservation and Recovery Act of 1976, as amended, 42
U.S.C. (S)6901 et seq. ("RCRA"); the Clean Water Act, as amended, 42 U.S.C.
(S)1251 et seq.("CWA"); the Clean Air Act, as amended, 42 U.S.C. (S)7401 et
seq.; any "superfund" or "superlien" law; and any other Applicable Law
regulating, relating to, or imposing liability or standards of conduct
concerning, any hazardous, toxic or dangerous waste, substance or material, and
the term "Hazardous Material" shall mean and include any hazardous, toxic or
dangerous waste, substance or material, the generation, handling, storage,
disposal, treatment or emission of which is subject to any Environmental Law.
4.28 Employee Benefit Matters. There is no existing single-employer
------------------------
plan defined in Section 4021(a) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") as to which the Company is, or immediately after
the Closing will be, an
-15-
<PAGE>
"employer" or a "substantial employer" as defined in Sections 3(5) and
4001(a)(2) of ERISA, respectively. Attached hereto as Exhibit 4.28 is an
------------
accurate and complete list of each plan described in Section 4021(a) of ERISA,
as to which the Company is assuming any liability or will be liable to make
contributions or for the payment of benefits. The Company has made available to
Lender true and complete copies of each of the plans listed on Exhibit 4.28
------------
attached hereto. To the best knowledge of the Company, there have been no
"reportable events" as set forth in Section 4043(b) of ERISA with respect to any
such plan, and no termination of any such plan since the effective date of ERISA
which could result in any tax, penalty or liability being imposed upon the
Company. The Company has not participated in, and the execution and delivery of
this Agreement by the Company will not involve, any "prohibited transaction" (as
defined in Section 4975 of the Internal Revenue Code of 1986, as amended) that
could subject the Company to any tax or penalty imposed by Section 4975 of the
Internal Revenue Code of 1986, as amended. To the best knowledge of the Company,
no predecessor-in-interest to the Company has participated in any "prohibited
transaction" (as defined in Section 4975 of the Internal Revenue Code of 1986,
as amended) that could subject the Company to any tax or penalty imposed by
Section 4975 of the Internal Revenue Code of 1986, as amended. Since the
effective date of ERISA, neither the Company, nor, to the best knowledge of the
Company, any predecessor-in-interest to the Company, has incurred any
"accumulated funding deficiency", as such term is defined in Section 302 of
ERISA, to which the Company could be subject or for which it might be liable.
The Company is not, and immediately after the Closing will not be, a party to,
and none of the operations of the Company is, or after the Closing will be,
covered by, a "multiemployer plan", as defined in Section 3(37) of ERISA.
4.29 Collective Bargaining. The Company is not, and after the
---------------------
Closing will not be, a party to or subject to any collective bargaining
agreements or union contracts. There are no labor disputes pending or
threatened against the Company or, to the best knowledge of the Company, between
the Company and its employees which have affected, or so far as the Company can
reasonably foresee may affect, materially and adversely the business or
condition of the Company or the Company's business or prospects.
4.30 Employees. Attached hereto as Exhibit 4.30 is an accurate and
--------- ------------
complete list of all employment and compensation contracts, including all
retirement benefit agreements not disclosed on Exhibit 4.28, between the Company
------------
and officers and executives of the Company. The Company has made available to
the Lender accurate and complete copies of all such contracts. No officer of
the Company has advised the Company (orally or in writing) that he or she
intends to terminate employment with the Company.
4.31 Brokers. The Company has no knowledge of any brokerage fees due
-------
for the transactions contemplated hereby and will indemnify Lender for any
claims with respect thereto.
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<PAGE>
ARTICLE V: AFFIRMATIVE COVENANTS
Until the Note is repaid in full and each of the other Obligations has
been satisfied in full and discharged and as long as Lender holds an equity
interest in Nobel, the Company covenants and agrees to do all of the following:
5.01 Monthly Financials. The Company shall forward, or cause to be
------------------
forwarded, to Lender the Company's monthly year-to-date financial statements
prepared in accordance with generally accepted accounting principles,
consistently applied within 45 days from the end of each month, together with a
monthly one-page management summary description of operations. In addition, the
Company shall forward, or cause to be forwarded, to Lender any materials
distributed to the members of the board of directors.
5.02 Certification of Non-Default. The Company shall provide to
----------------------------
Lender in writing each calendar quarter an officer's certificate, signed by
Nobel's President or Chief Financial Officer or Comptroller, certifying that no
Event of Default has occurred under this Agreement, or if any such Event of
Default exists, stating the nature of such Event of Default. The Company shall
provide to Lender in writing at the end of each fiscal year a certificate,
signed by the Company's independent auditors, certifying that no Event of
Default has occurred under Section 5.07 of this Agreement, or if any such Event
of Default exists, stating the nature of such Event of Default.
5.03 Notice of Filings. Except as otherwise provided herein, within
-----------------
30 days of filing, the Company shall provide Lender with copies of all returns
and documents (other than federal, state and local tax returns, which shall be
provided only upon request) filed by the Company with federal, state or local
government agencies, including, without limitation, the U.S. Internal Revenue
Service, the U.S. Environmental Protection Agency, the U.S. Occupational Safety
& Health Administration, the U.S. Small Business Administration and the U.S.
Securities & Exchange Commission (the "SEC").
5.04 Forms 10-Q and 10-K. The Company shall provide to Lender all
-------------------
SEC Form 10-Q's within 50 days after the end of each quarterly period (except
the last quarter of each fiscal year) and Form 10-K's within 95 days after the
end of each fiscal year; provided, however, that any extension for filing such
forms pursuant to SEC and NASDAQ regulations will automatically extend the above
time periods for the length of the extension.
5.05 Notice of Litigation. The Company shall notify Lender of any
--------------------
material litigation to which the Company is a party by mailing to Lender, by
U.S. registered mail, within 30 days of receipt thereof, a copy of the
Complaint, Motion for Judgment or other such pleadings served on or by the
Company. As to any material litigation to which the Company is not a party but
which could substantially affect the operation of the Company, the Company shall
notify Lender by mailing to Lender, by U.S. registered mail, a copy of all
pleadings obtained by the Company in regard to such litigation, or if no
pleadings are obtained, a letter setting out the facts known about the
litigation within 30 days of receipt thereof; provided, however, that the
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<PAGE>
Company shall not be obliged by this Section 5.05 to give notice of suits where
the Company is a creditor seeking collection of one or more accounts receivable.
5.06 Notice of Defaults or Judgments. The Company shall give the
-------------------------------
Lenders notice of any default declared with respect to any material lease or
loan of the Company or any judgment entered against the Company, by mailing an
accurate and complete copy thereof to Lender within 10 days of receipt thereof
by the Company.
5.07 Financial Covenants. The Company shall, at all times, comply
-------------------
with and maintain the financial covenants set forth below:
(a) Debt for Borrowed Money. The Company will maintain on a
-----------------------
consolidated basis a ratio of Debt for Borrowed Money to EBITDA of not more than
4.6 to 1.0 as of the end of each fiscal quarter, calculated on a rolling four
quarter basis.
(b) Debt Service Coverage Ratio. The Company will maintain on a
----------------------------
consolidated and rolling 12 month basis a Debt Service Coverage Ratio of not
less than 1.2 to 1.0 as of the date of Closing and as of the last day of each
calendar quarter thereafter.
5.08 Insurance. Attached hereto as Exhibit 5.08 is an accurate and
--------- ------------
complete list of all insurance policies and binders presently providing coverage
to the Company or any of its assets. The Company has made available to Lender
copies of appropriate insurance certificates and accurate and complete copies of
the insurance binders or policies for all of the insurance listed in Exhibit
-------
5.08. At all times until all of the Obligations have been satisfied in full,
- ----
the Company shall maintain all such insurance or equivalent replacement
insurance in full force and effect.
5.09 Use of Proceeds. The Company shall use the proceeds from the
---------------
Note to reduce the outstanding balance of senior revolving term debt, for
expansion capital and for general corporate purposes.
5.10 Payments and Obligations. The Company shall promptly make all
------------------------
payments of principal, interest and other charges as and when due under the
Note, shall timely perform or comply with, as the case may be, all of the other
Obligations, and shall comply in all respects with all terms, conditions and
covenants of this Agreement and the other Loan Documents.
5.11 Other Debts. The Company shall promptly make all payments of
-----------
principal and interest as and when due under any other debt obligations of the
Company, but nothing herein shall require the Company to pay any amounts that it
in good faith believes is not due and owing or as to which it believes it has
adequate defenses; provided, however, that this covenant shall not be construed
as permitting any other debt obligations of the Company or as permitting the
making of any payments on account of any other debt obligations of the Company
that are not otherwise permitted by the terms and conditions of this Agreement.
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<PAGE>
5.12 Information Requests. The Company shall furnish from time to
--------------------
time to Lender all information Lender may reasonably request to enable Lender to
prepare and file any form required of Lender by the SEC, or any other regulatory
authority.
5.13 Credit Checks; Access to Records. The Company shall permit any
--------------------------------
authorized representative(s) of Lender and their attorney(s) and accountant(s)
to obtain credit and other background information on the Company, and to
inspect, examine and make copies and abstracts of the books of account and
records of the Company at reasonable times during normal business hours. The
Company shall allow Lender or its agent(s) to conduct reasonable interviews with
the Company's outside accountants, who, by this covenant, are hereby irrevocably
instructed to respond to such inquiries as fully as if made by the Company
itself. Lender shall, and shall cause its authorized representatives, attorneys
and accountants to, hold all non-public information furnished to them under this
Agreement pertaining to the Company or its directors and officers in confidence
and shall not disclose it to any person, other than Lender's counsel,
accountants, or financial advisers, or use it for any purpose other than in
connection with Lender's investment in the Company.
5.14 Maintain Copies. The Company shall maintain an original or a
---------------
true copy of this Agreement and any modifications hereof, which shall be
available for inspection as called for herein or in the Note.
5.15 Maintain Existence. The Company shall take or cause to be taken
------------------
all steps and perform or cause to be performed all actions necessary or
appropriate to preserve and keep in full force and effect its existence as a
corporation and its right to conduct its business in a prudent and lawful manner
in all jurisdictions in which it conducts business. Nothing in this Section
5.15 shall prohibit a Subsidiary from merging, consolidating or dissolving with
or into (i) Nobel or another Subsidiary, or (ii) any other entity, to the extent
necessary to complete an acquisition of such entity or its assets by the
Company.
5.16 Board of Directors Meetings. Nobel shall hold meetings of its
---------------------------
Board of Directors not less than once per quarter, and shall provide Lender with
reasonable notice of such meetings. If requested by Lender, Nobel shall use its
best efforts to cause the election to Nobel's Board of Directors one member
nominated by Lender. Certain stockholders of Nobel have agreed to vote for one
member of Nobel's Board of Directors nominated by Lender. If Lender chooses
not to participate on the Board, it shall have the right to have an observer
attend each Board meeting. Nobel shall reimburse the Lender Board member or one
observer from Lender for his reasonable out-of-pocket travel and lodging
expenses. The Lender representative on the Board of Directors or Lender
observer at Board meetings shall be either Thomas Westbrook or Cabell Williams,
or such other person designated by Lender as may be reasonably satisfactory to
the Company. Notwithstanding the foregoing, no provision of this Section 5.16
or this Agreement shall entitle Lender to more than one representative on
Nobel's Board of Directors or more than one observer at Board meetings.
5.17 MIS Systems. The Company shall provide to Lender a draft
-----------
management information systems ("MIS") implementation plan within six months
from Closing for
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<PAGE>
establishing adequate integrated management information systems for the Company,
such plan to include specific milestones with reasonable periods of time to
achieve such milestones. The Company shall work diligently to finalize and
implement such MIS plan.
5.18 Termination of Affirmative Covenants. At such time as the Note
------------------------------------
has been paid in full and the Warrants have not been exercised (each to the
extent as provided in the following sentence), the obligations set forth in
Sections 5.02, 5.03, 5.04, 5.07, 5.08 and 5.09 shall terminate. Thereafter, at
such time as Lender has purchased at least 75% of the shares of Common Stock
purchasable under the Warrants, or the Warrants shall have expired, all of the
remaining obligations set forth in this Article V shall terminate.
ARTICLE VI: NEGATIVE COVENANTS
Until the Note is repaid in full and each of the other Obligations has
been satisfied in full and discharged and so long as Lender holds an equity
interest in the Company, the Company covenants and agrees with Lender not to do
---
any of the following, without the prior written consent of Lender (which consent
may be withheld by Lender in Lender's discretion for any reason whatsoever,
except in the case of the action contemplated by Section 6.01 as to which Lender
agrees not to unreasonably withhold its approval):
6.01 Change of Chairman and Chief Executive Officer. Nobel shall not
----------------------------------------------
change its Chairman or Chief Executive Officer, A.J. Clegg (except due to his
death or disability) except if the Board of Directors at Nobel replaces A. J.
Clegg with a new candidate who is reasonably acceptable to Lender. If Nobel
violates this covenant, Lender has the option, within 90 days after notification
of such event, to demand that the Company purchase all or a portion of the Note
at a price equal to 100% of its par value.
6.02 Dividends. Nobel shall not declare or pay any cash, stock or
---------
other dividend or distribution on (i) any common stock without Lender's approval
or (ii) on any preferred stock, so long as a material default hereunder, or
under the Note, exists.
6.03 Change of Site, Etc. The Company shall not expend or invest any
--------------------
funds in any manner not related to the education or child care business.
6.04 Judgments. The Company shall not permit any material judgment
---------
obtained against the Company to remain unpaid for over thirty 30 days without
obtaining a stay of execution or bond.
6.05 Sale or Disposition. The Company shall not Transfer or in any
-------------------
other manner convey or dispose of any equitable, beneficial or legal interest in
any of its assets, other than in the ordinary course of business, if the total
operating income generated by the Company in the most recently completed 12
months by such assets sold in any 12 month period would exceed 25% of Nobel's
operating income for the most recently completed 12 months.
-20-
<PAGE>
6.06 No Encumbrances. The Company shall not permit to exist against
---------------
any of its material assets any lien, mortgage, pledge, security interest, title
retention device, or other encumbrance, except for the Permitted Encumbrances.
6.07 Major Expenditures. The Company shall not make expenditures for
------------------
capital improvements, acquisitions or otherwise in any fiscal year in excess of
Five Hundred Thousand Dollars ($500,000), unless and to the extent such
expenditures are included in an annual budget approved by the Company's Board of
Directors each year (the "Annual Budget"), or made in connection with
acquisitions that have been approved by the Board of Directors of the Company.
6.08 Employee Compensation. The Company shall not pay wages,
---------------------
salaries, loans, advances, or other payments to, or on behalf of, any officer of
the Company (any such, "Employee Compensation") which, in total, are in excess
of the amounts established by a Compensation Committee, of which a majority of
the committee members are non-management directors.
6.09 Inside Transactions; Mergers.
----------------------------
(a) The Company shall not purchase or sell any property or
services, nor borrow or lend money or property from or to, or co-invest in, any
transaction with any officer, director, or Affiliate (other than the
subsidiaries (whether or not Subsidiaries), and The Sagemont School, L.L.C.) of
the Company, unless such transaction has been approved by a majority of the
directors of the Company who are not parties to the transaction in question, and
except for employment compensation arrangements consistent with the requirements
imposed pursuant to Section 6.08 above.
(b) The Company shall not merge or consolidate with or into any
entity unless Nobel is the surviving entity or controls the consolidated entity,
remains a U. S. corporation and, after giving effect to such merger or
consolidation, no Event of Default exists.
6.10 Additional Senior Debt.
----------------------
(a) From and after the date hereof, the Company may not increase
Permitted Senior Debt unless:
(i) the Company provides pro forma financial statements to
Lender showing the 12-month period ended with the month in which the additional
senior debt is to be provided and assuming it was provided to the Company in the
first day of such 12-month period; and
(ii) Such pro forma financial statements demonstrate that,
giving effect to such senior debt financing, the Company would have been in
compliance with the applicable financial covenants, set forth in Section 5.07 as
of the end of the 12-month period depicted in such pro forma financial
statements.
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<PAGE>
(b) In the event the Company incurs Permitted Senior Debt in
compliance with this Agreement, Lender hereby agrees to execute a subordination
agreement with the lender of the Permitted Senior Debt on terms substantially
similar to those of the Subordination Agreement, or otherwise reasonably
acceptable to Lender.
6.11 No Adverse Actions. The Company shall not, by amendment to the
------------------
Company Constituent Documents or through any reorganization, reclassification,
consolidation, merger, sale of assets, Act of Dissolution, issuance or Transfer
of securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms, covenants and conditions of this Agreement or
any of the other Loan Documents, but shall at all times carry out in good faith
all such terms and take all such actions as may be necessary or appropriate to
protect the rights of the Lender hereunder and under each of the Loan Documents.
6.12 Termination of Negative Covenants. At such time as the Note has
---------------------------------
been paid in full, but the Warrants have not been exercised (to the extent as
provided in the following sentence), the obligations set forth in Sections 6.01,
6.02, 6.03, 6.04, 6.05, 6.06, 6.07 and 6.10 shall terminate. Thereafter, at
such time as Lender has purchased at least 75% of the shares of Common Stock
purchasable under the Warrants, all of the remaining obligations set forth in
this Article VI shall terminate.
6.13 Operating Leases. Nothing herein shall prohibit the Company
----------------
from selling its real estate and leasing it back under leases that will be
treated as operating leases for financial reporting purposes, or from entering
into build-to-suit arrangements with any persons pursuant to which they will
build new schools and centers to the Company's specifications and lease them to
the Company under leases treated as operating leases for financial reporting
purposes.
ARTICLE VII: FEES, EXPENSES AND INDEMNIFICATION
7.01 Fees and Expenses. The Company shall pay:
-----------------
(a) A commitment fee to Lenders of Eighty Thousand Dollars
($80,000), of which Twenty Thousand Dollars ($20,000) was paid at the time of
the execution and delivery of the commitment letter and the balance of Sixty
Thousand Dollars ($60,000) is due and payable in full at Closing;
(b) All reasonable fees and disbursements for work done for
Lender by Lender's attorneys and legal staff (whether by outside counsel or the
legal staff of Lender); and
(c) A processing fee equal to all reasonable out-of-pocket
costs and expenses up to a maximum of $1,000, incurred by Lender in connection
with performing a due diligence examination of the Company and the Company's
business.
All amounts described in this Section 7.01 shall be due and payable in
full by the Lenders at the Closing.
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<PAGE>
7.02 Indemnification. In addition to its indemnification provisions
---------------
contained elsewhere herein and in the other Loan Documents, the Company agrees
to indemnify, defend and hold harmless Lender and each of its respective
officers, directors, partners, employees, agents and controlling persons
(collectively, the "Indemnified Parties") from and against any and all losses,
claims, damages, liabilities and related expenses, including reasonable
attorneys' fees and expenses, incurred by or asserted against any of the
Indemnified Parties by any third parties arising out of, in any way in
connection with, or as a result of: (i) this Agreement and the other Loan
Documents, (ii) the performance by Lender and the Loan Parties of their
respective obligations hereunder and thereunder and consummation of the
transactions contemplated hereby and thereby; (iii) the occurrence of any Event
of Default hereunder or any event that would constitute an Event of Default but
for the giving of notice and/or passage of time; (iv) any federal, state or
local transfer or recording taxes or filing fees which may become payable in
connection with this transaction; (v) the spilling, leaking, pumping, pouring,
unsettling, discharging, leaching or releasing of any Hazardous Materials on any
of the Real Property or any other property owned by the Company; (vi) any
violations by the Company of any other Environmental Law, regulation or
ordinance; (vii) any brokerage, finders, or other fees in connection with the
transactions contemplated by this Agreement; or (viii) any claim, litigation,
investigation or proceeding relating to any of the foregoing, whether or not any
of the Indemnified Parties is a party thereto; provided, however, any such
indemnity shall not apply to any such losses, claims, damages, liabilities or
related expenses arising from the gross negligence or willful misconduct of
Lender or breach of this Agreement by Lender.
7.03 Survival; Timing of Payments. The provisions of this Article
----------------------------
VII and any other indemnification provisions contained in this Agreement and the
other Loan Documents shall survive and remain operative and in full force and
effect regardless of the termination of this Agreement or expiration of the term
of this Agreement, the consummation of the transactions contemplated hereby, the
repayment of the Note and satisfaction and discharge of the other Obligations,
the invalidity or unenforceability of any term or provision of this Agreement or
the Note, or any investigation made by or on behalf of Lender. Except as
provided to the contrary, all amounts due under this Article VII shall be
payable on written demand therefor.
ARTICLE VIII: DEFAULT PROVISIONS
The occurrence of any of the events specified below in this Article
VIII (any such, an "Event of Default") shall constitute an immediate breach of,
and default under, this Agreement entitling Lender to exercise all of the rights
and remedies specified in this Agreement, in any other Loan Document, and under
all Applicable Laws, without the obligation to furnish any further notice or
opportunity to cure (beyond that specified in the applicable sections of this
Article VIII), all of which are hereby expressly waived by the Company and all
other Loan Parties:
8.01 Monetary Defaults. Any installment payment of principal,
-----------------
interest or other charge under the Note is not received by Lender within 15
calendar days of the due date thereof,
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<PAGE>
or any other monetary Obligation is not fully paid and discharged within 15
calendar days of the due date thereof.
8.02 Other Breaches. The Company or any other Loan Party shall fail
--------------
to comply with their respective affirmative or negative covenants, agreements
and undertakings in this Agreement or the Note and such failure shall continue
for a period of 15 calendar days from the date of the delivery of written notice
thereof from Lender.
8.03 Misrepresentation. Any representation or warranty made by the
-----------------
Company in this Agreement or any of the other Loan Documents, shall be untrue in
any material respect and shall remain so after ten days' written notice.
8.04 Transfer of Company Business. Any Transfer of Company's
----------------------------
Business shall occur.
8.05 Act of Bankruptcy or Dissolution. Any Act of Bankruptcy or Act
--------------------------------
of Dissolution shall have occurred with respect to the Company or any other Loan
Party.
8.06 Other Loan Document Defaults. The Company or any other Loan
----------------------------
Party shall be in default under any of the other Loan Documents (after taking
into account the giving of any notice and the expiration of the applicable cure
period (if any) required pursuant to the applicable terms of such other Loan
Document or Loan Documents).
8.07 Other Payment Default. Any payment default shall have occurred
---------------------
(after giving effect to any applicable notice and/or grace periods) under any
material lease, material contract, or other material obligation of the Company.
For purposes of this Section 8.07, "material" shall mean requiring payment
during the term of such obligation of an amount equal to or greater than
$3,000,000.
8.08 Court Orders. Final judgment(s) or final order(s) of any court
------------
of competent jurisdiction in excess of $1,000,000 which is either (i)
uncontested, unappealed, unpaid or uninsured for a period of 45 days or (ii) is
unpaid for 45 days after all appeals are exhausted.
ARTICLE IX: CERTAIN REMEDIES
Upon the occurrence of an Event of Default under this Agreement,
subject to the rights of the holders of the Permitted Senior Debt under the
Subordination Agreement, Lender shall be entitled to exercise any or all of the
following rights and remedies, in addition to such other rights and remedies as
may be provided for in the other Loan Documents or as may be available at law or
in equity:
9.01 Acceleration. Following the occurrence of an Event of Default,
------------
Lender may, at its option, accelerate the maturity of the Note and all other
Obligations and demand immediate payment in full of all amounts payable under
the Note and all of the Obligations, without
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<PAGE>
presentment, demand, protest, or further notice by Lender to the Company, all of
which are hereby expressly waived by the Company.
9.02 Costs. The Company shall pay all expenses of any nature,
-----
whether incurred in or out of court, and whether incurred before or after the
Note shall become due at their maturity date or otherwise (including, but not
limited to, reasonable attorneys' fees and costs) which Lender may deem
necessary or proper in connection with the collection of any of the Obligations.
Lender is authorized to pay at any time and from time to time any or all of such
expenses, to add the amount of such payment to the amount of principal
outstanding under the Note, and to charge interest thereon at the rate
specified in the Note.
9.03 Remedies Non-Exclusive. None of the rights, remedies,
----------------------
privileges or powers of Lender expressly provided for herein shall be exclusive,
but each of them shall be cumulative with, and in addition to, every other
right, remedy, privilege and power now or hereafter existing in favor of Lender,
whether pursuant to the other Loan Documents, at law or in equity, by statute or
otherwise.
ARTICLE X: MISCELLANEOUS
10.01 Non-Waiver. No course of dealing between Lender and any other
----------
party hereto or any failure or delay on the part of Lender in exercising any
rights or remedies hereunder shall operate as a waiver of any rights or remedies
of Lender under this or any other applicable instrument. No single or partial
exercise of any rights or remedies hereunder shall operate as a waiver or
preclude the exercise of any other rights or remedies hereunder.
10.02 Interest Not Impaired. The interest of Lender and its assigns
---------------------
shall not be impaired by Lender's sale, hypothecation or re-hypothecation of the
Note or by any indulgence, including, but not limited to:
(a) Any renewal, extension, or modification which Lender may
grant with respect to the Obligations or any part thereof; or
(b) Any indulgence granted in respect of any endorser,
guarantor or surety.
The purchaser, assignee, transferee or pledgee of the Note, any
guaranty, or any other Loan Document (or any of them), sold, assigned,
transferred, pledged or repledged shall forthwith become vested with, and
entitled to exercise, all powers and rights given by this Agreement to Lender,
as if said purchaser, assignee, transferee or pledgee were originally named in
this Agreement in place of Lender.
10.03 Notices. All notices or communications under this Agreement or
-------
the Note shall be mailed, postage prepaid, or delivered or sent by courier to
the following addresses (or to such other address as shall at any time be
designated by any party in writing to the other parties):
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<PAGE>
To Lender: ERROR! REFERENCE SOURCE NOT FOUND.
1666 K Street, N.W., Ninth Floor
Washington, D.C. 20006
Attention: G. Cabell Williams III, President
With a copy to: Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, D.C. 20036
Attention: Anthony H. Rickert, Esquire
To the Company: Nobel Education Dynamics, Inc.
Rose Tree Corporate Center II
1400 N. Providence Road
Suite 3055
Media, PA 19063
Attention: Chief Executive Officer
with copies to: Nobel Education Dynamics, Inc.
Rose Tree Corporate Center II
1400 N. Providence Road
Suite 3055
Media, PA 19063
Attention: General Counsel
Drinker Biddle & Reath LLP
1000 Westlakes Drive, Suite 300
Berwyn, PA 19312-2409
Attention: Robert H. Strouse, Esquire
Rejection or other refusal to accept, or the inability to deliver because
of a changed address of which no notice was given, shall not affect the
effectiveness or the date of delivery for any notice sent in accordance with the
foregoing provisions. Each such notice, request or other communication shall be
deemed sufficiently given, served, sent and received for all purposes at such
time as it is delivered to the addressee (with the return receipt, the delivery
receipt, or the affidavit of the messenger being deemed conclusive (but not
exclusive) evidence of such delivery) or at such time as delivery is refused by
addressee upon presentation.
10.04 Binding Agreement Limitation on Transfer. This Agreement shall
----------------------------------------
bind and inure to the benefit of Lender, the Company and the other Loan Parties,
and to the extent provided herein, their respective heirs, successors and
assigns. Lender shall not transfer or assign the Note or any of the Loan
Documents to any third party not affiliated with Lender without the prior
written consent of Nobel.
10.05 Entire Agreement; Integration Clause. This Agreement, the
------------------------------------
Exhibits hereto, and the other Loan Documents set forth the entire agreements
and understandings of the
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<PAGE>
parties hereto with respect to this transaction, and any prior agreements are
hereby merged herein and terminated.
10.06 No Oral Modification or Waivers. The terms herein may not be
-------------------------------
modified or waived orally, but only by an instrument in writing signed by the
party against which enforcement of the modification or waiver (as the case may
be) is sought.
10.07 Relationship of the Parties; Advice of Counsel. This Agreement
----------------------------------------------
provides for the making of an investment in the form of loans made by Lender, in
its capacity as lender, to the Company, in its capacity as borrower, and for the
payment of interest and repayment of principal by the Company to Lender. The
provisions herein for compliance with financial covenants and delivery of
financial statements are intended solely for the benefit of Lender to protect
its interest as lender in assuring payments of interest and repayment of
principal, and nothing contained in this Agreement shall be construed as
permitting or obligating Lender to act as financial or business advisor or
consultant to the Company, as permitting or obligating Lender to control the
Company or to conduct the Company's operations, as creating any fiduciary
obligation on the part of Lender to the Company, or as creating any joint
venture, agency or other relationship between the parties other than as
explicitly and specifically stated in this Agreement. Lender is not (and shall
not be construed as) a partner, joint venturer, alter-ego, manager, controlling
person, operator or other business participant of any kind of the Company;
neither Lender nor the Company intend that Lender assumes such status and,
accordingly, Lender shall not be deemed responsible for (or a participant in)
any acts or omissions of the Company. The Company and each of the other Loan
Parties each represent and warrant to Lender that they have had the advice of
experienced counsel of their own choosing in connection with the negotiation and
execution of this Agreement and with respect to all matters contained herein.
10.08 Controlling Law. This Agreement and each of the other Loan
---------------
Documents shall be governed by, and interpreted and construed in accordance
with, the internal laws of the State of Maryland (without regard to its
conflicts of law principles).
10.09 Venue; Personal Jurisdiction; Full Faith and Credit; Personal
-------------------------------------------------------------
Service.
- -------
(a) Venue for the adjudication of any claim or dispute arising
out of this Agreement or any of the other Loan Documents shall be proper only in
the state or federal courts of the State of Maryland, and all parties to this
Agreement and the other Loan Documents hereby consent to such venue and agree
that it shall not be not inconvenient and not subject to review by any court
other than such courts in Maryland;
(b) The Company and each of the other Loan Parties intend and
agree that the courts of the jurisdictions in which the Company is formed and in
which the Company conducts its business should afford full faith and credit to
any judgment rendered by a court of the State of Maryland against the Company or
any other Loan Party under this Agreement and the other Loan Documents, and the
Company and each other Loan Party under this Agreement and the other Loan
Documents each intend and agree that such courts should hold that the Maryland
courts have jurisdiction to enter a valid, in persona judgment against the
Company or such other Loan Party(ies), as the case may be;
-27-
<PAGE>
(c) The Company and each other Loan Party agree that service
of any summons and complaint, and other process which may be served in any suit,
action or other proceeding, may be made by mailing via U.S. certified or
registered mail or by hand-delivering a copy of such process to the Company or
such other Loan Party (as applicable) at its address specified above; and
(d) The Company and each other Loan Party all expressly
acknowledge and agree that the provisions of this Section 10.09 are reasonable
and made for the express benefit of each of the Lenders.
10.10 Waiver of Trial by Jury. Each party to this Agreement agrees
-----------------------
that any suit, action or proceeding, whether claim, defense or counterclaim,
brought or instituted by any party hereto or any successor or assign of any
party on or with respect to this Agreement or any other Loan Document or which
in any way relates, directly or indirectly, to the Note or any event,
transaction or occurrence arising out of or in any way connected with this
Agreement, the other Loan Documents or the dealings of the parties with respect
thereto, shall be tried only by a court and not by a jury. EACH PARTY HEREBY
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR
PROCEEDING, AND ACKNOWLEDGES THAT THIS IS A WAIVER OF A LEGAL RIGHT AND THAT IT
MAKES THIS WAIVER VOLUNTARILY AND KNOWINGLY AFTER CONSULTATION WITH, OR THE
OPPORTUNITY TO CONSULT WITH, COUNSEL OF ITS CHOICE.
10.11 Costs and Fees Related to Enforcement or a Successful Defense.
-------------------------------------------------------------
Without limiting Lender's entitlements under Section 9.02 above, the Company and
each other Loan Party, severally and not jointly (each, a "Reimbursing Party"),
hereby agrees to reimburse Lender for any and all costs and fees, including
reasonable attorneys' fees and expenses, incurred by Lender or its Affiliates in
connection with: (i) any suit, action, claim or other activity of Lender to
collect the Obligations or any portion thereof or to enforce any of the
provisions of this Agreement or any other Loan Document against such Reimbursing
Party; and (ii) any suit, action, claim or other liability asserted against
Lender or its Affiliates by such Reimbursing Party in any case in which such
Reimbursing Party does not prevail with respect to substantially all of its or
his claim.
10.12 Independent Covenant to Make Payments. The payment and
-------------------------------------
performance by the Company and any other Loan Party of all of the Obligations
shall be absolute and unconditional, irrespective of any defense or any rights
of set-off, recoupment or counterclaim the Company or any other Loan Party might
otherwise have against Lender, and the Company and each other Loan Party shall
pay and perform all of the Obligations (to the extent applicable to him or it),
free of any deductions and without abatement, diminution, recoupment,
counterclaim or set-off. Until payment in full of all of the Obligations, the
Company shall: (a) not suspend or discontinue any payments required pursuant to
the Notes, this Agreement or any other Loan Documents; and (b) perform and
observe all of the other terms and provisions of all of the Loan Documents.
-28-
<PAGE>
10.13 Headings. The headings of the paragraphs and sub-paragraphs of
--------
this Agreement and the other Loan Documents are inserted for convenience only
and shall not be deemed to constitute a part of this Agreement or the other Loan
Documents.
10.14 Severability. To the extent any provision herein violates any
------------
applicable law, that provision shall be considered void and the balance of this
Agreement shall remain unchanged and in full force and effect.
10.15 Counterparts. This Agreement may be executed in as many
------------
counterpart copies as may be required. It shall not be necessary that the
signature of, or on behalf of, each party appear on each counterpart, but it
shall be sufficient that the signature of, or on behalf of, each party appear on
one or more of the counterparts. All counterparts shall collectively constitute
a single agreement. It shall not be necessary in any proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties.
10.16 Deliveries to Lender. To the extent the terms of this
--------------------
Agreement or any of the other Loan Documents require the Company to deliver any
documents or other materials to Lender, then, until such time as Lender (or one
or more of its Affiliates) shall no longer hold complete title to the Note, the
Company may fully satisfy and discharge such requirement by delivering a single
copy of the document(s) or other material(s) in question to the Lender's notice
party identified in Section 10.03 above in lieu of separate deliveries to
Lender. Following a complete or partial Transfer by Lender of any its right,
title or interest in and to the Note to one or more Persons that is not an
Affiliate of Lender, then the Company shall be required to deliver copies of the
document(s) or other material(s) in question to Lender separately.
10.17 Consent and Approval of Lender. To the extent the terms of
------------------------------
this Agreement or any of the other Loan Documents require the Company to obtain
the consent or approval of each of Lender, then until such time as Lender (or
one or more Affiliates of Lender) shall no longer hold complete title to each of
the Note, the Company may fully satisfy and discharge such requirement by
obtaining the consent or approval (in writing if necessary) of the holder of not
less than 55% of the outstanding principal balance of the Note in lieu of the
separate consent or approval of Lender. Following a complete or partial
Transfer by Lender of any its right, title or interest in and to the Note to one
or more Persons that is not an Affiliate of Lender, then the Company shall be
required to obtain the consent or approval (in writing if necessary) of Lender
holding not less than 75% of the outstanding principal balance of the Note.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first above written.
WITNESS/ATTEST: "COMPANY":
NOBEL EDUCATION DYNAMICS, INC.
a Delaware corporation
-29-
<PAGE>
By: ________________________ By:________________________________(SEAL)
IMAGINE EDUCATIONAL PRODUCTS, INC.
a Delaware corporation
By: ________________________ By:________________________________(SEAL)
MERRYHILL SCHOOLS, INC.
a California corporation
By: ________________________ By:________________________________(SEAL)
MERRYHILL SCHOOLS NEVADA, INC.
a Nevada corporation
By: ________________________ By:________________________________(SEAL)
Signatures continued on next page.
-30-
<PAGE>
NEDI, INC
a California corporation
By: ________________________ By:_______________________________(SEAL)
LAKE FOREST MONTESSORI SCHOOLS, INC.
a Washington corporation
By: ________________________ By:_______________________________(SEAL)
"LENDER":
ALLIED CAPITAL CORPORATION,
a Maryland corporation
By: ________________________ By:_______________________________(SEAL)
-31-
<PAGE>
EXHIBIT 4.12
THE INDEBTEDNESS EVIDENCED BY THIS NOTE AND ANY RIGHTS OR REMEDIES HEREUNDER
SHALL BE SUBORDINATE AND JUNIOR TO SUMMIT BANK AND ITS SUCCESSORS AND ASSIGNS TO
THE EXTENT AND IN THE MANNER SET FORTH IN A SUBORDINATION AGREEMENT DATED AS OF
JUNE 30, 1998.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE OFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OF THE NOTE UNDER SUCH ACT AND
UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR UPON SATISFACTION BY THE ISSUER
HEREOF THAT SUCH REGISTRATION IS NOT REQUIRED AS TO SUCH SALE OR OFFER.
NOBEL EDUCATION DYNAMICS, INC.
SENIOR SUBORDINATED NOTE
$10,000,000 Dated as of June 30, 1998
FOR VALUE RECEIVED, the undersigned, (i) NOBEL EDUCATION DYNAMICS, INC., a
Delaware corporation having an address at Rosetree Corporate Center II, 1400 N.
Providence Road, Suite 3055, Media, PA 19063 ("Nobel"), and (ii) Imagine
Educational Products, Inc., a Delaware corporation, Merryhill Schools, Inc. a
California corporation, Merryhill Schools Nevada, Inc., a Nevada corporation,
NEDI, Inc., a California corporation and Lake Forest Park Montessori School,
Inc., a Washington corporation (collectively, the entities listed in this clause
(ii) shall be referred to as the "Subsidiaries") (collectively, Nobel and the
Subsidiaries shall be referred to as the "Borrower"), hereby jointly, severally,
and unconditionally promise to pay to the order of ALLIED CAPITAL CORPORATION or
its registered assigns (the "Holder"), at its offices located at 1666 K Street,
N.W., Suite 901, Washington, D.C. 20006, or such other places the Holder shall
from time to time have designated to the Company in writing, the principal
amount of TEN MILLION AND 00/100 DOLLARS ($10,000,000), together with interest
thereon, at the times and in the manner hereinafter provided.
1. Investment Agreement. This Note is subject to the terms of the
--------------------
Investment Agreement, dated as of June 30, 1998, by and among the Borrower and
the Holder referenced above (the "Investment Agreement"), a copy of which may be
examined during normal business hours at the Company's offices. Capitalized
terms used herein and not otherwise defined herein shall have the meanings given
to them in the Investment Agreement.
2. Interest. From the date hereof and thereafter until repayment of this
--------
Note, interest shall accrue hereunder at the rate of ten percent (10%) per
annum, compounded quarterly.
<PAGE>
Interest shall be calculated on the basis of a 360-day year and shall be
computed for each monthly payment period on the basis of 30 days having elapsed.
3. Payments.
--------
3.1 Payment of Interest. Commencing on October 1, 1998 and
-------------------
continuing on January 1, April 1, July 1, and October 1 thereafter until the
Maturity Date (as defined below), the Borrower shall pay to Holder an amount
equal to all interest accruing on the principal balance of this Note from time
to time outstanding.
3.2 Principal Payments and Payment at Maturity. The Borrower shall
------------------------------------------
pay to Holder on or before July 1, 2004 the sum of Five Million and 00/100
Dollars ($5,000,000) (i.e., an amount equal to 50% of the original principal
amount). On or before July 1, 2005 (the "Maturity Date") or upon the
acceleration of this Note, the Borrower will pay to Holder the entire principal
amount of this Debenture then outstanding together with all accrued and unpaid
interest thereon.
3.3 Other Payment Provisions. All payments of principal and interest
------------------------
hereunder shall be payable to the Holder in lawful money of the United States of
America not later than 2 p.m. on the date when due, without any offset or
deduction whatsoever. Any payment coming due on a day which is not a business
day within the District of Columbia shall be made on the next succeeding such
business day, and any such extension of the time of payment shall be included in
the computation of interest hereunder.
3.4 Penalty. If any payment of principal or interest due under this
-------
Note shall be overdue, such overdue amount shall bear interest from and after
the date due, to and including the date when paid in full, at a rate equal to
the lesser of (i) the maximum rate allowed by law and (ii) thirteen percent
(13%) per annum.
3.5 Prepayments. The unpaid principal amount of this Note and any
-----------
accrued and unpaid interest thereon may be prepaid, in whole or in part, at any
time upon 10 days prior written notice to Holder, without penalty or premium.
Such prepayments shall be credited against principal in inverse order of
maturity. Prepayments made without the required notice will not be credited
against principal until 10 days after receipt.
3.6 Due on Sale. Notwithstanding anything herein or in the
-----------
Investment Agreement to the contrary, the entire indebtedness hereunder shall
become due and payable upon the earlier of the Maturity Date or a Transfer of
the Company's Business, as defined in Section 1.01 of the Investment Agreement.
4. Subordination. The indebtedness represented by this Note is
-------------
subordinate to the Senior Debt of the Borrower in accordance with the terms of
the Investment Agreement, and the Subordination Agreement among the Borrower,
the Holder, and Summit Bank.
-2-
<PAGE>
5. No Assignment by Borrower. The Borrower shall not assign any of its
-------------------------
rights under this Note nor delegate any of its duties under this Note without
the prior written consent of Holder. Holder may freely assign its rights
hereunder.
6. Covenants and Agreements. The Borrower covenants and agrees that, so
------------------------
long as any indebtedness is outstanding hereunder, it will, unless the Holder
shall otherwise consent prior thereto in writing, comply with and perform each
of the covenants and agreements set forth in the Investment Agreement, which
provisions are incorporated herein by this reference as if set forth at length
herein.
7. Default and Acceleration.
------------------------
7.1 Events of Default. Upon the occurrence of any Event of Default
-----------------
described in Article VIII of the Investment Agreement, then a default may be
declared hereunder at the option of the Holder, without presentment, demand,
protest or further notice of any kind (all of which are hereby expressly
waived). In such event, the Holder shall be entitled to exercise any or all of
the rights and remedies described in Article IX of the Investment Agreement, at
its option, in addition to such other rights and remedies as may be available at
law or in equity. At any time after a declaration of default hereunder, but
before a judgment or decree for the payment of money has been obtained, the
Holder may, by written notice, rescind the declared default if the Borrower has
paid a sum sufficient to pay all overdue interest and overdue principal amounts,
all interest on the overdue installments of interest and/or principal at the
penalty rate, and the Holder's reasonable costs of enforcing its rights
hereunder (including attorneys' fees and disbursements).
7.2 No Waiver. No course of dealing between the Holder and any other
---------
party hereto or any failure or delay on the part of the Holder in exercising any
rights or remedies hereunder shall operate as a waiver of any rights or remedies
of the Holder under this or any other applicable instrument. No single or
partial exercise of any rights or remedies hereunder shall operate as a waiver
or preclude the exercise of any other rights or remedies hereunder.
8. Definitions. The term "indebtedness" as used herein shall mean the
-----------
indebtedness evidenced by this Note, including principal, interest and expenses
whether contingent, now due or hereafter to become due, and whether heretofore
or contemporaneously herewith or hereafter contracted.
9. Confession of Judgment. If payment of the indebtedness evidenced by
----------------------
this Note, or any part thereof, shall not be made when due and at maturity, by
acceleration or otherwise, the Borrower hereby authorizes and empowers any
attorney of any court of record in the United States to appear for all of the
undersigned in court, or before any clerk thereof, and confess judgment against
the undersigned in favor of the Holder of this Note for the amount due thereon
with interest and costs.
-3-
<PAGE>
10. Waiver of Trial by Jury. The Borrower agrees that any suit, action or
-----------------------
proceeding, whether claim or counterclaim, brought or instituted by the Holder
on or with respect to this Note or any event, transaction or occurrence arising
out of or in any way connected with the Investment Agreement or the dealing of
the parties with respect thereto, shall be tried only by a court and not by a
jury. THE BORROWER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
SUCH SUIT, ACTION OR PROCEEDING. The Borrower acknowledges and agrees that the
Holder would not extend credit under the Investment Agreement to the Borrower
and would not purchase this Note if this waiver of jury trial were not part of
the Investment Agreement and this Note.
11. Venue; Service of Process. Venue for any adjudication hereof shall be
-------------------------
only in the courts of the State of Maryland or the Federal courts in the State
of Maryland, the jurisdiction of which courts all parties hereby consent to as
the agreement of the parties, as not inconvenient and as not subject to review
by any court other than such courts in Maryland. The Company intends that the
courts of the jurisdiction(s) in which the Company is incorporated and conducts
business should afford full faith and credit to any judgment rendered by a court
of the State of Maryland against the Company hereunder, and should hold that the
Maryland courts have jurisdiction to enter a valid, in personam judgment against
-- --------
the Company hereunder. The Company agrees that service of any summons or
complaint, and other process which may be served in any action, may be made by
mailing via registered mail or delivering a copy of such process to the Company,
and the Company hereby agrees that this submission to jurisdiction and consent
to service of process are reasonable and made for the express benefit of Holder.
12. Controlling Law. This Note and all matters related hereto shall be
---------------
governed in accordance with the laws of the State of Maryland, without regard to
its principles of conflicts of law.
IN WITNESS WHEREOF, the undersigned have duly caused this instrument
to be executed and delivered as of the date first above written.
WITNESS/ATTEST: "COMPANY":
NOBEL EDUCATION DYNAMICS, INC.
a Delaware corporation
By: ___________________________ By:___________________________(SEAL)
{Signatures continued on next page.}
-4-
<PAGE>
IMAGINE EDUCATIONAL PRODUCTS, INC.
a Delaware corporation
By: ____________________________ By:___________________________(SEAL)
MERRYHILL SCHOOLS, INC.
a California corporation
By: ____________________________ By:___________________________(SEAL)
MERRYHILL SCHOOLS NEVADA, INC.
a Nevada corporation
By: ____________________________ By:___________________________(SEAL)
NEDI, INC.
a California corporation
By: ____________________________ By:___________________________(SEAL)
{Signatures continued on next page.}
-5-
<PAGE>
LAKE FOREST PARK MONTESSORI SCHOOL, INC.
a Washington corporation
By:______________________________ By:___________________________(SEAL)
-6-
<PAGE>
EXHIBIT 10.3
NOBEL EDUCATION DYNAMICS, INC.
1995 STOCK INCENTIVE PLAN
EFFECTIVE DATE: JUNE 21, 1995
AS AMENDED: JUNE 12, 1997, SEPTEMBER 19, 1997 AND AUGUST 31, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1 Purpose............................................... 1
SECTION 2 Administration........................................ 1
SECTION 3 Eligibility........................................... 2
SECTION 4 Stock................................................. 3
SECTION 5 Granting of Options to Key Employees.................. 3
SECTION 6 Granting of NQSOs to Outside Directors................ 4
SECTION 7 Annual Limit for ISOs................................. 4
SECTION 8 Options and SARs...................................... 5
SECTION 9 Restricted Stock Awards............................... 10
SECTION 10 Unrestricted Stock Awards............................. 12
SECTION 11 Capital Adjustments................................... 12
SECTION 12 Change in Control..................................... 13
SECTION 13 Amendment or Discontinuance of the Plan............... 13
SECTION 14 Termination of Plan................................... 14
SECTION 15 Shareholder Approval.................................. 14
SECTION 16 Miscellaneous......................................... 15
</TABLE>
<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
1995 STOCK INCENTIVE PLAN
-------------------------
SECTION 1
PURPOSE
-------
This NOBEL EDUCATION DYNAMICS, INC. 1995 STOCK INCENTIVE PLAN ("Plan") is
intended to provide a means whereby NOBEL EDUCATION DYNAMICS, INC. ("Company")
and any Subsidiary of the Company (as hereinafter defined) may, through the
grant of incentive stock options and non-qualified stock options (collectively
"Options"), stock appreciation rights ("SARs"), stock subject to restrictions
("Restricted Stock") and stock not subject to restrictions ("Unrestricted
Stock") to Key Employees and Outside Directors (both as defined in Section 3),
attract and retain such Key Employees and Outside Directors and motivate such
individuals to exercise their best efforts on behalf of the Company and of any
Subsidiary.
As used in the Plan, the term "incentive stock option" ("ISO") means an Option
which qualifies as an incentive stock option within the meaning of section 422
of the Internal Revenue Code of 1986, as amended from time to time (the "Code"),
at the time it is granted and which is either designated as an ISO in the Option
Agreement (as hereinafter defined) covering such Option or which is designated
as an ISO by the Committee (as defined in Section 2 hereof) at the time of
grant. The term "non-qualified stock option" ("NQSO") means any other Option
granted under the Plan. The term "Subsidiary" means any corporation (whether or
not in existence at the time the Plan is adopted) which, at the time an Award is
granted, is a subsidiary of the Company under the definition of "subsidiary
corporation" contained in section 424(f) of the Code, or any successor thereto.
SECTION 2
ADMINISTRATION
--------------
The Plan shall be administered by the Company's Compensation Committee (the
"Committee"), which shall consist of two or more Outside Directors who shall be
appointed by, and shall serve at the pleasure of, the Company's Board of
Directors (the "Board"). Each member of the Committee, while serving as such,
shall be deemed to be acting in his capacity as a director of the Company.
Except as otherwise permitted under Section 6 and under section 16(b) of the
Securities Exchange Act of 1934 (the "Exchange Act"), and paragraph (c)(2)(i) of
Rule 16b-3 thereunder, no member of the Committee shall be granted, nor shall
have been granted, Awards (as defined below) pursuant to the Plan or equity
securities (within the meaning of 17 C.F.R. (S)240.16a-1(d)) pursuant to any
other plan of the Company or of any of its affiliates, as defined in or under
the Exchange Act, at any time during the period commencing with the date which
is one year prior to the date his service on the Committee began and ending on
the date which is one day after the date on which his service on the Committee
ceased. Each member of the Committee shall also be an "outside director" within
the meaning of Prop. Treas. Reg. (S) 1.162-27(e)(3), or any successor thereto.
<PAGE>
The Committee shall have full and final authority in its absolute discretion,
subject to the terms of the Plan, to select the Key Employees to be granted
ISOs, NQSOs, SARs, Restricted Stock and Unrestricted Stock (collectively
"Awards") under the Plan, to grant Awards on behalf of the Company, and to set
the date of grant and the other terms of such Awards. With respect to the
eligibility of Outside Directors, the Plan is intended to comply with Rule 16b-3
and its successors promulgated under the Exchange Act as a "formula award" plan
described in Rule 16b-3(c)(2)(ii), and any provision of this Plan applicable to
Outside Directors that is to the contrary shall be deemed null and void.
Consequently, the award of Options to Outside Directors shall be as set forth in
Section 6, and the Committee shall not have any discretionary authority with
respect thereto.
The Committee may correct any defect, supply any omission and reconcile any
inconsistency in the Plan and in any Award granted hereunder in the manner and
to the extent it shall deem desirable. The Committee also shall have the
authority to establish such rules and regulations, not inconsistent with the
provisions of the Plan, for the proper administration of the Plan, and to amend,
modify or rescind any such rules and regulations, and to make such
determinations and interpretations under, or in connection with, the Plan, as it
deems necessary or advisable. All such rules, regulations, determinations and
interpretations shall be binding and conclusive upon the Company, its
shareholders and all officers and employees and former officers and employees,
and upon their respective legal representatives, beneficiaries, successors and
assigns and upon all other persons claiming under or through any of them.
No member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Award granted
hereunder.
SECTION 3
ELIGIBILITY
-----------
(a) IN GENERAL. Key Employees and Outside Directors shall be eligible to
----------
receive Awards under the Plan. Key Employees and Outside Directors who have
been granted an Award under the Plan shall be referred to as "Grantees." More
than one Award may be made to a Grantee under the Plan.
(b) KEY EMPLOYEES. Key Employees are (1) officers of the Company or a
-------------
Subsidiary, (2) school principals, center directors, and regional managers of
the Company or a Subsidiary, and (3) any other employees of the Company or a
Subsidiary so designated by the Committee. Key Employees shall be eligible to
receive any type of Award available under the Plan.
(c) OUTSIDE DIRECTORS. Outside Directors are directors of the Company who are
-----------------
not officers or employees thereof. Outside Directors shall only be eligible to
receive NQSOs pursuant to Section 6.
2
<PAGE>
SECTION 4
STOCK
-----
The number of common shares of the Company, par value $.001 per share
("Common Shares"), that may be subject to Awards under the Plan shall be 750,000
shares (such number of shares reflecting adjustment for effectiveness of the
Company's Plan of Recapitalization effected on September 28, 1995), subject to
adjustment as hereinafter provided; provided that no Key Employee shall receive
Options for more than 40,000 Common Shares (such number of shares also
reflecting adjustment for effectiveness of the Company's Plan of
Recapitalization) during any calendar year (i.e., any period from January 1
through December 31 of the same year). Common Shares issuable under the Plan
may be authorized but unissued shares or reacquired shares, as the Company may
determine from time to time.
Any Common Shares subject to an Option which expires or otherwise
terminates for any reason whatever (including, without limitation, the Key
Employee's surrender thereof) without having been exercised, and any shares of
Restricted Stock which are forfeited, shall continue to be available for the
granting of Awards under the Plan; provided, however, that (a) if an Option is
cancelled, the Common Shares covered by the cancelled Option shall be counted
against the maximum number of shares specified in this Section 4 for which
Options may be granted to a single Key Employee, and (b) if the exercise price
of an Option is reduced after the date of grant, the transaction shall be
treated as a cancellation of the original Option and the grant of a new Option
for purposes of counting the maximum number of shares for which Options may be
granted to a Key Employee. Common Shares subject to an Option cancelled upon
the exercise of a SAR shall not again be available for Awards under the Plan.
SECTION 5
GRANTING OF OPTIONS TO KEY EMPLOYEES
------------------------------------
From time to time until the expiration or earlier suspension or
discontinuance of the Plan, the Committee may, on behalf of the Company, grant
to Key Employees under the Plan such Options as it determines are warranted,
subject to the limitations of the Plan; provided, however, that grants of ISOs
and NQSOs shall be separate and not in tandem. The granting of an Option under
the Plan shall not be deemed either to entitle the Key Employee to, or to
disqualify the Key Employee from, any other Awards under the Plan. In making
any determination as to whether a Key Employee shall be granted an Option, the
type of Option to be granted, and the number of Common Shares to be covered by
the Option, the Committee shall take into account the duties of the Key
Employee, his present and potential contributions to the success of the Company
or a Subsidiary, the tax implications to the Company and the Key Employee of any
Options granted, and such other factors as the Committee shall deem relevant in
accomplishing the purposes of the Plan. Moreover, the Committee may provide in
the Option Agreement that the Option may be exercised only if certain
conditions, as determined by the Committee, are fulfilled.
3
<PAGE>
SECTION 6
GRANTING OF NQSOS TO OUTSIDE DIRECTORS
--------------------------------------
As of the date 90 days following the close of each fiscal year of the
Company ("Base Fiscal Year") commencing with the fiscal year ending June 30,
1999, until the expiration or earlier suspension or discontinuance of the Plan,
each individual serving as an Outside Director on such date shall be granted a
NQSO to purchase 2,000 Common Shares (such number of shares reflecting
adjustment for effectiveness of the Company's Plan of Recapitalization) (as
adjusted pursuant to section 11, if necessary), provided that (a) the individual
served as a director for the entire Base Fiscal Year, and (b) the Company's pre-
tax income for the Base Fiscal Year exceeds by at least 20% the Company's pre-
tax income for the previous fiscal year, as calculated in accordance with
generally accepted accounting principles ("GAAP"). Outside Directors shall also
retain NQSOs which have been granted to them under the Plan in 1996 and 1997.
SECTION 7
ANNUAL LIMIT FOR ISOS
---------------------
(a) ANNUAL LIMIT. The aggregate Fair Market Value (determined as of
------------
the date the ISO is granted) of the Common Shares with respect to which ISOs
become exercisable for the first time by a Key Employee during any calendar year
(under this Plan and any other ISO plan of the Company or any parent corporation
(within the meaning of section 424(e) of the Code ("Parent")) or Subsidiary)
shall not exceed $100,000. The term "Fair Market Value" shall mean the value of
the Common Shares arrived at by a good faith determination of the Committee and
shall be:
(1) The mean between the highest and lowest quoted selling price, if
there is a market for the Common Shares on a registered securities exchange
or in an over the counter market, on the date specified;
(2) The weighted average of the means between the highest and lowest
sales on the nearest date before and the nearest date after the specified
date, if there are no such sales on the specified date but there are such
sales on dates within a reasonable period both before and after the
specified date;
(3) The mean between the bid and asked prices, as reported by the
National Quotation Bureau on the specified date, if actual sales are not
available during a reasonable period beginning before and ending after the
specified date; or
(4) Such other method of determining Fair Market Value as shall be
authorized by the Code, or the rules or regulations thereunder, and adopted
by the Committee.
Where the Fair Market Value of Common Shares is determined under (2)
above, the average of the means between the highest and lowest sales on the
nearest date before and the nearest date after the specified date shall be
weighted inversely by the respective numbers of trading days between the
dates of reported sales and the specified date (i.e., the valuation date),
----
in accordance with Treas. Reg. (S) 20.2031-2(b)(1), or any successor
thereto.
4
<PAGE>
(b) OPTIONS OVER ANNUAL LIMIT. If an Option intended as an ISO is granted
-------------------------
to a Key Employee and such Option may not be treated in whole or in part as an
ISO pursuant to the limitation in (a) above, such Option shall be treated as an
ISO to the extent it may be so treated under such limitation and as a NQSO as to
the remainder. For purposes of determining whether an ISO would cause such
limitation to be exceeded, ISOs shall be taken into account in the order
granted.
(c) NQSOS, SARS, RESTRICTED STOCK AND UNRESTRICTED STOCK. The annual limit
----------------------------------------------------
set forth above for ISOs shall not apply to NQSOs, SARs, Restricted Stock and
Unrestricted Stock.
SECTION 8
OPTIONS AND SARS
----------------
(a) TERMS AND CONDITIONS OF OPTIONS. The Options granted pursuant to the
-------------------------------
Plan shall include expressly or by reference the following terms and conditions,
as well as such other provisions not inconsistent with the provisions of this
Plan as the Committee shall deem desirable, and for ISOs granted under this
Plan, the provisions of section 422(b) of the Code:
(1) NUMBER OF COMMON SHARES. The Option Agreement shall state the
-----------------------
number of Common Shares to which the Option pertains.
(2) PRICE.
-----
(A) KEY EMPLOYEES. With respect to Options granted to Key
-------------
Employees, the Option exercise price shall be determined and fixed by
the Committee in its discretion at the time of grant, but shall not be
less 100% (110% in the case of an ISO granted to a more than 10%
shareholder as provided in Subsection (10) below) of the Fair Market
Value of the optioned Common Shares on the date the Option is granted.
(B) OUTSIDE DIRECTORS. With respect to Options granted to
-----------------
Outside Directors, the Option exercise price shall be the Fair Market
Value of the optioned Common Shares on the date the Option is granted.
(3) TERM.
----
(A) ISOS. Subject to earlier termination as provided in
----
Subsections (5), (6) and (7) below, the term of each ISO shall be not
more than 10 years (5 years in the case of a more than 10% shareholder
as provided in Subsection (10) below) from the date of grant.
(B) NQSOS GRANTED TO KEY EMPLOYEES. Subject to earlier
------------------------------
termination as provided in Subsections (5), (6) and (7) below, the
term of each NQSO granted to a Key Employee shall be not more than 10
years from the date of grant.
5
<PAGE>
(C) NQSOS GRANTED TO OUTSIDE DIRECTORS. Subject to earlier
----------------------------------
termination as provided in Subsection (8) below, the term of each NQSO
granted to an Outside Director shall be 10 years from the date of
grant.
(4) EXERCISE.
--------
(A) OPTIONS GRANTED TO KEY EMPLOYEES. Options granted to Key
--------------------------------
Employees shall be exercisable in such installments and on such dates,
commencing not earlier than 6 months from the later of the date of
grant or the date the Plan is approved by the Company's shareholders,
as the Committee may specify, provided that:
(i) In the case of new Options granted to a Key Employee
in replacement for options (whether granted under the Plan or
otherwise) held by the Key Employee, the new Options may be made
exercisable, if so determined by the Committee, in its
discretion, at the earliest date the replaced options were
exercisable; and
(ii) The Committee may accelerate the exercise date of any
outstanding Options granted to Key Employees in its discretion,
if it deems such acceleration to be desirable.
(B) OPTIONS GRANTED TO OUTSIDE DIRECTORS. Options granted to
------------------------------------
Outside Directors shall be exercisable commencing six months after the
later of the date of grant or the date the Plan is approved by the
Company's shareholders.
(C) GENERAL. Any Common Shares, the right to the purchase of
-------
which has accrued, under an Option may be purchased at any time up to
the expiration or termination of the Option. Exercisable Options may
be exercised, in whole or in part, from time to time by giving written
notice of exercise to the Company at its principal office, specifying
the number of Common Shares to be purchased and accompanied by payment
in full of the aggregate Option exercise price for such shares. Only
full shares shall be issued under the Plan, and any fractional share
which might otherwise be issuable upon the exercise of an Option
granted hereunder shall be forfeited.
(D) MANNER OF PAYMENT. The Option price of an Option granted to
-----------------
an Outside Director shall be payable in cash or its equivalent.
The Option price of an Option granted to a Key Employee shall be
payable:
(i) In cash or its equivalent;
(ii) In the case of an ISO, if the Committee, in its
discretion, causes the Option Agreement so to provide, and in the
case of a NQSO if the
6
<PAGE>
Committee, in its discretion, so determines at or prior to the
time of exercise, in Common Shares previously acquired by the
Grantee, provided that (1) if such shares were acquired through
the exercise of an ISO and are used to pay the Option exercise
price of an ISO, such shares have been held by the Key Employee
for a period of not less than the holding period described in
section 422(a)(1) of the Code on the date of exercise, or (2) if
such shares were acquired through the exercise of a NQSO and are
used to pay the Option exercise price of an ISO, or if such
shares were acquired through exercise of a NQSO or of an option
under a similar plan or through exercise of an ISO and are used
to pay the Option exercise price of a NQSO, or if such shares
were acquired under a SAR, or through the grant of Restricted or
Unrestricted Stock, such shares have been held by the Key
Employee for a period of more than 12 months on the date of
exercise; or
(iii) In the discretion of the Committee, in any
combination of (i) and (ii) above.
In the event such Option exercise price is paid, in whole or in
part, with Common Shares, the portion of the Option exercise price so
paid shall equal the Fair Market Value on the date of exercise of the
Common Shares surrendered in payment of such Option exercise price.
(5) EXERCISE UPON TERMINATION OF KEY EMPLOYEE. If a Key Employee's
-----------------------------------------
employment by the Company (and Subsidiaries) is terminated by either party
prior to the expiration date fixed for his or her Option for any reason
other than death or disability, such Option may be exercised, to the extent
of the number of Common Shares with respect to which the Key Employee could
have exercised it on the date of such termination, or to any greater extent
permitted by the Committee, by the Key Employee at any time prior to the
earlier of:
(A) The expiration date specified in such Option; or
(B) Three months after the date of such termination of
employment.
(6) EXERCISE UPON DISABILITY OF KEY EMPLOYEE. If a Key Employee shall
----------------------------------------
become disabled (within the meaning of section 22(e)(3) of the Code) during his
or her employment and, prior to the expiration date fixed for his or her Option,
his or her employment is terminated as a consequence of such disability, such
Option may be exercised, to the extent of the number of Common Shares with
respect to which the Key Employee could have exercised it on the date of such
termination, or to any greater extent permitted by the Committee, by the Key
Employee at any time prior to the earlier of:
(A) The expiration date specified in such Option; or
(B) One year after the date of such termination of employment.
7
<PAGE>
In the event of the Key Employee's legal disability, such Option may
be so exercised by the Key Employee's legal representative.
(7) EXERCISE UPON DEATH OF KEY EMPLOYEE. If a Key Employee shall die
-----------------------------------
during his or her employment and prior to the expiration date fixed for his
or her Option, or if a Key Employee whose employment is terminated for any
reason shall die following his or her termination of employment but prior
to the earliest of:
(A) The expiration date fixed for his or her Option;
(B) The expiration of the period determined under Subsections
(5) and (6) above; or
(C) In the case of an ISO, three months following termination of
employment,
such Option may be exercised, to the extent of the number of Common Shares
with respect to which the Key Employee could have exercised it on the date
of his or her death, or to any greater extent permitted by the Committee,
by the Key Employee's estate, personal representative or beneficiary who
acquired the right to exercise such Option by bequest or inheritance or by
reason of the death of the Key Employee, at any time prior to the earlier
of:
(i) The expiration date specified in such Option; or
(ii) One year after the date of death.
(8) EXERCISE UPON TERMINATION OF OUTSIDE DIRECTOR'S SERVICE. If an
-------------------------------------------------------
Outside Director's service on the Board is terminated prior to the
expiration date fixed for his or her Option, such Option may be exercised
by the Outside Director at any time prior to the earlier of:
(A) The expiration date specified in such Option; or
(B) One year after such termination of service.
Notwithstanding the above, if an Outside Director dies during
this period, such Option may be exercised, to the extent of the number
of Common Shares with respect to which the Outside Director could have
exercised it on the date of his or her death, by the Outside
Director's estate, personal representative or beneficiary who acquired
the right to exercise such Option by bequest or inheritance or by
reason of the death of the Outside Director, at any time prior to the
earlier of:
(i) The expiration date specified in such Option; or
(ii) One year after the date of the Outside Director's
death.
8
<PAGE>
(9) RIGHTS AS A SHAREHOLDER. A Grantee shall have no rights as a
-----------------------
shareholder with respect to any Common Shares covered by his or her Option
until the issuance of a stock certificate to him or her for such shares.
(10) TEN PERCENT SHAREHOLDER. If a Key Employee owns more than 10% of
-----------------------
the total combined voting power of all shares of stock of the Company or of
a Subsidiary or Parent at the time an ISO is granted to such Key Employee,
the Option exercise price for the ISO shall be not less than 110% of the
Fair Market Value of the optioned Common Shares on the date the ISO is
granted, and such ISO, by its terms, shall not be exercisable after the
expiration of five years from the date the ISO is granted. The conditions
set forth in this Subsection (10) shall not apply to NQSOs.
(11) OPTION AGREEMENTS. Options granted under the Plan shall be
-----------------
evidenced by written documents ("Option Agreements") in such form as the
Committee shall, from time to time, approve. Option Agreements shall
contain such provisions, not inconsistent with the provisions of the Plan
for NQSOs granted pursuant to the Plan, and such conditions, not
inconsistent with section 422(b) of the Code or the provisions of the Plan,
for ISOs granted pursuant to the Plan, as the Committee shall deem
advisable. An Option Agreement shall specify whether the Option is an ISO
or NQSO; provided, however, if the Option is not designated in the Option
Agreement as an ISO or NQSO, the Option shall constitute an ISO if it
complies with the terms of section 422 of the Code, and otherwise, it shall
constitute a NQSO. Each Grantee who receives an Option shall enter into,
and be bound by, the terms of an Option Agreement.
(b) SARS. An Option Agreement may, in the discretion of the Committee,
----
include a provision under which a Key Employee shall have the right, in lieu of
exercising all or a portion of the Key Employee's Option, to elect instead to
receive an amount equal to the difference between the Fair Market Value of all,
or a specified number, of the Common Shares subject to such Option on the date
such right is exercised and the exercise price under such Option, such amount to
be paid in cash or in Common Shares (based on their Fair Market Value on the
date such right is exercised), or in a combination of cash and Common Shares, as
the Committee shall determine. Such right is referred to in this Plan as a
stock appreciation right ("SAR"). Any SAR shall be exercisable only at a time
when the Option to which it is related is exercisable; provided, however, that
if the Key Employee is a director or officer of the Company within the meaning
of Section 16 of the Exchange Act, cash may be paid to the Key Employee upon the
exercise of a SAR only if the Key Employee exercises the SAR (by giving the
notice described in Section 8(a)(4)(C) hereof) during the period beginning on
the third business day following the release for publication of the Company's
quarterly and annual summary statements of sales and earnings, and ending on the
twelfth business day following such date.
A SAR shall be granted in tandem with the related Option, and the Option-
SAR shall be considered exercised when, and to the extent that, either the
underlying Option or the SAR is exercised. Any SAR shall be subject to the
following additional conditions:
9
<PAGE>
(1) The SAR will expire no later than the termination of the Option
to which it relates;
(2) The SAR will be transferable only if and when the underlying
Option is transferable, and under the same conditions; and
(3) The SAR may be exercised only when there is a positive spread,
i.e., when the Fair Market Value of the Common Shares subject to the Option
----
exceeds the exercise price of such Option.
SECTION 9
RESTRICTED STOCK AWARDS
-----------------------
From time to time until the expiration or earlier termination of the Plan,
the Committee may, on behalf of the Company, make such Restricted Stock Awards
under the Plan to Key Employees as it determines are warranted. Restricted
Stock Awards shall be subject to the following terms and conditions, as well as
such other terms and conditions as the Committee may prescribe:
(a) VESTING PERIOD; CONDITIONS. At the time of granting a Restricted
--------------------------
Stock Award, the Committee may establish one or more vesting periods ("Vesting
Periods") with respect to the Common Shares covered by the Award. The length of
any such Vesting Period(s) applicable to a Restricted Stock Award shall be
within the discretion of the Committee. At the time of grant, the Committee may
also establish such additional conditions to the payment of a Restricted Stock
Award ("Conditions") as it may deem advisable in its sole discretion, such as
the achievement of corporate or individual goals. Subject to the provisions of
this Section 9 and any other Conditions prescribed by the Committee, Common
Shares subject to a Restricted Stock Award shall vest in the Key Employee upon
the expiration of the Vesting Period with respect to such Common Shares. The
Committee may accelerate the vesting date of any unvested Common Shares subject
to a Restricted Stock Award in its discretion, if it deems such acceleration to
be desirable.
(b) ISSUANCE AND DELIVERY OF CERTIFICATES. Upon the granting of a
-------------------------------------
Restricted Stock Award, the Company may, if so determined by the Committee at
the time of the grant, issue certificates representing the Common Shares subject
to the Restricted Stock Award in the name of the Key Employee. Any such Common
Shares shall bear a legend indicating that they are subject to the terms of the
Plan and the Restricted Stock Award Agreement (as hereinafter defined) and that
they may not be sold, exchanged, transferred, pledged, hypothecated or otherwise
disposed of except in accordance with the terms of the Plan and the Restricted
Stock Award Agreement. Upon issuance of such certificates, the Key Employee
shall immediately execute a stock power or other instrument of transfer,
appropriately endorsed in blank, to be held with the certificates by the Company
pursuant to the terms of the Plan and the Restricted Stock Award Agreement.
Only full shares shall be issued, and any fractional shares which might
otherwise be issuable pursuant to a Restricted Stock Award shall be forfeited.
After the Key Employee becomes vested in Common Shares subject to the Restricted
Stock Award, the Company shall deliver the vested Common Shares to the Key
Employee or his or her beneficiary or estate, as applicable.
10
<PAGE>
(c) RIGHTS AS A SHAREHOLDER. If the Company issues certificates
-----------------------
representing the Common Shares subject to a Restricted Stock Award prior to the
expiration of the Vesting Period for the Common Shares subject to such Award or
prior to the satisfaction of the Conditions, if any, pertaining to such Award,
the Key Employee shall be entitled to receive dividends paid on such Common
Shares, shall have the right to vote such Common Shares, and shall have all
other shareholder's rights with respect to such Common Shares, except that (1)
the Key Employee will not be entitled to delivery of the stock certificate, (2)
the Company will retain custody of the Common Shares, and (3) the Common Shares
subject to the Restricted Stock Award will revert to the Company to the extent
all Vesting Periods and Conditions applicable to such Award are not satisfied.
(d) TERMINATION OF EMPLOYMENT. At the time of granting a Restricted Stock
-------------------------
Award, the Committee shall specify in the Restricted Stock Award Agreement, the
manner of determining the number, if any, of the unvested Common Shares subject
to the Award which shall become vested in the Key Employee, or in his or her
beneficiary or estate, if the Key Employee's employment by the Company (and
Subsidiaries) is terminated prior to the later of the expiration of the Vesting
Period or the satisfaction of all of the Conditions with respect to such Common
Shares. Any Restricted Stock Award Agreement may provide different vesting
provisions upon a Key Employee's termination due to death or disability. Any
remaining unvested Common Shares covered by the Key Employee's Restricted Stock
Award shall immediately be forfeited upon termination of employment, except that
the Committee, if it determines that the circumstances warrant, may direct that
all or a portion of such remaining unvested Common Shares also be vested in the
Key Employee, or in his or her beneficiary or estate, subject to such further
terms and conditions, if any, as the Committee may determine.
(e) PAYMENT FOR RESTRICTED STOCK. The Committee may, on behalf of the
----------------------------
Company, grant Restricted Stock Awards under which the Key Employee shall not be
required to make any payment for the Restricted Stock or, in the alternative,
under which the Key Employee, as a condition to the Restricted Stock Award,
shall pay all (or any lesser amount than all) of the Fair Market Value of the
Common Stock, determined as of the date the Restricted Stock Award is granted.
If the latter, such purchase price shall be paid as provided in the Restricted
Stock Award Agreement.
(f) RESTRICTED STOCK AWARD AGREEMENT. Restricted Stock Awards under the
--------------------------------
Plan shall be evidenced by written documents ("Restricted Stock Award
Agreements") in such form as the Committee shall, from time to time, approve.
Restricted Stock Award Agreements shall contain such provisions, not
inconsistent with the provisions of the Plan, as the Committee shall deem
advisable. Each Key Employee granted a Restricted Stock Award shall enter into,
and be bound by the terms of, a Restricted Stock Award Agreement.
11
<PAGE>
SECTION 10
UNRESTRICTED STOCK AWARDS
-------------------------
(a) AWARDS OF UNRESTRICTED STOCK. From time to time until the expiration
----------------------------
or earlier termination of the Plan, the Committee may, on behalf of the Company,
make such Unrestricted Stock Awards under the Plan to Key Employees as it
determines are warranted.
(b) REGISTRATION. Each certificate for unrestricted Common Shares shall
------------
be registered in the name of the Key Employee and immediately be delivered to
him or her.
SECTION 11
CAPITAL ADJUSTMENTS
-------------------
The number of Common Shares which may be issued under the Plan, the maximum
number of Common Shares with respect to which Options may be granted to any Key
Employee under the Plan, both as stated in Section 4 hereof, the number of
Common Shares per NQSO granted to an Outside Director as stated in Section 6,
the number of Common Shares issuable upon the exercise of outstanding Options
under the Plan (as well as the Option exercise price per share under such
outstanding Options), and the number of Common Shares to be delivered upon the
vesting of outstanding Restricted Stock Awards (as well as the purchase price,
if any, for such Common Shares) shall, subject to the provisions of section
424(a) of the Code, be adjusted to reflect any stock dividend, stock split,
share combination, or similar change in the capitalization of the Company.
In the event of a corporate transaction (as that term is described in
section 424(a) of the Code and the Treasury Regulations issued thereunder as,
for example, a merger, consolidation, acquisition of property or stock,
separation, reorganization, or liquidation), each outstanding Award shall be
assumed by the surviving or successor corporation; provided, however, that, in
the event of a proposed corporate transaction, the Committee may terminate all
or a portion of the outstanding Options granted to Key Employees effective upon
closing of such corporate transaction if it determines that such termination is
in the best interests of the Company. If the Committee decides so to terminate
outstanding Options, the Committee shall give each Key Employee holding an
Option to be terminated not less than seven days' notice prior to any such
termination by reason of such a corporate transaction, and, at the closing of
such corporate transaction, such Options shall be terminated (unless previously
exercised) and the Company shall pay to each Key Employee who holds an Option so
terminated (except for any Option which terminated prior to the date of such
closing otherwise than by reason of such Committee action) an amount equal to
the consideration paid, or to be paid, per share of Common Stock to holders of
Common Stock in connection with such corporate transaction (as determined in
good faith by the Committee) less the applicable exercise price of the Option.
Further, as provided in Section 8(a)(4)(A)(ii) hereof, the Committee, in its
discretion, may accelerate, in whole or in part, the date on which any or all
Options granted to Key Employees become exercisable.
The Committee also may, in its discretion, change the terms of any
outstanding Awards granted to Key Employees to reflect any such corporate
transaction, provided that, in the case of
12
<PAGE>
ISOs, such change is excluded from the definition of a "modification" under
section 424(h) of the Code.
SECTION 12
CHANGE IN CONTROL
-----------------
Upon a Change in Control, the Committee (as it is constituted on the day
preceding the date of the Change in Control) may, in its discretion, accelerate
the vesting and exercisability of outstanding Options and SARs granted to Key
Employees and accelerate the vesting of Restricted Stock Awards granted to Key
Employees. "Change in Control" shall mean the point in time when any person (as
such term is used in Section 13 of the Exchange Act and the rules and
regulations thereunder and including any Affiliate or Associate of such person,
as defined in Rule 12b-2 under the Exchange Act, and any person acting in
concert with such person) directly or indirectly acquires or otherwise becomes
entitled to vote more than 50 percent of the voting power entitled to be cast at
elections for directors of the Company. At the discretion of the Committee, an
Option Agreement may include a provision that an Option will vest and become
exercisable upon a Change of Control and a Restricted Stock Award Agreement may
include a provision that the Restricted Stock Award will vest upon a Change of
Control.
SECTION 13
AMENDMENT OR DISCONTINUANCE OF THE PLAN
---------------------------------------
(a) IN GENERAL. The Board from time to time may suspend or discontinue
----------
the Plan or amend it in any respect whatsoever, except that, without the
approval of the shareholders (given in the manner set forth in Subsection (b)
below): (1) the class of persons eligible to receive Awards shall not be changed
nor shall any other requirement as to eligibility for participation in the Plan
be materially modified; (2) the maximum number of Common Shares with respect to
which Awards may be granted under the Plan shall not be increased except as
permitted under Section 11; (3) the benefits accruing to individuals
participating in the Plan shall not be materially increased; (4) the duration of
the Plan under Section 14 shall not be extended; and (5) no amendment which
would require shareholder approval pursuant to Prop. Treas. Reg. (S) 1.162-
27(e)(4)(vi), or any successor thereto, may be made.
(b) MANNER OF SHAREHOLDER APPROVAL.
------------------------------
(1) The approval of shareholders must be by a majority of the
outstanding Common Shares present, or represented, and entitled to vote at
a meeting duly held in accordance with the applicable laws of the state of
Delaware; and
(2) The approval of shareholders must occur --
(i) By a method and in a degree that would be treated as
adequate under applicable state law in the case of an action requiring
shareholder approval (i.e., an
13
<PAGE>
action on which shareholders would be entitled to vote if the action
were taken at a duly held shareholders' meeting); or
(ii) By a majority of the votes cast at a duly held shareholders'
meeting at which a quorum representing a majority of all outstanding
voting stock is, either in person or by proxy, present and voting on
the Plan.
(c) AMENDMENTS AFFECTING OUTSIDE DIRECTORS. Notwithstanding the
--------------------------------------
foregoing, no amendment to any provision of the Plan that would affect (1) the
amount and price of Common Shares subject to NQSOs to be awarded to Outside
Directors, (2) the timing of such grants to Outside Directors, or (3) the
formula, if any, that determines the amount, price, and timing of NQSO grants to
Outside Directors, shall be made more than once every six months, other than to
comport with changes in the Code, the Employee Retirement Income Security Act,
or the rules promulgated thereunder.
Notwithstanding the foregoing, no such suspension, discontinuance or
amendment shall terminate or affect the continued existence of rights created
under Awards issued and outstanding or materially impair the rights of any
holder of an outstanding Award without the consent of such holder.
SECTION 14
TERMINATION OF PLAN
-------------------
Unless earlier terminated as provided in the Plan, the Plan and all
authority granted hereunder shall terminate absolutely at 12:00 midnight on May
31, 2005, which date is within 10 years after the date the Plan was adopted by
the Board, and no Awards hereunder shall be granted thereafter. Nothing
contained in this Section 14, however, shall terminate or affect the continued
existence of rights created under Awards issued hereunder and outstanding on May
31, 2005 which by their terms extend beyond such date.
SECTION 15
SHAREHOLDER APPROVAL
--------------------
This Plan shall become effective on June 21, 1995 (the date the Plan was
adopted by the Board); provided, however, that if the Plan is not approved by
the shareholders, in the manner described in Section 13(b), within 12 months
after said date, the Plan and all Awards granted hereunder shall be null and
void and no additional Awards shall be granted hereunder.
14
<PAGE>
SECTION 16
MISCELLANEOUS
-------------
(a) GOVERNING LAW. The Plan, and the Option Agreements and Restricted
-------------
Stock Award Agreements (collectively the "Award Agreements") entered into, and
the Awards granted thereunder, shall be governed by the applicable Code
provisions to the maximum extent possible. Otherwise, the operation of, and the
rights of Grantees under, the Plan, the Award Agreements, and the Awards shall
be governed by applicable federal law and otherwise by the laws of the state of
Delaware.
(b) RIGHTS. Neither the adoption of the Plan nor any action of the Board
------
or the Committee shall be deemed to give any individual any right to be granted
an Award, or any other right hereunder, unless and until the Committee shall
have granted such individual an Award, and then his or her rights shall be only
such as are provided by the Plan and the Award Agreement.
Any Option under the Plan shall not entitle the holder thereof to any
rights as a shareholder of the Company prior to the exercise of such Option and
the issuance of the Common Shares pursuant thereto. Further, notwithstanding any
provisions of the Plan or any Award Agreement with a Key Employee, the Company
shall have the right, in its discretion, to retire a Key Employee at any time
pursuant to its retirement rules or otherwise to terminate his or her employment
at any time for any reason whatsoever.
(c) NO OBLIGATION TO EXERCISE OPTION. The granting of an Option shall
--------------------------------
impose no obligation upon a Grantee to exercise such Option.
(d) NON-TRANSFERABILITY. Other than Unrestricted Stock Awards, no Award
-------------------
shall be assignable or transferable by a Grantee otherwise than by will or by
the laws of descent and distribution, and during the lifetime of the Grantee,
any Options or related SARs shall be exercisable only by the Grantee or by his
or her guardian or legal representative. If a Grantee is married at the time of
exercise of an Option and if the Grantee so requests at the time of exercise,
the certificate or certificates issued shall be registered in the name of the
Grantee and the Grantee's spouse, jointly, with right of survivorship.
(e) WITHHOLDING AND USE OF COMMON SHARES TO SATISFY TAX OBLIGATIONS. The
---------------------------------------------------------------
obligation of the Company to deliver Common Shares or pay cash to a Key Employee
pursuant to any Award under the Plan shall be subject to applicable federal,
state and local tax withholding requirements.
In connection with an Award in the form of Common Shares, subject to the
withholding requirements of applicable federal tax laws, the Committee, in its
discretion (and subject to such withholding rules ("Withholding Rules") as shall
be adopted by the Committee), may permit the Key Employee to satisfy the minimum
required federal withholding tax, in whole or in part, by electing to have the
Company withhold (or by returning to the Company) Common Shares, which shares
shall be valued, for this purpose, at their Fair Market Value on the date of
exercise of the Option or the date of vesting in the case of Restricted Stock
(or if later, the date on which the Key Employee recognizes ordinary income with
respect to such Option or Restricted Stock) (the "Determination
15
<PAGE>
Date"); provided, however, that with respect to Key Employees who are subject to
section 16 of the Exchange Act, any such amount of minimum federal taxes
required to be withheld shall be satisfied by withholding Common Shares. An
election to use Common Shares to satisfy federal tax withholding requirements
must be made in compliance with and subject to the Withholding Rules. The
Company may not withhold Common Shares in excess of the number necessary to
satisfy the minimum federal income tax withholding requirements. In the event
Common Shares acquired under the exercise of an ISO are used to satisfy such
withholding requirement, such Common Shares must have been held by the Key
Employee for a period of not less than the holding period described in section
422(a)(1) of the Code on the Determination Date, or if such Common Shares were
acquired through the exercise of a NQSO or of an option under a similar plan,
such option must have been granted to the Key Employee at least six months prior
to the Determination Date.
(f) LISTING AND REGISTRATION OF COMMON SHARES. Each Award shall be subject
-----------------------------------------
to the requirement that, if at any time the Committee shall determine, in its
discretion, that the listing, registration or qualification of the Common Shares
covered thereby upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of such Award
or the purchase or vesting of Common Shares thereunder, or that action by the
Company or by the Grantee should be taken in order to obtain an exemption from
any such requirement, no such Option may be exercised, in whole or in part, and
no Common Shares shall be delivered pursuant to a Restricted or Unrestricted
Stock Award, unless and until such listing, registration, qualification,
consent, approval, or action shall have been effected, obtained, or taken under
conditions acceptable to the Committee. Without limiting the generality of the
foregoing, each Grantee or his or her legal representative or beneficiary may
also be required to give satisfactory assurance that Common Shares purchased
upon exercise of an Option or received pursuant to a Restricted or Unrestricted
Stock Award are being purchased for investment and not with a view to
distribution, and certificates representing such Common Shares may be legended
accordingly.
16
<PAGE>
EXHIBIT 10.4
NOBEL EDUCATION DYNAMICS, INC.
Non-qualified Stock Option Agreement
------------------------------------
Non-qualified Stock Option Agreement dated as of ________ ("Agreement")
between Nobel Education Dynamics, Inc., a Delaware corporation (the "Company"),
and ______________ ("Employee").
1. Definitions
-----------
1.1. "Change in Control" shall have the meaning set forth in Section 12 of
the Plan, as the same may be amended from time to time (except that no such
amendment shall have the effect of making this definition more restrictive).
1.2. "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
1.3. "Committee" means the Compensation Committee appointed by the Board
of Directors of the Company to administer the Plan.
1.4. "Common Stock" means the Company's Common Stock, par value $0.001 per
share.
1.5. "Date of Exercise" means the date on which the notice required by
Section 4.1 is received by the Company.
1.6. "Date of Grant" means _____________.
1.7. "Fair Market Value" shall mean the value of the Common Stock arrived
at by a good faith determination of the Committee and shall be:
(a) The mean between the highest and lowest quoted selling price, if
there is a market for the Common Stock on a registered securities exchange
or in an over the counter market, on the date specified;
(b) The weighted average of the means between the highest and lowest
sales on the nearest date before and the nearest date after the specified
date, if there are no such sales on the specified date but there are such
sales on dates within a reasonable period both before and after the
specified date (determined as set forth in Section 7(a) of the Plan);
(c) The mean between the bid and asked prices, as reported by the
National Quotation Bureau on the specified date, if actual sales are not
available during a reasonable period beginning before and ending after the
specified date; or
(d) Such other method of determining Fair Market Value as shall be
authorized by the Code, or the rules or regulations thereunder, and adopted
by the Committee.
<PAGE>
1.8. "Option" means the option granted hereunder. The Option hereby
granted is a non-qualified stock option (i.e., not an "incentive stock option"
within the meaning of section 422 of the Code).
1.9. "Optioned Stock" means the shares of Common Stock that are subject to
the Option.
1.10. "Plan" means the Nobel Education Dynamics, Inc. 1995 Stock Incentive
Plan attached as Exhibit A and incorporated herein by reference.
1.11. "Subsidiary" means any corporation (whether or not in existence at
the time the Plan is adopted) which, at the time an Award is granted, is a
subsidiary of the Company under the definition of "subsidiary corporation"
contained in section 424(f) of the Code, or any successor.
1.12. "Termination Date" means the earliest to occur of the following:
(a) the tenth (10th) anniversary of the Date of Grant;
(b) if Employee's employment by the Company (and Subsidiaries) is
terminated by either party for any reason other than death or disability, the
date three months after the date of such termination of employment;
(c) if Employee shall become disabled (within the meaning of section
22(e)(3) of the Code) during Employee's employment and Employee's employment is
terminated as a consequence of such disability, the date one year after the date
of such termination of employment; or
(d) if Employee shall die during Employee's employment, the date one
year after the date of death;
provided that if Employee's employment is terminated for any reason other than
death and Employee shall die following such termination of employment but prior
to the expiration of the period determined under clause (b) or (c) above
(whichever is applicable), then the Termination Date shall mean the earlier of
(i) the tenth (10th) anniversary of the Date of Grant and (ii) the date one year
after the date of death;
provided, further, that, in any event, the Committee shall have the authority
to extend further the Termination Date if permitted to do so by the Plan.
2. Grant of Option.
---------------
Subject to the terms and conditions of this Agreement, the Company hereby
grants to Employee the option to purchase the number of shares of Common Stock
listed on the signature page hereof. The exercise price of the Option in
respect of each share of Optioned Stock shall be $_______, subject to adjustment
pursuant Section 9 hereof and the Plan. Notwithstanding the
2
<PAGE>
foregoing, only full shares shall be issued hereunder, and any fractional share
which might otherwise be issuable upon the exercise of the Option shall be
forfeited.
3. Time of Exercise.
----------------
The Option shall be exercisable from time to time following the Date of
Grant through the Termination Date with respect to all or any portion of the
Option which shall have been vested as of the Date of Exercise. The Option
shall vest with respect to one-third of the shares of Optioned Stock subject
thereto as of the Date of Grant on each of the first, second and third
anniversary dates of the Date of Grant; provided however that upon a Change in
Control, the Option shall immediately vest with respect to all of the shares of
Optioned Stock. The Option shall terminate absolutely at 5:00 p.m. New York Time
on the Termination Date.
4. Manner of Exercise; Payment.
---------------------------
4.1. Exercise of the Option shall be effected by giving written notice of
exercise to the Company, in care of the Secretary of the Company. Any such
notice shall state the number of shares of Optioned Stock for which the Option
is being exercised and shall be accompanied by payment in full of the exercise
price for such shares of Optioned Stock. Such notice shall be irrevocable once
given.
4.2. Employee shall have the right to exercise the Option with respect to
all or part of the Optioned Stock. Exercise of the Option with respect to part
of the Optioned Stock does not waive or limit Employee's rights with respect to
the balance of the Optioned Stock.
4.3. The exercise price for the Optioned Stock upon exercise shall be
payable in cash or its equivalent; provided, however, that if the Committee, in
its discretion, so determines at or prior to the time of exercise, Employee may
pay all or a portion of the exercise price in shares of Common Stock previously
acquired by Employee; provided further that if such shares were acquired through
exercise of an option or under a stock appreciation right or through the grant
by the Company of restricted stock or unrestricted stock, Employee shall have
held such shares for a period of more than 12 months on the Date of Exercise;
provided further that any right to pay the exercise price by delivery of shares
shall be subject to applicable laws. In the event all or a portion of the
aggregate exercise price is paid with shares of Common Stock, the shares of
Common Stock surrendered in payment of such Option shall be valued at the Fair
Market Value of such shares on the Date of Exercise.
5. Nontransferability.
------------------
The Option shall not be assignable or transferable by Employee, otherwise
than by will or by the laws of descent and distribution, and the Option shall be
exercisable only by the Grantee; provided that in the event of Employee's legal
disability, the Option may be so exercised by Employee's guardian or legal
representative and in the event of Employee's death, the Option may be so
exercised by Employee's estate, personal representative or beneficiary who
acquired the right to exercise such Option by bequest or inheritance or by
reason of the death of Employee. If
3
<PAGE>
Employee is married at the time of exercise of the Option and if Employee so
requests at the time of exercise, the certificate or certificates issued shall
be registered in the name of Employee and Employee's spouse, jointly, with right
of survivorship.
6. Securities Laws
---------------
The Company may from time to time impose any conditions on the exercise of
the Option as it deems necessary or advisable to ensure that the Option granted
hereunder, and the exercise thereof, satisfy the applicable requirements of
federal and state securities laws. Such conditions to satisfy applicable
federal and state securities laws may include, without limitation, the partial
or complete suspension of the right to exercise the Option, the printing of
legends on certificates issued pursuant to Section 7 and requiring Employee to
deliver to the Company a representation letter as to Employee's investment
intent.
7. Issuance of Certificates for Shares
-----------------------------------
Subject to the provisions of this Agreement, the certificates for the
shares of Common Stock issuable upon exercise of the Option shall be delivered
to Employee (or to such person entitled thereto in accordance with Section 5) as
promptly after the Date of Exercise as is feasible, provided that the exercise
shall not be complete, and the Company shall not be obligated to make such
deliveries, until (a) Employee has made payment in full for such shares of
Optioned Stock pursuant to Section 4 and (b) Employee and the Company (or such
Subsidiary as is the employer of Employee) have arranged for the payment by
Employee to the Company (or such Subsidiary), or the withholding from Employee's
other compensation, of an amount in cash equal to the amount of any tax required
to be withheld by the Company (or such Subsidiary) by any applicable federal or
state laws or regulations on account of such exercise. The Company may also
condition delivery of shares of Common Stock upon the prior receipt from
Employee of any undertakings or representations that it may determine are
required to ensure that the certificates are being issued in compliance with
federal and state securities laws.
8. Rights Prior to Issuance of Certificates
----------------------------------------
Neither Employee nor the person to whom the rights of Employee shall have
passed by will or the laws of descent and distribution shall have any of the
rights of a stockholder with respect to any shares of Optioned Stock until the
date of the issuance to such person of certificates for such shares of Optioned
Stock pursuant thereto.
9. Stock Dividends; Subdivision or Combination of Shares
-----------------------------------------------------
The number of shares of Common Stock subject to the Option (as well as the
Option exercise price per share), shall, subject to the provisions of section
424(a) of the Code, (a) be adjusted to reflect any stock dividend, stock split,
share combination, or similar change in the capitalization of the Company and
(b) be adjusted as provided in Section 11 of the Plan upon certain other events.
4
<PAGE>
10. Option Not to Affect Employment
-------------------------------
The Option granted hereunder shall not confer upon Employee any right to
continue in the employment of the Company or any Subsidiary of the Company.
11. Withholding.
-----------
Each Employee authorizes the Company to make any required withholding from
such Employee's compensation for the payment of any and all income taxes and
other sums that may be due any governmental authority (other than taxes imposed
directly upon the Company) as a result of the receipt by Employee of
compensation income pursuant to the foregoing payments, and agrees, if requested
by the Company and if the Company has complied with its obligations hereunder,
and in lieu of all or a portion of such withholding, to pay the Company in a
lump sum such amounts as the Company may be required to remit to any
governmental authority on behalf of Employee in respect of any such taxes and
other sums. Subject to applicable law, and to the extent permitted by the
Committee in accordance with the Plan, Employee may satisfy the minimum required
federal withholding tax, in whole or in part, by electing to have the Company
withhold (or by returning to the Company) shares of Common Stock.
12. Status of Option; Interpretation.
--------------------------------
The Committee shall have sole power to resolve any dispute or disagreement
arising out of this Agreement. The Option is subject to the terms and
conditions of the Plan as now in effect and as may be amended, from time to
time, in accordance with the Plan (which terms and conditions are and
automatically shall be incorporated herein by reference and made a part hereof
and shall control in the event of any conflict with any of the terms of this
Agreement).
13. Miscellaneous
-------------
13.1 All notices and other communications hereunder shall be in writing
and shall be transmitted by messenger, courier service or certified first-class
mail (in each case postage or cost of delivery prepaid) and shall be effective
when delivered. The address for notices and other communications of (i) the
Company is Rose Tree Corporate Center II, 1400 North Providence Road, Suite
3055, Media, PA 19063, Attn: Corporate Secretary, and (ii) Employee is the
address set forth below under Employee's signature. Either party may change its
address for notice given notice to the other pursuant to this Section 13.1.
13.2. This Agreement may be executed in two or more counterparts all of
which taken together will constitute one and the same instrument.
13.3. This Agreement shall be governed by the applicable Code provisions to
the maximum extent possible; otherwise, the operation of, and the rights of
Employee under this Agreement shall be governed by applicable federal law and
otherwise by the laws of the State of Delaware.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
Nobel Education Dynamics, Inc.
By:_______________________________________
EMPLOYEE:
__________________________________________
Employee's Address:
Number of Shares
of Optioned Stock: __________________
6
<PAGE>
EXHIBIT 10.13
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER
THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
NOBEL EDUCATION DYNAMICS, INC.
Common Stock Purchase Warrant
Warrant No. 1 June 30, 1998
NOBEL EDUCATION DYNAMICS, INC., a Delaware corporation (the "Company"),
hereby certifies that, for value received, ALLIED CAPITAL CORPORATION (the
"Holder"), or its successors or registered assigns, is entitled, subject to the
terms set forth below, to purchase from the Company at any time or from time to
time on or after June 30, 1998 and before 5:00 p.m., Washington, D.C. time, on
the Expiration Date (as hereinafter defined) up to an aggregate of 531,255 fully
paid and nonassessable shares of the Company's common stock $.001 par value per
share (the "Common Stock"), representing 6.5% of the Company's fully-diluted
Common Stock as of June 30, 1998 ("Ownership Percentage"), at a price per share
equal to the Exercise Price (as hereinafter defined) in effect at the time of
the exercise of this Warrant. The number of shares of Common Stock issuable
upon the exercise of this Warrant and the Exercise Price are subject to
adjustment as provided in this Warrant.
This Warrant is issued pursuant to a certain Investment Agreement (the
"Agreement") dated as of June 30, 1998, by and among the Company and its
subsidiaries and the Holder, a copy of which is on file at the principal office
of the Company. The holder of this Warrant shall be entitled to the benefits of
the Agreement, as provided therein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include Nobel Education Dynamics, Inc.
and any corporation that shall succeed to or assume the obligations of
Nobel Education Dynamics, Inc. hereunder.
(b) The term "Exercise Price" shall mean, subject to adjustment
pursuant to Section 5 hereof, $8.5625 per share of Common Stock.
(c) The term "Expiration Date" refers to 5:00 p.m., Washington, D.C.
time, on June 30, 2006.
1. Exercise and Conversion of Warrant.
----------------------------------
<PAGE>
1.1 Exercise. Subject to Section 1.3 hereof, this Warrant may be
--------
exercised in full or in part at any time or from time to time until the
Expiration Date by the holder either (a) by surrender of this Warrant and the
subscription form annexed hereto (duly executed) by such holder, to the Company
at its principal office, accompanied by payment, in cash, by the surrender of
any promissory note or notes or other instruments evidencing any indebtedness
outstanding from the Company to the holder hereof, by cancellation of Warrants
previously held by the holder hereof or in Common Stock previously owned or
acquired upon exercise of this Warrant or by certified or official bank check
payable to the order of the Company in the amount obtained by multiplying (x)
the number of shares of Common Stock designated by the holder in the
subscription form by (y) the Exercise Price then in effect, or (b) if in
connection with a registered public offering of the Company's securities, the
surrender of this Warrant (with the subscription form annexed hereto duly
executed) at the principal office of the Company together with notice of
arrangements reasonably satisfactory to the Company for payment to the Company
either by check or from the proceeds of the sale of shares to be sold by the
holder in such public offering of an amount equal to the then applicable
Exercise Price per share multiplied by the number of shares of Common Stock then
being purchased. On any partial exercise the Company at its expense will
forthwith issue and deliver to or upon the order of the holder hereof a new
Warrant or Warrants of like tenor, in the name of the holder hereof or as the
holder (upon payment by such holder of any applicable transfer taxes) may
request, providing in the aggregate on the face or faces thereof for the number
of shares of Common Stock for which such Warrant or Warrants may still be
exercised.
1.2 Conversion.
----------
(a) The holder of this Warrant shall have the right to require the
Company to convert this Warrant (the "Conversion Right"), in whole or in part,
at any time prior to the Expiration Date, into shares of Common Stock as
provided for in this Section 1.2. Upon exercise of the Conversion Right, the
Company shall deliver to the holder (without payment by the holder of any
Exercise Price) such number of fully paid and nonassessable shares of Common
Stock as is computed using the following formula:
X = Y (A-B)
-------
A
where X = the number of shares of Common Stock to be issued to the holder
hereof pursuant to this Section 1.2.
Y = the number of shares of Common Stock then issuable upon the exercise
of this Warrant that the holder hereof is surrendering in connection
with the exercise of the Conversion Right.
A = the Fair Market Value of one share of Common Stock, at the time the
Conversion Right is exercised pursuant to this Section 1.2.
-2-
<PAGE>
B = the Exercise Price in effect under this Warrant at the time the
Conversion Right is exercised pursuant to this Section 1.2.
(b) The Conversion Right may be exercised by the holder, at any
time, or from time to time, prior to the Expiration Date, on any business day by
delivering a written notice (the "Conversion Notice") to the Company exercising
the Conversion Right and specifying (i) the total number of shares of Common
Stock the holder wishes to acquire pursuant to such conversion and (ii) a place
and a date not less than one nor more than 20 business days from the date of the
Conversion Notice for the closing of such purchase.
(c) Upon any exercise of the Conversion Right under Section
1.2(b) hereof, (i) the holder will surrender the Warrant and (ii) the Company
will deliver to the holder a certificate or certificates for the number of
shares of Common Stock issuable upon such conversion, together with cash, in
lieu of any fraction of a share, as provided in Section 2 below. Upon any
partial exercise of such Conversion Right, the Company at its expense will
forthwith issue and deliver to or upon the order of the holder hereof a new
Warrant or Warrants of like tenor, in the name of the holder hereof or as such
holder (upon payment by such holder of any applicable transfer taxes) may
request, providing in the aggregate on the face or faces thereof for the number
of shares of Common Stock for which such Warrant or Warrants may still be
exercised or converted after giving effect to the exercise of the Conversion
Right.
(d) Fair Market Value of a share of Common Stock as of a
particular date (the "Determination Date") shall mean:
(i) If the Company's Common Stock is traded on an exchange
or is quoted on The Nasdaq National Market, then the average of the
high and low sale price reported for the 30 business days immediately
preceding the Determination Date.
(ii) If the Company's Common Stock is not traded on an
exchange or on The Nasdaq National Market but is traded in the over-
the-counter market, then the average of the means of the closing bid
and asked prices reported for the 30 business days immediately
preceding the Determination Date.
(iii) Except as provided in subsections 1.2(d)(iv) below, if
the Company's Common Stock is not publicly traded, then the Appraised
Fair Market Value, pursuant to Section 1.2(e) below.
(iv) If the Determination Date is the date of a
liquidation, dissolution or winding up of the Company, or any event
deemed to be a liquidation, dissolution or winding up pursuant to the
Company's Certificate of Incorporation, as amended (the "Charter"),
then the amount specified in the Charter upon liquidation, dissolution
or winding up, assuming for purposes of this subsection 1.2 that all
of the shares of Common Stock issuable upon exercise of all of the
Warrants are outstanding at the Determination Date.
-3-
<PAGE>
(e) Appraised Fair Market Value. The "Appraised Fair Market
---------------------------
Value" shall be determined by the following method:
(i) If the Company and the holder of the Warrant agree on
the selection of an appraiser, such appraiser shall determine a value,
and such value shall be the Appraised Fair Market Value;
(ii) If the Company and the holder of the Warrant shall not
agree on the selection of an appraiser within 10 days, each of the
Company and the Holder, shall select an appraiser who shall each
determine a value;
(iii) If the values determined by such two appraisers are
the same (or the lower value determined by an appraiser is within one
percent of the value determined by the other), then such value (or the
average of such two values) shall be the Appraised Fair Market Value;
(iv) If the foregoing two appraisals are not the same and
the lower value determined by an appraiser differs by more than one
percent of the value determined by the other, then the appraisers
shall together select a third appraiser to determine a value;
(v) If the determination of the third appraiser is greater
than the largest of the first two appraisals or less than the smallest
of the first two appraisals, then the average of the first two
appraisals shall be the Appraised Fair Market Value; and
(vi) If the determination of the third appraiser is between
the first two appraisals, then the average of the third appraisal and
the closest of the first two appraisals shall be the Appraised Fair
Market Value.
Each party shall pay the fees and costs of the appraiser it selects, and the
fees and costs of the third appraiser, if any, shall be paid equally by Company
and the Holder.
1.3 Trustee for Warrant Holder. In the event that a bank or trust
--------------------------
company shall have been appointed as trustee for the holder of the Warrant
pursuant to subsection 4.2 hereof, such bank or trust company shall have all the
powers and duties of a warrant agent appointed pursuant to Section 15 and shall
accept, in its own name for the account of the Company or such successor person
as may be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise or conversion of this Warrant
pursuant to this Section 1. The Company shall give the holder of the Warrant
notice of the appointment of any trustee and any change thereof.
2. Delivery of Stock Certificates. As soon as practicable after the
------------------------------
exercise or conversion of this Warrant, and in any event within 30 days
thereafter, the Company at its
-4-
<PAGE>
expense (including the payment by it of any applicable issue or stamp taxes)
will cause to be issued in the name of and delivered to the holder hereof, or as
such holder (upon payment by such holder of any applicable transfer taxes) may
direct, a certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock to which such holder shall be entitled on
such exercise or conversion, in such denominations as may be requested by such
holder, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current market value (as determined in good faith by the Board of Directors) of
one full share, together with any other stock or other securities and property
(including cash, where applicable) to which such holder is entitled upon such
exercise or conversion pursuant to Section 1 or otherwise.
3. Adjustment for Dividends in Other Stock, Property, etc.;
--------------------------------------------------------
Reclassification, etc. In case at any time or from time to time, the holders of
- ----------------------
Common Stock shall have received, or (on or after the record date fixed for the
determination of shareholders eligible to receive) shall have become entitled to
receive, without payment therefor,
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of earnings
or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporation rearrangement,
other than additional shares of Common Stock issued as a stock dividend or in a
stock-split (adjustments in respect of which are provided for in Section 5),
then and in each such case the holder of this Warrant, on the exercise or
conversion hereof as provided in Section 1, shall be entitled to receive the
amount of stock and other securities and property (including cash in the cases
referred to in subdivisions (b) and (c) of this Section 3) which such holder
would hold on the date of such exercise or conversion if on the date hereof he
had been the holder of record of the number of shares of Common Stock called for
on the face of this Warrant and had thereafter, during the period from the date
hereof to and including the date of such exercise or conversion retained such
shares and all such other or additional stock and other securities and property
(including cash in the cases referred to in subdivisions (b) and (c) of this
Section 3) receivable by him as aforesaid during such period, giving effect to
all adjustments called for during such period by Section 4; provided, however,
that such adjustment shall be made only in the event that the Ownership
Percentage of the holder of this Warrant is reduced by 10 percent or more.
4. Adjustment for Reorganization, Consolidation, Merger, etc.
----------------------------------------------------------
4.1 Reorganization; Merger; Sale of Assets. In case at any time or
--------------------------------------
from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person
-5-
<PAGE>
under any plan or arrangement contemplating the dissolution of the Company, then
in each such case, the holder of this Warrant, on the exercise or conversion
hereof as provided in Section 1 at any time after the consummation of such
reorganization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall receive, in lieu of the Common Stock
issuable on such exercise or conversion prior to such consummation or such
effective date, the stock and other securities and property (including cash) to
which such holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such holder had so
exercised or converted this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Sections 3 and 5.
4.2 Dissolution. In the event of any dissolution of the Company
-----------
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holder of this Warrant after the effective date of
such dissolution pursuant to this Section 4 to the holder or a bank or trust
company having its principal office in Washington, D.C., as trustee for the
holder or holders of the Warrants.
4.3 Continuation of Terms. Upon any reorganization, consolidation,
---------------------
merger or transfer followed by dissolution referred to in this Section 4 (where,
in the case of a transfer followed by a dissolution, the transferee is paying
for the Company's assets all or in part with its equity securities), this
Warrant shall continue in full force and effect and the terms hereof shall be
applicable to the shares of stock and other securities and property receivable
on the exercise or conversion of this Warrant after the consummation of such
reorganization, consolidation or merger or the effective date of dissolution
following any such transfer, as the case may be. The Company shall be
obligated, prior to and as a condition of such transaction, to enter into an
agreement for the benefit of the Warrant holders that is binding upon the issuer
of any such stock or other securities, including, in the case of any such
transfer, the person acquiring all or substantially all of the properties or
assets of the Company, pursuant to which such person shall expressly assume the
terms of this Warrant as provided in Section 6.
5. Other Adjustments.
-----------------
5.1 Adjustment for Extraordinary Events. In the event that the
-----------------------------------
Company shall (i) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (ii) subdivide or reclassify
outstanding shares of Common Stock, or (iii) combine outstanding shares of
Common Stock into a smaller number of shares of Common Stock, then, in each such
event, the Exercise Price shall, simultaneously with the happening of such event
be adjusted by multiplying the then Exercise Price by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event, and the product so
obtained shall thereafter be the Exercise Price then in effect. The Exercise
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this Section 5. The
Holder of this Warrant shall thereafter, on the exercise hereof as provided in
Section 1, be entitled to
-6-
<PAGE>
receive that number of shares of Common Stock determined by multiplying the
number of shares of Common Stock issuable upon the exercise of this Warrant
immediately prior to such issuance by a fraction of which (i) the numerator is
the Exercise Price in effect immediately prior to the issuance resulting in an
adjustment to the Exercise Price and (ii) the denominator is the Exercise Price
in effect after giving effect to any adjustment resulting from such issuance.
5.2 Adjustment for Issuances Below Exercise Price. If the Company
---------------------------------------------
shall at any time or from time to time after June 30, 1998 issue or sell any
shares of Common Stock (other than (i) shares issued in transactions to which
Section 5.1 of this Warrant applies, (ii) up to 1,091,750 shares of Common Stock
(appropriately adjusted for subdivisions, combinations, stock dividends and the
like) issued as compensation or pursuant to the exercise of options granted as
compensation to employees, officers, directors or consultants of the Company in
connection with their service to the Company, (iii) shares of Common Stock
issuable upon conversion of the Series A Convertible Preferred Stock, Series C
Convertible Preferred Stock, or Series D Convertible Preferred Stock, and (iv)
shares of Common Stock issuable pursuant to subscriptions, warrants, options,
convertible securities, or other rights outstanding as of June 30, 1998 and not
included in clauses (i), (ii) or (iii) above) for a consideration per share less
than the Exercise Price in effect for this Warrant immediately prior to the time
of such issue or sale, then forthwith upon such issue or sale the Exercise Price
shall (until another such issue or sale) be reduced to a price (calculated to
the nearest cent) determined by dividing (i) an amount equal to the sum of (X)
the number of shares of Common Stock outstanding immediately prior to such issue
or sale, multiplied by the Exercise Price in effect immediately prior to such
event plus (Y) the consideration, if any, received by the Company upon such
issue or sale, by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale. Further, the number of shares purchasable
thereunder shall be increased to a number determined by dividing (i) the number
of shares purchasable hereunder immediately prior to such issue or sale,
multiplied by a fraction of which (x) the numerator is the Exercise Price
hereunder immediately prior to such event, and (y) the denominator is the
Exercise Price in effect immediately after the foregoing adjustment.
For the purposes of this Section 5.2, the following provisions shall
also be applicable:
A. In case the Company shall in any manner offer any rights to
subscribe for or to purchase shares of Common Stock, or grant any options for
the purchase of shares of Common Stock, at a price less than the Exercise Price
in effect immediately prior to the time of the offering of such rights or the
granting of such options, as the case may be, all shares of Common Stock which
the holders of such rights or options shall be entitled to subscribe for or
purchase pursuant to such rights or options shall be deemed to be issued or sold
as of the date of the offering of such rights or the granting of such options,
as the case may be, and the minimum aggregate consideration named in such rights
or options for the Common Stock covered thereby, plus the consideration received
by the Company for such rights or options, shall be deemed to be the
consideration actually received by the Company (as of the date of the offering
of such rights or the granting of such options, as the case may be) for the
issue or sale of such shares.
-7-
<PAGE>
B. In case the Company shall in any manner issue or sell any shares
of any class or obligations directly or indirectly convertible into or
exchangeable for shares of Common Stock and the price per share for which Common
Stock is deliverable upon such conversion or exchange (determined by dividing
(i) the total minimum amount received or receivable by the Company in
consideration of the issue or sale of such convertible or exchangeable shares or
obligations, plus the total minimum amount of premiums, if any, payable to the
Company upon conversion or exchange, by (ii) the total number of shares of
Common Stock necessary to effect the conversion or exchange of all such
convertible or exchangeable shares of obligations) shall be less than the
Exercise Price in effect immediately prior to the time of such issue or sale,
then such issue or sale shall be deemed to be an issue or sale (as of the date
of issue or sale of such convertible or exchangeable shares or obligations) of
the total maximum number of shares of Common Stock necessary to effect the
conversion or exchange of all such convertible or exchangeable shares or
obligations, and the total minimum amount received or receivable by the Company
in consideration of the issue or sale of such convertible or exchangeable shares
or obligations, plus the total minimum amount of premiums, if any, payable to
the Company upon exchange or conversion, shall be deemed to be the consideration
actually received (as of the date of the issue or sale of such convertible or
obligations) for the issue or sale of Common Stock.
C. In determining the amount of consideration received by the
Company for Common Stock, securities convertible thereinto or exchangeable
therefor, or rights or options for the purchase thereof, expenses or
underwriting discounts or commissions paid by the Company shall be excluded.
The Board shall determine in good faith the fair value of the amount of
consideration other than money received by the Company upon the issue by it of
any of its securities. The Board shall also determine in good faith the fair
value of any dividend or other distribution made upon Common Stock payable in
property, securities of the Company other than Common Stock or securities of a
corporation other than the Company. The Board shall, in case any Common Stock,
securities convertible thereinto or exchangeable therefor, or rights or options
for the purchase thereof are issued with other stock, securities or assets of
the Company, determine in good faith what part of the consideration received
therefor is applicable to the issue of the Common Stock, securities convertible
thereinto or exchangeable therefor, or rights or options for the purchase
thereof.
D. If there shall be any change in (i) the minimum aggregate
consideration named in the rights or options referred to in Subsection A above,
(ii) the consideration received by the Company for such rights or option, (iii)
the price per share for which Common Stock is deliverable upon the conversion or
exchange of the convertible or exchangeable shares or obligations referred to in
Subsection B above, (iv) the number of shares which may be subscribed for or
purchased pursuant to the rights or options referred to in Subsection A above,
or (v) the rate at which the convertible or exchangeable shares or obligations
referred to in Subsection B above are convertible into or exchangeable for
Common Stock, then the Exercise Price in effect at the time of such event shall
be readjusted to the Exercise Price which would have been in effect at such time
had such rights, options, or convertible or exchangeable shares or obligations
still outstanding provided for such changed consideration, price per share,
number of shares, or rate of conversion or exchange, as the case may be, at the
time initially offered, granted, issued or sold.
-8-
<PAGE>
E. Upon the expiration of the right to convert or exchange any
convertible securities, or upon the expiration of any rights, options or
warrants, without conversion, exchange or exercise, the issuance of which
convertible securities, rights, options or warrants effected an adjustment in
the Exercise Price, the Exercise Price shall forthwith be readjusted and
thereafter be the price which it would have been (but reflecting any other
adjustments in the Exercise Price made pursuant to the terms hereof after the
issuance of such convertible securities, rights, options or warrants) had the
adjustment of the Exercise Price made upon the issuance or sale of such
convertible securities or issuance of rights, options or warrants been made on
the basis of the issuance only of the number of additional shares of Common
Stock actually issued upon conversion or exchange of such convertible
securities, or upon the exercise of such rights, options or warrants, and
thereupon only the number of additional shares of Common Stock actually so
issued, if any, shall be deemed to have been issued and only the consideration
actually received by the Company (computed as set forth herein) shall be deemed
to have been received by the Company.
5.3 Adjustment for Price Decline. If the trailing 30 day average
----------------------------
high and low price for Common Stock on the 31st day of May 2000 ("May 31, 2000
Price") is lower than the Exercise Price, the Exercise Price shall be adjusted
to equal the May 31, 2000 Price.
5.4 Adjustment Threshold. No adjustment of the Exercise Price shall
--------------------
be made under Sections 5.1, 5.2 or 5.3 unless the aggregate actions thereunder
reduce in the aggregate the Ownership Percentage of the holder of this Warrant
by 10 percent or more.
6. No Impairment. The Company will not, by amendment of its charter or
-------------
through any reorganization, transfer of assets, consolidation, merger,
dissolution, or any other similar voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of the Warrant against impairment due to such event.
Without limiting the generality of the foregoing, the Company (a) will not
increase the par value of any shares of stock receivable on the exercise or
conversion of the Warrant above the amount payable therefor on such exercise or
conversion, (b) will take all action that may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of stock, free from all taxes, liens and charges with
respect to the issue thereof, on the exercise or conversion of all or any
portion of this Warrant from time to time outstanding, and (c) will not
consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not the surviving
person) or transfer all or substantially all the assets of the Company to
another person, unless such other person shall expressly assume in writing and
will be bound by all the terms of this Warrant, including the provisions of
Section 4.
7. Certificate as to Adjustments. In each case of any adjustment or
-----------------------------
readjustment in the number or type of shares or securities issuable on the
exercise or conversion of this Warrant, an officer of the Company will promptly
compute such adjustment or readjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment or
-9-
<PAGE>
readjustment, the Exercise Price resulting therefrom and the increase or
decrease, if any, or the number of shares purchasable at such price upon
exercise or conversion of the Warrant, and showing in detail the facts and
computation upon which such adjustment or readjustment is based. The Company
will forthwith mail a copy of each such certificate to each registered holder of
this Warrant, and will, on the written request at any time of the holder of this
Warrant, furnish to such holder a like certificate setting forth the Exercise
Price at the time in effect and showing how such Exercise Price was calculated.
8. Notices of Record Date, Etc. In the event of
---------------------------
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend on, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all or
substantially all the assets of the Company to or consolidation or merger of the
Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
registered holder of this Warrant a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock shall be entitled to exchange their shares
of Common Stock for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up, and (iii) the amount and
character of any stock or other securities, or rights or option with respect
thereto, proposed to be issued or granted, the date of such proposed issue or
grant and the persons or class of persons to whom such proposed issue or grant
is to be offered or made. Such notice shall also state that the action in
question or the record date is subject to the effectiveness of a registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
or a favorable vote of stockholders if either is required. Such notice shall be
mailed at least 20 days prior to the date specified in such notice on which any
such action is to be taken or the record date, whichever is earlier.
9. Reservation of Stock, etc., Issuable on Exercise of Warrants. The
------------------------------------------------------------
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise or conversion of the Warrant, all shares of Common
Stock from time to time issuable on the exercise or conversion of this Warrant.
-10-
<PAGE>
10. Registration. If the issuance of any shares of Common Stock required
------------
to be reserved for purposes of exercise or conversion of this Warrant or for the
conversion of such shares requires registration with, or approval of, any
Federal governmental authority under any Federal or state law (other than any
registration under the Securities Act) or listing on any national securities
exchange, before such shares may be issued upon exercise or conversion of this
Warrant or such conversion, the Company will, at its expense, use its best
efforts to cause such shares to be duly registered or approved, or listed on the
relevant national securities exchange, as the case may be, at such time, so that
such shares may be issued in accordance with the terms hereof and so converted.
11. Transfer of Warrant. The transfer of this Warrant and all rights
-------------------
hereunder, in whole or in part, is registrable at the office or agency of the
authorized attorney, upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant, when endorsed in blank, shall be deemed negotiable,
and that the holder hereof, when this Warrant shall have been so endorsed, may
be treated by the Company and all other persons dealing with this Warrant as the
absolute owner and holder hereof for any purpose and as the person entitled to
exercise the rights represented by this Warrant, or to the registration of
transfer hereof on the books of the Company; and until due presentment for
registration of transfer on such books the Company may treat the registered
holder hereof as the owner and holder for all purposes, and the Company shall
not be affected by notice to the contrary.
12. Register of Warrants. The Company shall maintain, at the principal
--------------------
office of the Company (or such other office as it may designate by notice to the
holder hereof), a register in which the Company shall record the name and
address of the person in whose name this Warrant has been issued, as well as the
name and address of each transferee and each prior owner of such Warrant. The
ownership of the Warrant shall be proved by reference to the register and, prior
to due presentation for registration of transfer, the Company may treat the
person in whose name the Warrant shall be registered as the absolute owner
thereof for all purposes.
13. Exchange of Warrant. Subject to Section 20, this Warrant is
-------------------
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Section 12, for one or more new Warrants of
like tenor representing in the aggregate the right to subscribe for and purchase
the number of shares of Common Stock which may be subscribed for and purchased
hereunder, each of such new Warrants to represent the right to subscribe for and
purchase such number of shares as shall be designated by said holder hereof at
the time of such surrender.
14. Replacement of Warrant. On receipt of evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor;
provided, however, if this Warrant of which the original holder of this Warrant,
- -------- -------
its nominee, or any of its officers or
-11-
<PAGE>
directors is the registered holder is lost, stolen or destroyed, the affidavit
of the President, Vice President, Treasurer, or any General Partner of the
registered holder setting forth the circumstances with respect to such loss,
theft or destruction shall be accepted as satisfactory evidence thereof, and no
indemnity bond or other security shall be required as a condition to the
execution and delivery by the Company of a new Warrant in replacement of such
lost, stolen or destroyed Warrant other than the registered holder's written
agreement to indemnify the Company.
15. Warrant Agent. The Company may, by written notice to the registered
-------------
holder of this Warrant, appoint an agent for the purpose of issuing Common Stock
on the exercise or conversion of the Warrant pursuant to Section 1, exchanging
this Warrant pursuant to Section 13, and replacing this Warrant pursuant to
Section 14, or any of the foregoing, and thereafter any such issuance, exchange
or replacement, as the case may be, shall be made at such office by such agent.
16. Remedies. The Company stipulates that the remedies at law of the
--------
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
17. Closing of Books. The Company will at no time close its transfer
----------------
books against the transfer of any Warrant or of any shares of Common Stock
issued or issuable upon the exercise or conversion of any Warrant in any manner
which interferes with the timely exercise or conversion of this Warrant.
18. No Rights or Liabilities as a Stockholder. This Warrant shall not
-----------------------------------------
entitle the holder hereof to any voting rights or other rights as a stockholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Common Stock, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
19. Notice, etc. All notices and other communications from the Company to
-----------
the registered holder of this Warrant shall be mailed by first class registered
or certified mail, postage prepaid, at such address as shall have been furnished
to the Company in writing by such holder.
20. Investment Representations. The holder hereof (and each subsequent
--------------------------
holder) represents to the Company that this Warrant is being acquired for the
holder's own account and for the purpose of investment and not with a view to,
or for sale in connection with, the distribution thereof, nor with any present
intention of distributing or selling the Warrant or the Common Stock issuable
upon exercise or conversion of the Warrant. The holder hereof acknowledges and
agrees that the Warrant and the Common Stock issuable upon exercise or
-12-
<PAGE>
conversion of the Warrant (if any) have not been (and at the time of acquisition
by such holder, will not have been or will not be) registered under the
Securities Act or under the securities laws of any state, in reliance upon
certain exemptive provisions of such statutes. The holder hereof recognizes and
acknowledges that because the Warrant and the Common Stock issuable upon
exercise or conversion of the Warrant (if any) are unregistered, they are not
presently eligible for resale, and may only be resold in the future pursuant to
an effective registration statement under the Securities Act and any applicable
state securities laws, or pursuant to a valid exemption from such registration
requirements. Each subsequent holder hereof shall be required to make all of
the representations which are required by this Section 20 to be made by the
initial holder hereof, including without limitation the representations which
are contained in the Agreement. The Company shall not be required to register
the transfer of the Warrant or any Common Stock into which the Warrant may be
converted on the books of the Company unless the Company shall have been
provided at the transferor's expense with an opinion of counsel reasonably
satisfactory to the Company prior to such transfer to the effect that
registration under the Securities Act of 1933, as amended, or any applicable
state securities laws is not required in connection with the transaction
resulting in such transfer. The Warrant shall bear the restrictive legend set
forth at the beginning of this Warrant, and any share certificate issued upon
conversion shall bear a comparable legend, except that such restrictive legend
shall not be required if the opinion of counsel reasonably satisfactory to the
Company referred to above is to the further effect that such legend is not
required in order to establish compliance with the provisions of the Securities
Act of 1933, as amended, and any applicable state securities laws, or if the
transfer is made in accordance with the provisions of Rule 144 under such act.
21. Binding Effect on Successors. This Warrant shall be binding upon any
----------------------------
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets (to the extent provided in
Section 4), and all of the obligations of the Company relating to the Common
Stock issuable upon the exercise or conversion of this Warrant shall survive the
exercise, conversion, and termination of this Warrant and all of the covenants
and agreements of the Company shall inure to the benefit of the successors and
assigns of the holder hereof. The Company will, at the time of the exercise or
conversion of this Warrant, in whole or in part, upon request of the holder
hereof but at the Company's expense, acknowledge in writing its continuing
obligation to the holder hereof in respect of any rights (including, without
limitation, any right to registration of the shares of Registrable Securities)
to which the holder hereof shall continue to be entitled after such exercise or
conversion in accordance with this Warrant; provided, that the failure of the
--------
holder hereof to make any such request shall not affect the continuing
obligation of the company to the holder hereof in respect of such rights.
22. Miscellaneous. This Warrant and any term hereof may be changed,
-------------
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought, subject to the provisions of the Agreement. This Warrant shall be
construed and enforced in accordance with and governed by the internal laws of
the State of Delaware. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
This
-13-
<PAGE>
Warrant is being executed as an instrument under seal. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-14-
<PAGE>
IN WITNESS WHEREOF the Company has executed this Warrant on the date set
forth below.
Dated: June 30, 1998
NOBEL EDUCATION DYNAMICS, INC.
By: _______________________________
Title:______________________________
[Corporate Seal]
Attest:
___________________________
Secretary
-15-
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: NOBEL EDUCATION DYNAMICS, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder,
________________________ shares of _________________________ of NOBEL EDUCATION
DYNAMICS, INC. and herewith makes payment of $__________________________
therefor in cash, and requests that the certificates for such shares be issued
in the name of, and delivered to _________________________________________
whose address is _____________________________________________________________.
Dated: ___________________________________
(Signature must conform to name of
holder as specified on the face of the
Warrant)
____________________________________
____________________________________
(Address)
-16-
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto ______________________________________ the right represented by the within
NOBEL EDUCATION DYNAMICS, INC. to which the within Warrant relates, and appoints
_____________________________ Attorney to transfer such right on the books of
NOBEL EDUCATION DYNAMICS, INC. with full power of substitution in the premises.
Dated: ____________________________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
____________________________________
____________________________________
(Address)
Signed in the presence of:
________________________________________
-17-
<PAGE>
EXHIBIT 10.14
FIRST AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
-----------------------------
FIRST AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated as of June
30, 1998 (the "Agreement"), by and between Nobel Education Dynamics, Inc., a
Delaware corporation (the "Company") and Allied Capital Corporation, a Maryland
corporation ("Allied").
BACKGROUND:
----------
WHEREAS, the parties hereto are parties to a Registration Rights Agreement
dated August 30, 1995 (the "Original Registration Rights Agreement"), which was
entered into in connection with the execution by the parties of the Investment
Agreement dated as of August 30, 1995 (the "1995 Investment Agreement") pursuant
to which Allied purchased an aggregate of 1,063,830 shares (the "Preferred
Shares") of the Company's Series D Convertible Preferred Stock, $.001 par value,
and warrants (the "1995 Warrants") for the purchase of up to an aggregate of
1,236,171 shares (the "1995 Warrant Shares") of the Company's common stock,
$.001 par value (the "Common Stock").
WHEREAS, the parties hereto amended the Original Registration Rights
Agreement pursuant to the First Amendment of Registration Rights Agreement dated
as of February 23, 1996 (the "First Amendment") in order to eliminate certain
conflicts among holders of registration rights relating to the Common Stock.
WHEREAS, the Company, certain of its subsidiaries and Allied have entered
into an Investment Agreement dated as of the date hereof (the "1998 Investment
Agreement," and together with the 1995 Investment Agreement, the "Investment
Agreements") pursuant to which Allied has purchased a warrant (the "1998
Warrant," and collectively with the 1995 Warrants, the "Warrants") for the
purchase of _________ shares (the "1998 Warrant Shares," and collectively with
the 1995 Warrant Shares, the "Warrant Shares") of Common Stock.
WHEREAS, the parties hereto wish to amend and restate in its entirety the
Original Registration Rights Agreement, as amended by the First Amendment, as
provided herein.
NOW THEREFORE, in consideration of the mutual promises made herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
----------
other federal agency at the time administering the Securities Act.
<PAGE>
"Common Stock" shall mean Common Stock, $.001 par value, of the Company, as
------------
constituted as of the date of this Agreement.
"Conversion Shares" shall mean shares of Common Stock issued upon
-----------------
conversion of the Preferred Shares.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
------------
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Registration Expenses" shall mean the expenses so described in Section 8.
---------------------
"Restricted Stock" shall mean the Conversion Shares and Warrant Shares,
----------------
excluding shares which have been registered under the Securities Act pursuant to
an effective registration statement filed thereunder and disposed of in
accordance with the registration statement covering them, shares which have been
publicly sold pursuant to Rule 144 under the Securities Act, or shares which are
eligible to be publicly sold under paragraph (k) of Rule 144.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
--------------
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section 8.
----------------
2. Restrictive Legend. Each certificate representing Preferred Shares,
------------------
Conversion Shares or Warrant Shares and each Warrant shall, except as otherwise
provided in this Section 2 or in Section 3, be stamped or otherwise imprinted
with a legend substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN
REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE."
A certificate or Warrant shall not bear such legend if in the written opinion of
counsel satisfactory to the Company (it being agreed that Piper & Marbury L.L.P.
shall be satisfactory) the securities being sold thereby may be publicly sold
without registration under the Securities Act.
3. Notice of Proposed Transfer. Prior to any proposed transfer of any
---------------------------
Preferred Shares, Conversion Shares, Warrants or Warrant Shares (other than
under the circumstances described in Sections 4, 5 or 6), the holder thereof
shall give written notice to the Company of its intention to effect such
transfer. Each such notice shall describe the manner of the proposed transfer
and, if requested by the Company, shall be accompanied by an opinion of counsel
satisfactory to the Company (it being agreed that Piper & Marbury L.L.P. shall
be satisfactory) to the effect that the proposed transfer may be effected
without registration under the Securities Act,
-2-
<PAGE>
whereupon the holder thereof shall be entitled to transfer such stock or Warrant
in accordance with the terms of its notice. Each certificate for Preferred
Shares, Conversion Shares or Warrant Shares and each Warrant transferred as
above provided shall bear the legend set forth in Section 2, except that such
certificate or Warrant shall not bear such legend if the opinion of counsel
referred to above is to the effect that the transferee and any subsequent
transferee would be entitled to transfer such securities in a public sale
without registration under the Securities Act. The restrictions provided for in
this Section 3 shall not apply to securities which are not required to bear the
legend prescribed by Section 2 in accordance with the provisions of that
Section.
4. Required Registration. Subject to the limitation expressed in Section
---------------------
5(b), at any time after the date of this Agreement that the Company is
ineligible to use a Form S-3 to effect the registrations contemplated by Section
6 below, the holders of Restricted Stock constituting at least 50% of the total
shares of Restricted Stock then outstanding may request the Company to register
under the Securities Act all or any portion of the shares of Restricted Stock
held by such requesting holder or holders for sale in the manner specified in
such notice, provided that the shares of Restricted Stock for which registration
has been requested shall constitute at least 50% of the total shares of
Restricted Stock originally issued if such holder or holders shall request the
registration of less than all shares of Restricted Stock then held by such
holder or holders. For purposes of this Section 4 and Sections 5, 6, 13(a) and
13(d), the term "Restricted Stock," shall be deemed to include the number of
shares of Restricted Stock which would be issuable to a holder of Preferred
Shares upon conversion of all Preferred Shares held by such holder at such time
and the number of shares of Restricted Stock which would be issuable to a holder
of Warrants upon exercise of all Warrants held by such holder at such time,
provided, however, that the holder or holders of the 1998 Warrant Shares shall
- -------- -------
have no registration rights with respect to such 1998 Warrant Shares pursuant to
this Section 4 until June 30, 1999, provided further, however, that the only
---------------- -------
securities which the Company shall be required to register pursuant hereto shall
be shares of Common Stock, and provided further, however, that, in any
---------------- -------
underwritten public offering contemplated by this Section 4 or Sections 5 and 6,
the holders of Preferred Shares shall be entitled to sell such Preferred Shares
to the underwriters for conversion and sale of the shares of Common Stock issued
upon conversion thereof. Notwithstanding anything to the contrary contained
herein, no request may be made under this Section 4 or under Section 6 within
120 days after the effective date of a registration statement filed by the
Company covering a firm commitment underwritten public offering in which the
holders of Restricted Stock shall have been entitled to join pursuant to
Sections 5 or 6 and in which there shall have been effectively registered all
shares of Restricted Stock as to which registration shall have been requested.
(a) Following receipt of any notice under this Section 4, the Company
shall immediately notify all holders of Restricted Stock from whom notice has
not been received and shall use its best efforts to register under the
Securities Act, for public sale in accordance with the method of disposition
specified in such notice from requesting holders, the number of shares of
Restricted Stock specified in such notice (and in all notices received by the
Company from other holders within 30 days after the giving of such notice by the
Company). If such method of disposition shall be an underwritten public
offering, the holders of a majority of the shares of Restricted Stock to be sold
in such offering may designate the managing underwriter of such
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offering, subject to the approval of the Company, which approval shall not be
unreasonably withheld or delayed. The Company shall not be obligated to register
the 1998 Warrant Shares pursuant to this Section 4 and pursuant to Section 6 on
more than one occasion (for both sections) and shall not be obligated to
register Restricted Stock (other than the 1998 Warrant Shares) pursuant to this
Section 4 and pursuant to Section 6 on more than two occasions (for both
sections), provided, however, that such obligation shall be deemed satisfied
-------- -------
only when a registration statement covering all shares of Restricted Stock
specified in notices received as aforesaid, for sale in accordance with the
method of disposition specified by the requesting holders, shall have become
effective and, if such method of disposition is a firm commitment underwritten
public offering, 75% of all such shares shall have been sold pursuant thereto.
(c) The Company may not include in any registration statement referred to
in this Section 4 any shares of Common Stock to be sold for the account of any
person not entitled as of June 30, 1998 to registration rights with respect to
such shares except for the shares of Common Stock to be issued to persons
purchasing such shares in connection with the Company's private placement of
1,000,000 shares of Common Stock as described in the Company's Private Placement
Offering memorandum dated February 15, 1996, all of which persons have brokerage
accounts with Gilder, Gagnon, Howe & Co. at the closing of such transaction
(collectively, the "Gilder Shares"). The Company may include in any registration
statement referred to in this Section 4 Gilder Shares and/or shares of Common
Stock to be sold for its own account or for the account of any other holders of
Common Stock who as of June 30, 1998 are entitled to "piggyback" or "incidental"
rights to be included in the registration statement, in which case such
registration statement shall be deemed to be a registration statement initiated
by the Company and shall be governed by the provisions of Section 5 below.
Except for registration statements on Form S-4, S-8 or any successor thereto,
registration statements registering the Gilder Shares and/or securities to be
issued by the Company to the seller or sellers in connection with an acquisition
by the Company and registration statements required to be filed for holders of
Common Stock who as of June 30, 1998 are entitled to "demand" registration
rights, the Company will not file with the Commission any other registration
statement with respect to its Common Stock, whether for its own account or that
of other stockholders, from the date of receipt of a notice from requesting
holders pursuant to this Section 4 until the completion of the period of
distribution of the registration contemplated thereby, as described in Section
7.
5. Incidental Registration.
-----------------------
(a) If the Company at any time (other than pursuant to Section 4 or
Section 6) proposes to register any of its securities under the Securities Act
for sale to the public, whether for its own account or for the account of other
security holders or both (except with respect to registration statements on
Forms S-4, S-8 or another form not available for registering the Restricted
Stock for sale to the public, and the registration statement to be filed by the
Company to register the shares of Common Stock to be issued to the stockholders
of Educo, Inc.), each such time it will give written notice to all holders of
outstanding Restricted Stock of its intention so to do. Upon the written request
of any such holder, received by the Company within 30 days after the giving of
any such notice by the Company, to register any of its Restricted Stock (which
request shall state the intended method of disposition thereof), the Company
will use its best
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efforts to cause the Restricted Stock as to which registration shall have been
so requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent requisite to
permit the sale or other disposition by the holder (in accordance with its
written request) of such Restricted Stock so registered. In the event that any
registration pursuant to this Section 5 shall be, in whole or in part, an
underwritten public offering of Common Stock, the number of shares of Restricted
Stock to be included in such an underwriting may be reduced (pro rata among the
requesting holders based upon the number of shares of Restricted Stock owned by
such holders and the shares of Common Stock held by the persons referred to in
clauses (ii) and (iii) of the proviso to this sentence) if and to the extent
that the managing underwriter shall be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein, provided, however, that such number of shares of Restricted Stock shall
not be reduced if any shares are to be included in such underwriting for the
account of any person other than (i) the Company, (ii) requesting holders of
Restricted Stock or (iii) any other holders of Common Stock who as of June 30,
1998 are entitled to contractual "piggyback" or "incidental" rights to be
included in the registration statement. Whenever a registration statement is
deemed (pursuant to the provisions of Section 4 or Section 6) to be a
registration statement initiated by the Company and therefore governed by the
provisions of this Section 5, such registration statement shall nevertheless be
deemed to count as a registration statement required to be filed by the Company
under Section 6 and Section 4 if the registration statement covers all shares of
Restricted Stock specified in the notices from the requesting holders thereof
for sale in accordance with the method of disposition specified in such notice,
becomes effective and, if such method of disposition is a firm commitment
underwritten public offering, 75% of all such shares are sold pursuant thereto.
(b) Notwithstanding anything herein to the contrary, the Company shall not
be required to file any registration statement registering the Restricted Stock
upon the demand of the holders of the Restricted Stock made under Section 4 or
Section 6 of this Agreement during the period beginning on the date of the
Company's receipt of a notice from requesting holders pursuant to Section 4 or
Section 6 of the Registration Rights Agreement by and among the Company, Edison
Venture Fund II, L.P. and Edison Venture Fund, II-Pa., L.P. and ending on the
date on which the distribution of the securities included in such registration
has been completed.
6. Registration on Form S-3. Subject to the limitation set forth in
------------------------
Section 5(b) and in the last sentence of Section 4(a), if at any time (i) a
holder or holders of Restricted Stock constituting at least 50% of the total
shares of Restricted Stock then outstanding request the Company to register
under the Securities Act all or any portion of the shares of Restricted Stock
held by such requesting holder or holders for sale in the manner specified in
such notice (provided that the shares of Restricted Stock for which registration
has been requested shall constitute at least 50% of the total shares of
Restricted Stock originally issued if such holder or holders shall request the
registration of less than all shares of Restricted Stock then held by such
holder or holders) on Form S-3 or any successor thereto for a public offering of
shares of Restricted Stock held by such requesting holder or holders and (ii)
the Company is a registrant entitled to use Form S-3 or any successor thereto to
register such shares, then the Company shall use its best efforts to register
under the Securities Act on Form S-3 or any successor thereto, for public sale
in accordance with the method of disposition specified in such notice, the
number of
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shares of Restricted Stock specified in such request. Whenever the Company is
required by this Section 6 to use its best efforts to effect the registration of
Restricted Stock, each of the procedures and requirements of Section 4
(including but not limited to the requirement that the Company notify all
holders of Restricted Stock from whom notice has not been received and provide
them with the opportunity to participate in the offering) shall apply to such
registration, provided, however, that the requirements contained in the first
sentence of Section 4(a) shall not apply to any registration on Form S-3 which
may be requested and obtained under this Section 6. The Company may not include
in any registration statement referred to in this Section 6 any shares of Common
Stock to be sold for the account of any person not entitled as of June 30, 1998
to registration rights with respect to such shares, except the Gilder Shares.
The Company may include in any registration statement referred to in this
Section 6 the Gilder Shares and/or shares of Common Stock to be sold for its own
account or for the account of any other holders of Common Stock who as of June
30, 1998 are entitled to "piggyback" or "incidental" rights to be included in
the registration statement, in which case such registration statement shall be
deemed to be a registration-statement initiated by the Company and shall be
governed by the provisions of Section 5 above. Except for registration
statements on Form S-4, S-8 or any successor thereto, registration statements
registering the Gilder Shares and/or securities to be issued by the Company to
the seller or sellers in connection with an acquisition by the Company and
registration statements required to be filed for holders of Common Stock who as
of June 30, 1998 are entitled to "demand" registration rights, the Company will
not file with the Commission any other registration statement with respect to
its Common Stock, whether for its own account or that of other stockholders,
from the date of receipt of a notice from requesting holders pursuant to this
Section 6 until the completion of the period of distribution of the registration
contemplated thereby, as described in Section 7.
7. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of Sections 4, 5 or 6 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement (which,
in the case of an underwritten public offering pursuant to Section 4, shall be
on Form S-1 or other form of general applicability satisfactory to the managing
underwriter selected as therein provided) with respect to such securities and
use its best efforts to cause such registration statement to become and remain
effective for the period of the distribution contemplated thereby (determined as
hereinafter provided);
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for the period
specified in paragraph (a) above and comply with the provisions of the
Securities Act with respect to the disposition of all Restricted Stock covered
by such registration statement in accordance with the sellers' intended method
of disposition set forth in such registration statement for such period;
(c) furnish to each seller of Restricted Stock and to each underwriter
each number of copies of the registration statement and the prospectus included
therein (including each
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<PAGE>
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or other disposition of the Restricted Stock covered
by such registration statement;
(d) use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as the sellers of Restricted Stock or, in the case of an
underwritten public offering, the managing underwriter reasonably shall request,
provided, however, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) use its best efforts to list the Restricted Stock covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing, whereupon each such
seller shall refrain from making any sales of Restricted Stock until a
prospectus supplement describing such event has been forwarded to such seller by
the Company;
(g) if the offering is underwritten and at the request of any seller of
Restricted Stock, use its best efforts to furnish on the date that Restricted
Stock is delivered to the underwriters for sale pursuant to such registration:
(i) an opinion dated such date of counsel representing the Company for the
purposes of such registration, addressed to the underwriters and to such seller,
stating that such registration statement has become effective under the
Securities Act and that (A) to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the Securities
Act, (B) the registration statement, the related prospectus and each amendment
or supplement thereof comply as to form in all material respects with the
requirements of the Securities Act (except that such counsel need not express
any opinion as to financial statements contained therein) and (C) to such other
effects as reasonably may be requested by counsel for the underwriters or by
such seller or its counsel and (ii) a letter dated such date from the
independent public accountants retained by the Company, addressed to the
underwriters and to such seller, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to such registration as such underwriters reasonably may request;
and
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<PAGE>
(h) make available for inspection by each seller of Restricted Stock, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
For purposes of Section 7(a) and 7(b) and of Section 4(c), the period of
distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Restricted stock covered thereby and 120 days
after the effective date thereof.
In connection with each registration hereunder, the sellers of Restricted
Stock will furnish to the Company in writing such information with respect to
themselves and the proposed distribution by them as reasonably shall be
necessary in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration pursuant to Sections 4, 5 or 6
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
8. Expenses. All expenses incurred by the Company in complying with
--------
Sections 4, 5 and 6, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees of transfer agents and registrars, and costs of insurance for the sellers
of Restricted Stock, but excluding any Selling Expenses, are called
"Registration Expenses". All underwriting discounts, selling commissions and
fees of counsel to participating sellers applicable to the sale of Restricted
Stock are called "Selling Expenses".
The Company will pay all Registration Expenses in connection with each
registration statement under Sections 4, 5 or 6. All Selling Expenses in
connection with each registration statement under Sections 4, 5 or 6 shall be
borne by the participating sellers in proportion to the number of shares sold by
each, or by such participating sellers other than the Company (except to the
extent the Company shall be a seller) as they may agree.
9. Indemnification and Contribution. In the event of a registration of
--------------------------------
any of the Restricted Stock under the Securities Act pursuant to Sections 4, 5
or 6, the Company will indemnify and hold harmless each seller of such
Restricted Stock thereunder, each underwriter of such Restricted Stock
thereunder and each other person, if any, who controls such seller or
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<PAGE>
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Restricted Stock was registered under the Securities Act
pursuant to Sections 4, 5 or 6, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each such seller, each such underwriter and each
such controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Company will not be liable in
any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by any such seller, any such underwriter or any such controlling
person in writing specifically for use in such registration statement or
prospectus.
(b) In the event of a registration of any of the Restricted Stock under
the Securities Act pursuant to Sections 4, 5 or 6, each seller of such
Restricted Stock thereunder, severally and not jointly, will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer, director, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which such Restricted Stock
was registered under the Securities Act pursuant to Sections 4, 5 or 6, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon, the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and each such officer, director, underwriter and controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that such seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with information
pertaining to such seller, as such, furnished in writing to the Company by such
seller specifically for use in such registration statement or prospectus, and
provided, further, however, that the liability of each seller hereunder shall be
limited to the proportion of any such loss, claim, damage, liability or expense
which is equal to the proportion that the public offering price of the shares
sold by such seller under such registration statement bears to the total public
offering price of all securities sold thereunder, but not in any event to
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<PAGE>
exceed the proceeds received by such seller from the sale of Restricted Stock
covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 9 and shall only relieve it
from any liability which it may have to such indemnified party under this
Section 9 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Restricted Stock exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 9 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 9 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling holder or any such controlling
person in circumstances for which indemnification is provided under this Section
9; then, and in each such case, the Company and such holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such holder
is responsible for the portion represented by the percentage that the public
offering price of its Restricted Stock offered by the registration statement
bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion; provided, however, that, in any such case, (A) no such holder will be
required to contribute any amount in excess of the public offering price of all
such Restricted Stock offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning
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<PAGE>
of Section 11(f) of the Securities Act) will be entitled to contribution from
any person or entity who was not guilty of such fraudulent misrepresentation.
10. Changes in Common Stock or Preferred Shares. If, and as often as,
-------------------------------------------
there is any change in the Common Stock or the Preferred Shares by way of a
stock split, stock dividend, combination or reclassification, or through a
merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof so that the
rights and privileges granted hereby shall continue with respect to the Common
Stock or the Preferred Shares as so changed.
11. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Stock to the public without registration, the Company
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Exchange Act; and
(c) furnish to each holder of Restricted Stock forthwith upon request a
written statement by the Company as to its compliance with the reporting
requirements of such Rule 144 and of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as such holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any Restricted Stock without
registration.
12. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to you as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government, the Charter or By-laws of the Company or any provision of any
indenture, agreement or other instrument to which it or any or its properties or
assets is bound, conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument or result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Company.
(b) This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company, enforceable
in accordance with its terms.
13. Miscellaneous.
-------------
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<PAGE>
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto (including, without
limitation, transferees of any Preferred Shares, Warrants or Restricted Stock),
whether so expressed or not, provided, however, that registration rights
conferred herein on the holders of Preferred Shares, Warrants or Restricted
Stock shall only inure to the benefit of a transferee of Preferred Shares,
Warrants or Restricted Stock if there is transferred to such transferee at least
10% of the total shares of Restricted Stock originally issued pursuant to the
Investment Agreement to the direct or indirect transferor of such transferee or
such transferee is a partner, shareholder or affiliate of a party hereto.
(b) All notices, requests, consents and other communications hereunder
shall be in writing and shall be delivered in person, mailed by certified or
registered mail, return receipt requested, or sent by telecopier or telex,
addressed as follows:
if to the Company or any other party hereto, at the address of such party
set forth in the applicable Investment Agreement;
if to any subsequent holder of Preferred Shares, Warrants or Restricted
Stock, to it at such address as may have been furnished to the Company in
writing by such holder;
or, in any case, at such other address or addresses as shall have been
furnished in writing to the Company (in the case of a holder of Preferred
Shares, Warrants or Restricted Stock) or to the holders of Preferred Shares,
Warrants or Restricted Stock (in the case of the Company) in accordance with
the provisions of this paragraph.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
(d) This Agreement may not be amended or modified, and no provision hereof
may be waived, without the written consent of the Company and the holders of at
least two-thirds of the outstanding shares of Restricted Stock.
(e) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) The obligations of the Company to register shares of Restricted Stock
under Sections 4, 5 or 6 shall terminate on August 19, 2009.
(g) If requested in writing by the underwriters for an underwritten public
offering of securities of the Company, each holder of Restricted Stock who is a
party to this Agreement shall agree not to sell publicly any shares of
Restricted Stock or any other shares of Common Stock (other than shares of
Restricted Stock or other shares of Common Stock being registered in such
offering), without the consent of such underwriters, for a period of not more
than 180 days following the effective date of the registration statement
relating to such offering; provided, however, that all persons entitled to
registration rights with respect to shares of Common Stock who are not parties
to this Agreement, all other persons selling shares of Common Stock in such
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offering, all persons holding in excess of 1% of the capital stock of the
Company on a fully diluted basis and all executive officers and directors of the
Company shall also have agreed not to sell publicly their Common Stock under the
circumstances and pursuant to the terms set forth in this section 13(g).
(h) Notwithstanding the provisions of Section 7(a), the Company's
obligation to file a registration statement, or cause such registration
statement to become and remain effective, shall be suspended for a period not to
exceed 90 days in any 12-month period if there exists at the time material non-
public information relating to the Company which, in the reasonable opinion of
the Company, should not be disclosed, and no sales of Restricted Stock shall be
made by the holders during such period.
(i) The Company shall not grant to any third party any registration rights
more favorable than any of those contained herein, so long as any of the
registration rights under this Agreement remains in effect.
(j) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
NOBEL EDUCATION DYNAMICS, INC.
By:____________________________
Title:
ALLIED CAPITAL CORPORATION
By:____________________________
Title:
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<PAGE>
EXHIBIT 10.15
NOBEL EDUCATION DYNAMICS, INC.
EXECUTIVE SEVERANCE PAY
PLAN STATEMENT
AND
SUMMARY PLAN DESCRIPTION
Issued March, 1997
<PAGE>
TABLE OF CONTENTS
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<S> <C>
PART 1. DEFINITIONS.................................................. 1
(S)1.1 Board................................................... 1
(S)1.2 Change in Control....................................... 1
(S)1.3 Company................................................. 2
(S)1.4 Eligible Employee....................................... 2
(S)1.5 Employer................................................ 3
(S)1.6 Monthly Pay............................................. 3
(S)1.7 Plan.................................................... 3
(S)1.8 Plan Administrator...................................... 3
(S)1.9 Plan Statement.......................................... 3
(S)1.10 Plan Year............................................... 4
(S)1.11 Termination Event....................................... 4
(S)1.12 Years of Service........................................ 4
PART 2. PARTICIPATION................................................ 4
(S)2.1 Commencement of Participation........................... 4
(S)2.2 Eligibility for Severance Benefits...................... 4
PART 3. SEVERANCE BENEFITS; FUNDING.................................. 6
(S)3.1 Severance Benefits...................................... 6
(S)3.2 Plan Not Funded......................................... 7
(S)3.3 Limitations Concerning Excess Parachute Payments........ 7
PART 4. FORM AND TIMING OF SEVERANCE PAYMENTS........................ 8
(S)4.1 Severance Allowance..................................... 8
(S)4.2 Bonus................................................... 8
(S)4.3 Payments After Death.................................... 8
PART 5. OTHER PLAN FEATURES.......................................... 8
(S)5.1 Assignment of Benefit Prohibited........................ 8
(S)5.2 Claims and Controversies................................ 8
(S)5.3 Amendment or Termination of Plan........................ 10
PART 6. ADDITIONAL INFORMATION....................................... 10
(S)6.1 Type of Plan............................................ 10
(S)6.2 Plan Sponsor............................................ 10
(S)6.3 Plan Administrator...................................... 10
(S)6.4 Service of Legal Process................................ 10
(S)6.5 Governing Law........................................... 11
(S)6.6 Severability............................................ 11
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
(S)6.7 Entire Agreement........................................ 11
(S)6.8 Successor Employer...................................... 11
</TABLE>
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<PAGE>
NOBEL EDUCATION DYNAMICS, INC.
EXECUTIVE SEVERANCE PAY
PLAN STATEMENT
AND
SUMMARY PLAN DESCRIPTION
Effective as of January 1, 1997, Nobel Education Dynamics, Inc. (the
"Company"), a Delaware corporation, has established the "Nobel Education
Dynamics, Inc. Executive Severance Pay Plan" (hereinafter referred to as the
"Plan") for the benefit of eligible employees. The terms of the Plan are set
forth in this document and they entirely supersede and replace all prior rules
and policies regarding severance benefits. This document is intended to give
participants an easily understood explanation of the major features of the Plan.
The Plan provides severance benefits on account of a termination event with
respect to an eligible employee. All payments will be made from the general
corporate assets of the Company or an affiliated employer. The payments will
not be contingent directly or indirectly upon the retirement of an employee.
PART 1. DEFINITIONS
When the following terms are used in this document with initial capital
letters, they shall have the following meanings:
(S)1.1 Board - the Board of Directors of the Company.
-----
(S)1.2 Change in Control - a "Change in Control" shall be
-----------------
deemed to have taken place if:
(a) any person, including a group, becomes the beneficial
owner of shares of the Company having 50 percent or more of the total number of
votes that may be cast for the election of directors of the Company;
(b) any person, including a group, becomes the beneficial
owner of shares of the Company having 25 percent or more of the total number of
votes that may be cast for the election of directors of the Company, unless such
person's acquisition of such percentage of stock has been approved by at least
two-thirds of the directors in office on the date immediately preceding the date
such percentage ownership is first attained (other than Excluded Members);
(c) there occurs any cash tender or exchange offer for
shares of the Company, merger or other business combination, or sale of assets,
or any combination of the foregoing transactions, and as a result of or in
connection with any such event persons who were directors of the Company before
the event shall cease to constitute a majority of the Board or of the board of
directors of any successor to the Company; or
<PAGE>
(d) at any date ("Reference Date"), 50 percent or more of
the members of the Board consists of persons other than (i) persons who were
members of the Board two years prior to the Reference Date (other than Excluded
Members) and (ii) Approved Members.
For purposes of subsections (b) and (d) above, (i) an "Approved
Member" shall mean any director (other than an Excluded Member) whose election
by the Board or nomination for election by the stockholders of the Company was
approved by a vote of at least two-thirds of the directors in office on the date
of approval who either were directors (A) on the date two years prior to the
Reference Date or (B) who had previously become Approved Members; and (ii) an
"Excluded Member" is any director (A) designated or nominated by, or affiliated
with, a person who has entered into an agreement with the Company to effect a
transaction described in subsection (c) above, or (B) who initially assumed
office as a result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 under the Securities Exchange Act of 1934 (the
"Exchange Act")) or other actual or threatened solicitation of proxies or
contests by or on behalf of a person other than the Board (a "Proxy Contest"),
including by reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest.
As used in this Section 1.2, the terms "person" and "beneficial owner"
have the same meanings as such terms under section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder.
If a Change in Control occurs (as defined in any subsection of this
Section 1.2), and prior to the date an Eligible Employee experiences a
Termination Event, a Change in Control (also as defined in any subsection of
this Section 1.2) again occurs, the determination of the entitlement of such
Eligible Employee to benefits hereunder shall be made by reference to the Change
in Control event that results in the largest benefit hereunder; provided,
however, that the Plan Administrator shall be determined by reference to the
first Change in Control event which occurs in the two-year period prior to the
date of the participant's Termination Event. A Change in Control shall be
deemed to occur upon satisfaction of any subsection of this Section 1.2
irrespective of prior events constituting a Change in Control (e.g., if a person
becomes the benefi cial owner of shares of the Company having 25 percent or more
of the total number of votes that may be cast for the election of directors of
the Company without such acquisition being approved by the requisite members of
the Board and later the same person becomes the beneficial owner of shares of
the Company having 50 percent or more of the total number of votes that may be
cast for the election of directors of the Company, and later the same person
causes new individuals to be elected to the board so the threshold described in
subsection (d) of this Section 1.2 is satisfied, then there shall be deemed to
be a Change in Control on the date that each of such three events occurs).
(S)1.3 Company - Nobel Education Dynamics, Inc., a Delaware
-------
corporation.
(S)1.4 Eligible Employee - the following employees who hold the
position indicated, or should such employee cease to be employed in such
position prior to a Change in Control, the employee who succeeds to such
position, as well as such other additional employees or positions as determined
by written resolution of the Board from time to time: A.J. Clegg, Chairman,
Chief Executive Officer, and President; John R. Frock, Executive Vice President-
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<PAGE>
Corporate Development; Brian Zwaan, Chief Financial Officer and Executive Vice
President; D. Scott Clegg, Executive Vice President - Operations; Yvonne
DeAngelo, Vice President - Finance & Administration; Robin Eglin, Vice
President-Real Estate Development; Barry S. Swirsky, General Counsel; and
Barbara Presseisen, Vice President - Education.
(S)1.5 Employer - the Company and any corporation which is a
--------
member of a controlled group (as defined in section 414(c) of the Internal
Revenue Code of 1986, as amended (the "Code")) which includes the Company.
(S)1.6 Monthly Pay - one-twelfth of your highest base salary
-----------
rate (excluding bonus payments, overtime and any other extra payments) from the
Employer which is in effect in the calendar year in which a Change in Control
occurs (annualized on the basis of a 52-week year). The calculation of your
Monthly Pay is made on a pre-tax basis.
(S)1.7 Plan - the severance pay plan of the Company
----
established for the benefit of Eligible Employees. (As used herein, "Plan"
refers to the program established by the Company and not the document pursuant
to which the Plan is maintained. That document is referred to herein as the
"Plan Statement.") The Plan shall be referred to as the "Nobel Education
Dynamics, Inc. Executive Severance Pay Plan."
(S)1.8 Plan Administrator - the Company's Compensation
------------------
Committee as it is constituted on the date preceding the date of a Change in
Control; provided, however, that should a majority of the members of such
Committee refuse to so serve following a Change in Control, the Plan
Administrator shall be a person or committee appointed by the Board and approved
by at least 51 percent of the Plan participants; and further provided, that
should the Company and 51 percent of the Plan participants fail to agree on such
a successor Plan Administrator, the Plan Administrator shall be appointed by the
arbitrators acting pursuant to Section 5.2(c). The Plan Administrator shall
have the responsibility, power, authority and discretion to supervise and
control the operation of the Plan in accordance with the terms of the Plan
Statement. The Plan Administrator shall be the "named fiduciary" of the Plan
within the meaning of section 402 of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"). If the Plan Administrator is a committee, a
majority of the members of such committee shall constitute a quorum for the
transaction of business related to the Plan. All resolutions or other actions
taken by such committee at any meeting shall be by vote of the majority of
members of such committee. Resolutions may be adopted or other action taken
without a meeting upon written consent signed by all members of such committee.
(S)1.9 Plan Statement - this document entitled "Nobel Education
--------------
Dynamics, Inc. Executive Severance Pay Plan Statement and Summary Plan
Description" as adopted by the Company, effective as of January 1, 1997, as the
same may be amended from time to time thereafter.
(S)1.10 Plan Year - the 12-consecutive month period beginning
---------
on any January 1 and ending on the following December 31.
(S)1.11 Termination Event - an event described in Section
-----------------
2.2(b).
-3-
<PAGE>
(S)1.12 Years of Service - the number of 12-month periods
----------------
beginning on your first day of work with the Employer and ending on the date a
Termination Event occurs; provided, however, if you incur a break in service of
longer than two months in any such 12-month period, such 12-month period shall
not count as a Year of Service. If you work at least 10 months in any such 12-
month period, you will receive credit for one Year of Service. Partial Years of
Service shall be disregarded.
PART 2. PARTICIPATION
(S)2.1 Commencement of Participation - You become a participant in
-----------------------------
the Plan on the date you become an Eligible Employee, or January 1, 1997,
whichever is later.
(S)2.2 Eligibility for Severance Benefits -
----------------------------------
(a) In General. You are eligible to receive severance
----------
benefits under the Plan if you experience a Termination Event on or after the
date you become a participant in the Plan.
(b) Termination Event. Except as provided in Section 2.2(c),
-----------------
a Termination Event occurs if, prior to the date which is the number of months
following the date of a Change in Control equal to six plus the number of months
of Monthly Pay you would be entitled to under Section 3.1(a), you cease to be
employed by the Employer for any of the reasons set forth in (1), (2) or (3)
below:
(1) the Employer terminates your employment; or
(2) you terminate employment with the Employer as a
result of any of the following events occurring
after a Change in Control:
(A) your position is materially adversely changed
from the description of your position in
Appendix A attached hereto;
(B) you are assigned duties and responsibilities
that are inconsistent, in a material respect,
with the scope of duties and responsibilities
associated with the description of your
position in Appendix A attached hereto;
(C) your compensation plan is reduced as compared
to your compensation plan immediately before
the Change in Control; or
-4-
<PAGE>
(D) the Employer requires you to be based at any
office which is more than 25 miles further
from your residence on the date such
requirement is imposed than the Employer's
location on the day before a Change in Control
(other than travel reasonably required in the
performance of your responsibilities); or
(3) prior to the date which is one month following the
date of a Change in Control, you terminate
employment with the Employer for any reason (or give
the Employer notice thereof).
(c) Terminations Not Qualifying as Termination Events -
-------------------------------------------------
Notwithstanding Section 2.2(b), you are not eligible to receive severance
benefits under the Plan if one of the following applies:
(1) your employment with the Employer is involuntarily
terminated due to your act or acts of dishonesty
which you intended to result in your personal
enrichment;
(2) prior to the occurrence of an event described in
Sections 2.2(b)(2)(A)-(D), your employment with the
Employer is involuntarily terminated due to your
documented willful and deliberate insubordination;
(3) your employment with the Employer is involuntarily
terminated because you have been convicted of a
felony; or
(4) (A) your employment with the Employer is terminated,
but prior to the date which is seven days after such
termination, you are offered employment by the buyer
of the entire (or substantially all of the) business
of the Company following a sale or divestiture by
the Company of such business, on terms which if such
employment continued with the Employer, would not
give you the right to Severance benefits under
Section 2.2(b)(2), and you do not accept such
employment, and (B) such successor has assumed all
Plan liabilities as required by Section 6.8; or
(5) any other voluntary or involuntary termination not
described in Section 2.2(b).
-5-
<PAGE>
PART 3. SEVERANCE BENEFITS; FUNDING
(S)3.1 Severance Benefits - If you experience a Termination
------------------
Event, your severance benefits are as follows, subject to Section 3.3:
(a) Severance Allowance. The Employer will pay you a
-------------------
severance allowance equal to your Monthly Pay multiplied by six plus:
----
(1) if you have not completed three Years of Service
as of the date a Termination Event occurs, your
Monthly Pay multiplied by the number of Years of
Service you have completed as of the date a
Termination Event occurs; or
(2) if you have completed at least three Years of
Service as of the date a Termination Event
occurs, your Monthly Pay multiplied by two times
the number of Years of Service you have
completed as of the date a Termination Event
occurs, up to a maximum of 12 (i.e., an
---
aggregate maximum severance allowance equal
to your Monthly Pay multiplied by 18).
(b) Bonus. The Employer will pay you the bonus, if any,
-----
that you would have received had you been employed by the Employer on the day on
which, absent this provision, you would have had to have been employed to
receive a bonus for the bonus period in which the Termination Event occurs,
prorated for the portion of the bonus period occurring prior to your Termination
Event.
(c) Vacation Days. The Employer will pay you the cash-
-------------
value of the vacation days to which you are entitled, but which you have not
used, on the day before the Termination Event occurs.
(d) Medical and Group Term Life Insurance. The Employer
-------------------------------------
will provide you the medical insurance and group term life insurance that you
were entitled to on the day before a Change in Control occurs, for a period
beginning with the date a Termination Event occurs and continuing over the
number of months of Monthly Pay determined under subsection (a) (i.e., a maximum
----
of 18 months).
(S)3.2 Plan Not Funded - The Employer will not make any
---------------
contributions to fund this Plan. Any severance payments made pursuant to the
Plan will be paid out of the general funds of the Employer, and as a
participant, you will not have any secured or preferred interest by way of
trust, escrow, lien or otherwise in any specific assets. As a participant, your
rights shall be solely those of an unsecured general creditor of the Employer.
(S)3.3 Limitations Concerning Excess Parachute Payments. This
------------------------------------------------
Section shall be interpreted and applied to limit amounts otherwise payable to
an Eligible Employee under the
-6-
<PAGE>
Plan only to the extent required to avoid any material risk of the imposition of
excise taxes on the Eligible Employee under section 4999 of the Code, or the
disallowance of a deduction to the Employer under section 280G(a) of the Code.
Notwithstanding any other provision of the Plan, severance benefits payable
under Section 3.1 of the Plan, to the extent they are parachute payments (as
defined in section 280G(b)(2) of the Code), shall be modified to the extent
necessary so that the aggregate present value (as defined in section 280G(d)(4)
of the Code) of such parachute payments payable under the Plan and any other
parachute payments (as defined in section 280G(b)(2) of the Code) payable
pursuant to any other plan or agreement between the Eligible Employee and the
Employer shall be at least one dollar less than three times the Eligible
Employee's base amount (as defined in section 280G(b)(3) of the Code).
PART 4. FORM AND TIMING OF SEVERANCE PAYMENTS
(S)4.1 Severance Allowance - Your severance allowance under
-------------------
Section 3.1(a) will normally be paid to you in a lump sum payment within 30 days
following a Termination Event. The Plan Administrator may, however, (i) delay
the lump sum payment to a date no more than three months following a Termination
Event, or (ii) modify the method of payment to installments coincident with
normal payroll cycles, if the Plan Administrator, in its sole discretion,
determines that the Company's cash resources are insufficient to make a lump sum
payment. In no event, however, shall the Plan Administrator delay payment or
modify the method of payment solely on account of your request to do so.
(S)4.2 Bonus - Your bonus, if any, under Section 3.1(b) will
-----
be paid to you in a lump sum payment on the date the bonus would have been paid
to you had you remained employed by the Employer.
(S)4.3 Payments After Death - If severance allowance (under
--------------------
Section 3.1(a)) and/or bonus (under Section 3.1(b)) remains unpaid at your
death, the remaining amount will be paid in a lump sum to the beneficiary you
most recently designated with respect to the Plan. In the event no such
beneficiary has been designated or survives you, your most recent beneficiary
designation with respect to the group term life insurance provided by the
Employer shall govern.
PART 5. OTHER PLAN FEATURES
(S)5.1 Assignment of Benefit Prohibited - No severance
--------------------------------
benefits under this Plan shall be subject in any manner to anticipation,
alienation, assignment (either at law or in equity), encumbrance, garnishment,
levy, execution or other legal or equitable process.
(S)5.2 Claims and Controversies - Benefits will be paid from
------------------------
the Plan to you, your personal representative or beneficiary only after a proper
written claim for the benefits has been filed with the Plan Administrator. If
you believe you may be entitled to benefits, or if you are in disagreement with
any determination that has been made, follow the following procedure:
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<PAGE>
(a) Making a Claim. Your claim must be written and must be
--------------
delivered to the Plan Administrator. Within 30 days after you deliver your
claim, you will receive a decision. If your claim is wholly or partially denied,
you will receive a written notice specifying: (i) the reasons for denial; (ii)
the Plan provisions on which the denial is based; and (iii) any additional
information needed from you in connection with the claim and the reason such
information is needed. You also will receive a copy of paragraph (b) below
concerning your right to request a review.
(b) Requesting Review of a Denied Claim. You may request
-----------------------------------
that a denied claim be reviewed. Your request for review must be written and
must be delivered to the Plan Administrator within 60 days after you receive the
written notice that your claim was denied. Your request for review may (but is
not required to) include issues and comments you want considered in the review.
You may examine pertinent Plan documents by asking the Plan Administrator.
Within 30 days after you deliver your request for review, you will receive a
decision. The decision will be in writing and will specify the Plan provisions
on which it is based.
(c) Arbitration. In the event any controversy or claim
-----------
arising out of or relating to the Plan or the breach, termination or validity
thereof is not resolved pursuant to subsection (a) or subsection (b), such
controversy or claim shall be settled by arbitration by three arbitrators in
accordance with the Center for Public Resources, Inc. Non-Administered
Arbitration Rules, and judgment upon the award rendered by the arbitrators may
be entered by any court having jurisdiction thereof.
(d) In General. This Section 5.2 shall be the sole method
----------
in which controversies or claims under this Plan shall be determined. All
decisions on claims and on review of denied claims under subsections (a) and (b)
will be made by the Plan Administrator. The Plan Administrator may, in its
discretion, hold one or more hearings. If you do not receive a decision within
the specified time, you should assume your claim was denied or re-denied on the
date the specified time expired. You may have an attorney or other
representative act on your behalf. The Plan Administrator shall have the sole
discretion to carry out its duties under the Plan, to construe and interpret the
provisions of the Plan, and to determine all questions concerning benefit
entitlements, including the power to construe and determine disputed or doubtful
terms. To the maximum extent permissible under law, the Plan Administrator's
determinations on all such matters shall be final and binding on all persons
involved.
If your claim is denied under Section 5.2(a), and approved on appeal
under Section 5.2(b) or pursuant to arbitration under Section 5.2(c), the
Company (i) will pay your legal fees associated with the claim, appeal and
arbitration, (ii) will pay you interest on the severance benefits payable under
subsections (a), (b) and (c) of Section 3.1, at the prime rate stated in The
---
Wall Street Journal on the date of your Termination Event, and over the period
- -------------------
ending on the date payment is made and beginning (A) with respect to benefits
payable pursuant to Section 3.1(a) and (c), on the date of your Termination
Event, and (B) with respect to any bonus payable pursuant to Section 3.1(b), on
the date the bonus would have been paid to you had you continued to be employed
by the Employer, and (iii) will reimburse you or your beneficiary(ies) for, and
pay to your beneficiary(ies) any medical and group term life insurance benefits,
respectively, which would have been reimbursed
-8-
<PAGE>
or paid had your medical and group term life insurance benefits been provided in
accordance with Section 3.1(d) on and after the date of your Termination Event.
(S)5.3 Amendment or Termination of Plan - The Company, by
--------------------------------
written action of the Board, reserves the right to amend the Plan and the
provisions of the Plan Statement or to terminate the Plan at any time, provided
that no such amendment or termination shall impair your rights under the Plan if
a Change in Control occurs before the date of such amendment or termination. If
either of these actions is taken, you will be notified.
PART 6. ADDITIONAL INFORMATION
(S)6.1 Type of Plan - The Plan is a severance pay welfare
------------
benefit plan which is intended to be a plan solely covering a select group of
management or highly compensated employees within the meaning of section 201(2)
of ERISA and the regulations issued thereunder. The Plan is not a pension
benefit plan.
(S)6.2 Plan Sponsor - The name of the employer sponsoring the
------------
Plan and its federal employer identification number ("EIN") are:
Nobel Education Dynamics, Inc.
Rose Tree Corporate Center II
1400 North Providence Road
Suite 3055
Media, PA 19063
Telephone: (610-691-8200)
EIN: 22-2465204
(S)6.3 Plan Administrator - The Plan is administered by the
------------------
Plan Administrator. Communications addressed to the Plan Administrator should be
sent to the address listed in Section 6.2.
(S)6.4 Service of Legal Process - The General Counsel of the
------------------------
Company, or should there be no General Counsel, the President of the Company, is
designated as agent for service of legal process against the Plan.
(S)6.5 Governing Law - The law of the Commonwealth of
-------------
Pennsylvania shall be the controlling state law in all matters relating to the
Plan and shall apply to the extent it is not preempted by the ERISA.
(S)6.6 Severability - If any provision of the Plan Statement
------------
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provision, and the Plan Statement shall be construed
and enforced as if such provision had not been included.
-9-
<PAGE>
(S)6.7 Entire Agreement - This Plan Statement contains the
----------------
entire agreement by the Employer with respect to the subject matter hereof. No
modification or claim of waiver of any of the provisions hereof shall be valid
unless in writing and signed by the party against whom such modification or
waiver is sought to be enforced.
(S)6.8 Successor Employer - In the event of the dissolution,
------------------
merger, consolidation, or reorganization of the Company, or the sale of the
entire (or substantially all of the) business of the Company, the Plan shall be
continued by the Company's successor. The successor shall assume all Plan
liabilities and shall have the powers, duties and responsibilities of the
Company under the Plan.
IN WITNESS WHEREOF, Nobel Education Dynamics, Inc. has caused this
Plan Statement to be duly executed this ____ day of ________________________,
1997.
Attest: NOBEL EDUCATION DYNAMICS, INC.
_________________________ By:______________________________
Secretary President
[Corporate Seal]
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<PAGE>
APPENDIX A
CHIEF EXECUTIVE OFFICER
Chief executive officer, with final authority in making all decisions regarding
the Company and its subsidiaries, subject to any required approval of the
Company's board of directors.
EXECUTIVE VICE PRESIDENT; CHIEF FINANCIAL OFFICER
Reports directly to the president, chairman and/or chief executive officer.
Manages all financial operations of the Company and subsidiaries, including
accounting, treasury, financing, payroll, internal reporting and external
reporting. Manages human resource function and MIS department. Manages
relations with lenders, investment bankers and stock analysts. Evaluates
financial impact of acquisitions and new center development, granting approval
where appropriate. Manages annual Five Year Business Plan process/assist in
Long Range Strategic Planning. Member of the Company's executive management
team.
EXECUTIVE VICE PRESIDENT - CORPORATE DEVELOPMENT
Reports directly to the president, chairman and/or chief executive officer and
charged with implementation of growth plans of Company through new school
development and acquisitions plus appropriate divestitures. Vice President of
Real Estate Development and General Counsel report to this position. Member of
the Company's executive management team.
EXECUTIVE VICE PRESIDENT - OPERATIONS
Reports directly to the president, chairman and/or chief executive officer and
charged with responsibility for the financial performance and quality of all
school operations nationwide. This includes day-to-day operations of all
company locations, as well as the successful opening of all new school projects
and successful transition of all acquisitions. Coordinates all marketing
programs. Bottom-line responsibility for all operations as well as the
operations G&A/Budget function. The following positions report directly to the
COO/EVP: Vice President of Operations and for each geographic territory
Regional Managers, not reporting to an operations Vice President. Member of the
Company's executive management team.
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<PAGE>
VICE PRESIDENT - EDUCATION
Reports directly to the president, chairman and/or chief executive officer and
charged with overseeing all matters that pertain to the quality of education
programs offered by the Company. Responsible for setting and maintaining
standards and policies related to educational issues of both internal and
external concern and overseeing such adherence within the schools. Member of
the Company's executive management team.
VICE PRESIDENT - REAL ESTATE DEVELOPMENT
Responsible for all activities relating to new school development and the
appropriate budgeting commitments. Member of the Company's executive management
team.
VICE PRESIDENT - ADMINISTRATION AND FINANCE
Reports to chief financial officer. Oversees accounting and payroll functions
(accounts payable, cash management, accounts receivable, general ledger and
payroll). Responsibilities include closing books and records monthly, weekly
operations reporting, monthly management report of operations, quarterly and
annual external (SEC) reporting (10-K's, 10-Q's and financial portions of 8-K),
acquisition analysis, financial due diligence and transition. Additional
responsibilities are insurance and tax analysis, assist in formulating and
producing annual budgets, quarterly forecasts and Strategic Five Year Plan,
oversight of internal audit function, stock transactions and annual meeting
vote. Member of the Company's executive management team.
GENERAL COUNSEL
Responsible for all legal affairs of the Company and its subsidiaries.
Participates in business decisions regarding corporate development including new
school development, acquisitions and divestitures. Member of the Company's
executive management team.
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<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
Merryhill Schools, Inc.
Merryhill Schools Nevada, Inc.
Nedi, Inc.
The foregoing list omits certain subsidiaries of the Registrants which,
considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary as of June 30, 1998.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the information by reference in the registration statements of
Nobel Education Dynamics, Inc. (formerly the Rocking Horse Child Care Centers of
America, Inc.) and subsidiaries on Form S-3 (File Nos. 333-3793, 333-3797 and
33-73496) and Forms S-8 (File Nos. 33-21859, 33-44888 and 33-64701) of our
report dated August 7, 1998, except for Note 17, as to which the date is August
17, 1998, on our audits of the consolidated financial statements of Nobel
Education Dynamics, Inc. and subsidiaries as of June 30, 1998, December 31, 1997
and 1996, and for the six months ended June 30, 1998 and each of the three years
in the period ended December 31, 1997 which report is included in this Annual
Report on Form 10-K.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
September 23, 1998
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