<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: DECEMBER 31, 1999
Commission File Number 1-1003
NOBEL LEARNING COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2465204
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1400 N. PROVIDENCE ROAD, SUITE 3055, MEDIA, PA 19063
(Address of principal executive offices) (Zip Code)
(610) 891-8200
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all report(s) required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 5,921,366 shares of Common
Stock outstanding at February 12, 2000.
<PAGE>
INDEX TO FORM 10-Q
Nobel Learning Communities, Inc.
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Financial Statements
Consolidated Balance Sheets,
December 31, 1999 (unaudited) and June 30, 1999.......... 2
Consolidated Statements of Income for the
six months ended December 31, 1999 (unaudited)
and 1998 (unaudited)..................................... 3
Consolidated Statements of Income for the
three months ended December 31, 1999 (unaudited)
and 1998 (unaudited)..................................... 4
Consolidated Statements of Cash Flows for the
six months ended December 31, 1999 (unaudited)
and 1998 (unaudited)..................................... 5
Notes to Consolidated Interim Financial Statements....... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders........13
Item 6. Exhibits and Report on Form 8-K..........................14
<PAGE>
PART I
FINANCIAL INFORMATION
"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company's fiscal 2000 outlook and all other statements in this report other
than historical facts are forward-looking statements that involve risks and
uncertainties and are subject to change at any time. The Company derives its
forward-looking statements from its operating budgets and forecasts, which are
based upon detailed assumptions about many important factors such as market
demand, market conditions and competitive activities. While the Company
believes that its assumptions are reasonable, it cautions that there are
inherent difficulties in predicting the impact of certain factors, especially
those affecting the acceptance of the Company's newly developed and converted
schools and performance of recently acquired businesses, which could cause
actual results to differ materially from predicted results.
1
<PAGE>
Nobel Learning Communities, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Current Assets December 31, 1999 June 30, 1999
- --------------------------------------- ----------------- -------------
<S> <C> <C>
Cash and cash equivalents $1,344 $1,640
Accounts receivable, less allowance for 1,416 1,689
doubtful accounts of $177 in December and June of 1999
Prepaid rents 0 859
Other prepaid expenses 475 844
------------- -----------
Total Current Assets 3,235 5,032
------------- -----------
Property, & equipment at cost 43,005 37,024
Accumulated depreciation (14,177) (12,324)
------------- -----------
Total Property & Equipment 28,828 24,700
Property and equipment held for sale 717 1,202
Goodwill 48,232 45,725
Deposits and other assets 3,206 3,347
Deferred tax asset 1,536 1,019
------------- -----------
Total Assets $85,754 $81,025
============= ===========
Liabilities and Stockholders' Equity
- ---------------------------------------
Current portion of long-term obligations $3,070 $2,209
Accounts payable and other current liabilities 9,666 8,236
Cash Overdraft Liability 0 1,792
Deferred revenue 6,099 4,882
------------- -----------
Total Current Liabilities 18,835 17,119
------------- -----------
Long-term obligations 17,788 15,316
Long-term subordinated debt 13,954 13,831
Capital lease obligations 25 73
Deferred gain on sale/leaseback 23 27
Minority interest in consolidated subsidiary 550 514
------------- -----------
Total Liabilities 51,175 46,880
Stockholders' Equity:
Preferred Stock, $.001 par value; 10,000,000 shares authorized, issued
and outstanding 4,593,542 at December 31, 1999, and June 30, 1999; $5,530
aggregate liquidation preference at December 31, 1999 and June 30, 1999 5 5
Common Stock, $.001 par value, 20,000,000 shares authorized, issued and
outstanding 5,924,698 at December 31, 1999 and 5,921,365 at June 30, 1999 6 6
Treasury Stock, cost; 236,810 shares (1,375) (1,375)
Additional paid in capital 39,256 39,239
Accumulated deficit (3,313) (3,730)
------------- -----------
Total Stockholders' Equity 34,579 34,145
------------- -----------
Total Liabilities & Stockholders' Equity $85,754 $81,025
============= ===========
</TABLE>
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral
part of these financial statements.
2
<PAGE>
Nobel Learning Communities Inc. and Subsidiaries
Consolidated Statements Of Income
for the six months ended December 31, 1999 and 1998
---------------------------------------------------------
(Dollars in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Revenues $58,877 $51,653
Operating expenses
Personnel cost 28,010 25,149
Center operating cost 9,154 7,962
Insurance, taxes, rent and other 11,657 10,470
Depreciation and amortization 2,767 2,449
----------- ------------
Total operating expenses 51,588 46,030
----------- ------------
School operating profit 7,289 5,623
General and administrative expenses 4,500 3,595
New school development costs 354 305
----------- ------------
Operating income 2,435 1,723
Interest expense 1,619 1,433
Other income (82) (87)
Minority interest in earnings of consolidated subsidiary 36 36
----------- ------------
Income before taxes 862 341
Income taxes 362 143
----------- ------------
Net income 500 198
=========== ============
Preferred stock dividends $ 41 $ 42
----------- ------------
Net income available to common stockholders $ 459 $ 156
=========== ============
Basic earnings per share $ 0.08 $ 0.03
=========== ============
Diluted earnings per share $ 0.07 $ 0.03
=========== ============
</TABLE>
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral part
of these financial statements.
3
<PAGE>
Nobel Learning Communities Inc. and Subsidiaries
Consolidated Statements Of Income
for the three months ended December 31, 1999 and 1998
----------------------------------------------------------
(Dollars in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenues $31,532 $27,742
Operating expenses
Personnel cost 15,289 13,448
Center operating cost 4,588 4,009
Insurance, taxes, rent and other 5,862 5,705
Depreciation and amortization 1,425 1,276
----------- -----------
Total operating expenses 27,164 24,438
----------- -----------
School operating profit 4,368 3,304
General and administrative expenses 2,379 1,848
New school development costs 160 73
----------- -----------
Operating income 1,829 1,383
Interest expense 815 750
Other income (63) (44)
Minority interest in earnings of consolidated subsidiary 16 16
----------- -----------
Income before taxes 1,061 661
Income taxes 446 277
----------- -----------
Net income 615 384
=========== ===========
Preferred stock dividends $ 21 $ 21
----------- -----------
Net income available to common stockholders $ 594 $ 363
=========== ===========
Basic earnings per share $ 0.10 $ 0.06
=========== ===========
Diluted earnings per share $ 0.08 $ 0.05
=========== ===========
</TABLE>
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral
part of these financial statements.
4
<PAGE>
Nobel Learning Communities, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
for the six months ended December 31, 1999 and 1998
-----------------------------------------------------------
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net Cash Provided By Operating Activities $4,668 $5,894
Cash Flows From Investing Activities:
Proceeds from sale of real estate 1,289 1,134
Capital expenditures (6,346) (3,418)
Payment for acquisitions (2,363) (3,394)
--------- ---------
Net Cash Provided By (Used In) Investing Activities: (7,420) (5,678)
--------- ---------
Cash Flows From Financing Activities:
Repayment of capital lease obligation (45) (46)
Payments of dividends on preferred stock (41) (42)
Proceeds from long term debt 8,604 6,460
Repayment of long term debt (5,546) (11,801)
Repayment of subordinated debt (516) (1,831)
Proceeds from subordinated debt 0 10,000
--------- ---------
Net Cash Provided by Financing Activities: 2,456 2,740
--------- ---------
Net increase (decrease) in cash and cash equivalents (296) 2,956
Cash and cash equivalents at the beginning of the period 1,640 408
--------- ---------
Cash and cash equivalents at the end of the period $1,344 $3,364
========= =========
</TABLE>
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral part of
these consolidated financial statements.
5
<PAGE>
NOBEL LEARNING COMMUNITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Interim Financial Statements
for the six months ended December 30, 1999 and 1998
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The consolidated financial statements have been prepared by the Registrant
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC") and, in the opinion of management, include all adjustments, consisting
of normal recurring adjustments, necessary to present fairly the financial
position and results of operations. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with the generally accepted accounting principals have been condensed or omitted
pursuant to such SEC rules and regulations. It is suggested that these
financial statements are read in conjunction with the consolidated financial
statements and notes thereto included in the Registrant's Annual Report on
Form 10-K for the year ended June 30, 1999.
Due to the inherent seasonal nature of the education and child care businesses,
annualization of amounts in these interim financial statements may not be
indicative of the actual operating results for the full year.
The Company manages its business based on geographical regions within the United
States. Under SFAS 131, "Segment Reporting", the Company has aggregated these
regions based on management's belief that these regions have met the aggregation
criteria set forth in the standard.
NOTE 2 - EARNINGS PER SHARE
- ---------------------------
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-interest 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. Earnings per
share are computed as follows.
6
<PAGE>
<TABLE>
<CAPTION>
For the Three Months For the Six Months
--------------------------------------- ----------------------------------------
December 31, 1999 December 31, 1998 December 31, 1999 December 31, 1998
--------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C>
Basic (loss ) earnings per share
- ---------------------------------
Net income (loss) $ 615 $ 384 $ 500 $ 198
Less preferred dividends $ 21 $ 21 $ 41 $ 42
-------------- ------------ -------------- --------------
Net income (loss) available for
common stock $ 594 $ 363 $ 459 $ 156
-------------- ------------ -------------- --------------
Average common stock 5,929 6,121 5,928 6,121
outstanding
Basic earnings (loss) per share $ 0.10 $ 0.06 $ 0.08 $ 0.03
-------------- ------------ -------------- --------------
Dilutive earnings (loss) per share
- -----------------------------------
Net income (loss) available for
common stock and dilutive securities $ 615 $ 384 $ 500 $ 198
Average common stock
outstanding 5,929 6,121 5,928 6,121
Additional common shares
resulting from dilutive securities - - - -
Options,warrants and
and convertible securities 1,443 1,280 1,443 1,280
-------------- ------------ -------------- --------------
Average common stock and
dilutive securities outstanding 7,372 7,401 7,371 7,401
Dilutive Earnings Per Share $ 0.08 $ 0.05 $ 0.07 $ 0.03
-------------- ------------ -------------- --------------
</TABLE>
NOTE 3 - ACQUISITIONS
- ---------------------
On December 17, 1999, the Company entered into a transaction with Children's
Out-of-School Time, Inc. ("COST") to form The Activities Club, Inc. ("TAC"),
which is owned 80% by the Company and 20% by COST. In the transaction, Nobel
contributed $625,000 to the capital of TAC, and TAC distributed such cash to
COST. TAC also issued to COST a 7% subordinated promissory note in the amount of
$175,000. If a specified earnings threshold is met, Nobel will be required to
make an additional cash payment to TAC, which TAC would then distribute to COST.
Further, commencing in December 2002, COST has the right to require Nobel to
purchase its interest in TAC for the greater of $500,000 and a formula price
based on TAC's earnings before interest, taxes, depreciation and amortization.
7
<PAGE>
NOTE 4 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
The Company is engaged in legal actions arising in the ordinary course of its
business. The Company believes that the ultimate outcome of all such matters
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 schools and
liability insurance in amounts which management believes are adequate for its
operations. As is the case with other entities in the education and preschool
industry, the Company cannot effectively insure itself against certain risks
inherent in its operations. Some forms of child abuse have sublimits per claim
in the general liability coverage.
8
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 VS THE SIX MONTHS ENDED DECEMBER 31,
1998
Currently, the Company operates 145 schools. Since June 30, 1998, the Company
has opened or acquired 28 new schools: six elementary schools, seven preschools,
eight schools for learning challenged (the Paladin Academy schools), one charter
school and six specialty high schools (Houston Learning Academy). The Company
has also closed seven and sold ten underperforming schools, nine of which were
the Indianapolis schools disposed of in July 1999.
Revenues for the six months ended December 31, 1999 increased $7,224,000 or
14.0% to $58,877,000 from $51,653,000 for the six months ended December 31,
1998. The increase in revenues is primarily attributable to the increase in
enrollment, and the increase in the number of schools.
Same school revenue (schools that were opened in both periods) increased
$4,204,000 or 9.0% in the six months ended December 31, 1999 compared to the
same period of the prior year. This increase is related to tuition and
enrollment increases, which is partially due to an improved summer program, and
partially due to improved September enrollments. The increase in revenues
related to the 28 schools opened or acquired totaled $5,323,000. These
increases were offset by a decrease in revenues of $2,303,000 related to the
closing of seven and sale of ten underperforming schools.
School operating profit for the six months ended December 31, 1999 increased
$1,666,000 or 29.6% to $7,289,000 from $5,623,000 for the six months ended
December 31, 1998. Total school operating profit as a percentage of revenue
increased from 10.9% to 12.4%. The improvement in operating margin was due to
lower personnel costs which improved 1.1% to 47.6% of revenues and by lower
insurance, taxes and rent expense which decreased 0.5% to 19.8% of revenues.
Same school operating profit increased $965,000 or 16.5%. Same school operating
profit margin improved from 12.4% for the second quarter ended December 31, 1998
to 13.3% for the six months ended December 31, 1999. The increase in same
school operating profit is due to the revenue increases and lower operating
expenses. The 28 new or acquired schools accounted for an additional $968,000
in school operating profit. School closings positively affected the increase in
school operating profit by $158,000.
This increase in school operating profit was offset by the absence of certain
reductions in insurance and property tax expense that had positively affected
school operating profit in the quarter ended December 31, 1998. In the second
quarter of last year, the Company realized savings in insurance and property tax
expense that positively affected school operating profit. Insurance premium
costs for the most recently ended policy year ended in 1998 were less than
expected by $225,000. Property tax expense was reduced by $200,000 in the
second quarter of last year as a result of over-estimated property tax liability
on several properties.
General and administrative expenses increased $905,000 or 25.2% from $3,595,000
for the six months ended December 31, 1998 to $4,500,000 for the six months
ended December 31, 1999. As a percentage of revenue, general and administrative
expense increased from 7.0% at December 31, 1998
9
<PAGE>
to 7.6% at December 31, 1999. This increase was related to management additions
necessary to support the continued growth of the Company in its new business
initiatives.
New school development costs increased $49,000 or 16.1% from $305,000 for the
six months ended December 31, 1998 to $354,000 for the six months ended December
31, 1999. The increase is a result of timing of the opening of the schools.
Operating income increased $712,000 or 41.3% from $1,723,000 for the six months
ended December 31, 1998 to $2,435,000 for the six months ended December 31,
1999. The increase is the result of an increase in school operating profit as
described above offset by the increase in general and administrative expenses.
For the six months ended December 31, 1999, EBITDA (defined as earnings before
interest, income taxes, depreciation and amortization) totaled $5,248,000. This
represents an increase of $1,025,000 over the comparable period. EBITDA is not
a measure of performance under generally accepted accounting principals, however
the Company and the investment community consider it an important calculation.
Interest expense increased $186,000 or 12.9% from $1,433,000 for the six months
ended December 31, 1998 to $1,619,000 for the six months ended December 31,
1999. The increase is due to increased borrowings on the Company's credit
facility offset by a reduction in interest expense on seller subordinated debt.
Income before taxes increased 152.8% from $341,000 for the six months ended
December 31, 1998 to $862,000 for the six months ended December 31, 1999.
Income tax expense totaled $362,000 for the six months ended December 31, 1999
which reflects a 42% effective tax rate.
FOR THE SECOND QUARTER ENDED DECEMBER 31, 1999 VS THE SECOND QUARTER ENDED
DECEMBER 31, 1998
Revenues for the second quarter ended December 31, 1999 increased $3,790,000 or
13.7% to $31,532,000 from $27,742,000 for the second quarter ended December 31,
1998. The increase in revenues is primarily attributable to the increase in
enrollment and to a lesser extent the increase in the number of schools.
Same school revenue (schools that were opened in both periods) increased
$1,896,000 or 7.5% in the second quarter of 2000 compared to the prior year.
This increase is related to tuition and enrollment increases. The increase in
revenues related to the 28 schools opened or acquired totaled $3,103,000. These
increases were offset by a decrease in revenues of $1,209,000 related to the
closing of seven and sale of ten underperforming schools.
School operating profit for the second quarter ended December 31, 1999 increased
$1,064,000 or 32.2% to $4,368,000 from $3,304,000 for the second quarter ended
December 31, 1998. Total school operating profit margin increased from 11.9% to
13.9%. The improvement in operating margin was due to lower insurance, taxes
and rent expense as a percentage of revenue which decreased 2.0% to 18.6% of
revenues.
10
<PAGE>
Same school operating profit increased $204,000 or 5.7%. Same school operating
profit as a percentage of revenue decreased slightly from 14.3% for the second
quarter ended December 31, 1998 to 14.1% for the second quarter ended December
31, 1999. The increase in same school operating profit is due to the revenue
increases. The 28 new or acquired schools accounted for an additional $718,000
in school operating profit. School closings positively affected the increase in
school operating profit by $142,000.
General and administrative expenses increased $531,000 or 28.7% from $1,848,000
for the second quarter ended December 31, 1998 to $2,379,000 for the second
quarter ended December 31, 1999. As a percentage of revenue, general and
administrative expense increased from 6.7% at December 31, 1998 to 7.5% at
December 31, 1999. This increase was related to management additions necessary
to support the continued growth of the Company in its new business initiatives.
New school development costs increased $87,000 from $73,000 for the quarter
ended December 31, 1998 to $160,000 for the quarter ended December 31, 1999.
The increase is a result of timing of the opening of the schools.
Operating income increased $446,000 or 32.2% from $1,383,000 for the quarter
ended December 31, 1998 to $1,829,000 for the quarter ended December 31, 1999.
The increase is the result of an increase in school operating profit as
described above offset by the increase in general and administrative expenses
and increased new school development cost.
Other income increased $19,000 from $44,000 for the second quarter ended
December 31, 1998 to $63,000 for the second quarter ended December 31, 1999.
The increase in other income is due to interest income received in sale
leaseback transactions.
For the second quarter of fiscal 2000, EBITDA (defined as earnings before
interest, income taxes, depreciation and amortization) totaled $3,301,000. This
represents an increase of $614,000 over the comparable period. EBITDA is not a
measure of performance under generally accepted accounting principals, however
the Company and the investment community consider it an important calculation.
Interest expense increased $65,000 or 8.6% from $750,000 for the quarter ended
December 31, 1998 to $815,000 for the quarter ended December 31, 1999. The
increase is due to increased borrowings on the Company's credit facility as a
result of recent acquisitions offset by a reduction in interest expense related
to amortization of seller subordinated indebtedness.
Income before taxes increased 60.3% from $661,000 for the quarter ended December
31, 1998 to $1,061,000 for the quarter ended December 31, 1999.
Income tax expense totaled $446,000 for the quarter ended December 31, 1999
which reflects a 42% effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Management is pursuing a four-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,
(3) strategic acquisitions, and (4) development of new education businesses.
The Company's principal sources of liquidity are (1) cash flow generated from
operations,
11
<PAGE>
(2) available borrowings under the Company's $35.0 million Amended and Restated
Loan and Security Agreement, (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 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 continue to seek additional funds through debt or
equity financing.
In March 1999 the Company entered into an Amended and Restated Loan and Security
Agreement which increased the Company's available borrowing to $35,000,000.
Four separate facilities were established under the Amended and Restated Loan
and Security Agreement: (1) $7,000,000 Working Capital Credit Facility A, (2)
$3,000,000 Working Capital Credit Facility B (which is tied to the Company's
cash management arrangement), (3) $15,000,000 Acquisition Credit Facility and
(4) $10,000,000 Term Loan.
Working Capital Credit Facility A and B funds are available until March 2002.
Under the Acquisition Credit Facility, no principal payments are required until
March 2001. At that time the outstanding principal under the Acquisition Credit
Facility will be converted into a term loan which will require principal
payments in 16 quarterly installments.
Under the Term Loan Facility, no principal payments are required until April
2000. Quarterly installments of $250,000 are required the first four quarters
(through January 2001); thereafter quarterly installments of $562,500 are
required until January 2005.
At December 31, 1999, $5,039,898 was outstanding under Working Capital Credit
Facility A and Working Capital Credit Facility B, $3,141,041 was outstanding
under the Acquisition Credit Facility and $10,000,000 was outstanding under the
Term Loan.
Total cash and cash equivalents decreased slightly or $296,000 to $1,344,000 at
December 31, 1999. The net decrease was a result of the acquisitions of schools
and capital expenditures which occurred in the six months ended December 31,
1999. Cash provided from operations totaled $4,668,000 at December 31, 1999.
The increase in cash flow from operations is related to an increase in deferred
revenue of $1,217,000, an increase in accounts payable and accrued expenses of
$1,430,000 and a decrease in accounts receivable of $273,000.
The working capital deficit increased $3,513,000 to $15,600,000 at December 31,
1999. The increase is primarily the result of (1) a decrease in prepaid rents
and expenses totaling $1,228,000 related to timing, (2) an increase in deferred
revenue totaling $1,217,000 and (3) an increase in accounts payable and accrued
expenses of $1,430,000. The increase in deferred revenues is a result of the
timing of the school year. June, which is the end of the school year, typically
has the lowest deferred revenue balance.
12
<PAGE>
Part II
-------
Other Information
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
A. An annual meeting of the stockholders of the Company was held on November
18, 1999. The total shares eligible to vote on the record date included
6,121,365 shares of Common Stock, 1,028,694 shares of Series A Preferred
Stock, 2,500,000 shares of Series C Preferred Stock and 1,063,830 shares of
Series D Preferred Stock. Each share of Series A Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock is convertible into 0.294, 0.25
and 0.25 shares of Common Stock, respectively. These shares represent a
total of 7,314,745 votes.
B. At the meeting:
1. Election of Director
--------------------
Three directors (Edward Chambers, A.J. Clegg and Peter Havens) were elected
to serve until the 2002 Annual Meeting. The term of office of John R. Frock,
Eugene G. Monaco and Robert Zobel continues until the 2000 Annual Meeting:
The term of office of Pamela S. Lewis and William L. Walton continues until
the 2001 Annual Meeting.
2. Ratification of Independent Auditors
------------------------------------
The selection of PricewaterhouseCoopers, LLP as the Company's independent
auditors for fiscal 2000 was approved by the requisite vote, the votes cast
being as follows:
Voted for 4,867,822
Voted against 5,943
Withheld 0
Abstentions 3,100
Broker Non-votes 0
---------
4,876,865
3. Amendment of the Company's 1995 Stock Incentive Plan
----------------------------------------------------
The approval of the proposal to amend the Company's 1995 Stock Incentive
Plan was approved by the requisite, the votes cast on this proposal being
as follows:
Voted for 2,374,266
Voted against 566,777
Withheld 0
Abstentions 27,370
Broker Non-votes 1,908,452
---------
4,876,865
13
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 First Amendment to Amended and Restated Loan and Security Agreement
dated December 17, 1999, by and among Registrant and its subsidiaries
and Summit Bank, as Agent and Lender
10.1 Nobel Learning Communities, Inc. Senior Executive Severance Pay Plan
Statement and Summary Plan Description as modified February 3, 2000
10.2 Nobel Learning Communities, Inc. Executive Severance Pay Plan Statement
and Summary Plan Description as modified February 3, 2000
10.3 First Amendment dated February 3, 2000 of Employment Agreement dated as
of August 9, 1999 between Registrant and Lynn Fontana
27 Financial Data Schedule
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOBEL LEARNING COMMUNITIES, INC.
Dated: February 14, 2000 By: /s/ William E. Bailey
--------------------------------------
William E. Bailey
Vice President/Chief Financial Officer
(duly authorized officer and
principal financial officer)
15
<PAGE>
EXHIBITS
Exhibit
Number Description of Exhibit
4.1 First Amendment to Amended and Restated Loan and Security Agreement
dated December 17, 1999, by and among Registrant and its subsidiaries
and Summit Bank, as Agent and Lender
10.1 Nobel Learning Communities, Inc. Senior Executive Severance Pay Plan
Statement and Summary Plan Description as modified February 3, 2000
10.2 Nobel Learning Communities, Inc. Executive Severance Pay Plan Statement
and Summary Plan Description as modified February 3, 2000
10.3 First Amendment dated February 3, 2000 of Employment Agreement dated as
of August 9, 1999 between Registrant and Lynn Fontana
27 Financial Data Schedule
<PAGE>
EXHIBIT 4.1
FIRST AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
---------------------------
THIS FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
(the "AMENDMENT") is made effective as of the 17th day of December, 1999, by and
among NOBEL LEARNING COMMUNITIES, 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"), PALADIN ACADEMY, L.L.C., FORMERLY KNOWN AS NOBEL
LEARNING SOLUTIONS, L.L.C. ("PALADIN"), NOBEL EDUCATION DYNAMICS FLORIDA, INC.
("NOBEL FLORIDA"), THE ACTIVITIES CLUB, INC. ("TAC") (jointly and severally, the
"BORROWERS") and SUMMIT BANK, as Agent and Lender ("AGENT").
BACKGROUND
----------
A. Nobel, Imagine, Merryhill, NEDI, Merryhill Nevada, Lake Forest,
Paladin, Nobel Florida and Agent are parties to that certain Amended and
Restated Loan and Security Agreement dated March 9, 1999 (the "LOAN AGREEMENT").
B. Borrowers and Agent desire to amend the Loan Agreement in accordance
with the terms and conditions hereof.
C. 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. COST TRANSACTION.
----------------
a. Nobel has entered into that certain Agreement and Plan of
Organization dated December 17, 1999 ("AGREEMENT OF ORGANIZATION") with
Children's Out-of-School Time, Inc. ("COST"), Joan Bergstrom, Craig
Bergstrom and William D. Putt pursuant to which, inter alia, (i) Nobel and
COST will acquire 80% and 20%, respectively, of the issued and outstanding
shares of common stock of TAC and (ii) TAC has agreed to pay to COST the
Earn-Out Payment, if any, in accordance with the terms of SECTION 1.2(G)
--------------
thereof (the "EARN-OUT PAYMENT").
b. Nobel, COST and TAC have entered into that certain Stockholders
Agreement dated December 17, 1999 (the "STOCKHOLDERS AGREEMENT") pursuant
to which, inter alia, (i) COST has a "put right" with respect to the COST
Shares (as defined in the Stockholders Agreement), as more fully described
in SECTION 3 thereof (the "PUT") and (ii) it is anticipated that, in
---------
connection with the hiring of the President/COO (as defined in the
Stockholders Agreement), Nobel will sell to the President/COO a portion of
Nobel's shares of common stock of TAC, as more fully described in SECTION
-------
1.1 thereof (the "SHARE TRANSFER").
---
c. Agent consents to Nobel's and TAC's compliance with their
respective obligations in respect of the Earn-Out Payment, the Put and the
Share Transfer; provided that (i) in each case no Event of Default (or
event which with the giving of notice or the passage of time or both would
result in an Event of Default) shall have occurred and be continuing nor
shall be caused thereby and (ii) with respect to the Share Transfer, the
interests transferred by Nobel shall not exceed ten percent (10%) of
Nobel's total interest in the common stock of TAC existing immediately
prior to the Share Transfer. If the Share Transfer shall occur, the pledge
by Nobel to Agent of the ownership interests
<PAGE>
of Nobel in TAC shall be deemed released and satisfied with respect to the
portion of such interest being sold to the President/COO and Agent shall
deliver at Nobel's direction that portion of the certificates evidencing
Nobel's ownership interest in TAC previously delivered to Agent which are
being sold to the President/COO (or, if necessary, Agent shall accept a
substitute certificate evidencing the ownership interest in TAC being
retained by Nobel).
d. Borrowers have delivered to Agent true and complete copies of the
Agreement of Organization and Stockholders Agreement.
2. ADDITIONAL BORROWER.
-------------------
a. From and after the date hereof, TAC shall be a "BORROWER" under
the Loan Agreement and shall be bound by all the representations,
warranties, terms, conditions, covenants, agreements and waivers thereof
and thereunder with the same force and effect as if TAC were originally a
party thereto. All references to Borrower or Borrowers in the Loan
Agreement and the other Loan Documents shall hereafter be deemed to
include, without limitation, TAC.
b. Notwithstanding anything in this Amendment or the Loan Agreement
to the contrary, Borrowers shall be permitted to cause or permit to occur
(i) an initial public offering of the stock of TAC (an "IPO"), (ii) a sale
of all or a material portion of the assets of TAC (an "ASSET SALE"), or
(iii) a sale of all or a material portion of the issued and outstanding
stock of TAC (a "STOCK SALE"), provided that (A) in the event of an Asset
Sale or a Stock Sale, Agent shall receive from the proceeds thereof
immediately available funds in an amount equal to the Release Price, and
(B) in any event no Event of Default (or event which with the giving of
notice or the passage of time or both would result in an Event of Default)
shall have occurred and be continuing nor shall be caused thereby. In the
event of any IPO, Asset Sale or Stock Sale (but, in the case of an Asset
Sale or Stock Sale, conditioned upon receipt by Agent of the Release Price
as required above), TAC shall no longer be a "Borrower" under the Loan
Agreement or any of the other Loan Documents and shall be fully and forever
released from all Lender Indebtedness and all liens and security interests
in favor of Agent against the assets of TAC shall be deemed released and
satisfied. In addition, in the event of any Stock Sale, the pledge by
Nobel to Agent of Nobel's ownership interest in TAC shall be deemed
released and satisfied with respect to that portion of such ownership
interest being sold and Agent shall deliver at Nobel's direction all
certificates evidencing Nobel's ownership interests in TAC previously
delivered to Agent and being sold in connection therewith (or, if
necessary, Agent shall accept a substitute certificate evidencing the
ownership interest in TAC being retained by Nobel, if any). All sums
received by Agent in connection with this SECTION 2(B) shall be applied
------------
one-half (1/2) to the outstanding principal balance of the Working Capital
Credit Facilities and one-half (1/2) to the Acquisition Credit Facility.
c. The release of TAC as a "Borrower" and the release and
satisfaction of the liens and security interests in favor of Agent in the
assets of TAC in accordance with the terms and conditions of SECTION 2(B)
------------
above shall be automatic and without any further action being required of
Agent or any other Lender and Agent shall, at the sole cost and expense of
Borrowers, execute and deliver such release statements regarding TAC's
assets as Borrowers shall request.
d. The occurrence of an IPO, an Asset Sale or a Stock Sale in
accordance with the terms and conditions of this SECTION 2 shall not
----------
affect or impair (i) the obligations of any of the other Borrowers to the
Agent or Lenders or any of the Agent's or Lender's rights or remedies with
respect to such other Borrowers or (ii) the amounts available to such other
Borrowers under the Loans or any other rights of such Borrowers in
connection therewith, all of which shall remain as set forth under the Loan
Documents.
-2-
<PAGE>
e. In the event of any IPO, (i) Borrower shall cause the annual
audited financial statements and quarterly financial statements thereafter
delivered to Agent pursuant to SECTIONS 11.1 AND 11.3 of the Loan Agreement
----------------------
to be stated such that TAC is not consolidated with the other Borrowers,
and the assets, liabilities, income and expenses of TAC shall not be
included in the calculation of any of the financial covenants set forth in
ARTICLE 10 of the Loan Agreement and (ii) without in any way limiting the
----------
generality of the applicable provisions of the Loan Agreement, except for
Nobel's equity interests in TAC existing immediately after the IPO, no
Borrower shall make any investments in, or loans, advances or extensions of
credit to, TAC.
f. In the event of an Asset Sale or Stock Sale, the Excess Cash Flow
payment under SECTION 6.5 of the Loan Agreement, if any, required in
-----------
respect of the fiscal year of Borrowers during which such event occurred
shall be reduced by an amount equal to that portion of the proceeds of the
Release Price, if any, applied to any Acquisition Credit Facility Term
Loan.
g. As used herein, the term "RELEASE PRICE" shall mean an amount
equal to the lesser of (i) Seven Hundred Fifty Thousand Dollars
($750,000.00) or (ii) the Lender Indebtedness outstanding at the time of
the consummation of any Asset Sale or Stock Sale.
3. SECURITY. As security for the full and timely payment and performance
--------
of all Lender Indebtedness, TAC hereby grants to Agent, for the pro rata benefit
of Lenders, a security interest in all of the following:
a. All of such Borrower'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 Borrower 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 Borrower's rights as a consignor, consignee, unpaid vendor or other
lien or 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 Borrower'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 Borrower'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 Borrower and all products and proceeds of any
of the foregoing.
c. All of such Borrower'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, tradenames, 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,
-3-
<PAGE>
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 Borrower'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 Borrower'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 Borrower or
any service bureau.
f. All letters of credit now existing or hereafter issued naming such
Borrower as a beneficiary or assigned to such Borrower, 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 Borrower or in which such Borrower has an interest and all proceeds
thereof, now or at any time hereafter on deposit with or in the possession
or control of any Lender or owing by any Lender to such Borrower or in
transit by mail or carrier to any Lender or in the possession of any other
Person acting on any Lender's behalf, without regard to whether such Lender
received the same in pledge, for safekeeping, as agent for collection or
otherwise, or whether such Lender has conditionally released the same, and
in all assets of such Borrower in which any Lender now has or may at any
time hereafter obtain a lien, mortgage, or security interest for any
reason.
h. All of such Borrower's right, title and interest in and to the
ownership interest of any other Borrower owned by such Borrower, together
with all cash, stock, dividends, distributions or other property paid in
connection therewith; all securities received in addition to or in exchange
for such ownership interest; all subscription rights with respect to such
securities; any other distribution in respect of such securities in any
form; and the proceeds thereof. All such securities shall be freely
assignable and transferrable to Agent (subject to any applicable securities
laws), and shall be accompanied by such pledge agreements and blank
transfer powers with signatures guaranteed as Agent may require.
i. All of such Borrower's investment property and financial assets
and all proceeds thereof.
4. PLEDGE OF INTEREST. As further security for the full and timely
------------------
payment of all Lender Indebtedness, Nobel shall grant to Agent for the pro rata
benefit of Lenders a security interest in all stock of TAC held by Nobel. In
connection therewith, Nobel shall execute and deliver to Agent all such
documents as Agent may require including, with out limitation, the original of
all certificates evidencing such stock. 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.
5. FUTURE AMENDMENTS. In the event of any amendments to the Loan
-----------------
Agreement entered into after the date hereof solely for the purpose of adding an
additional Borrower to the Loan Agreement, all existing and future Borrowers
agree that any such future amendment shall be effective with respect to all then
existing Borrowers if only executed by the party being added as a new Borrower
pursuant thereto, with the same force and effect as if each such Borrower had
executed such future amendment.
-4-
<PAGE>
6. ADDITIONAL DOCUMENTS. TAC covenants and agrees to execute and deliver
--------------------
or cause to be executed and delivered to Agent any and all documents,
agreements, corporate resolutions, certificates and opinions as Agent 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 each of the Notes.
7. FURTHER AGREEMENTS AND REPRESENTATIONS. Borrowers 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 Borrowers
contained herein and under the Loan Agreement, as amended, and the other
Loan Documents;
c. acknowledge and agree that Borrowers 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 Agent therein, which rights and remedies are hereby
ratified, confirmed, extended and continued as security for the obligations
of Borrowers to Agent under the Loan Agreement and the other Loan
Documents, including, without limitation, this Amendment; and
f. acknowledge and agree that any Borrower'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, Borrowers shall
------------------
pay to Agent, all costs and expenses incurred by Agent in connection with the
review, preparation and negotiation of this Amendment and all documents in
connection therewith, including, without limitation, all of Agent's attorneys'
fees and out-of-pocket expenses.
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 Borrowers.
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 Agent of
any rights or remedies available to Agent 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.
-5-
<PAGE>
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.
[SIGNATURES ON NEXT PAGE]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of the date first above written.
NOBEL LEARNING COMMUNITIES, INC.
By: _________________________________
Name/Title: ____________________________
IMAGINE EDUCATIONAL PRODUCTS, INC.
By: _________________________________
Name/Title: ____________________________
MERRYHILL SCHOOLS, INC.
By: _________________________________
Name/Title: ____________________________
NEDI, INC.
By: _________________________________
Name/Title: ____________________________
MERRYHILL SCHOOLS NEVADA, INC.
By: _________________________________
Name/Title: ____________________________
LAKE FOREST PARK MONTESSORI SCHOOLS, INC.
By: _________________________________
Name/Title: ____________________________
PALADIN ACADEMY, L.L.C.
By: _________________________________
Name/Title: ____________________________
NOBEL EDUCATION DYNAMICS FLORIDA, INC.
By: _________________________________
Name/Title: ____________________________
THE ACTIVITIES CLUB, INC.
By: ______________________________________
Name/Title: ________________________________
-7-
<PAGE>
SUMMIT BANK
By: ____________________________________
Name/Title: ________________________________
-8-
<PAGE>
EXHIBIT 10.1
NOBEL LEARNING COMMUNITIES, INC.
SENIOR EXECUTIVE SEVERANCE PAY
PLAN STATEMENT
AND
SUMMARY PLAN DESCRIPTION
As modified February 3, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
----
PART 1. DEFINITIONS 1
(S)1.1 Board 1
(S)1.2 Change in Control 1
(S)1.3 Company 3
(S)1.4 Eligible Employee 3
(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
(S)1.13 Cause 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 5
(S)3.1 Severance Benefits 5
(S)3.2 Plan Not Funded 6
(S)3.3 Limitations Concerning Excess Parachute Payments 6
PART 4. FORM AND TIMING OF SEVERANCE PAYMENTS 7
(S)4.1 Severance Allowance 7
(S)4.2 Bonus 7
(S)4.3 Payments After Death 7
PART 5. OTHER PLAN FEATURES 7
(S)5.1 Assignment of Benefit Prohibited 7
(S)5.2 Claims and Controversies 7
(S)5.3 Amendment or Termination of Plan 9
PART 6. ADDITIONAL INFORMATION 9
(S)6.1 Type of Plan 9
(S)6.2 Plan Sponsor 9
(S)6.3 Plan Administrator 9
i-
<PAGE>
(S)6.4 Service of Legal Process 9
(S)6.5 Governing Law 9
(S)6.6 Severability 10
(S)6.7 Entire Agreement 10
(S)6.8 Successor Employer 10
ii-
<PAGE>
NOBEL LEARNING COMMUNITIES, INC.
EXECUTIVE SEVERANCE PAY
PLAN STATEMENT
AND
SUMMARY PLAN DESCRIPTION
Effective as of January 3, 2000, and as thereafter from time to time
amended, Nobel Learning Communities, Inc. (the "Company"), a Delaware
corporation, has established the "Nobel Learning Communities, 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 severance plans, rules and
policies regarding severance benefits. The Plan is not intended to alter any
contractual rights to severance which may exist under a written employment
agreement with the Company. 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.
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 35 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);
<PAGE>
(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
(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 beneficial owner of shares of the Company having 35 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).
2-
<PAGE>
(S)1.3 Company - Nobel Learning Communities, Inc., a Delaware
-------
corporation.
(S)1.4 Eligible Employee - Any employee who is designated by the
-----------------
CEO and approved by the Compensation Committee of the Board of Directors of the
Company to be a participant in this Plan, and who executes the release and
waiver of claims in the form attached to this Plan.
(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 or
benefits) 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).
(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 Learning Communities,
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 Learning
--------------
Communities, Inc. Executive Severance Pay Plan Statement and Summary Plan
Description" as adopted by the Company, effective as of January 3, 2000, as the
same may be amended from time to time thereafter.
3-
<PAGE>
(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).
-----------------
(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.
(S)1.13 Cause - "Cause" for purposes of the Plan is defined as
-----
follows: deliberate acts of dishonesty; documented willful and deliberate
insubordination; conduct endangering the welfare of a Nobel student; or
conviction of a felony.
PART 2. PARTICIPATION
(S)2.1 Commencement of Participation - You become a participant
-----------------------------
in the Plan on the date you become an Eligible Employee.
(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. A Termination Event occurs if you
-----------------
cease to be employed by the Employer for any of the reasons set forth in (1),
(2) or (3) below (provided that clause (3) shall not apply in the case of a
Change in Control only by virtue of Section 1.2(b)):
(1) the Employer terminates your employment involuntarily
for reasons other than Cause within eighteen (18)
months following a Change in Control; or
(2) you terminate employment with the Employer within
eighteen (18) months following a Change in Control as
a result of any of the following events occurring
after such Change in Control:
(A) the duties of your position are materially and
adversely changed from such duties as they
4-
<PAGE>
existed immediately prior to the Change in
Control;
(B) your compensation plan is reduced as compared to
your compensation plan immediately prior to the
Change in Control (provided, however, that
severance pay shall not be considered
"compensation" for purposes of this subparagraph);
or
(C) 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
voluntarily your employment with the Employer for any
reason (or give the Employer notice thereof).
Provided, however, that a Termination Event shall not be deemed to have occurred
- -----------------
under this Section 2.2(b) if your employment with the Employer is involuntarily
terminated, but (A) 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.
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 twelve plus:
----
(1) if you have not completed three Years of Service as of
the date a Termination Event occurs, your Monthly Pay
5-
<PAGE>
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, provided, however, that the
-----------------
maximum aggregate severance allowance shall not exceed
your Monthly Pay multiplied by 35.99.
(3) if you have completed at least five Years of Service
as of the date a Termination Event occurs, your
monthly pay multiplied by 2.99 times the number of
Years of Service you have completed as of the date a
Termination Event occurs, provided, however, that the
-----------------
maximum aggregate severance allowance under this
Section 3.1(a) shall not exceed your Monthly Pay
multiplied by 35.99.
(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 35.99
----
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, 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:
7-
<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 one arbitrator in accordance with the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association, 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 entitlement, 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
8-
<PAGE>
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 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, however, that
-----------------
for a period of eighteen months following a Change in Control, no such amendment
or termination shall impair your rights under the Plan.
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. The Plan and its records are kept on a Plan Year basis, January 1
through December 31.
(S)6.2 Plan Sponsor - The name of the employer sponsoring the
------------
Plan and its federal employer identification number ("EIN") are:
Nobel Learning Communities, 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.
9-
<PAGE>
(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.
(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 Learning Communities, Inc. has caused this
Plan Statement to be duly executed this ____ day of ________________________,
2000.
Attest: NOBEL LEARNING COMMUNITIES, INC.
_________________________ By:______________________________
Secretary Chairman
10-
<PAGE>
EXHIBIT 10.2
NOBEL LEARNING COMMUNITIES, INC.
SENIOR EXECUTIVE SEVERANCE PAY
PLAN STATEMENT
AND
SUMMARY PLAN DESCRIPTION
As modified February 3, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
----
PART 1. DEFINITIONS 1
(S)1.1 Board 1
(S)1.2 Change in Control 1
(S)1.3 Company 3
(S)1.4 Eligible Employee 3
(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
(S)1.13 Cause 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 5
(S)3.1 Severance Benefits 5
(S)3.2 Plan Not Funded 6
(S)3.3 Limitations Concerning Excess Parachute Payments 6
PART 4. FORM AND TIMING OF SEVERANCE PAYMENTS 7
(S)4.1 Severance Allowance 7
(S)4.2 Bonus 7
(S)4.3 Payments After Death 7
PART 5. OTHER PLAN FEATURES 7
(S)5.1 Assignment of Benefit Prohibited 7
(S)5.2 Claims and Controversies 7
(S)5.3 Amendment or Termination of Plan 9
PART 6. ADDITIONAL INFORMATION 9
(S)6.1 Type of Plan 9
(S)6.2 Plan Sponsor 9
(S)6.3 Plan Administrator 9
i-
<PAGE>
(S)6.4 Service of Legal Process 9
(S)6.5 Governing Law 9
(S)6.6 Severability 10
(S)6.7 Entire Agreement 10
(S)6.8 Successor Employer 10
ii-
<PAGE>
NOBEL LEARNING COMMUNITIES, INC.
SENIOR EXECUTIVE SEVERANCE PAY
PLAN STATEMENT
AND
SUMMARY PLAN DESCRIPTION
Effective as of January 3, 2000, and as thereafter from time to time
amended, Nobel Learning Communities, Inc. (the "Company"), a Delaware
corporation, has established the "Nobel Learning Communities, Inc. Senior
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 entirely supersede and replace all prior severance plans, rules and
policies regarding severance benefits. The Plan is not intended to alter any
contractual rights to severance which may exist under a written employment
agreement with the Company. 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.
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 35 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);
<PAGE>
(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
(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 beneficial owner of shares of the Company having 35 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).
2-
<PAGE>
(S)1.3 Company - Nobel Learning Communities, Inc., a Delaware
-------
corporation.
(S)1.4 Eligible Employee - Any employee who is designated by the
-----------------
CEO and approved by the Compensation Committee of the Board of Directors of the
Company to be a participant in this Plan, and who executes the release and
waiver of claims in the form attached to this Plan.
(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 or
benefits) 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).
(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 Learning Communities,
Inc. Senior 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.
3-
<PAGE>
(S)1.9 Plan Statement - this document entitled "Nobel Learning
--------------
Communities, Inc. Executive Severance Pay Plan Statement and Summary Plan
Description" as adopted by the Company, effective as of January 3, 2000, 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).
-----------------
(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.
(S)1.13 Cause - "Cause" for purposes of the Plan is defined as
-----
follows: deliberate acts of dishonesty; documented willful and deliberate
insubordination; conduct endangering the welfare of a Nobel student; or
conviction of a felony.
PART 2. PARTICIPATION
(S)2.1 Commencement of Participation - You become a participant
-----------------------------
in the Plan on the date you become an Eligible Employee.
(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. A Termination Event occurs if you
-----------------
cease to be employed by the Employer for any of the reasons set forth in (1),
(2) or (3) below (provided that clause (3) shall not apply in the case of a
Change in Control only by virtue of Section 1.2(b)):
(1) the Employer terminates your employment involuntarily
for reasons other than Cause within eighteen (18)
months following a Change in Control; or
(2) you terminate employment with the Employer within
eighteen (18) months following a Change in Control as
4-
<PAGE>
a result of any of the following events occurring
after such Change in Control:
(A) the duties of your position are materially and
adversely changed from such duties as they
existed immediately prior to the Change in
Control;
(B) your compensation plan is reduced as compared to
your compensation plan immediately prior to the
Change in Control (provided, however, that
severance pay shall not be considered
"compensation" for purposes of this
subparagraph); or
(C) 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
voluntarily your employment with the Employer for any
reason (or give the Employer notice thereof).
Provided, however, that a Termination Event shall not be deemed to have occurred
- -----------------
under this Section 2.2(b) if your employment with the Employer is involuntarily
terminated, but (A) 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.
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:
5-
<PAGE>
(a) Severance Allowance. The Employer will pay you a
-------------------
severance allowance equal to your Monthly Pay multiplied by twelve 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
and less than five 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;
(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 35.99
----
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 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,
6-
<PAGE>
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, 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:
(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
7-
<PAGE>
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 one arbitrator in
accordance with the National Rules for the Resolution of Employment Disputes of
the American Arbitration Association, 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 entitlement, 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, however, that
-----------------
for a period of eighteen months following a Change in Control, no such amendment
or termination shall impair your rights under the Plan.
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. The Plan and its records are kept on a Plan Year basis, January 1
through December 31.
(S)6.2 Plan Sponsor - The name of the employer sponsoring the
------------
Plan and its federal employer identification number ("EIN") are:
Nobel Learning Communities, 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.
9-
<PAGE>
(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.
(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 Learning Communities, Inc. has caused this
Plan Statement to be duly executed this ____ day of ________________________,
2000.
Attest: NOBEL LEARNING COMMUNITIES, INC.
_________________________ By:______________________________
Secretary Chairman
10-
<PAGE>
EXHIBIT 10.3
FIRST AMENDMENT OF EMPLOYMENT AGREEMENT
First Amendment dated February 3, 2000 of Employment Agreement dated as of
August 9, 1999 between Nobel Learning Communities, Inc., a Delaware corporation
("Employer") and Lynn Fontana ("Executive").
BACKGROUND
----------
Nobel and Executive are parties to an Employment Agreement dated as of
August 8, 1999 (the "Employment Agreement"). The parties to the Employment
Agreement desire to effect certain changes to the Employment Agreement, as
provided herein.
TERMS
-----
NOW, THEREFORE, in consideration of the mutual promises made herein, and
intending to be legally bound, the parties hereto agree as follows:
1. The Employment Agreement is hereby amended as follows:
1.1 The fourth sentence of Section 3.7 of the Employment Agreement is
hereby amended to read in its entirety as follows:
If Executive's employment is terminated, the loan will be payable
in full 90 days following the date of termination of employment,
provided that if such termination is due to Employer's
termination of Executive without cause or following a Change in
Control and Termination Event (as such terms are defined in
Sections 1.2 and 2.2(b) of the Executive Severance Pay Plan),
such loan will be fully forgiven on the date of termination.
1.2 Section 3.8 of the Employment Agreement is hereby amended to read in
its entirety as follows:
3.8 Executive Severance Plan. The Compensation Committee
------------------------
of the Board of Directors has approved Executive to be a
participant in the "Nobel Learning Communities, Inc. Executive
Severance Pay Plan" (the "Executive Severance Pay Plan"), upon
fulfillment of the eligibility requirements of the Executive
Severance Pay Plan by Executive. Any amounts payable to
Executive under the Executive Severance Pay Plan shall be offset
against any amounts which may be payable to Executive by Employer
pursuant to this Agreement following termination of Executive's
employment.
2. In all other respects, the Employment Agreement shall continue in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
of Employment Agreement as of the date first above written.
Nobel Learning Communities, Inc.
By: /s/ Daryl A. Dixon /s/ Lynn Fontana
------------------------------ ----------------------------------------
Daryl A. Dixon Lynn Fontana
President
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