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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1998
Commission File No. 2-86551C
Peoples Educational Holdings, Inc.
(Exact Name of Registrant as specified in its Charter)
MINNESOTA 41-1368898
(State of Incorporation) (I.R.S. Employer Identification No.)
230 W. PASSAIC STREET, MAYWOOD, NJ 07607
(Address of Principal Executive Offices) (Zip Code)
(201) 712-1142
(Registrant's Telephone Number, Including Area Code)
Former Name of Registrant: CONCOURSE CORPORATION
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve
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
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B and no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
NOT APPLICABLE
State Issuer's revenues for its most recent fiscal year: $6,164,248.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates: NOT APPLICABLE (See Item 5).
The number of shares outstanding of the Issuer's common stock on March 31, 1999
was 153,260.
Documents incorporated by reference: NONE.
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PART I
ITEM 1. DESCRIPTION OF THE BUSINESS
OVERVIEW AND COMPANY HISTORY
The Peoples Publishing Group, Inc. ("PPG") publishes, distributes and markets
supplementary educational texts and related materials for the pre K-12 market.
Supplementary educational materials are predominantly soft cover textbooks that
can be sold efficiently through catalogs, direct mail, telemarketing and
independent commission sales representatives to the schools. Since its
inception, PPG has introduced more than 72 new programs. A program can be as few
as one and as many as four or more ancillaries designed to be used together as a
complete learning package. The market for supplementary educational materials
consists of a large and growing number of distinct niches. PPG's strategy is to
develop and acquire products for individual niches.
PPG was founded in 1989 by James J. Peoples, the current President and CEO, and
by Diane M. Miller, the current Executive Vice President. It began operations in
1990 with the acquisition of a small supplementary product line aimed at the
high school "student-at-risk" population. Effective November 1, 1998, PPG merged
into a subsidiary of Peoples Educational Holdings, Inc. (the "Company")
(formerly Concourse Corporation) a public company with only minimal operations.
As a result of the merger, PPG became a wholly-owned subsidiary of the Company.
All of the Company's operations are currently conducted through PPG. For
accounting purposes, the merger was treated as if PPG acquired Concourse
Corporation. As a result, this report excludes any
financial results of Concourse Corporation prior to the merger.
PPG develops and sells its own proprietary products and also distributes other
publishers' products. PPG's current product line consists of supplementary
educational materials in three market niches:
- Instruction. Proprietary and distributed texts and related
materials which focus on remedial and multicultural instruction for
the student-at-risk and urban markets.
- Test preparation materials. PPG publishes materials for use by
schools to help prepare students for required state proficiency
tests.
- Advanced Placement texts. PPG is the exclusive distributor of
college texts published by two major college publishers. These
texts are used in senior high schools as part of Advanced Placement
and honors classes.
The Company and PPG are located at 230 W. Passaic Street, Maywood, NJ 07607. The
telephone number is 201/712-1142; web site www.peoplespublishing.com. The
contents of the Company's web site are not part of, or incorporated into, this
report.
INDUSTRY BACKGROUND
THE SCHOOL MARKET
Enrollments
Student enrollments (resulting from the "baby boom" of the 1980s) are increasing
for pre-kindergarten through grade 12, and this trend will continue for at least
the next seven years. The U.S. Department of Education predicts that the student
population from kindergarten through grade 12 will increase 5.7% from 1996 to
2006, to 54.6 million students, with an overall net gain of approximately 3.8
million students. In 1992, there were 42,823,312 children enrolled in school; by
1997, this figure had grown to 50,923,596 children. About 70% of students are in
grades pre-K-8, and 30% are in grades 9-12. Grades pre-K-8 are forecast to grow
4%-10% yearly through 2002, and grades 9-12 are forecast to grow 7.4%-13.4%
yearly through 2002. (Sources: NCES, OERI, 1997 Education
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Statistics and Projections through 2008.)
For the 1998-1999 school year, there are a total of 84,833 public schools
(52,838 elementary schools, 14,412 middle/junior high schools, and 17,583 senior
high schools). In these schools, there are a total of 2,745,586 teachers
(1,361,018 in elementary schools, 542,455 in middle/junior high schools, and
792,086 in senior high schools). The total number of K-12 classroom teachers (in
public and private schools) is projected to increase at an annual growth rate of
0.9%, to reach a level of 3.34 million by 2007. (Source: Quality Education Data,
1999, NCES.)
Overall Educational Funding
Funding for educational materials is increasing, and state and local funds
continue to comprise the majority of dollars spent on education. Throughout the
1990s, on average, the proportion of funding sources has been as follows: 7%
from federal sources, 47% from state sources, and 46% from local sources.
Precise funding data vary by year and by state. States continually enact new
legislation, the federal government contributes specialized funding such as
Chapter 1, and local funds vary greatly. The federal government projects the
largest increases in total educational expenditures to occur during the period
1996-1997 through 1999-2000. Per pupil spending is projected to increase, in
current dollars, from $5,961 in 1997 to $7,179 in 2001. (Source: NCES, OERI,
1997 Education Statistics.)
Overall, sales of supplementary educational materials have grown faster from
1993-1997 than sales of textbooks at an annual compound growth rate of 10.6%;
textbooks grew 4.4% during that period. Additional funding sources are available
to purchase supplementary materials. State and local funding for specialized
needs varies greatly year to year. Specialized federal funds that could be used
for instructional materials and were available in 1998 to schools are as
follows: Charter Schools: $80,000,000; Magnet Schools, Desegregation:
$101,000,000; Bilingual Education Act: $199,000,000; Title VI: $350,000,000;
Safe and Drug-Free Schools: $531,000,000; Impact Aid: $808,000,000; and Title 1:
$7,375,200,000. It is important to note that these funds are used for a variety
of purposes, including salaries and building materials, as well as instructional
materials.
Instructional and Textbook Funding
In 1997, approximately $4.77 billion was spent on instructional materials; this
figure includes purchases of textbooks as well as other materials, such as
chalkboards and supplies. Within these expenditures, about 30%, or approximately
$1.43 billion was spent in the supplementary materials market, the market niche
in which PPG competes. This is an increased percentage from 27.5% in 1993.
Approximately $189 million was spent on Advanced Placement materials.
Specialized and Supplementary Educational Funding
Although no funding figures are available from an outside source for the test
preparation market niche, 48 states now have state assessment requirements that
are linked to student graduation or promotion and 36 states publish annual
report cards on individual schools. In some states, standardized tests are given
two to three times in a student's school life.
High on the national education agenda is a demand for higher student performance
standards and accountability. As states and cities increase spending on
education, governmental authorities, the public, and educational units are
demanding that schools demonstrate student progress as measured by state
performance tests. The public quid pro quo for increased spending on education
is a demand for accountability. Within this environment, states have established
new performance standards and methods of measuring student performance along
with systems for rewarding school success and punishing failure.
For many years states used multiple choice tests and reported results in terms
of norms that compared individual
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student test performance with national averages. As states developed new
standards for student performance, it became clear that multiple choice
questions could not measure the problem solving, critical thinking, and other
performance criteria that make up the new standards. Multiple choice tests
worked when the measurement outcome was focused on memorization and factual
knowledge, but off-the-shelf normed tests could not assess the new standards.
For example, state curricula often require students to demonstrate writing,
speaking, and thinking skills that are impossible to assess with multiple choice
questions. Changes brought about by new performance standards and new assessment
tools are providing market opportunities for a new generation of test
preparation materials which PPG plans to pursue.
Advanced Placement materials are used in high school courses for college credit,
using college textbooks. PPG has agreements with two college publishers giving
PPG exclusive rights to distribute these publishers' college texts to the
schools. According to the College Board, 635,000 students were enrolled in
Advanced Placement courses in 1998, with 1,101,600 Advanced Placement exams
taken that year. The College Board also projects that 1,120,000 Advanced
Placement exams will be taken in 1999 and 1,225,000 in 2000. (Source: College
Board.)
The Company believes that the growth in demand for test preparation and other
supplementary educational materials (including workbooks) has outpaced the
growth in demand for basal textbooks because of the increasing demands from
parents, colleges and employers for improved student performance and for
accountability by schools and teachers, and repeated reports highlighting the
poor comparative performance of U.S. students in mathematics and science.
PRODUCTS
Supplementary educational materials are predominantly soft cover textbooks that
can be sold efficiently through catalogs, direct mail, telemarketing and
independent commission sales representatives to the schools. Since its
inception, PPG has introduced more than 72 new programs. A program can be as few
as one and as many as four or more ancillaries designed to be used together as a
complete learning package. The market for supplementary educational materials
consists of a large and growing number of distinct niches. PPG's strategy is to
develop and acquire products for individual niches. PPG develops and sells its
own proprietary products and also distributes other publishers' products. PPG's
current product line consists of supplementary educational materials in three
market niches:
- Instruction. Proprietary and distributed texts and related
materials which focus on remedial and multicultural instruction
for the student-at-risk and urban markets. PPG's current
Instruction products include educational programs for
student-at-risk and multicultural students, with a particular
emphasis on social studies and life skills. Instruction materials
represented approximately 40% of the Company's 1998 revenues.
- Test preparation materials. PPG publishes materials for use by
schools to help prepare students for required state proficiency
tests. Given the increasing legislative mandates and funding for
testing of all public school students several times throughout
their K-12 education, PPG took the initiative during 1997 of
entering the test preparation market by developing a successful
group of test preparation materials. The test preparation
materials represented approximately 16% of the Company's 1998
revenues and is currently the most rapidly growing niche by the
three market niches in which PPG participates.
- Advanced Placement texts. PPG is the exclusive distributor of
college texts published by two college publishers. These texts are
used in senior high schools as part of Advanced Placement and
honors classes. PPG's Advanced Placement revenues consist of sales
billed by PPG and commissions received as a sales agent. Advanced
Placement revenues represented approximately 44% of the Company's
1998 revenues. The Advanced Placement program, sponsored by the
College Board, is an
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intense program of college level curricula and examinations that
provide high school students with an opportunity to earn advanced
placement, college credits, or both at nearly 3,000 Universities
and Colleges across the country.
PRODUCT DEVELOPMENT
PPG combines its internal product development resources with outside freelance
talent to develop and design its proprietary products in a cost-effective
manner. PPG utilizes a variety of outside authors, writers, editors, and
development houses to develop products. Sometimes this outside talent is
compensated with a flat fee, sometimes with a royalty contract where payment is
made contingent on actual sales of the product. Royalties paid by PPG range from
0.75% to 15%.
PPG retains control of all book club, reprint, electronic, foreign,
serialization, and commercial rights. Some contracts stipulate that the income
generated from such arrangements is divided equally between PPG and the author;
in other contracts such revenue is covered under the agreement's royalty rate.
PPG's book production, comprised of design, art and graphics, page makeup, and
permissions, is carried out by a combination of in-house staff and contracted
personnel with tight in-house control. PPG maintains an in-house system of
computers, scanners, and advanced software to maximize state-of-the-art
computer-based layout systems, making it possible to complete nearly the entire
production cycle in-house.
A book concept can originate from a number of sources such as (i) analysis of
PPG's sales statistics for an existing book to help assess how a similar book in
a similar subject area will perform, (ii) analysis of demographics and other
social and economic factors from current philosophical trends in education,
(iii) review of competitors' books to determine if and how PPG can publish a
superior book on a similar topic, and (iv) maintaining close personal contact
with current successful authors and writers, teachers, administrators,
counselors, and distributors so that they come forward with ideas. Once
conceived, a book proposal is circulated to the management group for input.
Depending on their input and additional market research, the proposal will go
forward or be terminated. A pro forma financial statement is prepared to aid in
determining if the new title is desirable for publication. If there is a
favorable decision, the editorial department will contract with an appropriate
author or writer. PPG believes it has excellent relationships with its authors,
including many well-known names in the field.
All printing is contracted to outside vendors by competitive bidding. All
printers utilized by PPG are located in the United States and PPG has
historically not been dependent on the services of any one printer for a
material portion of its printing needs.
PPG's products require varying periods of development time depending upon the
complexity of the graphics and design and the editing process. Most of PPG's
multi-book programs can be developed in a period that ranges from six to
eighteen months. The Company believes that PPG's use of outside authors,
illustrators, and freelancers for writing, editing, some artwork, some design,
and copy editing allows PPG to produce the budgeted number of books per year
with a relatively small staff and allows the flexibility needed for PPG to
continue to produce and expand its product lines and retain flexibility to
produce new product lines quickly.
CUSTOMER BASE
PPG's Instruction and Test Preparation materials are marketed to public and
private schools and school districts across the United States. PPG is not
dependent upon just one customer or only a few customers. For these product
lines, the top 20 accounts are as follows: Detroit Board of Education, Detroit,
MI; Camden Board of Education, Camden, NJ; Chicago Public Schools, Chicago, IL;
Paterson Public School, Paterson, NJ; St. Louis Public Schools, St. Louis, MO;
LLI/New Readers Press Distribution Center, Syracuse, NY (a distributor);
Rochester City School District, Rochester, NY; Lakeshore, Carson, CA (a
distributor); Wieser Educational, Inc. (a distributor); Ranch
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Santa Marga, CA; Cleveland City School District, Cleveland, OH; Prince George's
County Public Schools, Upper Marlboro, MD; Passaic Board of Education, Passaic,
NJ; Elizabeth Board of Education, Elizabeth, NJ; Illinois State Board of
Education, Springfield, IL; Newark Board of Education, Newark, NJ; North Bergen
Board of Education, North Bergen, NJ; Michigan Products Inc., Lansing, MI (a
distributor); Gary Community School Corp., Gary, IN; School Board of Broward
County, Ft. Lauderdale, FL; and Jersey City Public Schools, Jersey City, NJ. The
Detroit Board of Education represented more than five percent of PPG's 1998
sales.
The market for PPG's Advanced Placement products is primarily U.S. high schools,
public and private, plus commercial companies that distribute Advanced Placement
materials to the high school. For this market niche, the top ten customers are
as follows: Adams Book Company, Inc., Brooklyn, NY (a distributor); LaSalle
Company, South Bend, IN (a distributor); High School O.T.P.S, Brooklyn, NY; The
Westminster School, Atlanta, GA; The Bolles School, Jacksonville, FL; Glenbrook,
H.S.D., Glenview, IL; Ben Franklin High School, New Orleans, LA; Hinsdale Board
of Education, Hinsdale, IL; Academy Storm High School, Mercersburg, PA; and
Christian Brothers Academy, Lincroft, NJ.
SALES, MARKETING, AND DISTRIBUTION
OVERVIEW
PPG conducts its sales activities primarily through an integrated catalog and
telemarketing system augmented by direct mail, conventions, workshops, and two
commissioned sales representatives. The Company believes this system is well
suited for the supplementary educational material market where purchasing
decisions are typically made at the local or school level. As the Company grows,
however, more extensive use of commission sales representatives is expected.
During 1998, PPG hired a telemarketing sales manager and automated the
telemarketing department. The telemarketing manager function is a full-time
position while individual telemarketers work part-time. Over the past nine
years, PPG has created niche catalogs, built an in-house customer list, and
systematically increased the number of catalogs mailed each school year
(September-June), reaching approximately 700,000 catalogs mailed in the
1998-1999 school year. PPG will continue efforts to improve the quality and
quantity of catalogs produced and mailed.
PPG plans to add resources to grow its marketing and sales efforts. All product
areas including Instruction, Test Preparation, and Advanced Placement
Distribution will benefit from additional resources. For 1999, PPG intends to
add a marketing manager, telemarketers, per-diem field consultants, and
commission sales representatives. Field consultants are accomplished educators
hired on a per-diem basis to do selling workshops, inservice education, and
booth work at trade shows. PPG also intends to increase spending for sample
books, exhibits, advertising, direct mail, and marketing support.
INTEGRATED CATALOG/TELEMARKETING SYSTEM
In the 1998-1999 school year, approximately 700,000 copies of six catalogs
reached PPG's various market niches and included both proprietary products and
distributed products. Catalogs are mailed to house lists and other appropriate
contact individuals at pre-K-12 school sites throughout the United States.
Catalogs are generally produced and mailed for each product line three times per
year. Telemarketers target follow-up calls to close sales to the top third of
PPG's customers and prospects. Telemarketing activities are supported by a
computerized contact management database software and systems.
WEB SITE
In early 1999, PPG completed the first release of its web site (located at
www.peoplespublishing.com), which
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contains an online catalog of PPG's remedial, multicultural, and test
preparation titles. The web site is equipped with e-commerce software (shopping
cart software), so that customers can order directly from the site or create a
listing for filling out purchase orders (to give to the school administrator for
the traditional school purchasing system, which is still used much more
frequently by schools and districts than online ordering). The web site also
contains information on PPG, a conference and exhibit calendar, information on
manuscript submission, a form for requesting review copies of titles, and other
useful sections for teachers.
COMMISSION SALES REPRESENTATIVES
PPG also utilizes the services of two commission sales representatives who sell
PPG's products under a percentage fee arrangement. These independent agents
carry non-competing products from other school publishers.
WAREHOUSE AND DISTRIBUTION
PPG has outsourced certain data processing, warehousing and
distribution/shipping services to American Book Center, located in Brooklyn, NY.
PPG transmits orders by modem to American Book Center which keeps track of PPG's
inventory and accounts receivable and also warehouses and ships to customers
PPG's Instruction and Test Preparation products. Some orders for Advanced
Placement materials are transmitted by American Book Center to the college
publisher whose materials PPG distributes. Advanced Placement materials are
shipped by the college publishers and American Book Center keeps track of
accounts receivable for Advanced Placement materials orders.
The services that American Book Center provides to PPG are material to PPG.
COMPETITION
The supplementary publishing market is extremely competitive and fragmented. The
top eleven supplementary publishers accounted for approximately $965 million in
1997 sales. These sales cover a wide variety of supplementary materials,
including some technology, manipulatives, magazines, and library/trade books
(non-textbooks) used in schools. Among these top eleven supplementary publishers
are Tribune, Primedia, Scholastic, Simon & Schuster, Addison Wesley Longman, and
Zaner-Bloser. There are also numerous other companies that are competitors with
PPG. These publishers include: American Guidance Systems (publishing remedial
materials); Educational Design (test preparation); Curriculum Associates (test
preparation); Globe Books (remedial and multicultural). In addition, there are
various catalogers that resell supplementary materials. Many of the Company's
competitors are well established, better known and significantly larger, with
substantially greater financial and marketing resources, than the Company.
PROTECTION OF PROPRIETARY RIGHTS
All of PPG's books have been copyrighted in the United States with United States
rights, most in the name of PPG. On the few titles that are copyrighted by the
author, PPG has secured unlimited exclusive rights to sell and update the
titles. Therefore, PPG owns the exclusive rights to exploit the copyright in the
marketplace. On books created in-house by PPG, PPG has registered United States
rights for all markets, including first and second serialization, commercial
rights, electronic rights, foreign and translation rights, reprint rights, and
rights to any means yet to be developed for transmitting information in any
form. There are a limited number of books for which foreign rights and
electronic rights will revert to the author if PPG does not exploit them in a
given period of time, usually two years after publication. Foreign rights are
not usually lucrative for supplementary materials, but opportunities are
considered on a one-by-one basis. PPG believes it has adequately protected its
copyrights, but the loss of copyrights or failure of copyright protection could
have a material adverse effect on the Company.
EMPLOYEES
As of December 31, 1998, the Company had approximately 32 employees, 8 of whom
were full-time and 24 were
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part-time. The Company has never experienced a work stoppage and its employees
are not covered by a collective bargaining agreement. The Company believes its
relations with its employees are good.
AVAILABLE INFORMATION
The Company files annual, quarterly and current reports, and other information
with the SEC. You may read and copy any reports, statements or other information
we file at the SEC's Public Reference Room, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549 and at the SEC's Regional Offices at 7 World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of
these documents, upon payment of a duplicating fee, by writing the SEC. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
Public Reference Room. The Company's filings are also available to the public on
the SEC Web site at http://www.sec.gov.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company and PPG own no real property. The Company and PPG conduct their
operations in one facility. PPG leases approximately 4,200 square feet of office
space in Maywood, New Jersey, at a current rental of $42,000 per year including
utilities and taxes. This lease expires in 1999 and PPG plans to relocate to
larger space.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 22, 1998, the Company held a Regular Meeting of Shareholders. The
following discussion sets forth the results of the actual votes taken at the
Regular Meeting and has not been adjusted to reflect the 20-to-1 reverse stock
split which was approved at the Regular Meeting. The holders of 57,587,663
votes, 98.10% of the outstanding voting power of the Company, were represented
in person or by proxy at the meeting. The following matters were submitted to a
vote of security holders, and approved, at the meeting:
(a) The following persons were elected to the Company's Board of Directors:
Votes
Votes For Withheld
--------- --------
John C. Bergstrom 57,586,663 1,000
Roy E. Mayers 57,518,463 69,200
James J. Peoples 57,518,663 69,000
Anton J. Christianson 57,518,663 69,000
Diane M. Miller 57,518,663 69,000
(b) A proposal to change the name of the Company from "Concourse Corporation" to
"Peoples Educational Holdings, Inc." was approved. The following summarizes the
voting with respect to the proposal:
Votes For: 57,569,791
Votes Against: 14,372
Abstain: 3,500
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(c) A proposal to effect a 20-to-1 reverse stock split and to increase the
number of authorized shares was approved. As a result, effective December 31,
1998, the reverse stock split occurred and the Company's authorized capital
stock consists of 25,000,000 shares, par value $.02 per share, consisting of
15,000,000 common shares and 10,000,000 undesignated shares. Fractional shares
resulting from the reverse stock split were rounded up. The following summarizes
the voting with respect to the proposal:
Votes For: 57,564,945
Votes Against: 15,918
Abstain: 6,800
(d) A proposal to approve and ratify the 1998 Stock Plan and to increase the
number of shares of common stock reserved for issuance of awards thereunder was
approved. The following summarizes the voting with respect to the proposal:
Votes For: 57,163,948
Votes Against: 141,718
Abstain: 80,399
(e) A proposal to ratify the appointment of McGladrey & Pullen LLP as
independent public accountants was approved. The following summarizes the voting
with respect to the proposal:
Votes For: 57,579,657
Votes Against: 500
Abstain: 7,506
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock was traded over-the-counter by broker/dealers in the
Minneapolis-St. Paul, Minnesota, metropolitan area from approximately December
1983 until October 1996, when all active trading ceased. Trading in the
Company's common stock had been extremely limited since at least 1993, and, as
of December 31, 1994, there was only one broker/dealer in Minneapolis-St. Paul,
Minnesota, providing bid and asked quotations. The last bid quote, known to the
Company, for the Company's common stock was published as of the close of
business on October 22, 1996, and was $0.005 per share ($0.10 if adjusted for
the 20-to-1 reverse stock split which occurred after the date of the last bid).
The Company is unaware of any broker/dealer who has published bid or asked
quotations for the Company's common stock since October 22, 1996.
There were approximately 233 shareholders of record as of March 20, 1999,
including the Depository Trust Company which held 44,733 shares. The Company has
not paid any dividends on its common shares in the past two years and
anticipates retaining future earnings, if any, to finance operations of the
Company.
Sales of Unregistered Securities. When the Company was operated as Concourse
Corporation and prior to its combination with PPG, the Company issued certain
shares as payment for services rendered to the Company by five persons, two of
whom were directors of the Company at that time. None of these individuals
continue to provide services to, or act as a director of, the Company. The
following table sets forth such issuances:
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Number of Value of
Date Shares(1) Services
- ---- --------- --------
May 1, 1998 5,025 $1,256.00
May 1, 1998 4,050 $1,013.00
May 1, 1998 6,000 $1,500.00
May 9, 1998 1,875 $ 468.75
May 9, 1998 1,875 $ 468.75
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(1)The number of shares has been adjusted to reflect the 20-to-1 reverse stock
split which occurred subsequent to these stock issuances.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
FORWARD LOOKING STATEMENTS
This form 10-KSB contains forward-looking statements regarding the Company, PPG
and their markets as defined in section 21E of the Securities Exchange Act of
1934. These forward-looking statements involve a number of risks and
uncertainties, including (1) demand from major customers, (2) effects of
competition, (3) changes in product or customer mix or revenues and in the level
of operating expenses, (4) rapidly changing technologies and the Company's
ability to respond thereto, (5) the impact of competitive products and pricing,
(6) local and state levels of educational spending, (7) the Company's and PPG's
Year 2000 readiness, (8) the Company's and PPG's ability to retain qualified
personnel, (9) PPG's ability to retain its distribution agreements in the
Advanced Placement market, (10) the sufficiency of PPG's copyright protection,
(11) PPG's ability to continue to rely on the services of American Book Center,
and other factors disclosed below and throughout this report. The actual results
that the Company or PPG achieves may differ materially from any forward-looking
statements due to such risks and uncertainties. The Company undertakes no
obligation to revise any forward-looking statements in order to reflect events
or circumstances that may arise after the date of this report. Readers are urged
to carefully review and consider the various disclosures made by the Company in
this report, including the discussion set forth below and in the Company's other
reports filed with the Securities and Exchange Commission from time to time that
attempt to advise interested parties of the risks and factors that may affect
the Company's business and results of operations.
INTRODUCTION
PPG was incorporated in Delaware in 1989 and on March 19, 1990, completed an
asset purchase of a high school remedial education product line from New Readers
Press, a division of Laubach Literacy International. Effective November 1, 1998,
PPG merged into a subsidiary of Peoples Educational Holdings, Inc. ("the
Company") (formerly Concourse Corporation) a public company with only minimal
operations. As a result of the merger, PPG became a wholly-owned subsidiary of
the Company. All of the Company's operations are currently conducted through
PPG. For accounting purposes, the merger was treated as if PPG acquired
Concourse Corporation in a purchase transaction. As a result, this report and
the following discussion excludes any financial results of the Concourse
Corporation prior to the merger.
REVENUES AND NET INCOME
OVERVIEW
1998 was a record year for PPG, with sales and commission revenues of
$6,164,248, an increase of 36% from the prior period 1997. Net income after tax
for the same period was $316,138, an increase of 80% from 1997 results. The
following table summarizes and compares the 1997-1998 sales and net income
results.
9
<PAGE> 11
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1998 1997 VARIANCE % CHANGE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $6,164,248 $4,528,065 $1,636,183 36%
- --------------------------------------------------------------------------------------------------------------------
Net Income $ 316,138 $ 175,501 $ 140,637 80%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Both the Instruction and Test Preparation product lines posted record sales in
1998. Sales of Instruction grew 67% over 1997 sales and the Test Preparation
product line, only in its second year and first full 12 months of sales, grew
3.4 times over the 1997 partial year sales. 1997 Advanced Placement revenues
were down 0.4% due to a $158,149 sales decline associated with a discontinued
college product line or Phase-out Agreement discussed below. However, the sales
of the two primary college clients, whose Advanced Placement products PPG
actively markets, increased 6% over the prior year.
The following table summarizes and compares the 1997-1998 product line revenues.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1998 1997(*) VARIANCE % CHANGE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Instruction $2,471,814 $1,476,971 $994,843 67.0%
- --------------------------------------------------------------------------------------------------------------------
Test Preparation $ 954,886 $ 277,711 $677,175 244.0%
- --------------------------------------------------------------------------------------------------------------------
Advanced Placement $2,737,548 $2,749,914 $(12,366) (0.4)%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(*) $23,469 in other sales not included.
A major portion of the revenue increase was due to strong multicultural sales in
the Instruction product line led by a large sale of $590,445 to the Detroit
Board of Education, and the impact of an increase of $677,175 in new Test
Preparation sales. Such a large sale to a single district is unusual in
supplementary publishing, and the Company does not anticipate future orders of
this magnitude. The sales pattern continues to be thousands of small orders
under $200 submitted by school districts across the country. However, in
addition to the Detroit order in 1998, PPG began to receive "medium" size orders
in the $25,000 to $50,000 range. The Company believes this new class of medium
size orders originated from improved strategic telemarketing sales of
Instruction products and increased Test Preparation sales. There is no assurance
that these medium size orders will continue in 1999, but PPG is engaged in a
number of sales opportunities which, if successful, will result in several
additional medium sized orders.
The increase in the revenues of the Company in 1998 as compared to 1997 were
primarily attributable to increases in unit sales and were not substantially
impacted by changes in product pricing.
INSTRUCTION PRODUCT SALES
Instruction products include two primary sales sources referred to as
Student-at-risk and Multicultural. Student-at-risk and Multicultural sales in
1998 increased 11.8% and 141.3%, respectively compared to 1997. The
Multicultural increase was composed primarily of the previously mentioned
Detroit Board of Education sale in the amount of $590,445. The Detroit sale
consisted of $518,442 of proprietary product sales including In Our Own Image (a
middle school African American history) and African American History: A Journey
of Liberation (for senior high school). The balance came from a distributed
Latino history text. Student-at-risk sales increased as a result of the
introduction of new proprietary products principally, For the People by the
People, a History of the United States Beginning to the Present.
Both Student-at-risk and Multicultural sales include a mix of proprietary and
nonproprietary or distributed titles. PPG's sales and marketing emphasis is on
proprietary products, and PPG uses distributed products to "round out" or fill
in a full catalog of product offerings for PPG's customers. Sales of proprietary
products in the Instruction product line represented 76% of Instruction product
sales in each of 1998 and 1997. The Company expects that PPG's proprietary
products will represent an increasing percentage of Instruction product sales in
the future.
10
<PAGE> 12
TEST PREPARATION PRODUCT SALES
Test Preparation product sales were $954,886 in 1998 compared with sales of
$277,711 in 1997, the year this product line was started. Test Preparation sales
results have been encouraging and PPG plans major expansion in this area. This
expansion is not without major competitors and similar gains by other publishers
will make this arena a hotly contested sales environment.
ADVANCED PLACEMENT REVENUES
PPG has exclusive distribution agreements with two college publishers to sell
their college books and other titles including certain trade and professional
books, into the public and private K-12 school market. One of the agreements is
a purchase for resale contract where the college publisher sells books to PPG at
a discount and PPG resells to schools and school districts ("Resale Agreement").
The other agreement is a commission arrangement where PPG markets and sells the
college publisher's products and receives a commission on all the publisher's
sales to schools ("Commission Agreement"). These agreements are important to PPG
and accounted for $2,597,772 and $2,451,989 of 1998 and 1997 revenues,
respectively.
The following table summarizes and compares Advanced Placement revenues for 1997
and 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 1997 VARIANCE % CHANGE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Resale Agreement $2,158,005 $2,035,992 $ 122,013 6.0%
- -------------------------------------------------------------------------------------------------------------------
Commission Agreement $ 439,767 $ 415,997 $ 23,770 5.7%
- -------------------------------------------------------------------------------------------------------------------
Sub Total $2,597,772 $2,451,989 $ 145,783 5.9%
- -------------------------------------------------------------------------------------------------------------------
Phase-out Agreement $ 139,776 $ 297,925 $(158,149) (53.1)%
- -------------------------------------------------------------------------------------------------------------------
Total $2,737,548 $2,749,914 $ (12,366) (0.4)%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The 1998 Resale Agreement product sales increased 6.0% over 1997 primarily due
to improved telemarketing. During the same period the Commission Agreement
revenue increased 5.7% also primarily due to improved telemarketing.
The Resale Agreement and the Commission Agreement include noncompete language
that restricts PPG from selling works that compete directly with the college
publishers' products. The exclusive nature of both agreements provides the basis
upon which PPG commits considerable sales and marketing resources to grow
Advanced Placement sales. The loss of either agreement would have a material
adverse effect on PPG's revenue and net income. The term of the Resale Agreement
runs from November 20,1996 to November 30, 2000. The college publisher can
terminate the Resale Agreement if PPG fails to increase its gross purchases in
the publisher's fiscal year (April to March) by 10% over the previous fiscal
year. The termination becomes effective on November 30 of the fiscal year
following that in which the short fall took place. PPG will meet the gross
purchase requirements for the publisher's fiscal year ending March 1999.
The Commission Agreement expired on June 6, 1998 and has been extended until
April 30, 1999. PPG and the college publisher are currently negotiating a
contract revision to change the Commission Agreement to a resale agreement. The
Company has no reason to believe that a resale agreement will not be reached for
a new three-to-five-year term. In the unlikely event that PPG fails to conclude
a new resale agreement, the Company believes the college publisher will renew
the current Commission Agreement for an additional three-to-five-year period.
The Company's 1997 and 1998 sales include limited revenue from the winding down
of another resale agreement with a third publisher (the "Phase-out Agreement").
PPG acted as an exclusive distributor on a commission basis for such publisher
until the publisher merged with another company. At the time of the merger, the
commission
11
<PAGE> 13
agreement terminated and PPG lost exclusivity but continued to distribute the
publisher's products as a non-exclusive reseller. PPG no longer actively markets
products subject to the Phase-out Agreement and expects to discontinue these
products by the year 2000.
GROSS MARGIN AND COST OF SALES
OVERVIEW
The 1998 cost of sales as a percent of total sales was 51.4% compared to 55.8%
in 1997. The reduction was due to the lower manufacturing costs associated with
increased sales of Instruction and Test Preparation product lines. The Company
expects 1999 cost of sales to increase in both dollars and as a percent to
revenues due to the large sales increase associated with the anticipated
conversion of the Advanced Placement products Commission Agreement to a resale
agreement.
Cost of sales includes paper, printing and binding, author royalties, and
prepublication costs. For those products that PPG distributes as a reseller,
cost of sales consists of the cost of purchasing those products. Prepublication
costs include all the one-time expenses associated with developing and producing
new or revised proprietary products. Prepublication costs include all editorial
expenses, freelance writing, page design and makeup, art permissions and other
permissions, and any other costs incurred up to the print/bind stage of the
books. These prepublication costs also include expenses incurred for market
research and other forms of product development, such as expert reviews. Such
product development usually involves creating sample lessons for each content
area of a prospective title; PPG then obtains feedback on these samples, which
it applies to the creation of the rest of the book. Other product development
expenses include payment for manuscript reviewers, the production of a sample
version of the book (for use at conference exhibits and other meetings), and the
purchase of competition reports and products.
Prepublication costs are capitalized and expensed over a three-year period
beginning on the in-stock date of new and revised products. PPG believes its
policy for a three-year amortization schedule is conservative. In book
publishing, prepublication costs represent the major product development expense
and, as such, can serve as an important financial indicator of new product
commitment. In 1997, PPG's prepublication cost was $205,660 compared to a 1998
expenditure of $451,748. PPG has budgeted $979,000 for 1999 prepublication
costs.
INSTRUCTION AND TEST PREPARATION GROSS MARGIN AND COST OF SALES
The combined gross margins for Instruction and Test Preparation in 1998 and 1997
were 63.9% and 58.7%, respectively. Year-to-date margins fluctuate based on
product mix with proprietary products cost of sales ranging from 16% to 35% of
sales while non-proprietary distributed sales have higher costs ranging from 40%
to 60% of sales. The 5.2% margin improvement in 1998 was principally due to the
lower cost of sales associated with the $677,175 increase in Test Preparation
and the $518,442 proprietary portion of the Detroit sale. The wide spread within
cost of sales percentages is cased by variances in paper, printing and binding
costs as well as author royalties and pre-publication costs. Author royalty
rates vary depending on the track record of the author and the amount of an
author's contribution to the work and range from 0.75% to 15% of net sales.
Prepublication costs also vary widely by product and product line and are
impacted by product specifications, schedule and production values. For example,
Test Preparation titles are 120-to-180-page paperbacks with plant investments
ranging from $20,000 to $26,000 per book while the plant cost related to PPG's
708-page hardcover U.S. History test were considerably higher at $96,000. In the
future PPG plans to increase its plant cost investment in Test Preparation.
ADVANCE PLACEMENT GROSS MARGIN AND COST OF SALES
The gross margin on the Advanced Placement Resale Agreement titles ranges from
75% to 78% of sales. The cost of sales is high compared to Instruction and Test
Preparation but the gross profit dollar volume in 1998 and 1997
12
<PAGE> 14
creates a very positive impact on operating expense and net revenue. Commissions
revenues carry no associated cost of sales and the full amount of $439,767 in
1998 and $415,997 in 1997 contributed directly to operating expense and net
income. If PPG's proposal to change the Commission Agreement to a resale
agreement is concluded beginning May 1, 1999, PPG would post commission revenue
for the first four months of 1999 and sales revenue for eight months of 1999. In
addition to producing additional sales in 1999 and in future years the proposed
resale agreement is also expected to increase PPG's cost of sales and reduce
gross margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The 1998 and 1997 selling, general and administrative expenses were 39.7% and
37.4%, respectively, as a percentage of total revenues. Although PPG intends to
lower the SG&A costs as a percentage of total revenues, the total dollar cost of
SG&A will increase as PPG produces and mails more catalogs, hires additional
marketing personnel and staff, and adds commission sales representatives. PPG
also intends to increase spending for sample books, exhibits, advertising,
direct mail, and marketing support.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company had cash and working capital of $565,678
and $771,058, respectively, as compared to cash and working capital of $182,116
and $598,020, respectively as of December 31, 1997. This increase in cash and
working capital was primarily due to the Company's net operating profit for the
year.
PPG has a line of credit agreement with a bank which allows borrowings up to
$1,000,000 during certain peak seasonal months of the year and otherwise is
limited to $500,000. The credit agreement expires in 1999 and PPG expects it to
be renewed under similar terms. As of December 31, 1998, the Company had
$234,000 outstanding under this line.
Inventories totaled $439,089 and $336,897 at December 31, 1998, and December 31,
1997, respectively. This higher level of inventory is associated with the higher
level of sales as well as an increased number of products, including the
addition of Test Preparation products to inventory.
Accounts receivable totaled $504,545 and $646,301 at December 31, 1998, and
December 31, 1997, respectively. The decrease in accounts receivable from the
prior year was due to an improvement in average collections and the absence of
any large sales transactions in late 1998.
PPG's business is substantially based on development of new educational
materials which are then amortized over a period of a number of years. The
pre-publication costs of these new educational materials are capitalized on the
Company's balance sheet and amortized over a 36 month period. When the Company
is in an expansion mode, the amount of new product costs capitalized will tend
to exceed the amount of previously developed products being amortized.
Prepublication expenditures totaled $451,748 in 1998, as compared to $205,660 in
1997, resulting in an increased use of cash of $246,088 in 1998 compared to
1997. The Company believes that its cash and line of credit together with cash
generated from operations will be sufficient to meet its normal cash needs for
1999.
PRODUCT DEVELOPMENT
The Company intends to increase funding for product development efforts.
Instruction proprietary products currently under development include a new
series of remedial World Culture books, and the beginning of work on second
editions of Classical Africa and African American History, A Journey of
Liberation. Over the next two to three years, the Company intends to focus
resources on revising and maintaining copyrights on Instruction products with
considerably more emphasis and funding to build the new Test Preparation product
line.
In fall 1997 in the Test Preparation product line PPG introduced three
fourth-grade test preparation books for
13
<PAGE> 15
Language Arts, Mathematics, and Science. Three additional but similar titles
intended for grade three were introduced in 1998, along with the first two of
six titles intended for junior high. Six senior high school titles are scheduled
for 1999 release, completing the series and moving forward with this plan of
additional Test Preparation product development.
In December 1998, PPG contracted on a work-for-hire basis with an outside
development group to continue the Test Preparation product development through
1999.
Presently, PPG does not produce any proprietary products for the Advanced
Placement market. However, the Company intends to start a publishing program to
produce proprietary Advanced Placement supplements and ancillary materials.
PPG's products will not compete with any existing publisher agreements and will
be crafted as supplements to help teachers and students with the Advanced
Placement examinations. The goal is to release PPG's first proprietary Advanced
Placement products in 2001.
SEASONALITY
The supplementary school publishing business is seasonal, cycling around the
school year that runs September through May. Typically, the major marketing
campaigns, including mailing of new catalogs and focused sales efforts, begin in
September when schools reopen. This is the period when sample books are provided
free for review to teachers for purchase consideration. General marketing
efforts including additional sales and marketing campaigns, catalog mailings,
and complementary copies continue throughout the school year. Teachers and
districts generally review and consider books throughout the school year, make
their decisions in the winter and spring, and place their purchase orders with
the district office or other administrative units at that time. During spring
and summer, the district offices process purchase orders and send them to
publishers.
For PPG, approximately 40-45% of sales via purchase orders have historically
been received from July through September. The remainder of the year is slower
for sales of most product lines. An exception is the Test Preparation product
line, with purchases occurring near the time the test is given, and during the
summer months for summer programs that add extra test preparation for students
who are behind in their performance.
This natural seasonality of the supplementary educational materials market means
that PPG's fiscal year (calendar year) does not coincide with the school
purchase year, so new product development and launch, as well as expenses, must
be planned around the school year. A product launched in the fall of 1997, for
example, should not be expected to generate sales until summer of 1998. This
seasonal delay in purchase must be accounted for when considering growth and
forecasts in the supplementary educational materials market. As noted above, PPG
receives and fulfills customer orders throughout the year, but its largest
revenue is produced in the July to September third-quarter. In general, the
historical quarterly percentages of revenues to the full year revenues falls
within a predictable range. However, quarterly revenues can vary considerably
due to large orders such as the 1998 Detroit sale and the completion and release
of books to fill large back orders such as the 1998 first-quarter Test
Preparation sales. The table below summarizes the historical quarterly revenue
percentages for 1996, 1997 and 1998 net of the sales influence of the Detroit
sale and Test Preparation.
REVENUE RANGES BY QUARTER 1996-1998
QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4
10-14% 19-24% 47-55% 12-15%
14
<PAGE> 16
Y2K COMPLIANCE
The Company is currently in the process of testing all of its computer equipment
and replacing any that is not Year 2000 ("Y2K") compliant with Pentium II 350
computers with Y2K compliant Intel chips. The Company's LAN is a Pentium II 400
MHZ with a Y2K compliant Intel chip. The Company intends to have its computer
systems tested by an outside consultant in the second quarter of 1999. The
computer system used by the Company's telemarketers is a new Y2K compliant
system and is tied into the Company's LAN. All computer terminals used by PPG's
in-house Operations Department, which are tied into the Y2K compliant LAN, are
currently being tested and will be replaced if not Y2K compliant.
The Company's bookkeeping system ties in with the Company's outside accounting
service's system, and is currently being updated to be Y2K compliant. The
Company has tested its credit card system and postage meter, and believes that
they meet the Y2K compliance standards.
American Book Center, the independent fulfillment center which is responsible
for PPG's important billing and reporting operations systems, uses an IBM AS/400
operating system. American Book Center has notified PPG in writing that it is
aware of the importance of its role in PPG's operations and that its IBM AS/400
operating system is Y2K compliant and that its query programs, telephone system,
and postage system are Y2K compliant. In addition, American Book Center is
currently checking its order entry program for Y2K compliance. The Company and
American Book Center will be conducting a test of this entire system in the
second quarter of 1999. The failure of the computer systems of American Book
Center to be Y2K compliant would have a material adverse effect on the Company.
Although the Company believes alternate manual processes exist that could
temporarily minimize any disruption caused by a Y2K failure of PPG or American
Book Center, such manual processes would not likely be effective or sufficient
for an extended period of time.
PPG is dependent on certain outside software vendors, printers, and pre-press
houses for book production, and has sent letters to these companies asking them
to confirm that their operations, as they affect PPG, are Y2K compliant. In
addition, PPG has contacted publishers whose products PPG distributes and which
are in PPG's catalogs, banks and insurance carriers, and to date, has not
received negative responses from any of these companies.
The Company's costs to date to determine Y2K compliance have been under $10,000
and the Company currently estimates that its expenditures to test and ensure Y2K
compliance will be approximately $35,000. In the event of a failure of any Y2K
tests scheduled by the Company for this spring, such expenditures will be
considerably higher.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Company does not believe that any recently issued accounting standards will
have an affect on the Company.
ITEM 7. FINANCIAL STATEMENTS
The information required under this heading is contained in Exhibit 99.1 filed
with this report. The financial statements of PPG for the fiscal year ended
December 31, 1997 are incorporated herein by reference to Exhibit 99.1 the
Company's Current Report on Form 8-K/A filed with the Securities and Exchange
Commission on January 15, 1999.
15
<PAGE> 17
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In January 9, 1995, the Company engaged Casey Menden & Co., P.A. ("Casey
Menden"), Bloomington, Minnesota, to act as the Company's certified public
accounting firm, as approved by the Company's Board of Directors. Casey Menden
audited the Company's financial statements for the year ended December 31, 1994
and the report of Casey Menden on such financial statements, dated March 21,
1995, included an explanatory paragraph that expressed substantial doubt about
the Company's ability to continue as a going concern. These financial statements
were filed with the Company's Form 10-K for the year ended December 31, 1994 and
such report also contained disclosure of the change in accountants to Casey
Menden.
On approximately December 31, 1995, Casey Menden notified the Company that it
was not qualified to act as the auditor and certified public accounting firm for
public companies and resigned. The Company did not have any disagreement with
Casey Menden on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which if not resolved to
the satisfaction of Casey Menden, would have caused Casey Menden to refer to the
subject matter of such disagreement in its report. Since the resignation of
Casey Menden, the Company did not engage new outside auditors until June 10,
1998 as explained below.
On June 10, 1998, the Company appointed McGladrey & Pullen LLP ("McGladrey &
Pullen") to act as its certified public accountants, as approved by the
Company's Board of Directors. McGladrey & Pullen audited the Company's financial
statements for the years ended December 31, 1995, 1996 and 1997. Their reports
for the three years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles; except that the report references the doubt expressed by
Casey Menden as to the Company's ability to continue as a going concern for the
year ended December 31, 1994. McGladrey & Pullen continues to act as the
Company's certified public accountants.
During the Company's two fiscal years ended December 31, 1997 and the interim
period subsequent thereto ended June 10, 1998, the Company did not have a
relationship with McGladrey & Pullen described in Item 304(a)(2) of Regulation
S-B or otherwise. The only conversations held with McGladrey & Pullen prior to
June 10, 1998 related to due diligence issues relative to their engagement.
In connection with merger between the Company and PPG effective as of November
1, 1998, PPG is treated as the acquirer from an accounting perspective as a
result of which the historical financial statements included or
incorporated by reference in this report are those of PPG. PPG's 1997 financial
statements were audited by Pollack & Culnen, River Edge, New Jersey, and its
1998 financial statements were audited by McGladrey & Pullen.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
At the effective time of the Merger on November 1, 1998, all then current
directors of the Company except William A. Hultgren, Orville Huseby and Roland
Barrett resigned and John C. Bergstrom, Anton J. Christianson, Roy E. Mayers,
Diane M. Miller, and James J. Peoples were appointed as new directors of the
Company. Ms. Miller and Messrs. Bergstrom, Christianson, Mayers and Peoples
constituted prior to the Merger and will continue to constitute the Board of
Directors of PPG. Messrs. Huseby and Barrett resigned as directors on November
10, 1998. Mr. Hultgren resigned as an officer of the Company on November 1, 1998
and did not stand for re-election as a director at the Regular Meeting of
Shareholders held on December 22, 1998.
16
<PAGE> 18
The following individuals constitute the current directors and executive
officers of the Company:
<TABLE>
<CAPTION>
DIRECTOR
NAME AND AGE PRINCIPAL OCCUPATION SINCE
- ------------ -------------------- -----
<S> <C> <C>
John C. Bergstrom (38) Partner in RiverPoint Investments, Inc., St. Paul-based 1998
investment advisory firm since 1995. From 1985 to 1995, Mr.
Bergstrom was employed by Cherry Tree Investments, Inc., based
in Minneapolis, Minnesota. For the past two years, he has been
under contract with PPG to consult and serve as Director,
Secretary, and acting Chief Financial Officer. Similarly, the
Company has retained him to serve as Secretary and acting CFO.
Mr. Bergstrom is a graduate of Gustavus Adolphus College and the
University of Minnesota. He also serves as a director of
several private companies, such as Tecmark Services, Inc.,
Instrumental, Inc., and Dolan Media Company.
Anton J. Christianson (46) Managing General Partner of Cherry Tree Investments, Inc., 1998
Minneapolis, Minnesota since 1981. Director of PPG since 1990.
Mr. Christianson has been involved in the venture capital
industry for over 20 years. He previously also served as a vice
president for Norwest Venture Capital. He serves as a director
for several public and private companies, including Fourth Shift
Corp., Transport Corporation of America, Inc., TRO Learning,
Inc., Learning Ventures, and Dolan Media Company.
Mr. Christianson is a graduate of St. Johns University and
Harvard University.
Roy E. Mayers (55) Since 1997, President and Chief Executive Officer of Hess 1998
Management, Co., which oversees three major printing companies
serving the education market. Prior to that time and since
1987, Mr. Mayers was the President and Chief Executive Officer
of Steck-Vaughn Publishing Corporation, a leading publisher in
supplementary educational materials. From 1975 to 1985, he was
President of Modern Curriculum Press, a wholly-owned subsidiary
of Esquire, Inc. as well as a group executive of three Esquire,
Inc. operating companies from 1982 to 1985. From 1962 to 1975,
Mr. Mayers was employed by Globe Book Company, most recently as
Vice President and General Manager. He is a graduate of the
City College of New York with B.S. in Business Administration
and Accounting. Mr. Mayers has served as a director of PPG since
1997.
Diane M. Miller (46) Co-founder and Executive Vice President of PPG since 1989. 1998
Executive Vice President of the Company. Her educational
publishing experience encompasses general management, market
research, editorial and marketing. Prior to forming PPG, Ms.
Miller was publisher of Globe Books, a remedial education
publisher owned by Simon and Schuster. Prior to joining Globe
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C> <C>
Books, she was Senior Editor of Reading for Harcourt Brace
Jovanovich. Ms. Miller is a graduate of Centre College,
Kentucky.
James J. Peoples (61) Co-founder, Chairman, President and Chief Executive Officer and 1998
Treasurer of PPG since 1989. Chairman, President, Chief
Executive Officer and Treasurer of the Company. He has 35 years
of experience in school book publishing, including positions in
sales, sales management, corporate staff assignments, and
general management. Prior to forming PPG, Mr. Peoples was
President of the Prentice Hall School Group for seven years and
served three years as Group President of the $350 million Simon
and Schuster Educational Group. Mr. Peoples is a graduate of
Oregon State University.
</TABLE>
In accordance with a voting agreement between Mr. Peoples and Cherry Tree
Ventures III, LP, each party has agreed to vote for the director designated by
the other party. Mr. Christianson has been designated by Cherry Tree Ventures
III, LP and Mr. Peoples has designated himself to serve on the Board.
Board Committees. The Board of Directors has established an Audit Committee and
a Compensation Committee. The Audit Committee is currently composed of Messrs.
Christianson and Mayers. The Audit Committee meets with the Company's
independent auditors and representatives of management to review the internal
and external financial reporting of the Company, reviews the scope of the
internal auditors' examination, considers comments by the auditors regarding
internal controls and accounting procedures and management's response to these
comments and approves any material non-audit services to be provided by the
Company's independent auditors.
The Compensation Committee is currently composed of Messrs. Bergstrom,
Christianson and Mayers. The Compensation Committee reviews and makes
recommendations to the Board of Directors regarding salaries, compensation,
stock options and benefits of officers and employees. The Compensation Committee
has established a Stock Grant Subcommittee, currently composed of Messrs.
Christianson and Mayers, for the purpose of granting awards under the Company's
1998 Stock Plan.
The Company does not have a nominating committee.
SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Not applicable.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation paid
to the current Chief Executive Officer and Executive Vice President of the
Company and to the former Chief Executive Officer of the Company (the "Named
Executives"). Compensation to the current executive officers is paid by the
Company's wholly owned subsidiary, PPG.
18
<PAGE> 20
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ---------------
Securities
Underlying All Other
Name and Position Year Salary($) Bonus($)(4) Options(#) Compensation($)(3)
- ----------------- ---- --------- ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
James J. Peoples, 1998 128,269 22,007 - 969
Chairman, President and
CEO (1)
Diane M. Miller, 1998 93,269 18,165 48,938 312
Executive Vice
President (1)
William A. Hultgren, 1998 131,549 -- - --
former CEO (2) 1997 36,100 -- - --
1996 65,485 -- - --
</TABLE>
- ------------------
(1) PPG became a wholly-owned subsidiary of the Company on November 1,
1998. Compensation paid by PPG in prior years is not required to be
reported herein.
(2) Mr. Hultgren resigned as an executive officer of the Company on
November 1, 1998.
(3) Represents premiums paid by PPG for life insurance.
(4) Represents bonuses earned in 1998 but which were paid in 1999.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to option grants to the
Named Executives in fiscal 1998:
OPTIONS GRANTED IN LAST FISCAL YEAR
INDIVIDUAL GRANT
--------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED (#) FISCAL YEAR PRICE DATE
Diane M. Miller, 48,938 94% $1.20 2/23/03
Executive Vice
President(1)
- ------------------
(1) Reflects an option granted to Ms. Miller by PPG in February 1998 prior
to PPG becoming a wholly-owned subsidiary of the Company in the Merger
on November 1, 1998. The option becomes exercisable in three separate
installments in each case upon PPG's fulfillment of certain performance
goals. The information set forth above reflects conversion of the
option in connection with the Merger.
19
<PAGE> 21
The following table sets forth information with respect to the Named Executives
concerning the exercise of options during 1998 and unexercised options held as
of December 31, 1998:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT FY-END (#) OPTIONS AT FY-END ($)(3)
SHARES ACQUIRED ----------------------------------- -----------------------------
NAME ON EXERCISE (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------ ----------------- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James J. Peoples(1) N/A N/A - - - -
Diane M. Miller(1) N/A N/A 16,313 32,625 - -0-
William A. Hultgren(2) - - - - - -
</TABLE>
- ------------------
(1) Mr. Peoples and Ms. Miller exercised certain options they held in PPG
prior to the Merger. Therefore, such options are not required to be
reported.
(2) Mr. Hultgren resigned as an executive officer of the Company on
November 1, 1998.
(3) There is no established trading market or market price for the
Company's Common Stock. Based on the last known bid quote for the
Common Stock of $0.005 ($0.10 if adjusted to reflect the 20-to-1
reverse stock split which occurred after the last bid), Ms. Miller's
option (exercisable at $1.20 per share) was not in-the-money as of
December 31, 1998.
EMPLOYMENT AGREEMENTS
The Company has no employment agreements. PPG has entered into employment
agreements with Ms. Miller and Mr. Peoples. The employment agreement between Mr.
Peoples and PPG was originally entered into in 1990 and its continues from year
to year unless terminated by either party at least 60 days prior to the end of
each contract year. The agreement contains non-competition and non-solicitation
covenants which continue in effect for a period ending one year after Mr.
Peoples ceases to be employed by PPG. If the employment of Mr. Peoples is
terminated unilaterally by Mr. Peoples or for cause by PPG, the Company has the
right to repurchase any Company stock then owned by Mr. Peoples. Under certain
circumstances upon termination, Mr. Peoples has the right to sell his stock back
to the Company. The Company has a right of first refusal with respect to any
share transfers of Company stock by Mr. Peoples. The employment agreement of Mr.
Peoples is currently being re-negotiated.
The employment agreement between Ms. Miller and PPG, as amended, was originally
entered into in 1990. The current term of the agreement expires in February 2000
and continues thereafter for successive one-year periods unless terminated by
either party at least 60 days prior to the end of the contract year. The
employment agreement of Ms. Miller contains the same non-competition,
non-solicitation, stock repurchase and other covenants as described above for
Mr. Peoples. Certain stock owned by Ms. Miller is excluded from the Company=s
repurchase rights.
Director Compensation. Directors do not receive compensation or fees for
attending Board meetings. Non-employee directors are reimbursed for certain
expenses in connection with attendance at Board and committee meetings. The 1998
Stock Plan permits granting of options to directors at the discretion of the
Board. On July 28, 1997, Mr. Bergstrom was granted a non-qualified option to
purchase 50,000 shares of the Common Stock of PPG at $1.25 per share. In
connection with the Merger and following the 20-to-1 reverse stock split, this
option converted into an option to purchase 54,375 shares of the Company's
Common Stock at $1.20 per share under the Company's 1998 Stock Plan. On October
30, 1997, Mr. Mayers was granted a non-qualified option to purchase 30,000
shares of the Common Stock of PPG at $1.25 per share. In connection with the
Merger and following the 20-to-1 reverse stock split, this option converted into
an option to purchase 32,625 shares of the Company's Common Stock at $1.20 per
share under the Company's 1998 Stock Plan.
20
<PAGE> 22
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information provided to the Company as to the
beneficial ownership of the Company's Capital Stock as of March 20, 1999 by (i)
the only shareholders known to the Company to hold 5% or more of such stock, and
each of the directors and officers of the Company individually and as a group.
<TABLE>
<CAPTION>
COMMON STOCK
UNDERLYING
COMMON CONVERTIBLE CONVERTIBLE STOCK
NAME STOCK STOCK AND STOCK OPTIONS TOTAL(%)(1)
- ---- ----- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
James J. Peoples . . . . . 0 652,640(2) 709,746 24.2%
Diane M. Miller . . . . . . 0 220,640(3) 256,259(6) 8.7%
Roy E. Mayers . . . . . . . 0 0 10,875(7) *
John C. Bergstrom . . . . . 0 4,840(4) 29,733(8) 1.0%
Anton J. Christianson . . . 0 1,680,000(5) 1,827,000 62.2%
William A. Hultgren . . . . 11,625 0 0 *
Directors and officers
as a group (5 persons). . . 0 2,558,120 2,833,613(9) 94.9%
</TABLE>
- -----------
* Less than 1%.
(1) Total percentage represents the percentage of Capital Stock on an
as-if-converted basis.
(2) Represents ownership of 460,000 shares of 1998 Convertible Stock and
192,640 shares of 1990 Convertible Stock.
(3) Represents ownership of 140,000 shares of 1998 Convertible Stock and
80,640 shares of 1990 Convertible Stock.
(4) Represents ownership of 4,840 shares of 1990 Convertible Stock.
(5) Represents ownership of 1,000,000 shares of 1990 Convertible Stock and
680,000 shares of 1993 Convertible Stock owned by Cherry Tree Ventures
III, LP, of which Mr. Christianson is Managing General Partner.
(6) Includes 16,313 shares of Common Stock subject to outstanding stock
options exercisable within 60 days.
(7) Consists of 10,875 shares of Common Stock subject to outstanding
stock options exercisable within 60 days.
(8) Includes 24,469 shares of Common Stock subject to outstanding stock
options exercisable within 60 days.
(9) Includes 51,657 shares of Common Stock subject to outstanding stock
options exercisable within 60 days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PPG and the Company have retained RiverPoint Investments, Inc., a company in
which John C. Bergstrom, an officer and director of the Company, is the majority
shareholder, for certain consulting services. The Company pays $4,000 per month
for such services.
In July 1998, prior to the Merger, Mr. Peoples and Ms. Miller each exercised a
stock option to purchase 50,000 shares of PPG shares at $1.25 per share. These
options had been granted to Mr. Peoples and Ms. Miller in 1993. PPG loaned each
of Mr. Peoples and Ms. Miller $62,500 to exercise such options. The nonrecourse
promissory
21
<PAGE> 23
notes evidencing such loans together with the interest accruing at 6% per annum
are due and payable on July 31, 2003.
Following the Merger, the Company's Board of Directors approved an agreement
pursuant to which Mr. Hultgren, the former CEO of the Company, acquired
substantially all of the Company's pre-Merger assets in exchange for the
assumption of all liabilities of the Company as of the effective time of the
Merger on November 1, 1998, except certain specified liabilities related to
consummating the Merger.
ITEM 13. EXHIBITS
(a) Exhibits.
The following exhibits are included with this Annual Report on Form 10-KSB (or
incorporated by reference) as required by Item 601 of Regulation S-B.
EXHIBIT
NO. DESCRIPTION
3.1 Restated Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1 Designation of 1998 Convertible Stock (incorporated by reference to
Exhibit 4.4 to the Registrant's Form 10-KSB for the years ended
December 31, 1997, 1996 and 1995).
4.2 Designation of 1990 and 1993 Redeemable Cumulative Convertible Stock
(incorporated by reference to Exhibit 4.5 to the Registrant's 10-KSB
for the years ended December 31, 1997, 1996 and 1995).
4.3 Certificate of Articles of Correction with respect to the Designation
of 1990 and 1993 Redeemable Cumulative Convertible Stock.
10.1 Registrant's 1998 Stock Plan.
10.2 Amended and Restated Agreement and Plan of Merger dated as of June 4,
1998, between the Registrant, Peoples Acquisition Corporation and The
Peoples Publishing Group, Inc. (incorporated by reference to Exhibit
10.6 to the Registrant's Form 10-KSB for the years ended December 31,
1997, 1996 and 1995).
10.2 Employment Agreement between The Peoples Publishing Group, Inc. and
James J. Peoples.
10.3 Employment Agreement between The Peoples Publishing Group, Inc. and
Diane M. Miller
16.1 Letter dated February 14, 1995 from Fox, McCue and Company, P.A.
(incorporated by reference to the Registrant's Form 8-K with a date of
report of January 9, 1995 filed with the SEC).
16.2 Letter on Change in Certifying Accountant (incorporated by reference to
Exhibit 16 to the Amendment No. 1 to Registrant's Form 10-KSB for the
years ended December 31, 1997, 1996 and 1995).
21 Subsidiaries of the Registrant: The Peoples Publishing Group, Inc.,
a Delaware corporation.
27 Financial Data Schedule.
22
<PAGE> 24
99.1 The Registrant's Audited Financial Statements for the Year Ended
December 31, 1998, with notes thereto and the auditor's report thereon.
(b) Reports on Form 8-K.
On November 16, 1998, the Company filed a current report on Form 8-K to report
the Merger under Items 1 and 2 of the Form 8-K. Under Item 7, the Company
indicated that the financial statements required to be filed as a result of the
Merger would be filed within 60 days and they subsequently were filed in such
60-day period on January 15, 1999. The Company also made reference to prior
disclosures regarding a change in accountants under Item 4 of the Form 8-K.
23
<PAGE> 25
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PEOPLES EDUCATIONAL HOLDINGS, INC.
Date: March 31, 1999
/s/ James J. Peoples
---------------------------------------------
James J. Peoples, Chairman, Chief Executive
Officer and President
/s/ Diane M. Miller
---------------------------------------------
Diane M. Miller, Executive Vice President
and Director
/s/ John C. Bergstrom
---------------------------------------------
John C. Bergstrom, Secretary, Chief Financial
Officer and Director
/s/ Anton J. Christianson
---------------------------------------------
Anton J. Christianson, Director
---------------------------------------------
Roy E. Mayers, Director
24
<PAGE> 26
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS.
The proxy statement sent to the Issuer's shareholders in connection
with the Regular Meeting of Shareholders held on December 22, 1998 has been
supplementally provided to the SEC as required under this caption.
25
<PAGE> 1
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
PEOPLES EDUCATIONAL HOLDINGS, INC.
ARTICLE 1 - NAME
1.1) The name of the corporation shall be Peoples Educational Holdings,
Inc.
ARTICLE 2 - REGISTERED OFFICE
2.1) The registered office of the corporation is located at: Riverpoint
Investments, Inc., 2160 World Trade Center, St. Paul, MN 55101.
ARTICLE 3 - CAPITAL STOCK
3.1) Authorized Shares; Establishment of Classes and Series. The
aggregate number of shares the corporation has authority to issue shall be
25,000,000 shares, par value $.02, consisting of 15,000,000 common shares and
10,000,000 undesignated shares. The Board of Directors is authorized to
establish from the undesignated shares, by resolution adopted and filed in the
manner provided by law, one or more classes or series of shares (which may
include but is not limited to designation as additional common shares), and to
fix the relative rights and preferences of each such class or series.
3.2) Issuance of Shares. The Board of Directors of the corporation is
authorized from time to time to accept subscriptions for, issue, sell and
deliver shares of any class or series of the corporation to such persons, at
such times and upon such terms and conditions as the Board shall determine,
valuing all nonmonetary consideration and establishing a price in money or other
consideration, or a minimum price, or a general formula or method by which the
price will be determined.
3.3) Issuance of Rights to Purchase Shares. The Board of Directors is
further authorized from time to time to grant and issue rights to subscribe for,
purchase, exchange securities for, or convert securities into, shares of the
corporation of any class or series, and to fix the terms, provisions and
conditions of such rights, including the exchange or conversion basis or the
price at which such shares may be purchased or subscribed for.
ARTICLE 4 - RIGHTS OF SHAREHOLDERS
<PAGE> 2
4.1) Preemptive Rights. No shares of any class or series of the
corporation shall entitle the holders to any preemptive rights to subscribe for
or purchase additional shares of that class or series or any other class or
series of the corporation now or hereafter authorized or issued.
4.2) No Cumulative Voting Rights. There shall be no cumulative voting
by the shareholders of the corporation.
ARTICLE 5 - WRITTEN ACTION BY DIRECTORS
5.1) Any action required or permitted to be taken at a Board meeting
may be taken by written action signed by all of the directors or, in cases where
the action need not be approved by the shareholders, by written action signed by
the number of directors that would be required to take the same action at a
meeting of the Board at which all directors were present.
ARTICLE 6 - MERGER, EXCHANGE, SALE OF ASSETS AND DISSOLUTION
6.1) Where approval of shareholders is required by law, the affirmative
vote of the holders of at least a majority of the voting power of all shares
entitled to vote shall be required to authorize the corporation (i) to merge
into or with one or more other corporations, (ii) to exchange its shares for
shares of one or more other corporations, (iii) to sell, lease, transfer or
otherwise dispose of all or substantially all of its property and assets,
including its good will, or (iv) to commence voluntary dissolution.
ARTICLE 7 - AMENDMENT OF ARTICLES OF INCORPORATION
7.1) Any provision contained in these Articles of Incorporation may be
amended, altered, changed or repealed by the affirmative vote of the holders of
at least a majority of the voting power of the shares present and entitled to
vote at a duly held meeting or such greater percentage as may be otherwise
prescribed by the laws of the State of Minnesota.
ARTICLE 8 - ELIMINATION OF LIABILITY
8.1) No director of the corporation shall have personal liability to
the corporation or its shareholders for monetary damages for any breach of
fiduciary duty, except for the following:
(a) any breach of a director's duty of loyalty to the corporation or
its shareholders;
(b) any act or omission not in good faith, or that involved intentional
misconduct or a knowing violation of law;
2
<PAGE> 3
(c) any act prohibited under or regulated by Minnesota Statutes Section
302A.559 concerning illegal distributions to shareholders, or by Minnesota
Statutes Section 80A.23 concerning securities violations; or
(d) any transaction from which the director derives an improper
personal benefit.
Any repeal or modification of this Article 8 by the shareholders of the
corporation shall be prospective only and shall not adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such repeal or modification.
3
<PAGE> 1
Exhibit 3.2
RESTATED BYLAWS
OF
PEOPLES EDUCATIONAL HOLDINGS, INC.
ARTICLE 1.
OFFICES
1.1) Offices. The principal executive office of the corporation shall
be 2626 E. 82nd Street, Bloomington, Minnesota, and the corporation may have
offices at such other places within or without the State of Minnesota as the
Board of Directors shall from time to time determine or the business of the
corporation requires.
ARTICLE 2.
MEETINGS OF SHAREHOLDERS
2.1) Regular Meetings. Regular meetings of the shareholders of the
corporation entitled to vote shall be held on an annual or other less frequent
basis as shall be determined by the Board of Directors or by the chief executive
officer; provided, that if a regular meeting has not been held during the
immediately preceding 15 months, a shareholder or shareholders holding 3% or
more of the voting power of all shares entitled to vote may demand a regular
meeting of shareholders by written notice of demand given to an officer of the
corporation. At each regular meeting, the shareholders, voting as provided in
the Articles of Incorporation and these Bylaws, shall elect qualified successors
for directors who serve for an indefinite term or whose terms have expired or
are due to expire within six months after the date of the meeting, and shall
transact such other business as shall come before the meeting. No meeting shall
be considered a regular meeting unless specifically designated as such in the
notice of meeting or unless all the shareholders entitled to vote are present in
person or by proxy and none of them objects to such designation.
2.2) Special Meetings. Special meetings of the shareholders entitled to
vote may be called at any time by the Chairman of the Board, the chief executive
officer, the chief financial officer, two or more directors, or a shareholder or
shareholders holding ten percent (10%) or more of the voting power of all shares
entitled to vote.
2.3) Place of Meetings. Meetings of the shareholders shall be held at
the principal executive office of the corporation or such other place, within or
without the State of Minnesota, as is designated by the Board of Directors,
except that a regular meeting called by or at the demand of a shareholder shall
be held in the county where the principal executive office of the corporation is
located.
<PAGE> 2
2.4) Notice of Meetings. There shall be mailed to each holder of shares
entitled to vote, at his address as shown by the books of the corporation, a
notice setting out the place, date and hour of any regular or special meeting,
which notice shall be mailed not less than ten (10) days nor more than sixty
(60) days prior to the date of the meeting; provided, that notice of a meeting
at which there is to be considered a proposal (i) to dispose of all, or
substantially all, of the property and assets of the corporation or (ii) to
dissolve the corporation shall be mailed to all shareholders of record, whether
or not entitled to vote; and provided further, that notice of a meeting at which
there is to be considered a proposal to adopt a plan of merger or exchange shall
be mailed to all shareholders of record, whether or not entitled to vote, at
least fourteen (14) days prior thereto. Notice of any special meeting shall
state the purpose or purposes of the proposed meeting, and the business
transacted at all special meetings shall be confined to the purposes stated in
the notice, unless all of the shareholders are present in person or by proxy and
none of them objects to consideration of a particular item of business.
Attendance at a meeting by any shareholder, without objection by him, shall
constitute his waiver of notice of the meeting.
2.5) Quorum and Adjourned Meeting. The holders of a majority of the
voting power of the shares entitled to vote at a meeting, represented either in
person or by proxy, shall constitute a quorum for the transaction of business at
any regular or special meeting of shareholders. If a quorum is present when a
duly called or held meeting is convened, the shareholders present may continue
to transact business until adjournment, even though the withdrawal of a number
of shareholders originally present leaves less than the proportion or number
otherwise required for a quorum. In case a quorum is not present at any meeting,
those present shall have the power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until the requisite
number of shares entitled to vote shall be represented. At such adjourned
meeting at which the required amount of shares entitled to vote shall be
represented, any business may be transacted which might have been transacted at
the original meeting.
2.6) Voting. At each meeting of the shareholders, every shareholder
having the right to vote shall be entitled to vote in person or by proxy duly
appointed by an instrument in writing subscribed by such shareholder. Each
shareholder shall have one (1) vote for each share having voting power standing
in his name on the books of the corporation except as may be otherwise provided
in the terms of the share or as may be required to provide for cumulative voting
(if not denied by the Articles). Upon the demand of any shareholder, the vote
for directors or the vote upon any question before the meeting shall be by
ballot. All elections shall be determined and all questions decided by a
majority vote of the number of shares entitled to vote and represented at any
meeting at which there is a quorum except in such cases as shall otherwise be
required by statute, the Articles of Incorporation or these Bylaws. Except as
may otherwise be required to conform to cumulative voting procedures, directors
shall be elected by a plurality of the votes cast by holders of shares entitled
to vote thereon.
2.7) Record Date. The Board of Directors may fix a time, not exceeding
sixty (60) days preceding the date of any meeting of shareholders, as a record
date for the determination of
2
<PAGE> 3
the shareholders entitled to notice of and entitled to vote at such meeting,
notwithstanding any transfer of any shares on the books of the corporation after
any record date so fixed. The Board of Directors may close the books of the
corporation against transfer of shares during the whole or any part of such
period. In the absence of action by the Board, only shareholders of record
twenty (20) days prior to a meeting may vote at such meeting.
2.8) Order of Business. The suggested order of business at any regular
meeting and, to the extent appropriate, at all other meetings of the
shareholders shall, unless modified by the presiding chairman, be:
(a) Call of roll
(b) Proof of due notice of meeting or waiver of notice
(c) Determination of existence of quorum
(d) Reading and disposal of any unapproved minutes
(e) Reports of officers and committees
(f) Election of directors
(g) Unfinished business
(h) New business
(i) Adjournment.
ARTICLE 3.
DIRECTORS
3.1) General Powers. Except as authorized by the shareholders pursuant
to a shareholder control agreement or unanimous affirmative vote, the business
and affairs of the corporation shall be managed by or under the direction of a
Board of Directors.
3.2) Number, Term and Qualifications. The Board of Directors shall
consist of one or more members. The number of members of the first Board (if not
named in the Articles of Incorporation) shall be determined by the incorporators
or shareholders. Thereafter, at each regular meeting, the shareholders shall
determine the number of directors; provided, that between regular meetings the
authorized number of directors may be increased or decreased by the shareholders
or increased by the Board of Directors. Each director shall serve for an
indefinite term that expires at the next regular meeting of shareholders, and
until his successor is elected and qualified, or until his earlier death,
resignation, disqualification, or removal as provided by statute.
3.3) Vacancies. Vacancies on the Board of Directors shall be filled by
the affirmative vote of a majority of the remaining members of the Board, though
less than a quorum; provided, that newly created directorships resulting from an
increase in the authorized number of directors shall be filled by the
affirmative vote of a majority of the directors serving at the time of such
increase. Persons so elected shall be directors until their successors are
elected by the
3
<PAGE> 4
shareholders, who may make such election at the next regular or special meeting
of the shareholders.
3.4) Quorum and Voting. A majority of the directors currently holding
office shall constitute a quorum for the transaction of business. Except as
otherwise provided in the Articles of Incorporation or these Bylaws, the acts of
a majority of the directors present at a meeting at which a quorum is present
shall be the acts of the Board of Directors.
3.5) Board Meetings; Place and Notice. Meetings of the Board of
Directors may be held from time to time at any place within or without the State
of Minnesota that the Board of Directors may designate. In the absence of
designation by the Board of Directors, Board meetings shall be held at the
principal executive office of the corporation, except as may be otherwise
unanimously agreed orally, or in writing, or by attendance. Any director may
call a Board meeting by giving twenty-four (24) hours notice to all directors of
the date and time of the meeting. The notice need not state the purpose of the
meeting, and may be given by mail, telephone, telegram, or in person. If a
meeting schedule is adopted by the Board, or if the date and time of a Board
meeting has been announced at a previous meeting, no notice is required.
3.6) Absent Directors. A director may give advance written consent or
opposition to a proposal to be acted on at a Board meeting. If the director is
not present at the meeting, consent or opposition to a proposal does not
constitute presence for purposes of determining the existence of a quorum, but
consent or opposition shall be counted as a vote in favor of or against the
proposal and shall be entered in the minutes of the meeting, if the proposal
acted on at the meeting is substantially the same or has substantially the same
effect as the proposal to which the director has consented or objected.
3.7) Compensation. Directors who are not salaried officers of the
corporation shall receive such fixed sum per meeting attended or such fixed
annual sum or both as shall be determined from time to time by resolution of the
Board of Directors. Nothing herein contained shall be construed to preclude any
director from serving this corporation in any other capacity and receiving
proper compensation therefor.
3.8) Committees. The Board of Directors may, by resolution approved by
the affirmative vote of a majority of the Board, establish committees having the
authority of the Board in the management of the business of the corporation only
to the extent provided in the resolution. Each such committee shall consist of
one or more natural persons (who need not be directors) appointed by affirmative
vote of a majority of the directors present, and shall be subject at all times
to the direction and control of the Board. A majority of the members of a
committee present at a meeting shall constitute a quorum for the transaction of
business.
3.9) Committee of Disinterested Persons. The Board may establish a
committee composed of two or more disinterested directors or other disinterested
persons to determine whether it is in the best interests of the corporation to
pursue a particular legal right or remedy of
4
<PAGE> 5
the corporation and whether to cause the dismissal or discontinuance of a
particular proceeding that seeks to assert a right or remedy on behalf of the
corporation. For purposes of this section, a director or other person is
"disinterested" if the director or other person is not the owner of more than
one percent of the outstanding shares of, or a present or former officer,
employee, or agent of, the corporation or of a related corporation and has not
been made or threatened to be made a party to the proceeding in question. The
committee, once established, is not subject to the direction or control of, or
termination by, the Board. A vacancy on the committee may be filled by a
majority vote of the remaining members. The good faith determinations of the
committee are binding upon the corporation and its directors, officers and
shareholders. The committee terminates when it issues a written report of its
determinations to the Board.
3.10) Order of Business. The suggested order of business at any meeting
of the Board of Directors shall, to the extent appropriate and unless modified
by the presiding chairman, be:
(a) Roll call
(b) Proof of due notice of meeting or waiver of notice, or
unanimous presence and declaration by presiding chairman
(c) Determination of existence of quorum
(d) Reading and disposal of any unapproved minutes
(e) Reports of officers and committees
(f) Election of officers
(g) Unfinished business
(h) New business
(i) Adjournment.
ARTICLE 4.
OFFICERS
4.1) Number and Designation. The corporation shall have one or more
natural persons exercising the functions of the offices of chief executive
officer and chief financial officer. The Board of Directors may elect or appoint
such other officers or agents as it deems necessary for the operation and
management of the corporation including, but not limited to, a Chairman of the
Board, a President, one or more Vice Presidents, a Secretary and a Treasurer,
each of whom shall have the powers, rights, duties and responsibilities set
forth in these Bylaws unless otherwise determined by the Board. Any of the
offices or functions of those offices may be held by the same person.
4.2) Election, Term of Office and Qualification. At the first meeting
of the Board following each election of directors, the Board shall elect
officers, who shall hold office until the next election of officers or until
their successors are elected or appointed and qualify; provided, however, that
any officer may be removed with or without cause by the affirmative vote of a
5
<PAGE> 6
majority of the Board of Directors present (without prejudice, however, to any
contract rights of such officer).
4.3) Resignation. Any officer may resign at any time by giving written
notice to the corporation. The resignation is effective when notice is given to
the corporation, unless a later date is specified in the notice, and acceptance
of the resignation shall not be necessary to make it effective.
4.4) Vacancies in Office. If there be a vacancy in any office of the
corporation, by reason of death, resignation, removal or otherwise, such vacancy
shall be filled for the unexpired term by the Board of Directors.
4.5) Chief Executive Officer. Unless provided otherwise by a resolution
adopted by the Board of Directors, the chief executive officer (a) shall have
general active management of the business of the corporation; (b) shall, when
present and in the absence of the Chairman of the Board, preside at all meetings
of the shareholders and Board of Directors; (c) shall see that all orders and
resolutions of the Board are carried into effect; (d) shall sign and deliver in
the name of the corporation any deeds, mortgages, bonds, contracts or other
instruments pertaining to the business of the corporation, except in cases in
which the authority to sign and deliver is required by law to be exercised by
another person or is expressly designated by the Articles, these Bylaws or the
Board to some other officer or agent of the corporation; (e) may maintain
records of and certify proceedings of the Board and shareholders; and (f) shall
perform such other duties as may from time to time be assigned to him by the
Board.
4.6) Chief Financial Officer. Unless provided otherwise by a resolution
adopted by the Board of Directors, the chief financial officer (a) shall keep
accurate financial records for the corporation; (b) shall deposit all monies,
drafts and checks in the name of and to the credit of the corporation in such
banks and depositories as the Board of Directors shall designate from time to
time; (c) shall endorse for deposit all notes, checks and drafts received by the
corporation as ordered by the Board, making proper vouchers therefor; (d) shall
disburse corporate funds and issue checks and drafts in the name of the
corporation, as ordered by the Board; (e) shall render to the chief executive
officer and the Board of Directors, whenever requested, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation; and (f) shall perform such other duties as may be prescribed by the
Board of Directors or the chief executive officer from time to time.
4.7) Chairman of the Board. The Chairman of the Board shall preside at
all meetings of the shareholders and of the Board and shall exercise general
supervision and direction over the more significant matters of policy affecting
the affairs of the corporation, including particularly its financial and fiscal
affairs.
4.8) President. Unless otherwise determined by the Board, the President
shall be the chief executive officer. If an officer other than the President is
designated chief executive
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<PAGE> 7
officer, the President shall perform such duties as may from time to time be
assigned to him by the Board.
4.9) Vice President. Each Vice President shall have such powers and
shall perform such duties as may be specified in these Bylaws or prescribed by
the Board of Directors. In the event of absence or disability of the President,
the Board of Directors may designate a Vice President or Vice Presidents to
succeed to the power and duties of the President.
4.10) Secretary. The Secretary shall, unless otherwise determined by
the Board, be secretary of and attend all meetings of the shareholders and Board
of Directors, and may record the proceedings of such meetings in the minute book
of the corporation and, whenever necessary, certify such proceedings. The
Secretary shall give proper notice of meetings of shareholders and shall perform
such other duties as may be prescribed by the Board of Directors or the chief
executive officer from time to time.
4.11) Treasurer. Unless otherwise determined by the Board, the
Treasurer shall be the chief financial officer of the corporation. If an officer
other than the Treasurer is designated chief financial officer, the Treasurer
shall perform such duties as may be prescribed by the Board of Directors or the
chief executive officer from time to time.
4.12) Delegation. Unless prohibited by a resolution approved by the
affirmative vote of a majority of the directors present, an officer elected or
appointed by the Board may delegate in writing some or all of the duties and
powers of his office to other persons.
ARTICLE 5.
INDEMNIFICATION
5.1) The corporation shall indemnify such persons, for such expenses
and liabilities, in such manner, under such circumstances, and to such extent,
as permitted by Minnesota Statutes, Section 302A.521, as now enacted or
hereafter amended.
ARTICLE 6.
SHARES AND THEIR TRANSFER
6.1) Certificate of Stock. Every owner of stock of the corporation
shall be entitled to a certificate, in such form as the Board of Directors may
prescribe, certifying the number of shares of stock of the corporation owned by
him. The certificates for such stock shall be numbered (separately for each
class) in the order in which they are issued and shall, unless otherwise
determined by the Board, be signed by the chief executive officer, the chief
financial officer, or any other officer of the corporation. A signature upon a
certificate may be a facsimile. Certificates on which a facsimile signature of a
former officer, transfer agent or registrar appears
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<PAGE> 8
may be issued with the same effect as if he were such officer, transfer agent or
registrar on the date of issue.
6.2) Stock Record. As used in these Bylaws, the term "shareholder"
shall mean the person, firm or corporation in whose name outstanding shares of
capital stock of the corporation are currently registered on the stock record
books of the corporation. The corporation shall keep, at its principal executive
office or at another place or places within the United States determined by the
Board, a share register not more than one year old containing the names and
addresses of the shareholders and the number and classes of shares held by each
shareholder. The corporation shall also keep at its principal executive office
or at another place or places within the United States determined by the Board,
a record of the dates on which certificates representing shares were issued.
Every certificate surrendered to the corporation for exchange or transfer shall
be cancelled and no new certificate or certificates shall be issued in exchange
for any existing certificate until such existing certificate shall have been so
cancelled (except as provided for in Section 6.4 of this Article 6).
6.3) Transfer of Shares. Transfer of shares on the books of the
corporation may be authorized only by the shareholder named in the certificate
(or his legal representative or duly authorized attorney-in-fact) and upon
surrender for cancellation of the certificate or certificates for such shares.
The shareholder in whose name shares of stock stand on the books of the
corporation shall be deemed the owner thereof for all purposes as regards the
corporation; provided, that when any transfer of shares shall be made as
collateral security and not absolutely, such fact, if known to the corporation
or to the transfer agent, shall be so expressed in the entry of transfer; and
provided, further, that the Board of Directors may establish a procedure whereby
a shareholder may certify that all or a portion of the shares registered in the
name of the shareholder are held for the account of one or more beneficial
owners.
6.4) Lost Certificate. Any shareholder claiming a certificate of stock
to be lost or destroyed shall make an affidavit or affirmation of that fact in
such form as the Board of Directors may require, and shall, if the directors so
require, give the corporation a bond of indemnity in form and with one or more
sureties satisfactory to the Board of at least double the value, as determined
by the Board, of the stock represented by such certificate in order to indemnify
the corporation against any claim that may be made against it on account of the
alleged loss or destruction of such certificate, whereupon a new certificate may
be issued in the same tenor and for the same number of shares as the one alleged
to have been destroyed or lost.
ARTICLE 7.
GENERAL PROVISIONS
7.1) Distributions: Acquisitions of Shares. Subject to the provisions
of law, the Board of Directors may authorize the acquisition of the
corporation's shares and may authorize the acquisition of the corporation's
shares and may authorize distributions whenever and in such amounts as, in its
opinion, the condition of the affairs of the corporation shall render it
advisable.
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<PAGE> 9
7.2) Fiscal Year. The fiscal year of the corporation shall be
established by the Board of Directors.
7.3) Seal. The corporation shall have such corporate seal or no
corporate seal as the Board of Directors shall from time to time determine.
7.4) Securities of Other Corporations.
(a) Voting Securities Held by the Corporation. Unless otherwise
ordered by the Board of Directors, the chief executive officer shall have full
power and authority on behalf of the corporation (i) to attend and to vote at
any meeting of security holders of other companies in which the corporation may
hold securities; (ii) to execute any proxy for such meeting on behalf of the
corporation; (iii) to execute a written action in lieu of a meeting of such
other company on behalf of this corporation. At such meeting, by such proxy or
by such writing in lieu of meeting, the chief executive officer shall possess
and may exercise any and all rights and powers incident to the ownership of such
securities that the corporation might have possessed and exercised if it had
been present. The Board of Directors may from time to time confer like powers
upon any other person or persons.
(b) Purchase and Sale of Securities. Unless otherwise ordered by the
Board of Directors, the chief executive officer shall have full power and
authority on behalf of the corporation to purchase, sell, transfer or encumber
any and all securities of any other company owned by the corporation and may
execute and deliver such documents as may be necessary to effectuate such
purchase, sale, transfer or encumbrance. The Board of Directors may from time to
time confer like powers upon any other person or persons.
7.5) Shareholder Agreements. In the event of any conflict or
inconsistency between these Bylaws, or any amendment thereto, and any
shareholder control agreement, whenever adopted, such shareholder control
agreement shall govern.
ARTICLE 8.
MEETINGS
8.1) Waiver of Notice. Whenever any notice whatsoever is required to be
given by these Bylaws, the Articles of Incorporation or any of the laws of the
State of Minnesota, a waiver thereof given by the person or persons entitled to
such notice, whether before, at or after the time stated therein and either in
writing, orally or by attendance, shall be deemed equivalent to the actual
required notice.
8.2) Telephone Meetings and Participation. A conference among directors
by any means of communication through which the directors may simultaneously
hear each other during the conference constitutes a Board meeting, if the same
notice is given of the conference as would be required for a meeting, and if the
number of directors participating in the conference
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<PAGE> 10
would be sufficient to constitute a quorum at a meeting. Participation in a
meeting by that means constitutes presence in person at the meeting. A director
may participate in a Board meeting not heretofore described in this paragraph,
by any means of communication through which the director, other directors so
participating, and all directors physically present at the meeting
simultaneously hear each other during the meeting. Participation in a meeting by
that means constitutes presence in person at the meeting. The provisions of this
section shall apply to committees and members of committees to the same extent
as they apply to the Board of Directors.
8.3) Authorization Without Meeting. Any action of the shareholders, the
Board of Directors, or any committee of the corporation which may be taken at a
meeting thereof, may be taken without a meeting if authorized by a writing
signed by all of the holders of shares who would be entitled to vote on such
action, by all of the directors (unless less than unanimous action is permitted
by the Articles of Incorporation), or by all of the members of such committee,
as the case may be.
ARTICLE 9.
AMENDMENTS OF BYLAWS
9.1) Amendments. Unless the Articles of Incorporation provide
otherwise, these Bylaws may be altered, amended, added to or repealed by the
affirmative vote of a majority of the members of the Board of Directors. Such
authority in the Board of Directors is subject to the power of the shareholders
to change or repeal such Bylaws, and the Board of Directors shall not make or
alter any Bylaws fixing a quorum for meetings of shareholders, prescribing
procedures for removing directors or filling vacancies on the Board, or fixing
the number of directors or their classifications, qualifications or terms of
office, but the Board may adopt or amend a Bylaw to increase the number of
directors.
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<PAGE> 1
EXHIBIT 4.3
CERTIFICATE OF
ARTICLES OF CORRECTION FILED TO CORRECT
CERTAIN ERRORS IN THE CERTIFICATE FIXING
RIGHTS AND PRIVILEGES OF
REDEEMABLE CONVERTIBLE STOCK OF
CONCOURSE CORPORATION
Concourse Corporation, a corporation organized and existing
under and by virtue of the laws of the State of Minnesota (the "Company"),
DOES HEREBY CERTIFY:
1. The name of the corporation is Concourse Corporation.
2. That a Certificate Fixing the Rights and Privileges of
Redeemable Convertible Stock (the "Certificate of Designation") was filed by the
Company with the Secretary of State of Minnesota on September 29, 1998, and the
Certificate of Designation requires corrections as permitted by Section 5.16 of
the Minnesota Statutes.
3. The inaccuracies or defects of the Certificate of
Designation to be corrected are as follows:
(a) Section B(4)(c)(1) of the Certificate of Designation shall be corrected as
marked below by underlined text, so that the first sentence of such Section
(B)(4)(c)(1) of the Certificate of Designation shall thereafter read in its
entirety as follows:
"(1) Optional Conversion. Each share of Convertible Stock
shall initially be convertible at the option of the holder thereof into 21.75
shares of Common Stock of the Corporation, on the terms provided in Subsection
B.4(c) hereof."
(b) Section B(4)(c)(3) of the Certificate of Designation shall be corrected as
marked below by underlined text, so that the first paragraph of such Section
(B)(4)(c)(3) of the Certificate of Designation shall thereafter read in its
entirety as follows:
"(3) Adjustment. The number of shares of Common Stock issuable
in exchange for each share of 1990 Convertible Stock upon the exercise of these
conversion rights shall initially be equal to the product of (i) 21.75 times
(ii) a fraction the numerator of which is $0.84624 and the denominator of which
is the 1990 Conversion Price then in effect. The 1990 Conversion Price for the
1990 Convertible Stock shall initially be $0.84624 per share, but shall be
subject to adjustment from time to time as hereinafter provided. The number of
shares of Common Stock issuable in exchange for each share of 1993 Convertible
Stock upon the exercise of these conversion rights shall initially be equal to
the product of (i) 21.75 times (ii) a fraction the numerator of which is $1.25
and the denominator of which is the 1993 Conversion Price then in effect. The
1993 Conversion Price for the 1993 Convertible Stock shall initially be $1.25
per share, but shall be subject to adjustment from time to time as hereinafter
provided (the 1990 Conversion Price and the 1993 Conversion Price are referred
to collectively herein as the "Conversion Prices.")."
<PAGE> 1
EXHIBIT 10.1
PEOPLES EDUCATIONAL HOLDINGS, INC.
1998 STOCK PLAN
<PAGE> 2
<TABLE>
<CAPTION>
SECTION CONTENTS PAGE
<S> <C> <C>
1. General Purpose of Plan; Definitions 1
2. Administration 3
3. Stock Subject to Plan 4
4. Eligibility 4
5. Stock Options 5
6. Restricted Stock 8
7. Transfer, Leave of Absence, etc. 10
8. Amendments and Termination 10
9. Unfunded Status of Plan 10
10. General Provisions 11
11. Effective Date of Plan 12
</TABLE>
<PAGE> 3
PEOPLES EDUCATIONAL HOLDINGS, INC.
1998 STOCK PLAN
SECTION 1. General Purpose of Plan; Definitions.
The name of this plan is the Peoples Educational Holdings, Inc. 1998 Stock
Plan (the "Plan"). The purpose of the Plan is to enable Peoples Educational
Holdings, Inc. (the "Company") and its Subsidiaries to retain and attract
executives, other key employees, consultants and directors who contribute to the
Company's success by their ability, ingenuity and industry, and to enable such
individuals to participate in the long-term success and growth of the Company by
giving them a proprietary interest in the Company.
For purposes of the Plan, the following terms shall be defined as set forth
below:
a. "Board" means the Board of Directors of the Company.
b. "Cause" means a felony conviction of a participant or the failure of a
participant to contest prosecution for a felony, or a participant's
willful misconduct or dishonesty, any of which is directly and
materially harmful to the business or reputation of the Company.
c. "Code" means the Internal Revenue Code of 1986, as amended.
d. "Committee" means the Committee referred to in Section 2 of the Plan.
If at any time no Committee shall be in office, then the functions of
the Committee specified in the Plan shall be exercised by the Board.
e. "Company" means Peoples Educational Holdings, Inc., a corporation
organized under the laws of the State of Minnesota (or any successor
corporation).
f. "Disability" means permanent and total disability as determined by the
Committee.
g. "Early Retirement" means retirement, with consent of the Committee at
the time of retirement, from active employment with the Company and
any Subsidiary or Parent Corporation of the Company.
h. "Fair Market Value" means the value of the Stock on a given date as
determined by the Committee in accordance with Section 422 of the Code
and any applicable Treasury Department regulations with respect to
"incentive stock options."
<PAGE> 4
i. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of
Section 422 of the Code.
j. "Non-Employee Director" means a "Non-Employee Director" within the
meaning of Rule 16b-3(b)(3) of the Securities Exchange Act, as
amended, or any successor rule.
k. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option, and is intended to be and is designated as a
"Non-Qualified Stock Option."
l. "Normal Retirement" means retirement from active employment with the
Company and any Subsidiary or Parent Corporation of the Company on or
after age 65.
m. "Outside Director" means a director who (a) is not a current employee
of the Company or any member of an affiliated group which includes the
Company; (b) is not a former employee of the Company who receives
compensation for prior services (other than benefits under a
tax-qualified retirement plan) during the taxable year; (c) has not
been an officer of the Company; (d) does not receive remuneration from
the Company, either directly or indirectly, in any capacity other than
as a director, except as otherwise permitted under Code Section 162(m)
and regulations thereunder. For this purpose, remuneration includes
any payment in exchange for goods or services. This definition shall
be further governed by the provisions of Code Section 162(m) and
regulations promulgated thereunder.
n. "Parent Corporation" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if each of
the corporations (other than the Company) owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one
of the other corporations in the chain.
o. "Restricted Stock" means an award of shares of Stock that are subject
to restrictions under Section 6 below.
p. "Retirement" means Normal Retirement or Early Retirement.
q. "Stock" means the Common Stock, $.01 par value per share, of the
Company.
r. "Stock Option" means any option to purchase shares of Stock granted
pursuant to Section 5 below.
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<PAGE> 5
s. "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of
the corporations (other than the last corporation in the unbroken
chain) owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the
chain.
SECTION 2. Administration.
The Plan shall be administered by the Board of Directors or by a Committee
appointed by the Board consisting of at least two directors, all of whom shall
be Outside Directors and Non-Employee Directors and who shall serve at the
pleasure of the Board. The Committee may be a subcommittee of the Compensation
Committee of the Board.
The Committee shall have the power and authority to grant to eligible
employees, consultants and directors pursuant to the terms of the Plan: (i)
Stock Options and (ii) Restricted Stock.
In particular, the Committee shall have the authority:
(i) to select the officers, other key employees, consultants and directors
of the Company and its Subsidiaries to whom Stock Options and/or
Restricted Stock awards may from time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, or Restricted Stock awards, or a
combination of the foregoing, are to be granted hereunder;
(iii) to determine the number of shares to be covered by each such award
granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the terms
of the Plan, of any award granted hereunder (including, but not
limited to, any restriction on any Stock Option or other award and/or
the shares of Stock relating thereto); and
(v) to determine whether, to what extent and under what circumstances
Stock and other amounts payable with respect to an award under this
Plan shall be deferred either automatically or at the election of the
participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The
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<PAGE> 6
Committee may delegate its authority to officers of the Company for the purpose
of selecting employees who are not officers of the Company for purposes of (i)
above.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and Plan
participants.
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<PAGE> 7
SECTION 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for distribution
under the Plan shall be 400,000(1). Such shares may consist, in whole or in
part, of authorized and unissued shares.
If any shares that have been optioned cease to be subject to Stock Options,
or if any shares subject to any Restricted Stock award granted hereunder are
forfeited or such award otherwise terminates without a payment being made to the
participant, such shares shall again be available for distribution in connection
with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, other change in corporate structure affecting
the Stock, or spin-off or other distribution of assets to shareholders, such
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option price of shares
subject to outstanding Stock Options granted under the Plan, and in the number
of shares subject to Restricted Stock awards granted under the Plan as may be
determined to be appropriate by the Committee, in its sole discretion, provided
that the number of shares subject to any award shall always be a whole number.
SECTION 4. Eligibility.
Officers, other key employees, consultants and members of the Board of the
Company and Subsidiaries who are responsible for or contribute to the
management, growth and/or profitability of the business of the Company and its
Subsidiaries are eligible to be granted Stock Options or Restricted Stock awards
under the Plan. The optionees and participants under the Plan shall be selected
from time to time by the Committee, in its sole discretion, from among those
eligible, and the Committee shall determine, in its sole discretion, the number
of shares covered by each award.
Notwithstanding the foregoing, no person shall receive grants of Stock
Options and Restricted Stock awards under this Plan which exceed 62,500(2)
shares during any fiscal year of the Company.
- -----------------
1 On December 22, 1998, the shareholders approved an increase in the reserved
shares to 8,000,000. As a result of the 20-to-1 reverse stock split, the
number of reserved shares adjusted to 400,000.
2 Adjusted for the reverse stock split.
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<PAGE> 8
SECTION 5. Stock Options.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock Options
shall be granted under the Plan after August 31, 2008.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of options. To the
extent that any option does not qualify as an Incentive Stock Option, it shall
constitute a separate Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised, so
as to disqualify either the Plan or any Incentive Stock Option under Section 422
of the Code. The preceding sentence shall not preclude any modification or
amendment to an outstanding Incentive Stock Option, whether or not such
modification or amendment results in disqualification of such Stock Option as an
Incentive Stock Option, provided the optionee consents in writing to the
modification or amendment.
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) Option Price. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Committee at the time of grant. In no
event shall the option price per share of Stock purchasable under an Incentive
Stock Option be less than 100% of the Fair Market Value of the Stock on the date
of the grant of the Stock Option. If an employee owns or is deemed to own (by
reason of the attribution rules applicable under Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of stock of the
Company or any Parent Corporation or Subsidiary and an Incentive Stock Option is
granted to such employee, the option price shall be no less than 110% of the
Fair Market Value of the Stock on the date the option is granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or any
Parent Corporation or Subsidiary and an Incentive Stock Option is granted to
such employee, the term of such option shall be no more than five years from the
date of grant.
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<PAGE> 9
(c) Exercisability. Stock Options shall be exercisable at such time or
times as determined by the Committee at or after grant. If the Committee
provides, in its discretion, that any option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time, provided, however, that unless the Stock Option has been approved by
the Board, the Committee or the shareholders of the Company, a Stock Option to a
director, officer or a 10% shareholder of the Company or its Subsidiaries shall
not be exercisable for a period of six (6) months after the date of the grant.
Notwithstanding the foregoing, unless the Stock Option Agreement provides
otherwise, any Stock Option granted under this Plan shall be exercisable in
full, without regard to any installment exercise or vesting provisions, for a
period specified by the Board, but not to exceed sixty (60) days nor be less
than seven (7) days, prior to the occurrence of any of the following events: (i)
dissolution or liquidation of the Company other than in conjunction with a
bankruptcy of the Company or any similar occurrence, (ii) any merger,
consolidation, acquisition, separation, reorganization, or similar occurrence,
where the Company will not be the surviving entity or (iii) the transfer of
substantially all of the assets of the Company or 75% or more of the outstanding
Stock of the Company; provided, however, the merger of Peoples Acquisition
Corporation, a wholly-owned subsidiary of the Company, with The Peoples
Publishing Group, Inc. and issuance of the Company's capital stock pursuant
thereto shall not trigger the foregoing accelerated rights to exercise.
(d) Method of Exercise. Stock Options may be exercised in whole or in part
at any time during the option period by giving written notice of exercise to the
Company specifying the number of shares to be purchased. Such notice shall be
accompanied by payment in full of the purchase price, either by certified or
bank check, or by any other form of legal consideration deemed sufficient by the
Committee and consistent with the Plan's purpose and applicable law, including
promissory notes or a properly executed exercise notice together with
irrevocable instructions to a broker acceptable to the Company to promptly
deliver to the Company the amount of sale or loan proceeds to pay the exercise
price. As determined by the Committee, in its sole discretion, payment in full
or in part may also be made in the form of unrestricted Stock already owned by
the optionee or Restricted Stock subject to an award hereunder (based on the
Fair Market Value of the Stock on the date the option is exercised, as
determined by the Committee); provided, however, that in the event payment is
made in the form of shares of Restricted Stock, the optionee will receive a
portion of the option shares in the form of, and in an amount equal to, the
Restricted Stock award tendered as payment by the optionee. If the terms of an
option so permit, or the Committee, in its sole discretion, so permits, an
optionee may elect to pay all or part of the option exercise price by having the
Company withhold from the shares of Stock that would otherwise be issued upon
exercise that number of shares of Stock having a Fair Market Value equal to the
aggregate option exercise price for the shares with respect to which such
election is made. No shares of Stock shall be issued until full payment therefor
has been made. An optionee generally shall have the rights to dividends and
other rights of a shareholder with respect to shares subject to the option when
the optionee has given written notice of exercise, has paid in full for such
shares, and, if requested, has given the representation described in paragraph
(a) of Section 10.
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<PAGE> 10
(e) Non-transferability of Options. No Stock Option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title 1 of the Employee Retirement Income Security Act, or the rules
thereunder, and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee.
(f) Termination by Death. If an optionee's employment by the Company and
any Subsidiary or Parent Corporation terminates by reason of death, the Stock
Option may thereafter be immediately exercised, to the extent then exercisable
(or on such accelerated basis as the Committee shall determine at or after
grant), by the legal representative of the estate or by the legatee of the
optionee under the will of the optionee, for a period of nine months (or such
shorter period as the Committee shall specify at grant) from the date of such
death or until the expiration of the stated term of the option, whichever period
is shorter.
(g) Termination by Reason of Disability. If an optionee's employment by the
Company and any Subsidiary or Parent Corporation terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to Disability
(or on such accelerated basis as the Committee shall determine at or after
grant), but may not be exercised after nine months (or such shorter period as
the Committee shall specify at grant) from the date of such termination of
employment or the expiration of the stated term of the option, whichever period
is shorter. In the event of termination of employment by reason of Disability,
if an Incentive Stock Option is exercised after the expiration of the exercise
periods that apply for purposes of Section 422 of the Code, the option will
thereafter be treated as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. Unless otherwise determined by the
Committee, if an optionee's employment by the Company and any Subsidiary or
Parent Corporation terminates by reason of Retirement, any Stock Option held by
such optionee may thereafter be exercised to the extent it was exercisable at
the time of such Retirement, but may not be exercised after three months (or
such shorter period as Committee shall specify at grant) from the date of such
termination of employment or the expiration of the stated term of the option,
whichever period is shorter. In the event of termination of employment by reason
of Retirement, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, the
option will thereafter be treated as a Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee, if an
optionee's employment by the Company and any Subsidiary or Parent Corporation
terminates for any reason other than death, Disability or Retirement, the Stock
Option may be exercised to the extent it was exercisable at such termination for
the lesser of three months or the balance of the option's term.
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(j) Annual Limit on Incentive Stock Options. The aggregate Fair Market
Value (determined as of the time the Option is granted) of the Common Stock with
respect to which an Incentive Stock Option under this Plan or any other plan of
the Company and any Subsidiary or Parent Corporation is exercisable for the
first time by an optionee during any calendar year shall not exceed $100,000.
SECTION 6. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be issued either alone
or in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company and Subsidiaries to
whom, and the time or times at which, grants of Restricted Stock will be made,
the number of shares to be awarded, the time or times within which such awards
may be subject to forfeiture, and all other conditions of the awards. The
Committee may also condition the grant of Restricted Stock upon the attainment
of specified performance goals. The provisions of Restricted Stock awards need
not be the same with respect to each recipient.
In the event that Restricted Stock awards are granted to members of the
Committee, such awards shall be granted by the Board.
(b) Awards and Certificates. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the then applicable terms and conditions.
(i) Each participant shall be issued a stock certificate in respect of
shares of Restricted Stock awarded under the Plan. Such certificate shall
be registered in the name of the participant, and shall bear an appropriate
legend referring to the terms, conditions, and restrictions applicable to
such award, substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Peoples Educational Holdings, Inc. 1998 Stock Plan
and an Agreement entered into between the registered owner and Peoples
Educational Holdings, Inc. Copies of such Plan and Agreement are on
file in the executive offices of Peoples Educational Holdings, Inc."
(ii) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the participant
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shall have delivered a stock power, endorsed in blank, relating to the
Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to the Plan shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award agreement,
during a period set by the Committee commencing with the date of such award
(the "Restriction Period"), the participant shall not be permitted to sell,
transfer, pledge or assign shares of Restricted Stock awarded under the
Plan. Within these limits, the Committee may provide for the lapse of such
restrictions in installments where deemed appropriate.
(ii) Except as provided in paragraph (c)(i) of this Section 6, the
participant shall have, with respect to the shares of Restricted Stock, all
of the rights of a shareholder of the Company, including the right to vote
the shares and the right to receive any cash dividends. The Committee, in
its sole discretion, may permit or require the payment of cash dividends to
be deferred and, if the Committee so determines, reinvested in additional
shares of Restricted Stock (to the extent shares are available under
Section 3 and subject to paragraph (f) of Section 10). Certificates for
shares of Unrestricted Stock shall be delivered to the grantee promptly
after, and only after, the period of forfeiture shall have expired without
forfeiture in respect of such shares of Restricted Stock.
(iii) Subject to the provisions of the award agreement and paragraph
(c)(iv) of this Section 6, upon termination of employment for any reason
during the Restriction Period, all shares still subject to restriction
shall thereupon be forfeited by the participant.
(iv) In the event of special hardship circumstances of a participant
whose employment is terminated (other than for Cause), including death,
Disability or Retirement, or in the event of an unforeseeable emergency of
a participant still in service, the Committee may, in its sole discretion,
when it finds that a waiver would be in the best interest of the Company,
waive in whole or in part any or all remaining restrictions with respect to
such participant's shares of Restricted Stock.
(v) All restrictions with respect to any participant's shares of
Restricted Stock shall lapse or be deemed to have lapsed or been terminated
on the tenth (10th) business day prior to the occurrence of any of the
following events: (i) dissolution or liquidation of the Company, other than
in conjunction with a bankruptcy of the Company or any similar occurrence,
(ii) any merger, consolidation, acquisition, separation, reorganization or
similar occurrence, where
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the Company will not be the surviving entity or (iii) the transfer of
substantially all of the assets of the Company or 75% or more of the
outstanding Stock of the Company.
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SECTION 7. Transfer, Leave of Absence, etc.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer of an employee from the Company to a Parent Corporation or
Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or from
one Subsidiary to another;
(b) a leave of absence, approved in writing by the Committee, for military
service or sickness, or for any other purpose approved by the Company if the
period of such leave does not exceed ninety (90) days (or such longer period as
the Committee may approve, in its sole discretion); and
(c) a leave of absence in excess of ninety (90) days, approved in writing
by the Committee, but only if the employee's right to reemployment is guaranteed
either by a statute or by contract, and provided that, in the case of any leave
of absence, the employee returns to work within 30 days after the end of such
leave.
SECTION 8. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made (i) which would impair the rights
of an optionee or participant under a Stock Option or Restricted Stock award
theretofore granted, without the optionee's or participant's consent, or (ii)
which without the approval of the stockholders of the Company would cause the
Plan to no longer comply with Rule 16b-3 under the Securities Exchange Act of
1934, Section 422 of the Code or any other regulatory requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights of any holder without his consent. The
Committee may also substitute new Stock Options for previously granted options,
including previously granted options having higher option prices.
SECTION 9. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder; provided,
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however, that the existence of such trusts or other arrangements is consistent
with the unfunded status of the Plan.
SECTION 10. General Provisions.
(a) The Committee may require each person purchasing shares pursuant to a
Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan pursuant to
any Restricted Stock awards shall be subject to such stock-transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Stock is then listed, and any applicable
Federal or state securities laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
(b) Subject to paragraph (d) below, recipients of Restricted Stock awards
under the Plan (not including Stock Options) are not required to make any
payment or provide consideration other than the rendering of services.
(c) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any employee of the Company or any subsidiary
any right to continued employment with the Company or a Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(d) Each participant shall, no later than the date as of which any part of
the value of an award first becomes includable as compensation in the gross
income of the participant for Federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Committee regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant. With respect to
any award under the Plan, if the terms of such award so permit, a participant
may elect by written notice to the Company to satisfy part or all of the
withholding tax requirements associated with the award by (i) authorizing the
Company to retain from the number of shares of Stock that would otherwise be
deliverable to the participant, or (ii) delivering to the Company from shares of
Stock already owned by the participant, that number of shares having an
aggregate Fair Market Value equal to part or all of the tax payable by
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<PAGE> 16
the participant under this Section 10(d). Any such election shall be in
accordance with, and subject to, applicable tax and securities laws, regulations
and rulings.
(e) At the time of grant, the Committee may provide in connection with any
grant or award made under this Plan that the shares of Stock received as a
result of such grant shall be subject to a repurchase right in favor of the
Company, pursuant to which the participant shall be required to offer to the
Company upon termination of employment for any reason any shares that the
participant acquired under the Plan, with the price being the then Fair Market
Value of the Stock or, in the case of a termination for Cause, an amount equal
to the cash consideration paid for the Stock, subject to such other terms and
conditions as the Committee may specify at the time of grant. The Committee may,
at the time of the grant of an award under the Plan, provide the Company with
the right to repurchase, or require the forfeiture of, shares of Stock acquired
pursuant to the Plan by any participant who, at any time within two years after
termination of employment with the Company, directly or indirectly competes
with, or is employed by a competitor of, the Company.
(f) The reinvestment of dividends in additional Restricted Stock at the
time of any dividend payment shall only be permissible if the Committee (or the
Company's chief executive or chief financial officer) certifies in writing that
under Section 3 sufficient shares are available for such reinvestment (taking
into account then outstanding Stock Options and other Plan awards).
SECTION 11. Effective Date of Plan.
The Plan was approved by the Board and became effective on August 31, 1998.
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated February 23, 1990, by and between The Peoples
Publishing Group, Inc., a Delaware corporation (the "Company"), and James J.
Peoples, an individual resident of the State of New Jersey ("Executive").
WITNESSETH:
WHEREAS, the Company has entered into that certain Restated Stock
Purchase Agreement, dated February 23, 1990 (the "Purchase Agreement"), with a
group of investors (the "Investors"), which provides, subject to certain
conditions, for the purchase by the Investors of shares of capital stock of the
Company; and
WHEREAS, the execution and delivery of this Agreement by Executive is a
condition precedent to the purchase by the Investors of capital stock under the
Purchase Agreement; and
WHEREAS, Executive is desirous of entering into employment with the
Company on the terms herein contained; and
WHEREAS, the Company is desirous of employing Executive on the terms
herein contained.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the Company and Executive agree as follows:
1. Employment. The Company hereby employs Executive, and Executive
accepts such employment and agrees to perform services for the Company, for the
period and upon the other terms and conditions set forth in this Agreement.
2. Term. Unless terminated at an earlier date in accordance with
Section 9, the term of Executive's employment hereunder shall be for a period of
two years, commencing on February 23, 1990. Thereafter, the term of this
Agreement shall be automatically extended for successive one-year periods unless
either party objects to such extension by written notice to the other party at
least 60 days prior to the end of the initial term or any extension term.
Notwithstanding the foregoing, the terms of Sections 5, 7, 9, 10 and 11 shall
survive the termination of this Agreement.
3. Position and Duties.
3.01 Service with Company. During the term of this Agreement,
Executive shall serve as the President of the Company and perform such
reasonable employment duties as the Board of Directors of the Company shall
assign to him from time to time; provided that the
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nature of Executive's duties shall at all times be that of a senior executive.
Executives shall serve, for any period for which he is elected, as director of
the Company; provided, however, that Executive shall not be entitled to any
additional compensation for serving as director.
3.02 Performance of Duties. Executive shall serve the Company
faithfully and to the best of his ability, and devote his full time, attention
and efforts to the business and affairs of the Company during normal business
hours (and outside normal business hours as reasonably required) during the term
of this Agreement. Executive hereby confirms that he is under no contractual
commitments inconsistent with his obligations set forth in this Agreement, and
that during the term of this Agreement he shall not render or perform services
for any other corporation, firm, entity or person which are inconsistent with
the provisions of this Agreement.
4. Compensation.
4.01 Base Salary. As compensation in full for all services to
be rendered by Executive under this Agreement during the initial term of this
Agreement, the Company shall pay to Executive a base salary of $100,000 in the
first year of this Agreement and $110,000 in the second year of this Agreement,
which salary shall be paid in accordance with the Company's normal payroll
procedures and policies. The compensation payable to Executive for each year
following the expiration of the initial term of this Agreement shall be mutually
agreed upon by the Company and Executive prior to the commencement of each such
year, provided that such compensation shall not be decreased from the prior
period.
4.02 Incentive Compensation. In addition to the base salary
described in Section 4.01, Executive shall be eligible to participate in any
corporate performance based incentive compensation plans which are established
by the Board of Directors of the Company.
4.03 Participation in Benefit Plans. Executive shall also be
entitled to participate in all employee benefit plans or programs (including
vacation time of not less than three weeks annually) established by the
Company's Board of Directors from time to time to the extent that his position,
title, tenure, salary, age, health and other qualifications make him eligible to
participate. Executive's participation in any such plan or program shall be
subject to the provisions, rules and regulations applicable thereto. Without
limiting the generality of the foregoing, Executive shall be provided with
medical, disability, and life insurance coverage to the extent it is available
at a reasonable cost from reputable insurers.
4.04 Expenses. The Company shall pay or reimburse Executive
for all reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, subject to the presentment of
appropriate vouchers in accordance with the Company's normal policies for
expense verification.
5. Confidential Information. Except as permitted or directed by
the Company's Board of Directors, during the term of this Agreement and for a
period f one year thereafter Executive
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shall not divulge, furnish or make accessible to anyone or use in any way (other
than in the ordinary course of the business of the Company) any confidential or
secret knowledge or information of the Company which Executive has acquired or
become acquainted with prior to the termination of the period of his employment
by the Company (including employment by the Company or any affiliated companies
prior to the date of this Agreement), whether developed by himself or by others,
concerning any trade secrets, confidential or secret designs, processes,
formulae, plans, devices or material (whether or not patented or patentable)
directly or indirectly useful in any way aspect of the business of the Company,
any confidential or secret development or research work of the Company, or any
other confidential or secret aspects of the business of the Company. Executive
acknowledges that the above-described knowledge or information constitutes a
unique and valuable asset of the Company acquired at great time and expense by
the Company and its predecessors, and that any disclosure or other use of such
knowledge or information other than for the sole benefit of the Company would be
wrongful and would cause irreparable harm to the Company. The foregoing
obligations of confidentiality, however, shall not apply to any knowledge or
information which is now published or which subsequently becomes generally
publicly known, other than as a direct or indirect result of the breach of this
Agreement by Executive.
6. Ventures. If, during the term of this Agreement, Executive is
engaged in or associated with the planning or implementing of any project,
program or venture involving the Company and a third party or parties, all
rights in the project, program or venture shall belong to the Company. Except as
approved by the Company's Board of Directors, Executive shall not be entitled to
any interest in such project, program or venture or to any commission, finder's
fee or other compensation in connection therewith other than the salary to be
paid to Executive as provided in this Agreement.
7. Non-Competition.
(a) During the term of Executive's employment by the Company
he shall not, directly or indirectly, engage in competition with the Company in
any manner or capacity (e.g., as an adviser, principal, agent, partner, officer,
director, stockholder, employee, member of any association, or otherwise) in any
phase of the business which the Company is conducting during the term of this
Agreement, including the design, development, manufacture, distribution,
marketing, leasing or selling of accessories, devices, or systems related to the
products or services being sold by the Company.
(b) The obligations of Executive under Section 7(a) shall
apply to any geographic area in which the Company
(i) has engaged in business during the term of
this Agreement through production,
promotional, sales or marketing activity, or
otherwise, or
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(ii) has otherwise established its goodwill,
business reputation, or any customer
relations.
(c) For a period of one year following the termination of
Executive's employment hereunder, except a termination without cause, Executive
will not, on behalf of himself or on behalf of any other person, firm or
corporation, call on any of the customers of the Company, or any of its
affiliates, for the purposes of soliciting or providing to any said customers
any products competitive to the Company's products, nor will he in any way
divert or take away any customer of the Company or its affiliates.
(d) During the term of this Agreement, Executive shall not,
directly or indirectly, assist or encourage any other person in carrying out,
directly or indirectly, any activity that would be prohibited by the above
provisions of this Section 7 if such activity were carried out by Executive,
either directly or indirectly; and in particular Executive shall not, directly
or indirectly, induce any employee of the Company to carry out, directly or
indirectly, any such activity.
(e) For a period of one year following the termination of
Executive's employment hereunder, except a termination without cause, Executive
will not, directly or indirectly, employ, solicit for employment, or advise or
recommend to any other person, firm or corporation that they employ or solicit
for employment of any employee of the Company.
(f) During the term of this noncompetition covenant which
follows the termination of Executive's employment by the Company shall pay to
Executive, as consideration for such covenant, an amount equal to 60% of
Executive's salary at the time of termination of employment, which amount shall
be payable to Executive on a monthly basis; provided, however, that the Company
may, upon 30 days written notice to Executive, terminate its obligation to make
such payments to Executive, terminate its obligation to make such payments to
Executive and, in such event, this noncompetition covenant shall terminate as of
the end of such 30-day period.
(g) Ownership by Executive, as a passive investment, of less
than 1% of the outstanding shares of capital stock of any corporation listed on
a national securities exchange or publicly traded in the over-the-counter market
shall not constitute a breach of this Section 7.
8. Termination.
8.01 Grounds for Termination. This Agreement shall terminate
prior to the expiration of the initial term set forth in Section 2 or any
extension thereof in the event that at any time during such initial term or any
extension thereof:
(a) Executive shall die (in which case the Company will pay to
Executive's estate a benefit equal to 50% of Executive's annual salary in effect
at such time), or
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(b) Executive shall become disabled in accordance with
Section 8.02, or
(c) Executive has breached the provisions of Sections 5 or 7
of this Agreement in any material respect, or
(d) Executive is terminated for "cause," which means (i)
Executive's violation of a specific written direction from the Board of
Directors of the company or (ii) Executive's failure or refusal to perform
duties in accordance with this Agreement; provided, however, no termination
shall be for cause under subsection (ii) unless Executive shall have first
received written notice from the Board of Directors of the Company advising
Executive of the act or omission that constitutes cause and such act or omission
continues after Executive's receipt of such notice for at least a period of time
that would have allowed Executive to correct such act or omission.
Notwithstanding any termination of this Agreement, Executive, in consideration
of his employment hereunder to the date of such termination, shall remain bound
by the provisions of this Agreement which specifically relate to periods,
activities or obligations upon or subsequent to the termination of Executive's
employment; provided, however, that Executive shall not remain bound if the
Company terminate's Executive's employment without cause.
8.02 "Disability" Defined. The Board of Directors may
determine that Executive has become disabled, for the purpose of this Agreement,
in the event that Executive shall fail, because of illness or incapacity, to
render services of the character contemplated by this Agreement for a period of
three consecutive months and on the date of determination continues to be so
disabled. The existence or nonexistence of grounds for termination of this
Agreement for any reason under Section 8.01(b) shall be determined in good faith
by the Board of Directors after such notice in writing given to Executive at
least 30 days prior to such determination. During such 30-day period, Executive
shall be permitted to make a presentation to the Board of Directors for its
consideration.
8.03 Surrender of Records and Property. Upon termination of
his employment with the Company, Executive shall deliver promptly to the Company
all records, manuals, books, blank forms, documents, letters, memoranda, notes,
notebooks, reports, data, tables, calculations or copies thereof, which are the
property of the Company or which relate in any way to the business, products,
practices or techniques of the Company, and all other property, trade secrets
and confidential information of the Company, including, but not limited to, all
documents which in whole or in part contain any trade secrets or confidential
information of the Company, which in any of these cases are in his possession or
under his control.
9. Purchase Rights Upon Termination of Employment.
(a) In the event that Executive unilaterally leaves the employment of
the Company prior to February 16, 1995, or in the event that Executive's
employment with the Company is
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involuntarily terminated in accordance with Section 8.01(c) or (d) prior to
February 16, 1995, the Company shall have the irrevocable right and option to
purchase from Executive, or Executive's successors or assigns, that number of
shares of the Company's capital stock which is then owned by Executive or such
successors or assigns.
(b) The Company shall exercise the option described in Section 9(a), if
at all, by delivery to Executive, his successors, heirs or assigns of a written
notice of exercise within 60 days after the date of termination of employment.
The purchase price for any shares of the Company's capital stock repurchased by
the Company pursuant to the exercise of such option shall be determined in
accordance with Exhibit A attached hereto and incorporated herein by reference.
If Executive owns more than one class of the Company's capital stock at the time
such option is exercised, the valuation percentages described in Exhibit A shall
be separately applied to each class of capital stock. For the purposes of
determining the purchase price pursuant to Exhibit A, Executive's cost for his
shares is $.02 for each common share and $.84624 for each preferred share and
the fair market value of such shares shall be determined by the Company's Board
of Directors and agreed toby Executive, his successors, heirs or assigns. If
Executive, his successors, heirs or assigns and the Board of Directors are
unable to agree upon the fair market value of such shares within 30 days after
the exercise of such option by the Company, the fair market value shall be
determined by submitting the matter to appraisal, as hereinafter provided. In
the event of an appraisal, Executive, his successors, heirs or assigns, as the
case may be, and the Company shall each name a qualified appraiser within 10
days after the expiration of said 30-day period. A "qualified appraiser" shall
mean an investment banker or independent accountant experienced in the valuation
of the equity interests of closely-held publishing or other businesses similar
to the Company. The two appointed appraisers shall, within 30 days thereafter,
each make a separate determination of the fair market value of the Executive's
shares, and each appraiser shall certify the same in writing. If one of the
parties fails to select an appraiser within the time provided, the appraiser
appointed by the other party shall make the appraisal which shall be the fair
market value. Otherwise, the value shall be the average of the two appraisals
certified by the two appraisers; provided, however, that if the difference
between the values determined in the two appraisals is greater than 20% of the
larger appraised value, then the two appraisers shall within five days of
submission of their certified appraisals designate a third qualified appraiser
who shall make his independent appraisal within 15 days thereafter, and the fair
market value for the purposes hereof shall then be the average of the two
appraisals which are closest in value to one another. If the two appraisers do
not select a third appraiser within the time period provided, one or both of the
parties shall apply to the then senior judge of the Hennepin County (Minnesota)
District Court for the selection of a third appraiser, whose selection shall be
binding upon the parties in all respects. Each party shall bear the costs of the
appraiser selected by it. The services of such third appraiser shall be paid for
one-half by Executive, his successors or assigns, as the case may be, and
one-half by the Company. The purchase price shall be payable at the option of
the Executive, his successors or assigns either in cash within 30 days of the
date of exercise of the option or the date of the determination of the amount of
the purchase price, or in five equal annual installments of principal and
interest (at the prime rate in effect from time to time as announced by First
Bank
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National Association) with the first installment due and payable at the closing.
10. Purchase of Executive's Shares by Company. In the event that
Executive's employment hereunder is terminated for any reason other than by the
Company for cause, pursuant to Section 8.01(c), or unilaterally by the
Executive, Executive may for a period of 30 days after such termination deliver
written notice to the Company that he desires to sell his shares of capital
stock to the Company. The Company agrees that it shall purchase all such capital
stock to the Company. The Company agrees that it shall purchase all such capital
stock as set forth in such notice at the fair market value thereof as determined
pursuant to the procedures set forth in Section 9. The closing of such purchase
will occur within 30 days of receipt of such notice by the Company. The purchase
price shall be payable at the option of the Company either in cash within 30
days of the date of exercise of the option or the date of determination of the
amount of purchase price, or in five equal annual installments of principal and
interest (at the prime rate in effect from time to time as announced by First
Bank National Association) with the first installment due and payable at the
closing.
11. Restriction on Transfer of Shares; Right of First Refusal; Legend.
(a) Executive shall not voluntarily or involuntarily sell, transfer,
exchange or otherwise dispose of any of the shares of Company stock that he may
now own or hereafter acquire unless he shall first offer to sell such shares to
the Company in accordance with the terms of this Section 11; provided, however,
in no event may Executive transfer shares of Company stock which remain subject
to the Company's repurchase at Executive's cost therefor except to the Company.
(b) If Executive wishes to transfer or otherwise dispose of any shares
not then subject to repurchase by the Company at Executive's cost therefor or if
any of such shares are subject to involuntary transfer pursuant to court order
or other legal proceedings, he shall deliver a written notice to the Company,
which notice shall specify the person to whom the shares are to be transferred
or disposed of, the purchase price or other consideration to be received by
Executive for such shares and the terms upon which such purchase price or other
consideration is to be paid. If the transfer or other disposition is for no
consideration or is involuntary, such written notice shall explain the
circumstances of the transfer or disposition. The delivery of such written
notice to the Company shall constitute an irrevocable offer by Executive to sell
the shares to the Company upon the same terms and conditions as are specified in
the notice or, if such transfer or other disposition is for no consideration or
is involuntary, at the fair market value of such shares, as determined pursuant
to the procedures set forth in Section 9. The Company may accept such offer by
delivering a written acceptance to Executive within 30 days after receipt of the
written notice from Executive. If the Company elects to accept such offer, the
purchase of such shares shall be closed within 30 days (i) upon the same terms
as are specified in Executive's written notice, (ii) by a cash purchase if the
transfer is for no consideration or is involuntary, or (iii) upon such other
terms as are mutually acceptable to the parties. If the Company elects not to
exercise such offer or if the Company allows such offer to expire without being
accepted, Executive shall
-7-
<PAGE> 8
be able to transfer or encumber such shares on the terms specified in the
written notice to the Company to the person identified therein. If such
transaction is not consummated within 90 days, such shares shall again be
subject to the restrictions and the purchase option described in Section 11.
(c) Each certificate representing the shares of the Company's capital
stock that Executive may now own or hereafter acquire shall be endorsed with the
following legend:
"The transferability of this certificate and the shares of
stock represented hereby is subject to the restrictions, terms
and conditions contained in the Employment Agreement, dated
February 23, 1990, entered into between the registered owner
of such shares and The Peoples Publishing Group, Inc. A copy
of the Employment Agreement is on file in the office of the
Secretary of the Peoples Publishing Group, Inc."
12. Termination of Certain Rights. The terms of Sections 9, 10 and 11,
notwithstanding any provisions hereof to the contrary, shall terminate and shall
be of no further force and effect at the earliest to occur of: (a) a Public
Offering (as defined in the Purchase Agreement); (b) the date when (i) any
person other than Cherry Tree Ventures III who was not, on February 23, 1990,
the "beneficial owner" (as defined in Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended), directly or indirectly, of in
excess of 80% of the Company's voting capital stock, has become the beneficial
owner (as so defined), directly or indirectly, of in excess of 80% of the
Company's voting capital stock; or (ii) the holders of the Company's capital
stock approve (A) any consolidation or merger (except with one of the
acquisition candidates listed on Schedule 2 to the Purchase Agreement) in which
the Company is not the continuing or surviving corporation or pursuant to which
shares of the Company's capital stock would be converted into cash or the right
to receive cash, securities or the right to receive securities, or other
property (other than a merger in which the holders of the Company's capital
stock immediately prior to the merger have the same percentage ownership of
capital stock of the surviving corporation immediately after the merger), (B)
any sale, lease, exchange or other transfer of all or substantially all of the
assets, or (C) any plan of liquidation or dissolution; or (c) February 16, 1995.
13. Miscellaneous.
13.01 Governing Law. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the State of New
Jersey.
13.02 Prior Agreements. This Agreement contains the entire
agreement of the parties relating to the subject matter hereof and supersedes
all prior agreements and understandings with respect to such subject matter, and
the parties hereto have made no agreements, representations or warranties
relating to the subject matter of this Agreement which are not set forth herein.
-8-
<PAGE> 9
13.03 Withholding Taxes. The Company may withhold from any
benefits payable under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
13.04 Amendments. No amendment or modification of this
Agreement shall be deemed effective unless made in writing signed by the parties
hereto.
13.05 Assignment. This Agreement shall not be assignable, in
whole or in part, by either party without the written consent of the other
party.
13.06 No Waiver. No term or condition of this Agreement shall
be deemed to have been waived, nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
13.07 Injunctive Relief. Executive agrees that it would be
difficult to compensate the Company fully for damages for any violation of the
provisions of this Agreement, including without limitation the provisions of
Sections 5, 7 and 8.03. Accordingly, Executive specifically agrees that the
Company shall be entitled to temporary and permanent injunctive relief to
enforce the provisions of this Agreement. This provision with respect to
injunctive relief shall not, however, diminish the right of the Company to claim
and recover damages in addition to injunctive relief.
13.08 Severability. To the extent any provision of this
Agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this Agreement shall be
unaffected and shall continue in full force and effect. In furtherance and not
in limitation of the foregoing, should the duration or geographical extent of,
or business activities covered by, any provision of this Agreement be in excess
of that which is valid and enforceable under applicable law, then such provision
shall be construed to cover only that duration, extent or activities which may
validly and enforceably be covered. Executive acknowledges the uncertainty of
the law in this respect and expressly stipulates that this Agreement be given
the construction which renders its provisions valid and enforceable to the
maximum extent (not exceeding its express terms) possible under applicable law.
-9-
<PAGE> 10
THE PEOPLES PUBLISHING GROUP, INC.
By /s/ James J. Peoples
------------------------------
Its President
/s/ James J. Peoples
------------------------------
James T. Peoples
-10-
<PAGE> 11
Exhibit A
<TABLE>
<CAPTION>
Percent of Shares Percent of Shares
which may be purchased which may be purchased
by the Company at by the Company at
Period Executive's cost therefor fair market value
------ ------------------------- -----------------
<S> <C> <C>
From the date hereof
through February 16, 1991 66-2/3% 33-1/3%
From February 17, 1991
through February 16, 1992 33-2/3% 66-2/3%
February 17, 1992
through February 16, 1993 None 100%
</TABLE>
<PAGE> 1
EXHIBIT 10.3
AMENDED EMPLOYMENT AGREEMENT
THIS AMENDED EMPLOYMENT AGREEMENT (the "Agreement"), dated effective as
of February 23, 1998, by and between The Peoples Publishing Group, Inc., a
Delaware corporation (the "Company"), and Diane M. Miller, an individual
resident of the State of New York ("Executive"), amends and supersedes in its
entirety, that certain Employment Agreement dated February 23, 1990 by and
between the Company and the Executive (the "1990 Agreement").
WITNESSETH:
WHEREAS, Executive and the Company entered into the 1990 Agreement and
now desire to amend in its entirety the 1990 Agreement with the terms of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the Company and Executive agree as follows:
1. Employment. The Company hereby employs Executive, and Executive
accepts such employment and agrees to perform services for the Company, for the
period and upon the other terms and conditions set forth in this Agreement. The
1990 Agreement is hereby terminated and the terms of this Agreement shall govern
the employment of Executive, all matters initially covered by the 1990 Agreement
and all matters contemplated by this Agreement.
2. Term. Unless terminated at an earlier date in accordance with
Section 8, the initial term of Executive's employment hereunder shall be for a
period of one year, commencing on February 23, 1998. Thereafter, the term of
this Agreement shall be automatically extended for a two-year period, and
successive one-year periods thereafter unless either party objects to such
extension by written notice to the other party at least 60 days prior to the end
of the initial term or any extension term. Notwithstanding the foregoing, the
terms of Sections 5, 7, 9, 10 and 11 shall survive the termination of this
Agreement.
3. Position and Duties.
3.01 Service with Company. During the term of this Agreement,
Executive shall perform such reasonable employment duties as the Chief Executive
Officer ("CEO") or Board of Directors of the Company shall assign to her from
time to time.
3.02 Performance of Duties. Executive shall serve the Company
faithfully and to the best of her ability, and devote her full time, attention
and efforts to the business and affairs of the Company during normal business
hours (and outside normal business hours as reasonably required) during the term
of this Agreement. Executive hereby confirms that she is under no contractual
commitments inconsistent with her obligations set forth in this Agreement, and
that
<PAGE> 2
during the term of this Agreement she shall not render or perform services for
any other corporation, firm, entity or person; provided, however, that Executive
may serve as a member of the board of directors of a corporation or other
organization upon the approval of the Company, which approval shall not be
unreasonably withheld.
4. Compensation.
4.01 Base Salary. As compensation in full for all services to
be rendered by Executive under this Agreement during the initial term of this
Agreement, the Company shall pay to Executive a base salary of $95,000 in the
first year of this Agreement, which salary shall be paid in accordance with the
Company's normal payroll procedures and policies. The compensation payable to
Executive for each year following the expiration of the initial year of this
Agreement shall be mutually agreed upon by the Company and Executive prior to
the commencement of each such year.
4.02 Stock Option. Concurrent with execution of this
Agreement, Executive shall be granted an incentive stock option award of up to
45,000 shares of the Company's common stock, par value of $.01 per share, with
restrictions on vesting of ownership and other matters more particularly
described in the Incentive Stock Option Agreement attached as Exhibit A.
4.03 Incentive Compensation. In addition to the base salary
and restricted stock described in Section 4.01 and 4.02, Executive shall be
eligible to participate in any corporate performance based incentive
compensation plans which are established by the Board of Directors of the
Company.
4.04 Participation in Benefit Plans. Executive shall also be
entitled to participate in all employee benefit plans or programs (including
vacation time of not less than five weeks annually) established by the Company's
Board of Directors from time to time to the extent that her position, title,
tenure, salary, age, health and other qualifications make her eligible to
participate. Executive's participation in any such plan or program shall be
subject to the provisions, rules and regulations applicable thereto. Without
limiting the generality of the foregoing, Executive shall be provided with
medical, disability, and life insurance coverage to the extent it is available
at a reasonable cost from reputable insurers.
4.05 Expenses. The Company shall pay or reimburse Executive
for all reasonable and necessary out-of-pocket expenses incurred by her in the
performance of her duties under this Agreement, subject to the presentment of
appropriate vouchers in accordance with the Company's normal policies for
expense verification.
5. Confidential Information. Except as permitted or directed by
the Company's Board of Directors, during the term of this Agreement and for a
period of one year thereafter Executive shall not divulge, furnish or make
accessible to anyone or use in any way (other than in the ordinary course of the
business of the Company) any confidential or secret knowledge or information of
the
2
<PAGE> 3
Company which Executive has acquired or become acquainted with or shall acquire
or become acquainted with prior to the termination of the period of her
employment by the Company (including employment by the Company or any affiliated
companies), whether developed by herself or by others, concerning any trade
secrets, confidential or secret designs, processes, formulae, plans, devices or
material (whether or not patented or patentable) directly or indirectly useful
in any aspect of the business of the Company, any confidential customer lists or
printer or supplier lists of the Company, any author or freelance employee lists
of the Company, any confidential or secret development or research work of the
Company, or any other confidential or secret aspects of the business of the
Company. Executive acknowledges that the above-described knowledge or
information constitutes a unique and valuable asset of the Company acquired at
great time and expense by the Company and its predecessors, and that any
disclosures or other use of such knowledge or information other than for the
sole benefit of the Company would be wrongful and would cause irreparable harm
to the Company. The foregoing obligations of confidentiality, however, shall not
apply to any knowledge or information which is now published or which
subsequently becomes generally publicly known, other than as a direct or
indirect result of the breach of this Agreement by Executive.
6. Ventures. If, during the term of this Agreement, Executive is
engaged in or associated with the planning or implementing of any project,
program or venture involving the Company and a third party or parties, all
rights in the project, program or venture, to the extent that such rights may be
claimed by Executive or the Company, shall belong to the Company. Except as
approved by the Company's Board of Directors, Executive shall not be entitled to
any interest in such project, program or venture or to any commission, finder's
fee or other compensation in connection therewith other than the salary to be
paid to Executive as provided in this Agreement.
7. Non-Competition.
(a) During the term of Executive's employment by the Company
and for one year following termination, she shall not, directly or indirectly,
engage in competition with the Company in any manner or capacity (e.g., as an
adviser, principal, agent, partner, officer, director, stockholder, employee,
member of any association, or otherwise) in any phase of the business which the
Company is conducting during the term of this Agreement, including the design,
development, manufacture, distribution, marketing, leasing or selling of
accessories, devices, or systems related to the products or services being sold
by the Company.
(b) The obligations of Executive under section 7(a) shall
apply to any geographic area in which the Company
(i) has engaged in business during the term of
this Agreement through production,
promotional, sales or marketing activity, or
otherwise, or
(ii) has otherwise established its goodwill,
business reputation, or any customer
relations.
3
<PAGE> 4
(c) For a period of one year following the termination of
Executive's employment hereunder, except a termination without cause, Executive
will not, on behalf of herself or on behalf of any other person, firm or
corporation, call on any of the customers of the Company, or any of its
affiliates, for the purpose of soliciting or providing to any said customers any
products competitive to the Company's products, nor will she in any way divert
or take away any customer of the Company or its affiliates.
(d) During the term of this Agreement, Executive shall not,
directly or indirectly, assist or encourage any other person in carrying out,
directly or indirectly, any activity that would be prohibited by the above
provisions of this Section 7 if such activity were carried out by Executive,
either directly or indirectly; and in particular Executive shall not, directly
or indirectly, induce any employee of the Company to carry out, directly or
indirectly, any such activity.
(e) For a period of one year following the termination of
Executive's employment hereunder, except a termination without cause, Executive
will not, directly or indirectly, employ, solicit for employment, or advise or
recommend to any other person, firm or corporation that they employ or solicit
for employment any employee of the Company.
(f) During the term of this noncompetition covenant which
follows the termination of Executive's employment by the Company, the Company
shall pay to Executive, as consideration for such covenant, an amount equal to
60% of Executive's annual base salary at the time of termination of employment,
which amount shall be payable to Executive on a monthly basis; provided,
however, that the Company may, upon 30 days written notice to Executive,
terminate its obligation to make such payments to Executive and, in such event,
this noncompetition covenant shall terminate as of the end of such 30-day
period.
(g) Ownership by Executive, as a passive investment, of less
than 1% of the outstanding shares of capital stock of any corporation listed on
a national securities exchange or publicly traded in the over-the-counter market
shall not constitute a breach of this Section 7.
8. Termination.
8.01 Grounds for Termination. This Agreement shall terminate
prior to the expiration of the initial term set forth in Section 2 or of any
extension thereof in the event that at any time during such initial term or any
extension thereof:
(a) Executive shall die (in which case the Company will pay to
Executive's estate a benefit equal to 50% of Executive's annual base
salary in effect at such time), or
(b) Executive shall become disabled in accordance with
Section 8.02, or
(c) Executive has breached the provisions of Sections 5 or 7
of this Agreement in any material respect,
4
<PAGE> 5
- -
(d) Executive is terminated for "cause," which means (i)
Executive's violation of a specific written direction from CEO and the
Board of Directors of the Company or (ii) Executive's failure or
refusal to perform duties in accordance with this Agreement; provided,
however, no termination shall be for cause under subsection (ii) unless
Executive shall have first received written notice from the CEO and the
Board of Directors of the Company advising Executive of the act or
omission that constitutes cause and such act or omission continues
after Executive's receipt of such notice for at least a period of time
that would have allowed Executive to correct such act or omission.
Notwithstanding any termination of this Agreement, Executive, in consideration
of her employment hereunder to the date of such termination, shall remain bound
by the provisions of this Agreement which specifically relate to periods,
activities or obligations upon or subsequent to the termination of Executive's
employment; provided, however, that Executive shall not remain bound if the
Company terminates Executive's employment without cause.
8.02 "Disability" Defined. The Board of Directors may
determine that Executive has become disabled, for the purpose of this Agreement,
in the event that Executive shall fail, because of illness or incapacity, to
render services of the character contemplated by this Agreement for a period of
three consecutive months and on the date of determination continues to be so
disabled. The existence or nonexistence of grounds for termination of this
Agreement for any reason under Section 8.01(b) shall be determined in good faith
by the Board of Directors after notice in writing given to Executive at least 30
days prior to such determination. During such 30-day period, Executive shall be
permitted to make a presentation to the Board of Directors for its
consideration.
8.03 Surrender of Records and Property. Upon termination of
her employment with the Company, Executive shall deliver promptly to the Company
all records, manuals, books, blank forms, documents, letters, manuscripts,
publishing proposals from authors or employees, memoranda, notes, notebooks,
reports, data, tables, calculations or copies thereof, which are the property of
the Company or which relate in any way to the business, products, practices or
techniques of the Company, and all other property, trade secrets and
confidential information of the Company, including, but not limited to, all
documents which in whole or in part contain any trade secrets or confidential
information of the Company, which in any of these cases are in her possession or
under her control.
9. Repurchase Rights Upon Termination of Employment.
(a) In the event that Executive unilaterally leaves the
employment of the Company (or any affiliated company) prior to February 23,
2001, or in the event that Executive's employment with the Company is
terminated, the Company (or any affiliated company) shall have the irrevocable
right and option to purchase from Executive, or Executive's successors or
assigns, that number of shares of the Company's capital stock (or the capital
stock of any affiliated company into which the Company's capital stock is
converted) then owned by Executive or such successors or assigns; provided,
however, that the repurchase right under this Section 9, shall not apply to the
5
<PAGE> 6
90,000 shares of the Company's Common Stock, and the 80,640 shares of the
Company's 1990 Preferred Stock currently owned by Executive; and, provided,
further, that the Company's right hereunder shall be subordinate to any right
which James J. Peoples ("Peoples") has to purchase shares of the common stock of
the Company from Executive ("Peoples' Right to Repurchase") and any right of
first refusal ("Peoples' Rights of First Refusal") pursuant to that certain
Shareholder Agreement, dated February 23, 1990, between Executive and Peoples.
(b) The Company shall exercise the option described in Section
9(a), if at all, by delivery to Executive, her successors, heirs or assigns of a
written notice of exercise within 60 days after the date of termination of
employment. The purchase price for any shares of the Company's capital stock
repurchased by the Company pursuant to the exercise of such option shall be the
fair market value of such shares. If Executive, her successors, heirs or assigns
and the Board of Directors are unable to agree upon the fair market value of
such shares within 30 days after the exercise of such option by the Company, the
fair market value shall be determined by submitting the matter to appraisal, as
hereinafter provided. In the event of an appraisal, Executive, her successors,
heirs or assigns, as the case may be, and the Company shall each name a
qualified appraiser within 10 days after the expiration of said 30-day period. A
"qualified appraiser" shall mean an investment banker or independent accountant
experienced in the valuation of the equity interests of closely-held publishing
or other businesses similar to the Company. The two appointed appraisers shall,
within 30 days thereafter, each make a separate determination of the fair market
value of the Executive's shares, and each appraiser shall certify the same in
writing. If one of the parties fails to select an appraiser within the time
provided, the appraiser appointed by the other party shall make the appraisal
which shall be the fair market value. Otherwise, the value shall be the average
of the two appraisals certified by the two appraisers; provided, however, that
if the difference between the values determined in the two appraisals is greater
than 20% of the larger appraised value, then the two appraisers shall within
thirty days of submission of their certified appraisals designate a third
qualified appraiser who shall make his or her independent appraisal within 30
days thereafter, and the fair market value for the purposes hereof shall then be
the average of the two appraisals which are closest in value to one another. If
the two appraisers do not select a third appraiser within the time period
provided, one or both of the parties shall apply to the then senior judge of the
Hennepin County (Minnesota) District Court for the selection of a third
appraiser, whose selection shall be binding upon the parties in all respects.
Each party shall bear the cots of the appraiser selected by it. The services of
such third appraiser shall be paid for one-half by Executive, her successors or
assigns, as the case may be, and one-half by the Company. The purchase price
shall be payable at the option of the Executive, her successors or assigns
either in cash within 30 days of the date of exercise of the option or the date
of the determination of the amount of the purchase price, or in five equal
annual installments of principal and interest (at the prime rate in effect from
time to time as announced by U.S. Bank National Association or its successor)
with the first installment due and payable at the closing.
10. Purchase of Executive's Shares by Company. In the event that
Executive's employment hereunder is terminated for any reason, Executive may for
a period of 30 days after such termination deliver written notice to the Company
that she desires to sell her shares of capital
6
<PAGE> 7
stock to the Company, which sale shall be subject to Peoples' Right to
Repurchase and Right of First Refusal. The Company agrees that it shall purchase
all such capital stock as set forth in such notice at the fair market value
thereof as determined pursuant to the procedure set forth in Section 9. The
closing of such purchase will occur within 30 days of receipt of such notice by
the Company. The purchase price shall be payable at the option of the Company
either in cash within 30 days of the date of exercise of the option or the date
of determination of the amount of purchase price, or in five equal annual
installments of principal and interest (at the prime rate in effect from time to
time as announced by US Bancorp or its successor) with the first installment due
and payable at the closing.
11. Restriction on Transfer of Shares; Right of First Refusal;
Legend.
(a) Executive shall not voluntarily or involuntarily sell,
transfer, exchange or otherwise dispose of any of the shares of Company stock
that she may now own or hereafter acquire unless she shall first offer to sell
such shares to the Company in accordance with the terms of this Section 11.
Notwithstanding the foregoing, Executive may sell shares of common stock to
Peoples in accordance with Peoples' Right to Repurchase and Right of First
Refusal.
(b) If Executive wishes to transfer or otherwise dispose of
any shares of the Company she owns or if any of such shares are subject to
involuntary transfer pursuant to court order or other legal proceedings, she
shall deliver a written notice to the Company, which notice shall specify the
person to whom the shares are to be transferred or disposed of, the purchase
price or other consideration to be received by Executive for such shares and the
terms upon which such purchase price or other consideration is to be paid. If
the transfer or other disposition is for no consideration or is involuntary,
such written notice shall explain the circumstances of the transfer or
disposition. The delivery of such written notice to the Company shall constitute
an irrevocable offer by Executive to sell the shares to the Company upon the
same terms and conditions as are specified in the notice or, if such transfer or
other disposition is for no consideration or is involuntary, at the fair market
value of such shares, as determined pursuant to the procedures set forth in
Section 9. The Company may accept such offer by delivering a written acceptance
to Executive within 30 days after receipt of the written notice from Executive.
If the Company elects to accept such offer, the purchase of such shares shall be
closed within 30 days (i) upon the same terms as are specified in Executive's
written notice, (ii) by a cash purchase if the transfer is for no consideration
or is involuntary, or (iii) upon such other terms as are mutually acceptable to
the parties. If the Company elects not to exercise such offer or if the Company
allows such offer to expire without being accepted, Executive shall be permitted
to transfer or encumber such shares on the terms specified in the written notice
to the Company to the person identified therein. If such transaction is not
consummated within 90 days, such shares shall again be subject to the
restrictions and the purchase option described in this Section 11.
(c) Each certificate representing the shares of the Company's
capital stock that Executive may now own or hereafter acquire shall be endorsed
with the following legend:
7
<PAGE> 8
"The transferability of this certificate and the shares of
stock represented hereby is subject to the restrictions, terms
and conditions contained in the Amended Employment Agreement,
dated February 23, 1998 entered into between the registered
owner of such shares and The Peoples Publishing Group, Inc. A
copy of such Agreement is on file in the office of the
Secretary of The Peoples Publishing Group, Inc."
12. Termination of Certain Rights. The terms of Sections 9, 10 and
11, notwithstanding any provisions hereof to the contrary, shall terminate and
shall be of no further force and effect at the earliest to occur of: (a) a
Public Offering (as defined in that certain Restated Stock Purchase Agreement,
dated February 23, 1990 entered by the Company with a group of investors); (b)
the date when (i) any person other than Cherry Tree Ventures III who was not, on
February 23, 1990, the "beneficial owner" (as defined in Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended), directly or indirectly,
of in excess of 80% of the Company's voting capital stock, has become the
beneficial owner (as so defined), directly or indirectly, of in excess of 80% of
the Company's voting capital stock; or (ii) the holders of the Company's capital
stock approve (A) any consolidation or merger (except with Concourse Corporation
("Concourse")) in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's capital stock would be
converted into cash or the right to receive cash, securities, or the right to
receive securities, or other property, (B) any sale, lease, exchange or other
transfer of all or substantially all of the assets, or (C) any plan of
liquidation or dissolution; or (c) February 23, 2001. The Company is currently
negotiating the merger of the Company into Concourse whereby the shareholders of
the Company would become the shareholders of Concourse. Such a merger would not
terminate this Agreement and Sections 9, 10, and 11 would survive such a merger
and be applicable to the Concourse shares received by Executive as a result of
the merger.
13. Miscellaneous.
13.01 Governing Law. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the State of New
Jersey.
13.02 Prior Agreements. This Agreement contains the entire
agreement of the Parties relating to the subject matter hereof and supersedes
all prior agreements and understandings with respect to such subject matter, and
the parties hereto have made no agreements, representations or warranties
relating to the subject matter of this Agreement which are not set forth herein.
13.03 Withholding Taxes. The Company may withhold from any
benefits payable under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
13.04 Amendments. No amendment or modification of this
Agreement shall be deemed effective unless made in writing signed by the parties
hereto.
8
<PAGE> 9
13.05 Assignment. This Agreement shall not be assignable, in
whole or in part, by either party without the written consent of the other
party.
13.06 No Waiver. No term or condition of this Agreement shall
be deemed to have been waived, nor shall there be any estoppel to enforce any
provisions of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waive and shall not constitute
a waiver of such term of condition for the future or as to any act other than
that specifically waived.
13.07 Injunctive Relief. Executive agrees that it would be
difficult to compensate the Company fully for damages for any violation of the
provisions of this Agreement ,including without limitation the provisions of
Sections 5, 7, and 8.03. Accordingly, Executive specifically agrees that the
Company shall be entitled to temporary and permanent injunctive relief to
enforce the provisions of this Agreement. This provision with respect to
injunctive relief shall not, however, diminish the right of the Company to claim
and recover damages in addition to injunctive relief.
13.08 Severability. To the extent any provision of this
Agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this Agreement shall be
unaffected and shall continue in full force and effect. In furtherance and not
in limitation of the foregoing, should the duration or geographical extent of,
or business activities covered by, any provision of this Agreement be in excess
of that which is valid and enforceable under applicable law, then such provision
shall be construed to cover only that duration, extent or activities which may
validly and enforceably be covered. Executive acknowledges the uncertainty of
the law in this respect and expressly stipulates that this Agreement be given
the construction which renders its provisions valid and enforceable to the
maximum extent (not exceeding its express terms) possible under applicable law.
THE PEOPLES PUBLISHING GROUP, INC.
By: /s/ James J. Peoples
---------------------------------
Its: President
-----------------------
/s/ Diane M. Miller
---------------------------
Diane M. Miller
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 565,678
<SECURITIES> 0
<RECEIVABLES> 691,462
<ALLOWANCES> 186,917
<INVENTORY> 439,089
<CURRENT-ASSETS> 1,829,304
<PP&E> 194,807
<DEPRECIATION> 82,109
<TOTAL-ASSETS> 2,635,922
<CURRENT-LIABILITIES> 1,058,246
<BONDS> 0
15,065
2,646,605
<COMMON> 0
<OTHER-SE> (25,748)
<TOTAL-LIABILITY-AND-EQUITY> 2,635,922
<SALES> 6,164,248
<TOTAL-REVENUES> 6,164,248
<CGS> 3,171,435
<TOTAL-COSTS> 3,171,435
<OTHER-EXPENSES> 2,445,808
<LOSS-PROVISION> 24,000
<INTEREST-EXPENSE> 15,445
<INCOME-PRETAX> 558,748
<INCOME-TAX> 242,610
<INCOME-CONTINUING> 316,138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 316,138
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.12
</TABLE>
<PAGE> 1
EXHIBIT 99.1
INDEX TO FINANCIAL STATEMENTS
PEOPLES EDUCATIONAL HOLDINGS, INC.
AND SUBSIDIARY
CONTENTS
Independent auditor's report F-2
Consolidated balance sheets as of December 31, 1998
and 1997 F-3
Consolidated statements of income for the years
ended December 31, 1998 and 1997 F-5
Consolidated statements of changes in stockholders'
deficit for the years ended December 31, 1998 and 1997 F-6
Consolidated statements of cash flows for the years
ended December 31, 1998 and 1997 F-7
Notes to consolidated financial statements F-8
- --------------------------------------------------------------------------------
F-1
<PAGE> 2
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Peoples Educational Holdings, Inc.
St. Paul, Minnesota
We have audited the accompanying consolidated balance sheet of Peoples
Educational Holdings, Inc. and Subsidiary as of December 31, 1998, and the
related consolidated statements of income, changes in stockholders' deficit, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of Peoples Educational Holdings, Inc. for the year ended December 31,
1997 (The Peoples Publishing Group, Inc. before reverse acquisition discussed in
Note 1), were audited by other auditors whose report, dated March 24, 1998,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Peoples
Educational Holdings, Inc. and Subsidiary as of December 31, 1998, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ MCGLADREY & PULLEN, LLP
St. Paul, Minnesota
March 11, 1999
F-2
<PAGE> 3
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
----------------------------------------
ASSETS (NOTE 4) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 565,678 $ 182,116
Accounts receivable, less allowances of $186,917 in 1998
and $183,487 in 1997 504,545 646,301
Inventory 439,089 336,897
Refundable income taxes 132,500 -
Prepaid catalog expenses and other current assets 65,692 62,689
Advance royalties 66,000 50,040
Deferred income taxes (Note 6) 55,800 169,100
----------------------------------------
TOTAL CURRENT ASSETS 1,829,304 1,447,143
----------------------------------------
Equipment, at cost, less accumulated depreciation of $82,109
in 1998 and $55,247 in 1997 112,698 64,003
----------------------------------------
Other Assets
Deferred prepublication costs (Note 2) 540,333 278,016
Advance royalties 40,123 67,652
Other intangible assets, net (Note 3) 72,983 116,256
Deferred income taxes (Note 6) 32,636 157,367
Other 7,845 4,695
----------------------------------------
TOTAL OTHER ASSETS 693,920 623,986
----------------------------------------
TOTAL ASSETS $2,635,922 $2,135,132
========================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 4
<TABLE>
<CAPTION>
December 31
----------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities
Notes payable under line of credit (Note 4) $ 234,000 $ -
Current maturities of installment note payable (Note 4) - 57,168
Accounts payable 671,053 688,295
Accrued expenses (Note 7) 148,693 100,240
Income taxes payable 4,500 3,420
---------------------------------
TOTAL CURRENT LIABILITIES 1,058,246 849,123
---------------------------------
Commitments (Notes 8 and 9)
Mandatory Redeemable Stock (Note 9)
1990 Redeemable Convertible Stock, $0.02 par value; voting; authorized
1,300,000 shares; issued and outstanding 1,278,120
shares; stated at liquidation value plus accrued dividends 1,564,725 1,511,044
1993 Redeemable Convertible Stock, $0.02 par value; voting;
authorized 700,000 shares; issued and outstanding 680,000
shares; stated at liquidation value plus accrued dividends 1,081,880 1,039,720
---------------------------------
TOTAL MANDATORY REDEEMABLE STOCK 2,646,605 2,550,764
---------------------------------
Stockholders' Deficit (Notes 9 and 10)
Common stock, $0.02 par value; authorized 15,000,000 shares;
issued and outstanding 153,260 shares in 1998 3,065 -
1998 Convertible Stock, $0.02 par value; voting; authorized 600,000
shares; issued and outstanding 600,000 shares in 1998 and
500,000 in 1997 12,000 10,000
Additional paid-in capital 95,464 -
Accumulated deficit (1,054,458) (1,274,755)
---------------------------------
(943,929) (1,264,755)
Less: Notes receivable from issuance of 1998 Convertible Stock (125,000) -
---------------------------------
TOTAL STOCKHOLDERS' DEFICIT (1,068,929) (1,264,755)
---------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,635,922 $ 2,135,132
=================================
</TABLE>
F-4
<PAGE> 5
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------
1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Sales and commission revenues (Note 5) $6,164,248 $4,528,065
Cost of sales 3,171,435 2,528,258
------------------------------
GROSS PROFIT 2,992,813 1,999,807
Selling and administrative expenses 2,445,808 1,691,890
------------------------------
INCOME FROM OPERATIONS 547,005 307,917
Nonoperating income (expenses):
Interest income 34,114 14,033
Interest expense (15,445) (20,728)
Loss on sale of assets (6,926) -
------------------------------
INCOME BEFORE INCOME TAXES 558,748 301,222
Federal and state income taxes (Note 6) 242,610 125,721
------------------------------
NET INCOME 316,138 175,501
Mandatory Redeemable Convertible Stock dividends 95,841 95,841
------------------------------
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS $ 220,297 $ 79,660
==============================
Net income per common share:
Basic $ 0.36 $ 0.15
Diluted 0.12 0.07
==============================
Weighted-average number of common shares outstanding:
Basic 614,949 543,750
Diluted 2,744,405 2,673,206
==============================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 6
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
1998 Additional
Common Convertible Paid-In Accumulated Notes
Stock Stock Capital Deficit Receivable Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ -- $ 500 $ 9,500 $(1,354,415) $ -- $(1,344,415)
Retroactive effect of change in par
value (Note 9) -- 9,500 (9,500) -- -- --
Accrued dividends on Mandatory
Redeemable Convertible Stock -- -- -- (95,841) -- (95,841)
Net income -- -- -- 175,501 -- 175,501
------------------------------------------------------------------------------------
Balance, December 31, 1997 -- 10,000 -- (1,274,755) -- (1,264,755)
Exercise of stock options resulting in
issuance of 100,000 shares of 1998
Convertible Stock in exchange for
notes receivable (Note 10) -- 2,000 123,000 -- (125,000) --
Accrued dividends on Mandatory
Redeemable Convertible Stock -- -- -- (95,841) -- (95,841)
Effect of merger transaction on
November 1, 1998 (Note 1) 3,065 -- (27,536) -- -- (24,471)
Net income -- -- -- 316,138 -- 316,138
------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 3,065 $12,000 $95,464 $(1,054,458) $(125,000) $(1,068,929)
====================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 7
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------
1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 316,138 $ 175,501
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 26,862 15,313
Amortization of prepublishing costs and intangible assets 232,704 156,049
Changes in assets and liabilities, excluding merger effects in 1998 (Note 1):
Accounts receivable 203,280 (391,535)
Inventory (102,192) (194,327)
Refundable income taxes (132,500) -
Advance royalties 11,569 (33,178)
Prepaid catalog and other current assets (4,062) 17,374
Deferred income taxes 238,031 122,201
Accounts payable and accrued expenses (56,875) 379,210
Deferred revenue - (4,935)
Income taxes payable 1,080 1,300
-------------------------
Net cash provided by operating activities 734,035 242,973
-------------------------
Cash Flows From Investing Activities
Purchases of fixed assets (75,557) (30,662)
Expenditures for prepublication costs (451,748) (205,660)
-------------------------
Net cash used in investing activities (527,305) (236,322)
-------------------------
Cash Flows From Financing Activities
Net proceeds under line of credit 234,000 -
Principal payments on notes payable (57,168) (121,365)
-------------------------
Net cash provided by (used in) financing activities 176,832 (121,365)
-------------------------
Net increase (decrease) in cash and cash equivalents 383,562 (114,714)
Cash and Cash Equivalents
Beginning of year 182,116 296,830
-------------------------
End of year $ 565,678 $ 182,116
=========================
Supplemental Cash Flow Information
Cash payments for:
Interest $ 15,363 $ 20,719
Income taxes 135,920 2,220
=========================
Noncash financing activities:
Increase in Mandatory Redeemable Stock and increase in accumulated deficit
from accrued dividends $ 95,841 $ 95,841
Issuance of common stock in exchange for notes receivable 125,000 -
=========================
Changes in assets and liabilities resulting from merger (Note 1):
Receivables $ 61,524 $ -
Other assets 2,091 -
Accounts payable and accrued expenses, net of cash (88,086) -
-------------------------
Effect of merger on stockholders' deficit $ (24,471) $ -
=========================
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE> 8
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: Peoples Educational Holdings, Inc. (PEH), a Minnesota
corporation, through its wholly-owned subsidiary, Peoples Publishing Group, Inc.
(PPG), publishes, distributes, and markets supplementary educational texts and
related materials for the pre- K-12 market. Supplementary educational materials
are predominantly soft-cover textbooks that can be sold efficiently to schools
through catalogs, direct mail, telemarketing, and independent commission-sales
representatives. PPG and PEH are together referred to herein as the Company.
MERGER: Effective November 1, 1998, Peoples Acquisition Corporation (PAC), a
subsidiary of Concourse Corporation (Concourse) merged with and into PPG.
Concourse was a public company with only minimal assets, liabilities, and
operations and changed its name to Peoples Educational Holdings, Inc. in
December 1998. PPG survived the merger as a wholly-owned subsidiary of PEH. The
shareholders and option holders of PPG were issued convertible shares and
options of Concourse, which will result in the former PPG shareholders and
option holders owning approximately 95 percent of the outstanding shares of
Concourse upon full conversion of shares and exercise of options.
For financial reporting purposes, PPG was treated as the acquiring company, and
the merger was accounted for as a "reverse acquisition." The assets and
liabilities reflected in these financial statements are at the historical
carrying amounts reported by PPG, and the operations reflect the historical
operations of PPG, not those previously reported by Concourse. The effect of the
merger was similar to a recapitalization.
INVENTORY: Inventory is stated as lower of cost or market, which is determined
using the first-in, first-out method. Inventory consists entirely of finished
goods.
DEPRECIATION: Equipment is recorded at cost. Depreciation is provided over the
equipment's estimated useful lives of five to seven years using the
straight-line method. Maintenance and repairs are charged to expense as incurred
and major renewals or improvements are capitalized. On sale or retirement of
property and equipment, the related costs and accumulated depreciation are
removed from the accounts, and any gain or loss is included in the results of
current operations.
ACCOUNTING FOR LONG-LIVED ASSETS: The Company generates operating revenue and
builds up an acceptable revenue basis and related cash flows with its long-lived
assets. Management has and will continue, on a periodic basis, to closely
evaluate its equipment, deferred prepublication costs, advance royalties, and
other intangible assets to determine potential impairment by comparing their
carrying value with the estimated future net undiscounted cash flows expected to
result from the use of the assets, including cash flows from disposition. Should
the sum of the expected future net cash flows be less than the carrying value,
the Company would recognize an impairment loss at that date. An impairment loss
would be measured by comparing the amount by which the carrying value exceeds
the fair value (estimated discounted future cash flows or appraisal of assets)
of the long-lived assets. To date, management has determined that no impairment
of long-lived assets exists.
F-8
<PAGE> 9
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIC AND DILUTED NET INCOME PER SHARE: Basic per share amounts are computed,
generally, by dividing net income by the weighted-average number of common
shares outstanding. Diluted per share amounts assume the conversion, exercise,
or issuance of all potential common stock instruments unless the effect is
antidilutive, thereby increasing the income per common share.
In arriving at basic net income per common share, the Company's net income has
been adjusted for undeclared, cumulative dividends on the Company's 1990 and
1993 Redeemable Convertible Stock, which totaled $95,841 for both 1998 and 1997.
In arriving at the weighted-average number of common shares outstanding for
basic net income per share, the Company's 1998 Convertible Stock (issued to
PPG's former common stockholders), which has all the rights and privileges of
the Company's common stock, has been reflected as equivalent common shares as if
converted on January 1, 1997.
In arriving at diluted weighted-average shares and diluted per share amounts,
common stock issuable on conversion of the 1990 and 1993 Redeemable Convertible
Stock has been included as if converted on January 1, 1997. For these
computations, the Company's net income (before reduction for Convertible Stock
dividends) is divided by the weighted-average diluted shares outstanding. As
described in Note 9, conversion of the aforementioned convertible stock would
result in the issuance of 2,129,456 shares of common stock. Options outstanding
of 139,202, as described in Note 10, were not included in the computation of
weighted-average diluted shares outstanding since their effect was not dilutive.
INCOME TAXES: The Company accounts for deferred taxes on an asset and liability
method whereby deferred tax assets are recognized for deductible temporary
differences and operating loss or tax credit carryforwards, and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax basis. Deferred taxes are based on enacted tax laws
and rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts more likely than not to be realized.
Income tax expense is the tax payable or refundable for the year plus or minus
the change during the year in deferred tax assets and liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The financial statements include the
following financial instruments and methods and assumptions used in estimating
their fair values: for cash and cash equivalents, the carrying amount is fair
value; for trade accounts receivable, accounts payable, and line-of-credit debt,
the carrying amounts approximate their fair values due to either the short-term
nature of these instruments or the variable nature of the interest rate; and for
the fixed-rate notes payable, fair value has been estimated based on discounted
cash flows using interest rates being offered for similar borrowings. No
separate comparison of fair values versus carrying values is presented for the
aforementioned financial instruments since their fair values are not
significantly different than their balance sheet carrying amounts. In addition,
the aggregate fair values of financial instruments would not represent the
underlying value of the Company.
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, the Company
considers all short-term debt securities purchased with a maturity of three
months or less to be cash equivalents.
F-9
<PAGE> 10
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company maintains its cash in bank accounts which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts.
REVENUE RECOGNITION, ACCOUNTS RECEIVABLE, AND ACCOUNTS PAYABLE: Generally, the
Company recognizes sales upon shipment and estimates sales returns if the right
of return exists. The allowances for sales returns as of December 31, 1998 and
1997, were $151,755 and $163,433, respectively. These sales allowances are
recorded as a reduction of accounts receivable.
The Company provides credit to its customers determined on a
customer-by-customer basis. In addition, the Company provides allowances for
uncollectible accounts receivable based on management's periodic assessment of
the need for such allowances. Such allowances were $35,162 and $20,054 at
December 31, 1998 and 1997, respectively.
DEFERRED PREPUBLICATION COSTS: Prepublication costs of new books consist
primarily of freelance page make-up, outside editorial, design, layout, art,
photo services, mechanicals, film, plate preparation charges, and photo and text
permissions. These costs are amortized over three years, the estimated minimum
life of the related publication, using the straight-line method from the date of
initial publication.
PREPAID CATALOG EXPENSES: The cost of catalogs which have not been delivered to
customers are carried as a prepaid expense until the actual date of mailings.
Catalog expense is recognized in the statement of income in the period in which
the catalogs are mailed or distributed. Advertising expense, excluding catalog
expense, was $17,386 and $8,971 for 1998 and 1997, respectively.
ADVANCE ROYALTIES: Advance royalties, which are recorded as an asset when paid,
incurred, or otherwise acquired, are expensed when earned by the authors.
Amounts classified as current on the balance sheets are those amounts expected
to be earned within the next 12 months.
OTHER INTANGIBLE ASSETS: Other intangible assets are amortized using the
straight-line method over the following useful lives:
Years
- --------------------------------------------------------------------------------
Copyrights 10
Goodwill 40
USE OF ESTIMATES: In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
RECLASSIFICATION: Certain amounts as reflected in the 1997 financial statements
have been reclassified to agree with the classification and method of
presentation used in 1998. These reclassifications had no impact on previously
reported net income or stockholders' deficit.
F-10
<PAGE> 11
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. DEFERRED PREPUBLICATION COSTS
The activity in deferred prepublication costs and the balances as of December
31, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Prepublication costs, beginning of year $ 669,760 $ 464,100
Accumulated amortization, beginning of year (391,744) (278,968)
------------------------------
Net balance 278,016 185,132
Prepublication cost additions, current year 451,748 205,660
Amortization expense, current year (189,431) (112,776)
------------------------------
Net balance, end of year $ 540,333 $ 278,016
==============================
</TABLE>
NOTE 3. OTHER INTANGIBLE ASSETS
Other intangible assets consist of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Copyrights $ 658,513 $ 658,513
Goodwill 25,000 25,000
---------------------------------
683,513 683,513
Less accumulated amortization (610,530) (567,257)
---------------------------------
Net balance, end of year $ 72,983 $ 116,256
=================================
</TABLE>
Amortization expense for these intangibles was $43,273 for both 1998 and 1997.
NOTE 4. LINE OF CREDIT AND NOTES PAYABLE
The Company has an agreement with a bank which allows borrowings of up to
$1,000,000 during certain peak seasonal months of the year and otherwise is
limited to $500,000, which expires and is subject to renewal on May 22, 1999.
Advances under this line of credit are based upon eligible assets, are due on
demand, and bear interest at the prime rate (7.75 percent at December 31, 1998)
plus 0.5 percent. All borrowings are secured by the Company's receivables,
inventories, general intangibles, and equipment. The agreement also requires the
Company to meet certain covenants, including maintaining a minimum net worth.
There was $234,000 outstanding under this agreement at December 31, 1998.
The Company obtained a $200,000 installment loan from a bank in 1993. The term
of the loan was five years and had an unpaid balance of $57,168 at December 31,
1997. The loan was repaid in 1998.
F-11
<PAGE> 12
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. REVENUES BY PRODUCT LINE
The Company's revenues by major product line for the years ended December 31,
1998 and 1997, are as follows:
<TABLE>
<CAPTION>
Product Line 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Instruction sales $ 2,471,814 $ 1,476,971
Test preparation sales 954,886 277,711
Advanced placement sales and commission revenue 2,737,548 2,749,914
Other sales - 23,469
------------------------------
Total revenues $ 6,164,248 $ 4,528,065
==============================
</TABLE>
NOTE 6. INCOME TAXES
Federal and state income tax expense for the years ended December 31, 1998 and
1997, consisted of the following:
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current $ 4,579 $ 3,520
Deferred 238,031 122,201
-------------------------------
Total $ 242,610 $ 125,721
===============================
</TABLE>
For the years ended December 31, 1998 and 1997, the income tax provision differs
from the amount of income tax determined by applying the U.S. federal income tax
rate to pretax income, due to the following:
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computed federal income tax at statutory rate $ 190,000 $ 102,400
State income taxes, net of federal benefit 33,200 17,900
Other, net 19,410 5,421
-------------------------------
$ 242,610 $ 125,721
===============================
</TABLE>
F-12
<PAGE> 13
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. INCOME TAXES (CONTINUED)
Net deferred tax assets are comprised of the following at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net operating loss carryforwards $ 2,900 $ 101,000
Allowance for doubtful accounts 14,400 8,200
Allowance for sales returns 62,000 66,900
Inventory 33,900 31,100
Prepaid catalog expenses - 127,000
Intangible assets 31,600 57,000
Allowance for purchase returns (57,400) (64,100)
Equipment 1,036 (633)
---------------------------------
Net deferred tax assets $ 88,436 $ 326,467
=================================
</TABLE>
The aforementioned net deferred tax assets are reflected on the consolidated
balance sheets as follows:
<TABLE>
<CAPTION>
December 31
-----------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 55,800 $ 169,100
Noncurrent assets 32,636 157,367
-------------------------
Net deferred tax assets $ 88,436 $ 326,467
=========================
</TABLE>
NOTE 7. ACCRUED EXPENSES
The components of accrued expenses as of December 31, 1998 and 1997, are as
follows:
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Compensation $ 78,292 $ 74,656
Professional fees 66,358 14,592
Other 4,043 10,992
-------------------------
$ 148,693 $ 100,240
=========================
</TABLE>
F-13
<PAGE> 14
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. LEASE COMMITMENTS
The Company is leasing its premises under an operating lease which expires in
October 1999. The Company also leases automobiles and office equipment under
operating leases.
Future minimum rental obligations under operating leases are as follows:
Years ending December 31:
<TABLE>
<S> <C>
1999 $ 48,229
2000 10,594
2001 8,388
2002 457
--------------------
$ 67,668
====================
</TABLE>
Rent expense under the aforementioned operating leases was $42,276 and $41,207
in 1998 and 1997, respectively.
NOTE 9. COMMON AND CONVERTIBLE STOCK
AUTHORIZED CAPITAL STOCK: The Company has authorized 25,000,000 shares of
capital stock, of which 15,000,000 are designated as common shares, 2,600,000
are designated as either 1990, 1993, or 1998 Convertible Stock, and 7,400,000
are undesignated.
REVERSE STOCK SPLIT AND CHANGES IN PAR VALUE: In December 1998, the Company's
stockholders approved a 20-to-1 reverse stock split. In addition, at the time of
the merger and in December 1998, the Company changed the par value of common and
Convertible Stock. All shares, per share amounts, and par values presented in
these financial statements reflect the retroactive effect of these transactions.
MANDATORY REDEEMABLE STOCK: Shareholders of 1990 and 1993 Redeemable Convertible
Stock are entitled to cumulative quarterly cash dividends at the rates of $0.042
and $0.062, respectively, per share per annum. The Redeemable Convertible Stock
has liquidation preferences of $0.84624 and $1.25, respectively, plus unpaid
accumulated dividends prior to payments to common stockholders or 1998
convertible stockholders.
Under a required redemption provision, commencing on August 24, 2000, the
Company is required to redeem one-third of the Redeemable Convertible Stock from
each shareholder, if adequate cash funds are legally available, at a price equal
to the liquidation preference plus accumulated dividends.
Each share of 1990 and 1993 Redeemable Convertible Stock is convertible at the
option of the holder into 1.0875 shares of common stock, subject to a possible
adjustment for noncash dividends on common stock and subject to certain
antidilution provisions. As of December 31, 1998, the 1990 and 1993 Redeemable
Convertible Stock in the aggregate was convertible into 2,129,456 shares of the
Company's common stock. In the event of such conversion, the accumulated unpaid
dividends would be subject to payment in cash by the Company. At December 31,
1998, the aggregate accumulated unpaid dividends were $483,129 and $231,880 for
the 1990 and 1993 Redeemable Convertible Stock, respectively.
F-14
<PAGE> 15
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. COMMON AND CONVERTIBLE STOCK (CONTINUED)
1998 CONVERTIBLE STOCK: Each share of 1998 Convertible Stock is convertible at
the option of the holder into 1.0875 shares of common stock through December 31,
2001, subject to a possible adjustment for dividends on common stock and subject
to certain antidilution provisions. After December 31, 2001, each share of 1998
Convertible Stock is convertible into 0.5 shares of common stock. As of December
31, 1998, the 1998 Convertible Stock is convertible into 652,500 shares of the
Company's common stock.
Note 10. STOCK OPTIONS
The Company adopted the 1998 Stock Option Plan (the Plan) effective August 1998.
The Plan permits the granting of incentive stock options and nonqualified
options. A total of 400,000 shares of the Company's common stock have been
reserved for issuance pursuant to options granted under the Plan.
Grants under the Plan are accounted for following APB Opinion No. 25 and related
interpretations. Had compensation cost for the options been determined using the
fair value method required by FASB Statement No. 123, the Company's net income
applicable to common stockholders, net income, and basic and diluted net income
per common share on a pro forma basis for 1998 and 1997 would have been as
follows:
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income applicable to common stockholders:
As reported $ 220,297 $ 79,660
Pro forma 196,201 79,660
Basic net income per common share:
As reported $ 0.36 $ 0.15
Pro forma 0.32 0.15
Net income before reduction for Convertible Stock dividends:
As reported $ 316,138 $ 175,501
Pro forma 292,042 175,501
Diluted net income per common share:
As reported $ 0.12 $ 0.07
Pro forma 0.11 0.07
</TABLE>
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants: no dividends, risk-free interest rate of 6 percent,
expected lives of five to ten years, and no expected volatility.
F-15
<PAGE> 16
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. STOCK OPTIONS (CONTINUED)
A summary of stock option activity, including options originally granted by PPG
and reissued on November 1, 1998, as PEH options in connection with the merger,
is as follows:
<TABLE>
<CAPTION>
Weighted-
Average Weighted-
Grant Average
Fair Value Shares Exercise Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1996 $ 0.40 100,000 $ 1.25
Granted 0.53 87,000 1.20
------------
Outstanding at December 31, 1997 0.46 187,000 1.23
Granted 0.32 52,202 1.20
Exercised - (100,000) 1.25
------------
Outstanding at December 31, 1998 0.45 139,202 1.20
============
</TABLE>
There were 52,473 options exercisable at December 31, 1998, at a
weighted-average exercise price of $1.20 per share. The weighted-average
remaining contractual life of all outstanding options was 6.9 years at December
31, 1998.
In July 1998, prior to the merger transaction where PPG became a subsidiary of
PEH, two officer/stockholders of PPG exercised stock options (granted by PPG in
1993) to purchase 50,000 shares each of 1998 Convertible Stock at $1.25 per
share. The shares were issued in exchange for $125,000 of nonrecourse promissory
notes receivable bearing interest at 6 percent per annum. The notes, plus all
accrued interest, are due on July 31, 2003, and are collateralized by the shares
acquired. For financial reporting purposes, the notes receivable were accounted
for as an increase in the stockholders' deficit.
NOTE 11. RELATED PARTY TRANSACTIONS
The Company has retained RiverPoint Investments, Inc., a company in which one
of its officers and directors is the majority shareholder, for certain
consulting services. The Company pays $4,000 per month for such services.
Following the November 1, 1998, merger, the Company's Board of Directors
approved an agreement pursuant to which the former CEO of PEH acquired
substantially all of PEH's pre-merger assets (approximately $64,000) in
exchange for the assumption of all of PEH's liabilities as of the effective
date of the merger, except certain specified liabilities related to
consummating the merger. This transaction resulted in a loss of approximately
$6,000.
F-16
