STECK-VAUGHN PUBLISHING CORPORATION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 0-21730
STECK-VAUGHN PUBLISHING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware I.R.S. No. 33-0556929
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
4515 Seton Center Parkway Suite 300, Austin, Texas 78759
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 512/343-8227
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 14,499,048 common
stock shares outstanding at July 24, 1997.
<PAGE>
<TABLE>
STECK-VAUGHN PUBLISHING CORPORATION
CONSOLIDATED BALANCE SHEETS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<CAPTION>
June 30, December 31, June 30,
(amounts in thousands, except share amounts) 1997 1996 1996
----------------------------------------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 6,820 $ 4,827 $ 1,682
Marketable securities 1,457 1,447 1,399
Receivables, net of allowance of $2,215, $1,342 20,679 17,492 16,864
and $1,421
Inventories and supplies 24,341 21,776 21,090
Prepaid and deferred marketing expenses 4,436 1,635 4,290
Note receivable from parent company - - 3,000
Deferred plant costs 3,713 3,876 2,780
Other current assets 2,618 2,910 2,331
---------------------------------------
Total current assets 64,064 53,963 53,436
LAND, BUILDINGS AND EQUIPMENT, net 9,945 9,866 8,863
ACQUIRED INTANGIBLE ASSETS, net 15,788 14,655 15,274
DEFERRED PLANT COSTS 4,409 4,042 3,398
OTHER ASSETS 2,414 2,342 1,348
-----------------------------------------
$ 96,620 $ 84,868 $ 82,319
=========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 6,490 $ 6,618 $ 6,779
Accrued royalties 2,875 2,296 2,730
Accrued commissions 893 736 984
Accrued salaries, wages and bonuses 1,992 1,965 1,152
Payable to parent company 551 976 631
Current portion of long-term debt 486 3,547 2,345
Accrued and deferred income taxes 2,271 2,266 684
Other liabilities 11 49 189
------------------------------------------
Total current liabilities 15,569 18,453 15,494
LIABILITIES PAYABLE AFTER ONE YEAR
Long-term debt, less current portion 17,907 6,731 12,063
Deferred income taxes - - 629
-----------------------------------------
17,907 6,731 12,692
-----------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 5,000,000 shares - - -
authorized and unissued
Common stock, $.01 par value; 25,000,000 shares 148 146 146
authorized; 14,772,000, 14,600,000, and 14,587,000
shares issued
Additional paid-in capital 38,085 36,998 36,855
Retained earnings 26,869 24,313 18,964
Unrealized gain on marketable securities, net of 70 60 1
tax effect -----------------------------------------
65,172 61,517 55,966
Treasury stock, at cost (273,000, 255,000 and (2,028) (1,833) (1,833)
255,000 shares)
-------------------------------------------
Total stockholders' equity 63,144 59,684 54,133
-------------------------------------------
$ 96,620 $ 84,868 $ 82,319
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STECK-VAUGHN PUBLISHING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(amounts in thousands, except per 1997 1996 1997 1996
share amounts) ------------------------- ------------------------
<S> <C> <C> <C> <C>
NET REVENUES $ 23,014 $ 18,296 $ 38,832 $ 33,757
Product costs and fulfillment 6,857 5,704 11,634 10,846
------------------------- ------------------------
GROSS PROFIT 16,157 12,592 27,198 22,911
Product development 3,510 3,198 6,584 5,864
Selling and marketing 7,041 5,798 11,833 10,787
General and administrative 1,569 1,335 2,829 2,603
Provision for doubtful accounts 80 30 100 45
Amortization of acquired intangible assets 602 465 1,160 811
Write-off of acquired in-process research
and development costs - 4,100 - 4,100
-------------------------- -------------------------
OPERATING INCOME (LOSS) 3,355 (2,334) 4,692 (1,299)
Interest income 51 265 106 590
Interest expense (347) (218) (608) (293)
-------------------------- -------------------------
INCOME (LOSS) BEFORE INCOME TAXES 3,059 (2,287) 4,190 (1,002)
Income taxes 1,193 689 1,634 1,177
--------------------------- --------------------------
NET INCOME (LOSS) $ 1,866 $ (2,976) $ 2,556 $ (2,179)
=========================== ==========================
EARNINGS (LOSS) PER SHARE $ 0.13 $ (0.21) $ 0.18 $ (0.15)
=========================== ==========================
WEIGHTED AVERAGE SHARES OUTSTANDING 14,722 14,429 14,512 14,407
========================== ==========================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STECK-VAUGHN PUBLISHING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Part I. FINANCIAL STATEMENTS
Item 1. Financial Statements
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(amounts in thousands) 1997 1996 1997 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
CASH FLOWS FOR OPERATING ACTIVITIES:
Net Income $ 1,866 $ (2,976) $ 2,556 $ (2,179)
Adjustments to reconcile net income to cash
used for operating activities:
Depreciation and amortization 538 283 958 569
Amortization of acquired 602 465 1,160 811
intangible assets
Write-off of acquired in-process research
and development costs - 4,100 - 4,100
Provision for doubtful accounts 80 30 100 45
Loss (gain) on sale of assets - (1) 14 (2)
Change in assets and liabilities net
of effects from acquisitions:
Receivables (4,069) (3,300) (3,287) (4,449)
Inventories and supplies (151) (259) (2,565) (2,875)
Prepaid and deferred 177 388 (2,801) (2,834)
marketing expenses
Deferred plant costs (35) (88) (204) (309)
Receivable from/payable to parent (264) 95 (425) (668)
Accounts payable and accrued expenses 1,555 (3,121) 598 914
Other (397) (66) 220 3
--------------------- ---------------------
NET CASH USED FOR OPERATING ACTIVITIES (98) (4,450) (3,676) (6,874)
--------------------- ---------------------
CASH FLOWS FOR INVESTING ACTIVITIES:
Net sales of marketable securities 4 85 4 333
Note receivable from parent company, net
activity - - - 1,000
Additions to land, buildings and equipment (605) (802) (1,099) (1,537)
Dispositions of land, buildings and equipment 6 4 29 32
Acquisition costs, net of cash acquired (2,293) (10,658) (2,293) (10,749)
-------------------- ---------------------
NET CASH FOR INVESTING ACTIVITIES (2,888) (11,371) (3,359) (10,921)
-------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in current portion of long-term debt - (1,444) (1,900) 456
Additions to long-term debt 5,278 11,024 10,278 11,024
Reductions in long-term debt (126) (85) (244) (2,071)
Proceeds from issuance of common stock 282 4 1,089 27
Purchase of treasury stock - - (195) -
--------------------- ---------------------
NET CASH FROM FINANCING ACTIVITIES 5,434 9,499 9,028 9,436
--------------------- ---------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,448 (6,322) 1,993 (8,359)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 4,372 8,004 4,827 10,041
--------------------- ---------------------
CASH AND CASH EQUIVALENTS AT END OF $ 6,820 $ 1,682 $ 6,820 $ 1,682
PERIOD ===================== ======================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
STECK-VAUGHN PUBLISHING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Note 1 - Summary of Accounting Policies
Steck-Vaughn Publishing Corporation (the Company) was incorporated on March
10, 1993, as a wholly-owned subsidiary of National Education Corporation
(NEC). Effective April 2, 1993, NEC made a capital contribution of all of the
stock of Steck-Vaughn Company (SVC) to the Company. The consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiaries, Steck-Vaughn Company, SV Distribution Company (d.b.a. Summit
Learning), and Edunetics Ltd. and Edunetics Corporation (together referred to
as "Edunetics" herein). All significant intercompany balances and
transactions have been eliminated in consolidation.
In August 1993, the Company completed an initial public offering in which
2,668,000 shares were sold for net proceeds of $29,775,000. The shares sold
represented 18.3% of the outstanding shares of the Company. The Company
subsequently repurchased 273,000 shares of its outstanding common stock,
increasing NEC's ownership to 82.1% of the common stock of the Company.
In June 1997, Harcourt General, Inc. (Harcourt) completed its tender offer to
acquire all of the outstanding shares of NEC. As a result, Harcourt is now
the owner of the 82.1% of the Company's outstanding common stock previously
held by NEC. In connection with the acquisition of the Company's stock by
Harcourt, all of the officers of the Company resigned their officer
responsibilities and continued in their operational roles, with the exception
of the president, and the Chairman and Executive Officers of Harcourt became
officers of the Company. The Company has retained its historical basis of
accounting, and Harcourt has not reflected its fair value adjustments in
these financial statements.
In July 1997, Harcourt submitted an offer for all of the outstanding shares of
common stock of the Company not currently owned by Harcourt at a price per
share of $14.00. The independent directors of the Company have been
considering that offer, but no merger agreement has been signed.
Due to the seasonal naany's traditional selling cycle, a substantial portion
of selling and marketing costs of the Company are deferred in the first half
of the year and fully amortized later in the calendar year to properly match
the costs with revenues.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments of a normal recurring nature
necessary to present fairly the financial position, results of operations, and
cash flows of the Company. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission. It is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto included in
the Company's 1996 Form 10-K. The results of operations for interim periods
are not necessarily indicative of the results of operations expected for the
year.
<PAGE>
STECK-VAUGHN PUBLISHING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Note 2 - Investments
All marketable securities are classified as available-for-sale securities.
During the six months ended June 30, 1997 and 1996, the Company did not
realize a material gain or loss from the sale of available-for-sale
securities.
Note 3 - Inventories and Supplies
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(amounts in thousands) 1997 1996 1996
----------------------------------------
<S> <C> <C> <C>
Finished Goods $ 23,605 $ 21,213 $ 20,365
Work in process 72 72 72
Raw materials and supplies 664 491 653
----------------------------------------
Total $ 24,341 $ 21,776 $ 21,090
========================================
</TABLE>
Note 4 - Business Combinations
On May 23, 1997, the Company acquired substantially all of the rights to The
Integrator product from The Conover Company, Ltd. for cash consideration of
$2,250,000. The Integrator is a technology-based product which provides basic
skills training customized to the aptitude and career interests of adult
students. The acquisition was accounted for using the purchase method of
accounting.
On April 30, 1996, the Company acquired all of the stock of Edunetics Ltd., an
Israel corporation engaged in the development of educational software, for
cash consideration of $12,000,000. At closing, the purchase price was funded
by cash on hand and borrowings of $9,000,000 under the revolving bank credit
agreement. The acquisition was accounted for using the purchase method of
accounting.
Note 5 - Earnings Per Share
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share," establishing new
methodology for the calculation of earnings per share. If earnings per share
had been determined under the new standard, both basic and diluted earnings
per share would be unchanged from the current presentation on the Consolidated
Statements of Operations.
<PAGE>
<TABLE>
STECK-VAUGHN PUBLISHING CORPORATION
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
<CAPTION>
Percentage of Percentage of Percentage
Net Revenues Net Revenues Change From
Three Months Ended Six Months Ended Prior Year
June 30, June 30 Period
1997 1996 1997 1996 Q2 YTD
------ ------- ------ ------ ------ ------
Net Revenues:
Core Business:
<S> <C> <C> <C> <C> <C> <C>
Elementary/High School 49.3% 38.3% 47.3% 41.9% 62.0% 29.8%
Adult education 18.6 18.3 18.3 18.3 28.1 15.6
Library 18.1 23.3 19.0 23.7 (2.3) (7.7)
------ ------- ------ ------ ------ ------
86.0 79.9 84.6 83.9 35.4 16.1
Summit Learning 11.0 14.0 11.4 12.8 (1.4) 1.4
Edunetics 3.0 6.1 4.0 3.3 (37.9) 40.4
------ ------ ------ ------ ------ ------
Total Net Revenues 100.0 100.0 100.0 100.0 25.8 15.0
Product costs and fulfillment 29.8 31.2 30.0 32.1 20.2 7.3
------ ------ ------ ------ ------ ------
Gross Profit 70.2 68.8 70.0 67.9 28.3 18.7
Product development 15.3 17.5 17.0 17.4 9.8 12.3
Selling and marketing 30.6 31.7 30.4 32.0 21.4 9.7
General and administrative 6.8 7.3 7.3 7.7 17.5 8.7
Provision for doubtful accounts 0.3 0.2 0.2 0.1 166.7 122.2
Amortization of acquired
intangible assets 2.6 2.5 3.0 2.4 29.5 43.0
Write-off of acquired in-process
research and development costs - 22.4 - 12.1 - -
------ ------ ------ ------ ------ ------
Operating Income 14.6 (12.8) 12.1 (3.8) - -
Interest income 0.2 1.5 0.3 1.7 (80.8)(82.0)
Interest expense (1.5) (1.2) (1.6) (0.9) 59.2 107.5
------ ------ ------ ------- ------ ------
Income Before Income Taxes 13.3 (12.5) 10.8 (3.0) - -
Income taxes 5.2 3.8 4 3.5 73.1 38.8
------ ------ ------- -------- ------ ------
Net Income 8.1% (16.3%) 6.6% (6.5)% - -
====== ====== ======= ======= ====== ======
</TABLE>
The discussion in this document contains trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of
1934, as amended. Actual results could differ materially from those projected
in the forward-looking statements throughout this document.
<PAGE>
STECK-VAUGHN PUBLISHING CORPORATION
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Net Revenues
<TABLE>
<CAPTION>
Revenues by Product Line Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
(amounts in thousands) 1997 1996 (pro forma) 1997 1996 (pro forma)
=============================== ==============================
Core Business
<S> <C> <C> <C> <C> <C> <C>
Elementary and High School $ 11,337 $ 7,000 $ 8,856 $ 18,372 $ 14,152 $ 16,008
(El/Hi)
Adult Education 4,278 3,339 3,986 7,118 6,160 6,807
Library 4,175 4,272 4,969 7,375 7,991 8,688
------------------------------ -----------------------------
19,790 14,611 17,811 32,865 28,303 31,503
Summit Learning 2,529 2,565 2,565 4,395 4,334 4,334
Edunetics 695 1,120 1,120 1,572 1,120 1,120
------------------------------ ------------------------------
Total $ 23,014 $ 18,296 $ 21,496 $ 38,832 $ 33,757 $ 36,957
============================== ==============================
</TABLE>
For the second quarter of 1996, the Company reported pro forma revenues which
included an additional $3,200,000 of revenues attributable to the backlog of
shippable orders at June 30, 1996, resulting from the installation of a new
warehouse management system. These pro forma revenues are reported above and
referenced below for consistency.
Revenues increased 25.8% (7.1% on a pro forma basis) over the second quarter
last year as revenues in both El/Hi and Adult were strong. Year-to-date,
sales are up 15.0% (5.1% pro forma) primarily due to strength in El/Hi and a
full six months of selling Edunetics products.
El/Hi revenues rose 62.0% (28.0% pro forma) versus last year's second quarter
primarily as a result of increasing sales of the Company's core products.
Basic skills products such as Phonics and Reading Comprehension and the
Company's test preparation and assessment products provided much of the
increase. In addition, the Company successfully introduced Pair-It Books, a
50-title series for emergent readers, and revised versions of World History
and You and America's Story.
Adult product sales were up 28.1% (7.3% pro forma) over the same three months
in 1996 primarily due to the availability of increased Federal funding and the
improvement in sales of the Educational Development Laboratories (EDL)
technology product line. The increase in the second quarter, after being flat
in the previous quarter, reflects the stabilization of the sales force
following the consolidation of territories in the first quarter of 1997.
Library sales were down 2.3% (down 16.0% pro forma) for the quarter against
1996 as school districts have trimmed library budgets and the new independent
sales force has not made up for the loss of school business with significant
increases in sales to public libraries.
<PAGE>
STECK-VAUGHN PUBLISHING CORPORATION
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Summit sales are essentially flat for both the second quarter and
year-to-date. Revenues were increased by orders from this season's science
catalog and residual business from last fall's catalogs. In addition, Summit
issued its first language arts catalog in March and its first spring consumer
catalog in April, both of which contributed incremental revenues this quarter.
These positive results were offset by lower responses to the spring math
catalogs.
Product Cost and Fulfillment Expense
Product cost and fulfillment expense as a percentage of revenues decreased for
the three-month period ended June 30, 1997, as compared to 1996. Product cost
and fulfillment for the Company's core business operations for the three
months ended June 30, 1997, represented 26.3% of core business revenues, as
compared to 28.2% for the same period in the previous year, primarily due to
reduced library sales, increased sales of EDL technology products, and the
reduction of paper prices last year. Product costs of Edunetics products for
the three months ended June 30, 1997, represented 12.2% of Edunetics revenue,
reflecting the higher margins earned on technology products. Summit Learning's
product and fulfillment costs, at 62.1% of revenues, compared to 56.7% for the
same period of the prior year, reflect the non-proprietary nature of the
product line and increased over the prior year period primarily due to product
mix.
Product Development Expense
The following table reconciles product development investment to product
development expense for each of the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, Percentage June 30, Percentage
(amounts in thousands) 1997 1996 Change 1997 1996 Change
-------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Product development investment $ 3,572 $ 3,287 8.7% $ 6,789 $ 6,174 10.0%
Plant and software costs capitalized (994) (809) 22.9 (1,825) (2,006) (9.0)
Plant costs amortized 932 720 29.4 1,620 1,696 (4.5)
----------------- -----------------
Product development expense $ 3,510 $ 3,198 9.8 $ 6,584 $ 5,864 12.3
================= =================
</TABLE>
Product development investment for the three months ended June 30, 1997,
increased 8.7% as compared to the prior year, primarily attributable to the
expansion of the Company's technology development unit, both in the Company's
main office as well as the Edunetics development operation in Israel.
Capitalized costs were higher than last year due to the timing of development
costs in 1997, and amortization expense was higher due to the implementation
of a new amortization rate schedule for new products.
<PAGE>
STECK-VAUGHN PUBLISHING CORPORATION
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Selling and Marketing Expense
The following table reconciles selling and marketing costs to selling and
marketing expense for each of the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, Percentage June 30, Percentage
(amounts in thousands) 1997 1996 Change 1997 1996 Change
--------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Selling and marketing costs $ 7,035 $ 6,253 12.5% $ 14,328 $ 12,914 10.9%
Selling and marketing deferred 6 (455) - (2,495) (2,127) (17.3)
------------------- ---------------------
Net selling and marketing expense $ 7,041 $ 5,798 21.4 $ 11,833 $ 10,787 9.7
=================== =====================
</TABLE>
Selling and marketing costs increased 12.5% for the three months ended June
30, 1997, as compared to the prior year, primarily due to additional marketing
programs and the new curriculum integration sales group formed to facilitate
the sale of technology products. Net selling and marketing expense increased
21.4% for the three months ended June 30, 1997, as compared to the prior year,
primarily due to the timing of revenues attributable to the Company's policy
of deferring a portion of the Company's selling and marketing costs.
General and Administrative Expense
General and administrative expense increased 17.5% for the three months ended
June 30,1997, as compared to the prior year, due to the inclusion of Edunetics
for the full quarter.
Amortization of Acquired Intangible Assets
Amortization expense increased due to the acquisition of Edunetics in April
1996.
Operating Income by Product Line
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(amounts in thousands) 1997 1996 1997 1996
------------------- --------------------
<S> <C> <C> <C> <C>
Core Business $ 4,124 $ 1,939 $ 6,472 $ 3,189
Summit Learning 188 15 (49) (200)
Edunetics (957) (188) (1,731) (188)
------------------- --------------------
3,355 1,766 4,692 2,801
Write-off of research
and development - (4,100) (4,100)
__________________ ____________________
Operating Income $ 3,355 $ (2,334) $ 4,692 $(1,299)
================== ====================
</TABLE>
<PAGE>
STECK-VAUGHN PUBLISHING CORPORATION
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operating income as a percentage of revenues for the three months ended June
30, 1997, as compared to 1996, increased for the core business primarily due
to higher revenues and lower relative product costs. The increase in Summit
Learning's operating income was due to savings on catalogs. Edunetics
reported an operating loss due to lower than expected sales as the
recently-hired curriculum integration sales specialists worked to identify
potential major accounts and cultivate sales.
Interest Income and Expense
Interest income for the three-month period ended June 30, 1997 was lower than
the previous year, reflecting termination of the Company's loans to NEC.
Interest expense for the period was higher than prior year due to debt
incurred for the acquisition of Edunetics.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash, marketable securities,
cash provided from operations and the Company's bank line of credit. The
Company's uses of cash include product development, capital expenditures,
working capital requirements, and selected acquisitions of complementary
businesses and product lines.
At June 30, 1997, the Company had $8,277,000 in cash and marketable securities
versus $3,081,000 at June 30, 1996. The increase was primarily attributable
to the use of cash on hand to purchase Edunetics last year.
Net cash outflow for operating activities for the three months ended June 30,
1997, of $98,000 was $4,352,000 lower than the prior year period. The
decrease reflects the payment in the second quarter of 1996 of accrued
liabilities relating to the start-up of Summit Learning and inventory
purchases under the new distribution agreements with Wayland Publishers and
Abdo.
On May 23, 1997, the Company acquired substantially all of the rights to The
Integrator product line from The Conover Company, Ltd. for cash consideration
of $2,250,000. 96, the Company acquired all of the stock of Edunetics Ltd. for
cash consideration of $12,000,000. At closing, the purchase prices for both
transactions were funded by cash on hand and borrowings under the Company's
bank line of credit.
During the second quarter, the Company extended its revolving bank credit
agreement to $20,000,000 and the maturity date to April 10, 1999. The
agreement provides for borrowings at prime or, at the Company's option, LIBOR
plus 1.5 percent. At June 30, 1997, $17,000,000 was outstanding under the
bank credit facility.
The Company expects that cash, cash provided from operations, and the
revolving credit facility will be sufficient to provide for investment in
product development, planned working capital requirements, debt service, and
capital expenditures for the foreseeable future.
<PAGE>
STECK-VAUGHN PUBLISHING CORPORATION
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Certificate of Incorporation of the Company (1)
3.2 By-Laws of the Company. (1)
4.1 Specimen of Common Stock Certificate of the Company. (1)
10.1 Modification and Renewal of Note, dated December 28, 1992, between
NationsBank of Texas, N.A., as holder, and Steck-Vaughn Company,
as borrower, secured by and as purchase money for the Company's
distribution center in Austin, Texas. (2)
10.2 Agreement, dated June 1, 1990, between the American Council on
Education and Steck-Vaughn Company, granting exclusive license for
reproduction and distribution of official GED Practice
Tests and Addendum effective July 28, 1992. (3)
10.3 Form of Intercompany Agreement between the Company and National
Education Corporation. (4)
10.4 First Amendment to Intercompany Agreement between the Company and
National Education Corporation dated June 10, 1994. (5)
10.5 Form of Tax Sharing Agreement between the Company and National
Education Corporation. (6)
10.6 Form of Indemnification Agreements between the Company and its
Officers and Directors. (7)
10.7 The Company's 1993 Stock Option Plan as amended. (8)
10.8 National Education Corporation Supplemental Executive Retirement
Plan (9)
10.9 Revolving Line of Credit Note and Option Agreement between the
Company and National Education Corporation, dated February 28, 1995
(10)
10.10 Addendum to Agreement between the American Council on Education
and Steck-Vaughn Company extending the expiration of the Agreement
to August 31, 2001 (11)
10.11 The Company's 1995 Directors' Stock Option and Award Plan (12)
10.12 Renewal and Extension Agreement between the Company and National
Education Corporation, effective December 31, 1995 (13)
10.13 First Amendment to Stock Option Agreement between the Company and
National Education Corporation, effective December 31, 1995. (14)
10.14 Letter Amendment to Stock Option Agreement between the Company and
National Education Corporation, dated February 1, 1996. (15)
10.15 Agreement between the Company and Edunetics Ltd. dated February
29, 1996. (16)
<PAGE>
STECK-VAUGHN PUBLISHING CORPORATION
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
10.16 Second Renewal and Extension Agreement between the Company and
NationalEducation Corporation, effective March 31, 1996. (17)
10.17 Second Amendment to Stock Option Agreement between the Company and
National Education Corporation, effective March 31, 1996. (18)
10.18 Third Renewal and Extension Agreement between the Company and
National Education Corporation, effective June 30, 1996. (19)
10.19 Third Amendment to Stock Option Agreement between the Company and
National Education Corporation, effective June 30, 1996 .(20)
10.20 Employment Agreement between the Company and Anita Kopec dated
September 10, 1996 .(21)
10.21 Revised and Restated Office Lease dated January 30, 1997, between
Quarry Lake Business Center, Ltd., as landlord and Steck-Vaughn
company, as tenant, for the Company's principal offices in Austin,
Texas, beginning November 1, 1996 (22)
10.22 Agreement entered into July 1, 1997, among Harcourt General, Inc.
and the Independent Directors of Steck-Vaughn Publishing
Corporation(23) .
10.23 Agreement dated May 30, 1997, between Harcourt General, Inc. and
Steck-Vaughn Publishing Corporation(24).
10.24 Loan Agreement between NationsBank of Texas, N.A., and
Steck-Vaughn Company, dated April 10, 1997(25)
11.1 Statement re Calculation of Earnings Per Share.(25)
27.1 Financial Data Schedule. (26)
(b) Reports on Form 8-K
A Form 8-K was filed on June 19, 1997, reporting Harcourt
General's acquisition of 82% of the Company's outstanding shares.
<PAGE>
STECK-VAUGHN PUBLISHING CORPORATION
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(1) Incorporated by reference to the identically numbered exhibit in
Amendment No. 1 to the Company's Registration Statement on Form
S-1, File No. 33-62334, filed with the Securities and Exchange
Commission on June 17, 1993 ("Amendment No. 1 to S-1 Registration
Statement").
(2) Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, File No. 33-62334, filed with
the Securities and Exchange Commission on May 7, 1993 (the "S-1
Registration Statement").
(3) Incorporated by reference to Exhibit 10.7 to the Company's
Amendment No. 1 to S-1 Registration Statement.
(4) Incorporated by reference to Exhibit 10.8 to the Company's
Amendment No. 1 to S-1 Registration Statement.
(5) Incorporated by reference to Exhibit 10.15 in the Company's Form
10-Q for the quarterly period ended June 30, 1994, filed with the
Securities and Exchange Commission on August 11, 1994.
(6) Incorporated by reference to Exhibit 10.9 to the Company's
Amendment No. 1 to S-1 Registration Statement.
(7) Incorporated by reference to Exhibit 10.10 to the Company's
Amendment No. 1 to S-1 Registration Statement.
(8) Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8, file no. 333-22235, filed with
the Securities and Exchange Commission on February 24, 1997.
(9) Incorporated by reference to Exhibit 10.12 to the Company's S-1
Registration Statement.
(10) Incorporated by reference to Exhibit 10.12 in the Company's Form
10-K for the year ended December 31, 1994, filed with the
Securities and Exchange Commission on March 29, 1995.
(11) Incorporated by reference to Exhibit 10.13 in the Company's Form
10-Q for the quarterly period ended March 31, 1995, filed with the
Securities and Exchange Commission on May 12, 1995.
(12) Incorporated by reference to Exhibit A in the Company's Proxy
Statement furnished in connection with the Annual Meeting of
Stockholders held May 17, 1995, filed with the Securities and
Exchange Commission on March 29, 1995.
(13) Incorporated by reference to Exhibit 10.16 in the Company's Form
10-K for the year ended December 31, 1995, filed with the
Securities and Exchange Commission on March 25, 1996.
<PAGE>
STECK-VAUGHN PUBLISHING CORPORATION
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(14) Incorporated by reference to Exhibit 10.17 in the Company's Form
10-K for the year ended December 31, 1995, filed with the
Securities and Exchange Commission on March 25, 1996.
(15) Incorporated by reference to Exhibit 10.18 in the Company's Form
10-K for the year ended December 31, 1995, filed with the
Securities and Exchange Commission on March 25, 1996.
(16) Incorporated by reference to Exhibit 10.19 in the Company's Form
10-K for the year ended December 31, 1995, filed with the
Securities and Exchange Commission on March 25, 1996.
(17) Incorporated by reference to Exhibit 10.19 in the Company's Form
10-Q for the quarterly period ended March 31, 1996, filed with the
Securities and Exchange Commission on May 14, 1996.
(18) Incorporated by reference to Exhibit 10.20 in the Company's Form
10-Q for the quarterly period ended March 31, 1996, filed with the
Securities and Exchange Commission on May 14, 1996.
(19) Incorporated by reference to Exhibit 10.22 in the Company's Form
10-Q for the quarterly period ended June 30, 1996, filed with the
Securities and Exchange Commission on August 13, 1996.
(20) Incorporated by reference to Exhibit 10.23 in the Company's Form
10-Q for the quarterly period ended June 30, 1996, filed with the
Securities and Exchange Commission on August 13, 1996.
(21) Incorporated by reference to Exhibit 10.24 in the Company's Form
10-Q for the quarterly period ended September 30, 1996, filed with
the Securities and Exchange Commission on November 13, 1996.
(22) Incorporated by reference to Exhibit 10.22 in the Company's Form
10-K for the year ended December 31, 1996, filed with the
Securities and Exchange Commission on March 31, 1997.
(23) Incorporated by reference to Exhibit 99.4 of a Schedule 13D/A
dated July 10, 1997 filed by Harcourt General, Inc. and National
Education Corporation.
(24) Incorporated by reference to Exhibit 11(a)(21) to Amendment No. 5
to Schedule 14D-1 of Harcourt General, Inc., dated July 5, 1997.
(25) Filed herewith.
(26) Filed only with electronic version of Form 10-Q.
<PAGE>
STECK-VAUGHN PUBLISHING CORPORATION
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STECK-VAUGHN PUBLISHING CORPORATION
Date: August 13, 1997 By /s/ John Cook
John Cook
Vice President, Finance and
Chief Financial Officer
By /s/ Stephen C. Richards
Stephen C. Richards
Vice President - Controller
Principal Accounting Officer
<PAGE>
STECK-VAUGHN PUBLISHING CORPORATION
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
10.22 Loan Agreement between NationsBank of Texas, N.A.,
and Steck-Vaughn Company, dated April 10, 1997.
11.1 Statement re Calculation of Earnings Per Share.
27.1 Financial Data Schedule.
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made and entered into as of
April 10, 1997, by and between STECK-VAUGHN COMPANY (the "Borrower"), a
Delaware corporation, and NATIONSBANK OF TEXAS, N.A. ("Lender"), a national
banking association, who agree as follows:
1. Definitions.
Unless a particular word or phrase is otherwise defined or the context
otherwise requires, each of the following-listed terms, as used in this
Agreement, has the meaning indicated below (such meaning to be applicable to
both the singular and plural forms of such term):
Each of the terms Accounts, Account Debtor, Equipment, Inventory and
General Intangibles shall have the respective meanings assigned to that term
in the Texas Uniform Commercial Code - Secured Transactions in force on the
date of this Agreement.
Advance shall mean an advance of funds by Lender, pursuant to this
Agreement or one of the other Loan Documents.
Affiliate shall mean any Person controlling, controlled by or under
common control with any other Person. For purposes of this definition,
"control" (including "controlled by" and "under common control with") means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or otherwise. If any Person shall own,
directly or indirectly, twenty percent (20%) or more of the indicia of equity
rights (whether outstanding capital stock or otherwise) of another Person,
such Person shall be deemed to be an Affiliate.
Annual Audited Financial Statements shall mean the annual financial
statements of a Person, including all notes thereto, which statements shall
include a balance sheet as of the end of that Person's fiscal year and an
income statement and a statement of cash flow for such fiscal year, all
setting forth in comparative form the corresponding figures from the previous
fiscal year, all prepared in conformity with Generally Accepted Accounting
Principles and accompanied by a report and opinion of independent certified
public accountants satisfactory to Lender, which shall state that such
financial statements, in the opinion of such accountants, present fairly the
financial position of such Person as of the date thereof, and the results of
that Person's operations for the period covered thereby, in conformity with
Generally Accepted Accounting Principles.
<PAGE>
Business Day shall mean a day when Lender is open for business in
Austin, Texas.
Business Entity shall mean corporations, partnerships, joint ventures,
joint stock associations, business trusts and other business entities.
Chapter One shall mean Chapter One of the Texas Credit Code, as in
effect on the date of this Agreement.
Code shall mean the Internal Revenue Code of 1986, as amended, as now or
hereafter in effect, together with all regulations, rulings and
interpretations thereof or thereunder by the Internal Revenue Service.
Collateral shall mean all equipment, inventory, fixtures, other goods,
accounts, chattel paper, instruments, documents, investment property, general
intangibles and other personal property now or hereafter subject to the
Security Agreement, or intended so to be.
Commitments shall mean the commitments to lend funds under Article 0 of
this Agreement.
Contract Rate has the meaning designated in Section 0.
Debt to EBITDA Ratio shall mean, with respect to any Person and as of
the end of any quarter-annual accounting period in that Person's fiscal year,
the ratio of (i) the unpaid, principal balance of all Indebtedness (other than
Subordinated Debt) for borrowed money (which for purposes of calculating this
ratio does not include any accounts payable or accrued expenses), and all
capital lease obligations, owed by such Person, at the end of such accounting
period, to (ii) such Person's EBITDA for the twelve months ending with that
accounting period.
EBITDA shall mean Net Income, plus (a) depreciation, depletion,
obsolescence and amortization of Property determined in accordance with
Generally Accepted Accounting Principles, plus (b) changes in deferred taxes,
reserves and other non-cash charges deducted from revenues in accordance with
Generally Accepted Accounting Principles in determining Net Income, plus (c)
interest, plus (d) income tax.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all rules, regulations, rulings and
interpretations adopted by the Internal Revenue Service or the Department of
Labor thereunder.
<PAGE>
Event of Default shall mean any of the events specified as an Event of
Default in Section 0 of this Loan Agreement; provided there has been satisfied
any requirement in connection with such event for the giving of notice, or the
lapse of time, or the happening of any further condition, event or act, and
Default shall mean any of such events, whether or not any such requirement has
been satisfied.
Financing Statements shall mean all such Uniform Commercial Code
financing statements as Lender shall require, in Proper Form, duly executed by
Borrower or others to give notice of and to perfect or continue perfection of
Lender's security interest in all Collateral.
Generally Accepted Accounting Principles shall mean, as to a particular
Person, such accounting practice as, in the opinion of the independent
accountants of recognized standing regularly retained by such Person and
acceptable to Lender, conforms at the time to generally accepted accounting
Principles, consistently applied. Generally accepted accounting principles
means those principles and practices (a) which are recognized as such by the
Financial Accounting Standards Board, (b) which are applied for all periods
after the date hereof in a manner consistent with the manner in which such
principles and practices were applied to the most recent financial statements
of the relevant Person furnished to Lender, and (c) which are consistently
applied for all periods after the date hereof so as to reflect properly the
financial condition, and results of operations and changes in cash flow, of
such Person. If any change in any accounting principle or practice is
required by the Financial Accounting Standards Board in order for such
principle or practice to continue as a Generally Accepted Accounting Principle
or practice, all reports and financial statements required hereunder may be
prepared in accordance with such change only after written notice of such
change is given to Lender.
Governmental Authority shall mean the United States of America, any
State of the United States and any political subdivision of any of the
foregoing, and any agency, department, commission, board, bureau, court, other
tribunal having jurisdiction over Lender, or Borrower, or any of their
respective Properties.
Guaranty Agreement shall mean that certain Guaranty Agreement dated of
even date with this Agreement and signed by Guarantor, by which Guarantor
guarantees payment of all Indebtedness now or hereafter evidenced by any one
(1) or more of the Notes.
<PAGE>
Guarantor shall mean Steck-Vaughn Publishing Corporation, a Delaware
corporation that owns 100% of the equity interests in the Borrower.
Hazardous Materials shall mean (i) any "hazardous waste" as defined by
the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et
seq.), as amended from time to time, and regulations promulgated thereunder;
(ii) any "hazardous substance" as defined by the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et
seq.) ("CERCLA"), as amended from time to time, and regulations promulgated
thereunder; (iii) asbestos; (iv) polychlorinated biphenyls; (v) any substance
the presence of which on any of Borrower's Properties is prohibited by any
Governmental Authority; and (vi) any other substance which by any governmental
requirement requires special handling in its collection, storage, treatment or
disposal.
Hazardous Materials Contamination shall mean the contamination (whether
presently existing or hereafter occurring) of the improvements, facilities,
soil, ground water, air or other elements on, or of, any of Borrower's
Properties by Hazardous Materials, or the contamination of the buildings,
facilities, soil, ground water, air or other elements on, or of, any other
property as a result of Hazardous Materials at any time (whether before or
after the date of the Deed of Trust) emanating from any of Borrowers'
Properties.
Highest Lawful Rate shall mean the maximum nonusurious rate of interest
permitted to be charged, contracted for, received or collected by applicable
federal or Texas law (whichever shall permit the higher lawful rate) from time
to time in effect. At all times, if any, as Chapter One shall establish the
Highest Lawful Rate, the Highest Lawful Rate shall be the "indicated rate
ceiling" (as defined in Chapter One) from time to time in effect.
Indebtedness shall mean and include all items which in accordance with
Generally Accepted Accounting Principles would be included on the liability
side of a balance sheet on the date as of which Indebtedness is to be
determined (excluding capital stock, surplus, surplus reserves and deferred
credits); provided, that such term shall not mean or include any Indebtedness
in respect of which monies sufficient to pay and discharge the same in full
(either on the expressed date of maturity thereof or on such earlier date as
such Indebtedness may be duly called for redemption and payment) have been
deposited with a depository, agency or trustee acceptable to Lender in trust
for the payment thereof.
<PAGE>
Investment shall mean the purchase or other acquisition of any
securities or Indebtedness of, or the making of any loan, advance, transfer of
Property or capital contribution to, or the incurring of any liability,
contingent or otherwise, in respect of the Indebtedness of, any Person.
Legal Requirement shall mean any law, statute, ordinance, decree,
requirement, order, judgment, rule, regulation (or interpretation of any of
the foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority.
Lending Limit shall mean the limit imposed by one or more Legal
Requirements on the liability of Borrower to Lender.
Lien shall mean any security interest, pledge, lien or restriction of
any kind, whether based on common law, constitutional provision, statute or
contract, to secure performance of any obligation.
Loan Documents shall mean this Agreement, the Notes, the Guaranty
Agreement, all Security Documents, all instruments, certificates and
agreements now or hereafter executed or delivered to Lender pursuant to any of
the foregoing, and all amendments, modifications, renewals, extensions,
increases and rearrangements of, and substitutions for, any of the foregoing.
Loan shall mean the loan described in Article 2 of this Agreement.
NEC means National Education Corporation, a Delaware corporation, or its
successor in the ownership of the 83% majority of Guarantor's stock.
Net Income shall mean gross revenues and other proper income credits,
less all proper income charges (including taxes), all determined in accordance
with Generally Accepted Accounting Principles; provided, that there shall not
be included in such revenues (i) any income representing the excess of equity
in any Subsidiary at the date of acquisition over the investment in such
Subsidiary, (ii) any interest in the undistributed earnings of any Person
which is not a Subsidiary, (iii) any earnings of any Subsidiary for any period
prior to the date such Subsidiary was acquired, (iv) any gains resulting from
the write-up of assets, (v) any proceeds of any life insurance policy, or (vi)
any gain which is classified as "extraordinary" and non-recurring in
accordance with Generally Accepted Accounting Principles; and provided further
that there shall not be included in such income charges any charge which is
classified as "extraordinary" and non-recurring in accordance with Generally
Accepted Accounting Principles.
<PAGE>
Notes shall mean the $20,000,000.00 Note, together with all renewals,
amendments, modifications, extensions and rearrangements of, and substitutions
for, the $20,000,000.00 Note and/or any other Note. Note shall mean any of
the Notes.
Officer's Certificate shall mean a certificate signed in the name of the
relevant Business Entity by either its President, one of its Vice Presidents,
its Treasurer, its Controller, its Secretary or one of its Assistant
Treasurers or Assistant Secretaries, or any of its General Partners.
Opinion Letter shall mean the opinion letter of counsel for Borrower, in
Proper Form.
Organizational Documents shall mean, with respect to a corporation, the
certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, the partnership agreement
establishing such partnership; and with respect to a trust, the written
instrument establishing such trust; in each case including any and all
modifications thereof.
Parties shall mean all Persons other than Lender executing any Loan
Document.
Past Due Rate shall mean the lesser of (i) the Highest Lawful Rate, or
(ii) the Prime Rate plus three percent (3.0%).
Permitted Investments shall mean all investments allowed by the
Borrower's current investment policy, a copy of which has been provided to
Lender.
Person shall mean any natural person, Business Entity, trust,
unincorporated organization, Governmental Authority or any other form of
entity.
Plan shall mean any plan subject to Title IV of ERISA and maintained for
employees of Borrower or of any member of a "controlled group of
corporations", as such term is defined in the Code, of which Borrower, or any
of its Subsidiaries, is a part, or any such plan to which Borrower, or any of
its Subsidiaries, is required to contribute on behalf of its employees.
Pre-Tax Income shall mean Net Income plus federal income taxes, state
income taxes and international income taxes.
<PAGE>
Prime Rate shall mean the varying rate so designated by Lender, and
established by Lender, from time to time as one of Lender's general reference
rates for calculating interest. The Prime Rate is a reference rate and is not
necessarily the lowest rate actually charged to any customer. Lender may make
commercial loans or other loans at rates of interest at, above or below the
Prime Rate.
Proper Form shall mean in form and substance reasonably satisfactory to
Lender.
Property shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
Quarterly Unaudited Financial Statements shall mean the quarterly
financial statements of a Person, including all notes thereto, which
statements shall include a balance sheet as of the end of such quarter and an
income statement and a statement of cash flow for such fiscal quarter, and for
the fiscal year to date, subject to normal end-of-period adjustments, all
setting forth in comparative form the corresponding figures for the
corresponding fiscal quarter of the preceding year, prepared in accordance
with Generally Accepted Accounting Principles and certified by the president,
treasurer, controller or chief financial officer of such Person as being true
and correct and fairly reflecting the financial position of such Person as of
the date thereof and the results of its operations for the period covered
thereby, subject to said normal year-end adjustments.
Security Agreement shall mean the Security Agreement dated of even date
with this Agreement and signed by Borrower, covering certain of Borrower's
Property.
Security Documents shall mean this Agreement, the Security Agreement,
and any and all Financing Statements now or hereafter executed and delivered
by any Person (other than solely by Lender) in connection with, or as security
for the payment or performance of, the Notes or any Indebtedness created under
this Agreement.
Subsidiary shall mean, as to Borrower, any Business Entity of which
forty percent (40%) or more of the indicia of equity rights (whether
outstanding capital stock or otherwise) is at the time directly or indirectly
owned by Borrower, or by one or more of its Subsidiaries.
Subordinated Debt shall mean any obligor's Indebtedness that has been,
pursuant to a written agreement that is acceptable to Lender, subordinated by
the owner, or obligee, thereof, to all Indebtedness owed, or to become owing,
by such obligor, to Lender.
<PAGE>
Tangible Net Worth shall mean total assets (valued at cost less normal
depreciation), less (1) all intangibles, (2) all liabilities, and (3) all
Indebtedness and other amounts owed by NEC, all determined in accordance with
Generally Accepted Accounting Principles. The term "intangibles" shall
include, without limitation, (i) deferred charges (other than deferred
marketing expense), (ii) the amount of any write-up in the book value of any
assets contained in any balance sheet resulting from revaluation thereof or
any write-up in excess of the cost of such assets acquired (other than any
FASB 115 write-up of assets to market value), and (iii) the aggregate of all
amounts appearing on the assets side of any such balance sheet for franchises,
licenses, permits, patents, patent applications, copyrights, trademarks, trade
names, goodwill, experimental or organizational expenses and other like
intangibles; except that "intangibles" shall not include prepaid items or
amounts classified as plant costs on Borrower's financial statements. The
term "liabilities" shall include, without limitation, (i) Indebtedness secured
by Liens on Property of the Person with respect to which Tangible Net Worth is
being computed whether or not such Person is liable for the payment thereof,
(ii) deferred liabilities, and (iii) obligations under leases which have been
capitalized.
$20,000,000.00 Note has the meaning designated in Section 0.
The following terms shall have the respective meanings ascribed to them
in the Texas Business and Commerce Code as enacted and in force in the State
of Texas on the date hereof:
accessions, continuation statement, fixtures, proceeds, security
interest and security agreement.
2. The Loan.
2.1 Borrower has signed, and delivered to Lender, a Promissory Note
(the "$20,000,000.00 Note") in the stated principal amount of $20,000,000.00
dated of even date herewith and made payable to the order of Lender. Lender
shall, subject to the terms and conditions of this Agreement, make a Revolving
Loan to Borrower that will create indebtedness evidenced by the $20,000,000.00
Note. That Revolving Loan will be made by (i) renewing and extending the
unpaid balance, if any, of that one (1) certain Revolving Promissory Note (the
"1996 Note") dated April 1, 1996, signed by Borrower and made payable to the
order of Lender in the stated principal amount of $15,000,000.00, and (ii) the
making of one or more Advances. Lender's agreement to make such Revolving
Loan establishes a $20,000,000.00 line of credit (the "$20,000,000.00 Line of
Credit"); and each Advance made under the $20,000,000.00 Line of Credit shall,
at the time such Advance is made, create principal indebtedness evidenced by
the $20,000,000.00 Note, in the amount of that Advance.
<PAGE>
2.2 Lender shall have no obligation to make any Advance under the
$20,000,000.00 Line of Credit on or after April 5, 1999. Accordingly, the
unpaid, principal balance of the $20,000,000.00 Line of Credit shall
automatically convert to term debt on April 5, 1999, if such balance is not
paid in full on such date. In addition, Lender shall have no obligation to
make an Advance under the $20,000,000.00 Line of Credit if making that Advance
would cause the unpaid principal balance of the $20,000,000.00 Note to exceed
$20,000,000.00. Borrower shall not, at any time, allow the unpaid principal
balance of the $20,000,000.00 Note to exceed $20,000,000.00. Borrower shall
use the proceeds of all Advances made under the $20,000,000.00 Line of Credit
for acquisitions and/or working capital.
2.3 Beginning on the date of this Agreement and continuing until April
5, 1999, a commitment fee shall accrue daily with respect to the unused
portion of the $20,000,000.00 Line of Credit. The amount of that fee that
shall accrue each day shall equal the product of (i) 1/360 times (ii) .0025
times (iii) the amount by which $20,000,000.00 exceeds the outstanding, unpaid
principal balance of the $20,000,000.00 Note, on such day. On each date when
a payment is due under the $20,000,000.00 Note (or would be due if any accrued
interest were owing thereunder), Borrower shall pay to Lender the accrued,
unpaid portion of such commitment fee.
2.4 If Borrower has not previously paid an initial commitment fee of
$25,000.00 to Lender, in consideration of Lender's agreement to make the Loan,
then Borrower shall promptly pay such initial commitment fee, in cash, to
Lender.
2.5 Prepayments. Borrower may prepay any and all of the Indebtedness
evidenced by the Note, in whole or in part, if: (i) Borrower simultaneously
pays all interest that has accrued on any principal Indebtedness that is
prepaid; (ii) Borrower gives notice of the proposed prepayment, to Lender, in
the manner specified in Section 0, at least three (3) Business Days before the
Business Day of the prepayment; (iii) each partial prepayment is to be applied
to principal installments, if any, in the inverse order of maturity; and (iv)
any prepayment is made within either a Prime Interest Period or the last three
(3) Business Days of a LIBO Interest Period.
<PAGE>
2.6 Previous Agreement. This Agreement replaces that one (1) certain
Loan Agreement (the "1996 Agreement") dated April 1, 1996, between Lender and
Borrower. Therefore, the $15,000,000.00 Line of Credit described in the 1996
Agreement is no longer available to Borrower. However, anything in this
Agreement to the contrary notwithstanding, any tranches of Indebtedness that
exist under the $15,000,000.00 Line of Credit on April 10, 1997, and on which
interest is accruing at a rate established with reference to the interbank
eurodollar market, shall continue as tranches under the $20,000,000.00 Note,
with a pre-maturity interest rate and a maturity as established under the
$15,000,000.00 Line of Credit.
3. Pre-Maturity Interest Rate.
3.1 Rate Options. The Contract Rate during each Interest Period shall
be determined in accordance with the provisions of this Article 3. At any
time that is at least three (3) Business Days, but not more than five (5)
Business Days, before the beginning of an Interest Period, Borrower may
exercise an option (the "Rate Option") to designate a LIBO Rate for that
Interest Period. Borrower may exercise the Rate Option by either (i) giving
written notice of such exercise to Lender, which notice shall identify the
first day of such Interest Period and the length of such Interest Period
(which length must be either 30 days, 60 days, 90 days or 180 days), or (ii)
giving notice to Lender in any other manner acceptable to Lender. If the Rate
Option is so exercised, then a LIBO Interest Period of the length specified in
that notice shall begin on the date specified in that notice. For each LIBO
Interest Period (i.e., an Interest Period with respect to which a Rate Option
has been exercised), the Contract Rate shall be:
(i) Lender's 30-Day LIBO Rate plus the Additional Percentage, if
that LIBO Interest Period is 30 days;
(ii) Lender's 60-Day LIBO Rate plus the Additional Percentage, if
that LIBO Interest Period is 60 days;
(iii) Lender's 90-Day LIBO Rate plus the Additional Percentage, if
that LIBO Interest Period is 90 days; and
(iv) Lender's 180-day LIBO Rate plus the Additional Percentage,
if that LIBO Interest Period is 180 days.
<PAGE>
For each Prime Interest Period, the Contract Rate shall be the Prime-Based
Rate.
3.2 Definitions. Each of the following-stated terms has the meaning
indicated:
(a) "Interest Period" means either a LIBO Interest Period or a
Prime Interest Period.
(b) "LIBO Interest Period" means a period beginning on the
commencement date specified in a notice that is properly and timely given to
exercise a Rate Option (or a notice that is not timely or proper, but is
nevertheless accepted by Lender) and ending approximately 30, 60, 90, or 180
days after the beginning of such commencement date.
(c) "Prime Interest Period" means any period of one day, or two
or more consecutive days, for which no Rate Option has been exercised.
(d) Each of the terms "30-Day LIBO Rate, "60-Day LIBO Rate,"
"90-Day LIBO Rate," and "180-Day LIBO Rate" means the rate so designated by
Lender and established by Lender from time to time with reference to the
rate(s) at which deposits in U.S. Dollars are offered to Lender in the
interbank eurodollar market, for periods of approximately 30 days, 60 days, 90
days and 180 days, respectively; and those rates may not be the lowest rates
charged by Lender.
(e) The "Additional Percentage" shall be 1.0% per annum unless
adjusted in accordance with this Paragraph (e). The Additional Percentage
shall be subject to change as a result of the Guarantor's Debt to EBITDA Ratio
as of the end of each of Guarantor's quarter-annual accounting periods (the
"Subject Quarter"). Such Ratio as of the end of the Subject Quarter is
hereinafter called the "Subject Ratio." Beginning on the first day of the
first complete calendar month after the day on which Lender receives the
Quarterly Unaudited Financial Statement of Guarantor and Borrower for the
Subject Quarter, and continuing until the next change, if any, in the
Additional Percentage, the Additional Percentage shall be:
(i) 1.0% per annum if the Subject Ratio is 1.0 or less;
(ii) 1.125% per annum if the Subject Ratio is greater than
1.0 and no greater than 1.5;
<PAGE>
(iii) 1.25% per annum if the Subject Ratio is greater than
1.5 and no greater than 2.0;
(iv) 1.5% per annum if the Subject Ratio is greater than
2.0 and no greater than 2.5; and
(v) 1.75% per annum if the Subject Ratio is greater than
2.5
(f) The "Prime-Based Rate" shall be the difference produced by
subtracting 0.25% from the Prime Rate.
3.3 Special Provisions Regarding the Contract Rate. If Lender
determines (which determination shall be presumed correct absent evidence of
error):
(i) Unavailability. At the beginning of any LIBO Interest Period,
that by reason of any one (1) or more circumstances arising on or after the
date of this Agreement, dollar deposits in an amount substantially equal to
the unpaid balance of the Loan (and for a period substantially equal to the
LIBO Interest Period) are not generally available in the interbank eurodollar
market, or adequate and fair means do not exist for ascertaining the
LIBO-Based Rate, then the Contract Rate during that Interest Period shall
equal the Prime-Based Rate until Lender notifies Borrower that such
circumstances no longer exist.
(ii) Illegality. At any time, that the initiation, or continued use,
of the LIBO-Based Rate as a basis for determining the Contract Rate has become
unlawful under Lender's good faith interpretation of any law, governmental
rule, regulation, guideline or order (or would conflict with any such rule,
regulation, guideline or order not having the force of law), or has become
impractical as a result of a contingency occurring on or after the date of
this Agreement which materially and adversely affects the interbank eurodollar
market, then the Contract Rate shall thereafter equal the Prime-Based Rate.
4. Conditions.
4.1 All Advances. Lender's obligation to make any Advance is subject
to the accuracy of all Borrower's representations and warranties when made and
on the date of such Advance, to Borrower's performance of its obligations
under the Loan Documents, and to satisfaction of the following additional
conditions: (a) Lender shall have received the following, all of which shall
be duly executed and in Proper Form: (1) the signed Note that will evidence
indebtedness created by such Advance; (2) the Guaranty Agreement and such
other documents as Lender may reasonably require; and (3) evidence
satisfactory to Lender as to the perfection and first-priority of the security
interests granted by the Security Documents; (b) no Default or Event of
Default shall have occurred and be continuing; (c) making such Advance shall
not be prohibited by, or subject Lender to any penalty or onerous condition
under, any Legal Requirement, including but not limited to, any Lending Limit;
and (d) Borrower shall have paid all expenses of the type described in Section
0 hereof through the date of such Advance.
<PAGE>
4.2 First Advance. In addition to the matters described in Section 0
hereof, Lender's obligation to make the first Advance is subject to Lender's
receipt of each of the following, in Proper Form: (a) the signed
$20,000,000.00 Note; (b) a Certificate of Corporate Resolution executed by the
Secretary and the President of Borrower dated as of the date hereof; (c) a
certificate from the Secretary of State or other appropriate public official
of Delaware as to Borrower's continued existence and good standing; (d) a
certificate from the appropriate public official of the State of Texas as to
Borrower's due qualification and good standing; (e) the Security Documents;
(f) the Opinion Letter; and (g) policies or certificates of insurance
addressed to Lender reflecting the insurance required by Section 0 hereof; and
to the further condition that, at the time of the first Advance, all legal
matters incident to the transactions herein contemplated shall be satisfactory
to counsel for Lender.
5. Representations and Warranties. To induce Lender to enter into this
Agreement and to make the Loan, Borrower represents and warrants to Lender, as
of the date hereof, as follows:
5.1 Organization. Borrower is duly organized, validly existing and in
good standing under the laws of the State of Delaware; has all power and
authority to conduct its business as presently conducted; and is duly
qualified to do business, and in good standing, in the State of Texas.
5.2 Financial Statements. Borrower's financial statements and
Guarantor's financial statements that have been delivered to Lender fairly
present, in accordance with Generally Accepted Accounting Principles, the
financial condition and the results of operations of Borrower as at the dates
and for the periods indicated. Since the date of the most-recent of such
financial statements, (i) no material adverse change has occurred in the
assets, liabilities, financial condition, business or affairs of Borrower,
(ii) Borrower has not become subject to any instrument or agreement materially
and adversely affecting its financial condition, business or affairs, and
(iii) Borrower has not engaged in any transaction outside the ordinary course
of Borrower's business, as that business was conducted before such date, that
materially and adversely affected its financial condition, business or
affairs.
<PAGE>
5.3 Enforceable Obligations; Authorization. The Loan Documents are
legal, valid and binding obligations of the Parties, enforceable in accordance
with their respective terms, except as may be limited by bankruptcy,
insolvency and other similar laws affecting creditors' rights generally and by
general equitable principles. The execution, delivery and performance of the
Loan Documents have been duly authorized by all necessary action of each of
the Parties; are within the power and authority of each of the Parties; do not
and will not contravene or violate any Legal Requirement or the Organizational
Documents of any Party; to the best of Borrower's knowledge do not and will
not result in the breach of, or constitute a default under, any agreement or
instrument by which any Party or any of its Property may be bound or affected;
and do not and will not result in the creation of any Lien upon any Property
of any Party except as expressly contemplated therein. All necessary permits,
registrations and consents for such making and performance have been obtained.
Except as otherwise expressly stated in the Security Documents, the Liens of
the Security Documents will constitute valid, perfected, first-priority Liens
in the Property described therein.
5.4 Other Debt. Borrower is not in default in the payment of any
Indebtedness or under any mortgage, deed of trust, security agreement, lease
or other agreement to which it is a party. Except as set forth in Borrower's
financial statements delivered to Lender, or as otherwise previously disclosed
in writing to Lender, Borrower has no Indebtedness for borrowed money.
5.5 Litigation. Except as heretofore disclosed to Lender in writing,
there is no litigation or administrative proceeding pending or, to the
knowledge of Borrower, threatened against, nor any outstanding judgment, order
or decree affecting, Borrower or any of its Properties before or by any
Governmental Authority. Borrower is not is in default with respect to any
judgment, order or decree of any Governmental Authority in any manner, or to
any extent, that materially and adversely affects its financial condition,
business or affairs.
5.6 Title. Borrower has good and marketable title to the Collateral,
free and clear of all Liens other than those permitted by Section 0.
<PAGE>
5.7 Taxes. Borrower has filed all tax returns required to have been
filed and paid all taxes due, except those for which extensions have been
obtained and those which are being contested in good faith and reserves deemed
adequate by Lender have been established therefor. Borrower is not aware of
any pending investigation by any taxing authority which in the event of an
adverse determination would have a material, adverse impact on Borrower's
financial condition or business prospects.
5.8 Subsidiaries. Borrower has no Subsidiaries.
5.9 Representations by Others. All written statements made by or on
behalf of Borrower, in connection with any Loan Document shall not be untrue
or incorrect in any material respect.
5.10 Investment Company Act Not Applicable. Neither Borrower or any of
its Subsidiaries is an "investment company," or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of
1940, as amended.
5.11 Public Utility Holding Company Act Not Applicable. Neither
Borrower nor any of its Subsidiaries is a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding company," or
an affiliate of a "subsidiary company" of a "holding company," as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended.
5.12 Regulations G, T, U and X. None of the proceeds of any Loan will
be used for the purpose of purchasing or carrying, directly or indirectly, any
"margin stock" within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System ("margin stock") or to extend credit to others for
the purpose of purchasing or carrying any margin stock or for any other
purpose which would constitute this transaction a "purpose credit" within the
meaning of said Regulation U, as now in effect or as the same may hereafter be
in effect. Neither Borrower nor any of its Subsidiaries will take or permit
any action which would involve Lender in a violation of Regulation G,
Regulation T, Regulation U, Regulation X or any other regulation of the Board
of Governors of the Federal Reserve System or a violation of the Securities
Exchange Act of 1934, in each case as now or hereafter in effect.
5.13 ERISA. No Reportable Event (as defined in Section 4043(b) of
ERISA) has occurred with respect to any Plan. Each Plan complies with all
applicable provisions of ERISA, and Borrower and each of its Subsidiaries have
filed all reports required by ERISA and the Code to be filed with respect to
each Plan. Borrower has no knowledge of any event which could result in a
liability of Borrower or any of its Subsidiaries to the Pension Benefit
Guaranty Corporation. Borrower and its Subsidiaries have met all requirements
with respect to funding the Plans imposed by ERISA or the Code. Since the
effective date of Title IV of ERISA there have not been any nor are there now
existing any events or conditions that would permit any Plan to be terminated
under circumstances which would cause the lien provided under Section 4068 of
ERISA to attach to any Property of Borrower or any of its Subsidiaries. The
value of the Plans' benefits guaranteed under Title IV of ERISA on the date
hereof does not exceed the value of such Plans' assets allocable to such
benefits as of the date of this Agreement and shall not be permitted to do so
hereafter.
<PAGE>
5.14 No Financing of Corporate Takeovers. None of the proceeds of any
Loan will be used to acquire any security in any transaction which is subject
to Section 13 or 14 of the Securities Exchange Act of 1934, as amended.
5.15 Franchises, Co-licenses, etc. To the best of Borrower's
knowledge, Borrower owns or has obtained all the material governmental
permits, certificates of authority, leases, patents, trademarks, service
marks, trade names, copyrights, franchises and licenses, and rights with
respect thereto, required or necessary in connection with the conduct of its
business as presently conducted.
5.16 Survival of Representations, Etc. All representations and
warranties made by Borrower hereunder shall survive the delivery of the Notes
to Lender and the making of the Loan hereunder, and no investigation at any
time made by or on behalf of Lender shall diminish Lender's rights to rely
thereon. All statements contained in any certificate or other written
instrument delivered by Borrower or by any Person authorized by Borrower under
or pursuant to this Agreement or in connection with the transactions
contemplated hereby shall not be untrue or incorrect in any material respect.
6. Affirmative Covenants.
Until (i) the termination of this Agreement, (ii) payment in full of the
Notes, and (iii) performance of all obligations of Borrower under the Loan
Documents, Borrower shall do or cause to be done, each and all of the
following:
<PAGE>
6.1 Taxes, Existence, Regulations, Property, Etc. At all times (a)
pay before delinquency all taxes and governmental charges of every kind upon
it or against its income, profits or Property, unless and only to the extent
that the same are contested in good faith, with reserves deemed adequate by
Lender established therefor; (b) do all things necessary to preserve its
corporate existence, qualifications, rights and franchises in all states where
such qualification is necessary; (c) comply with all applicable Legal
Requirements in respect of the conduct of its business and the ownership of
its Property; (d) cause its Property to be protected, maintained and kept in
good repair; and (e) make such replacements and additions to its Property as
are reasonably necessary to conduct its business.
6.2 Financial Statements and Information. Furnish to Lender: (a) as
soon as available and in any event within 120 days after the end of each
fiscal year of Guarantor, consolidating Annual Audited Financial Statements of
Guarantor for such fiscal year; (b) as soon as available and in any event
within 45 days after the end of each quarter of each fiscal year of Guarantor,
consolidating Quarterly Unaudited Financial Statements of Guarantor for such
quarter; (c) concurrently with the financial statements provided for in
Subsections (a) and (b) hereof, a certificate of compliance and such
schedules, computations and other information, in reasonable detail, as may be
requested by Lender to demonstrate compliance with the covenants set forth
herein or reflecting any non-compliance therewith as of the applicable date,
all certified as true, correct and complete by the President or principal
financial officer of Borrower, and an Officer's Certificate, in Proper Form,
signed by the President or principal financial officer of Borrower; (d) as
soon as available, and in any event within 90 days after the end of each
Borrower's fiscal years, a report showing a detailed aging of the Borrower's
Accounts, and a report showing an accounting and valuation of Borrower's
Inventory, all dated as of the end of such fiscal year and signed by Borrower
in Proper Form; (e) as soon as available and in any event within 120 days
after the end of each of NEC's fiscal years, Annual Audited Financial
Statements of NEC for such fiscal year; and (f) such other information
relating to the financial condition and affairs of Guarantor and Borrower as
from time to time may be requested by Lender.
6.3 Debt to EBITDA Ratio. Cause Guarantor to maintain a Debt to
EBITDA Ratio that does not exceed 2.5 at and as of the end of each quarter of
each of Guarantor's fiscal years.
6.4 Tangible Net Worth. Cause Guarantor to maintain a Tangible Net
Worth of at least $35,000,000.00 at and as of the end of each quarter of each
of Guarantor's fiscal years.
<PAGE>
6.5 Inspection. Permit Lender to inspect its Property, examine its
files, books and records, make and keep copies thereof, and discuss its
affairs with its officers and accountants, all at such times and intervals,
and to such extent, as Lender reasonably desires.
6.6 Further Assurances. Promptly execute and deliver any and all
other and further instruments which may be requested by Lender to cure any
defect in the execution and delivery of any Loan Document or more fully to
describe particular aspects of Borrower's agreements set forth in the Loan
Documents or so intended to be.
6.7 Books and Records. Maintain its books of record and account in
accordance with Generally Accepted Accounting Principles.
6.8 Insurance. Maintain insurance with such insurers, on such of its
Property, in such amounts and against such risks as is reasonably satisfactory
to Lender, and furnish Lender satisfactory evidence thereof promptly upon
request. These insurance provisions are cumulative of the insurance
provisions of the Security Documents. Upon request, Borrower shall cause
Lender to be named as a beneficiary, loss payee as to hazard insurance and/or
additional insured as to liability insurance (as required by Lender) of such
insurance and shall provide Lender with copies of the policies of insurance
and a certificate of the insurer that the insurance required by this Section 0
may not be canceled, reduced or affected in any manner without thirty (30)
days' prior written notice to Lender.
6.9 Notice of Certain Matters. Notify Lender in writing immediately
upon acquiring knowledge of the occurrence of any of the following: the
institution or threatened institution of any lawsuit or administrative
proceeding that could reasonably be expected to materially and adversely
affect Borrower's financial condition, business or affairs; the occurrence of
any material adverse change in the assets, liabilities, financial condition,
business or affairs of Borrower; or the occurrence of any Event of Default or
any Default; and, notify Lender in writing at least thirty (30) Business Days
before the date, if any, on which Borrower changes its name, the location of
its chief executive office or principal place of business, or the place where
it keeps its books and records.
<PAGE>
6.10 ERISA. At all times:
(a) Maintain and keep in full force and effect each Plan;
(b) Make contributions to each Plan in a timely manner and in an
amount sufficient to comply with the minimum funding standards requirements of
ERISA;
(c) Immediately upon acquiring knowledge of any Reportable Event
or of any "prohibited transaction," as such term is defined in the Code, in
connection with any Plan, furnish Lender a statement executed by the president
or chief financial officer of Borrower setting forth the details thereof and
the action which Borrower proposes to take with respect thereto and, when
known, any action taken by the Internal Revenue Service with respect thereto;
(d) Notify Lender promptly upon receipt by Borrower or any of
its Subsidiaries of any notice of the institution of any proceedings or other
actions which may result in the termination of any Plan and furnish to Lender
copies of such notice;
(e) Acquire and maintain in amounts satisfactory to Lender from
either the Pension Benefit Guaranty Corporation or authorized private
insurers, when available, the contingent employer liability coverage insurance
required under ERISA;
(f) If requested by Lender, furnish Lender with copies of the
annual report for each Plan filed with the Internal Revenue Service not later
than ten (10) days after such report has been filed; and
(g) If requested by Lender, furnish Lender with copies of any
request for waiver of the funding standards or extension of the amortization
periods required by Sections 303 and 304 of ERISA or Section 412 of the Code
promptly after the request is submitted to the Secretary of the Treasury, the
Department of Labor or the Internal Revenue Service, as the case may be.
6.11 Indebtedness. Pay timely all Indebtedness incurred by it and
perform all covenants, and satisfy all conditions, connected therewith.
<PAGE>
6.12 Hazardous Materials. Borrower shall defend, indemnify and hold
harmless Lender from any and all liabilities (including strict liability),
actions, demands, penalties, losses, costs or expenses (including, without
limitation, reasonable attorneys' fees and remedial costs), suits, costs of
any settlement or judgment and claims of any and every kind whatsoever which
may now or in the future (whether before or after the release of any
applicable Security Documents) be paid, incurred or suffered by or asserted
against, Lender by any person or entity or governmental agency for, with
respect to, or as a direct or indirect result of, the placement on or under,
or the escape, seepage, leakage, spillage, discharge, emission, discharging or
release from any of Borrower's Properties of any Hazardous Materials or any
Hazardous Materials Contamination or arise out of or result from the
environmental condition of any of Borrower's Properties or the applicability
of any governmental requirement relating to Hazardous Materials (including,
without limitation, CERCLA or any so-called federal, state or local
"Superfund" or "Superlien" laws, statute, law, ordinance, code, rule,
regulation, order or decree), where such Hazardous Materials or Hazardous
Materials Contamination were caused by or within the control of Borrower. The
representations, covenants and warranties contained in this Section 0 and in
Section 0 shall survive the release of any applicable Liens held by Lender.
7. Negative Covenants.
Until (i) the termination of this Agreement, (ii) payment in full of the
Notes, and (iii) performance of all obligations of Borrower to Lender under
the Loan Documents, Borrower shall not do any of the following:
7.1 Liens and Dispositions. Create or suffer to exist any Lien upon
any of its Property now owned or hereafter acquired; or in any manner directly
or indirectly sell, assign, pledge or otherwise transfer any of such Property;
provided, however, that Borrower may create or suffer to exist: (a) artisans'
or mechanics' Liens arising in the ordinary course of business, and Liens for
taxes, but only to the extent that payment thereof shall not be due; (b) Liens
in favor of Lender; and (c) purchase money security interests taken or
retained to secure payment of all or part of Borrower's purchase price for the
Property subject to such security interests or Indebtedness incurred by
Borrower, to enable Borrower to purchase the Property subject to such security
interests; and, provided further, that Borrower may (a) sell inventory in the
ordinary course of Borrower's business, and (b) dispose of obsolete Property.
<PAGE>
7.2 Contingent Liabilities. Directly or indirectly guarantee the
performance or payment of, or purchase or agree to purchase, or assume or
contingently agree to become or be secondarily liable in respect of, any
obligation or liability of any other Person except for the endorsement of
checks or other negotiable instruments in the ordinary course of business,
Indebtedness owed to Lender, and obligations and liabilities of Borrower's
Subsidiary.
7.3 Liquidations. In any single transaction or series of transactions
liquidate or dissolve.
7.4 Distributions. At any time, make any distribution of any
Property, other than cash dividends, to any of its stockholders.
7.5 Nature of Business. Change the nature of its business, or enter
into any business which is substantially different from the business in which
it is engaged on the date of this Agreement.
7.6 Books and Records. Change the method by which it maintains its
books and records.
7.7 Hazardous Materials. Cause or permit any Hazardous Materials to
be placed, held, used, located or disposed of on, under or at any of its
Properties or any part thereof by any Person, or cause or permit any part of
any of its Properties to be used as a manufacturing, storage or dump site for
Hazardous Materials, or cause or suffer any liens to be recorded against any
of its Properties as a consequence of, or in any way related to, the presence,
remediation or disposal of Hazardous Materials in or about any of its
Properties, including any so-called state, federal or local "Superfund" lien
relating to such matters; provided, however, that neither Section 0 nor this
Section 0 shall prohibit Borrower from engaging in any activity in the
ordinary course of Borrower's business.
7.8 Extensions of Credit. Make any loan or advance to any Person,
except that Borrower may make loans to Persons other than NEC if the
aggregate, unpaid balance of such loans never exceeds $500,000.00.
7.9 Borrowings. Create, incur, assume or become liable in any manner
for any Indebtedness, except for (i) normal trade debts incurred in the
ordinary course of Borrower's business, (ii) existing indebtedness disclosed
to Lender in writing and acknowledged by Lender before the date of this
Agreement, and (iii) Indebtedness owed to Lender.
<PAGE>
8. Events of Default and Remedies.
8.1 Events of Default. Each of the following-described events,
subject to Section 0, shall be an Event of Default:
(a) Borrower fails to pay any Indebtedness evidenced by any of
the Notes, or any other amount owed under the Loan Documents, as and when due;
or
(b) Borrower or Guarantor fails to pay at maturity, or within
any applicable period of grace, any principal or interest on any other
obligation owed to Lender, or suffers to exist any circumstance under which
Lender may declare such obligation due before its stated maturity; or Borrower
fails to perform any covenant (other than any covenant contained in Sections 0
and 0 hereof) contained in any agreement made for Lender's benefit; or
Borrower defaults under, or violates any material Legal Requirement in a way,
or to an extent, that materially and adversely affects Borrower's financial
conditions; or
(c) Any representation or warranty made by Borrower in any of
the Loan Documents proves to have been incorrect, false or misleading in any
material respect when made; or
(d) Borrower's failure to be in compliance with the covenant
contained in Section 0 hereof continues for a period of thirty (30) days after
Lender gives written notice of that failure to Borrower; or
(e) A final judgment, or judgments in the aggregate, for the
payment of money that would, if paid, cause Borrower to be in violation of the
covenant contained in Section 0 hereof is rendered against Borrower and the
same shall remain undischarged for a period of 30 days during which execution
shall not be effectively stayed; or
(f) Borrower or Guarantor claims that Lender does not, or will
not, have a valid, first-priority Lien as provided in the Loan Documents, on
any Collateral purportedly provided by Borrower, or that either this Agreement
or any one or more of the Notes is not a valid and binding obligation of
Borrower, or that the Guaranty Agreement is not a valid and binding obligation
of Guarantor; or
<PAGE>
(g) Borrower sells, encumbers, or abandons (except as otherwise
expressly permitted by the Loan Documents) any of the Property now or
hereafter subject to any of the Security Documents; or any levy, seizure or
attachment is made thereof or thereon; or
(h) Any order is entered in any proceeding against Borrower or
Guarantor decreeing the dissolution, liquidation or split-up of Borrower or
Guarantor, and such order remains in effect for 10 days; or
(i) Borrower or Guarantor makes an assignment for the benefit of
creditors, becomes insolvent, fails generally to pay its debts as they become
due, petitions or applies to any tribunal for the appointment of a trustee,
custodian, receiver, (or other similar official) of, or for, Borrower or
Guarantor or of all or any substantial part of the assets of Borrower or
Guarantor or commences a voluntary case or any other proceedings relating to
Borrower or Guarantor under any bankruptcy, reorganization, compromise
arrangement, insolvency, readjustment of debt, dissolution or liquidation or
similar law (herein called the "bankruptcy law") of any jurisdiction; or
(j) Any petition or application is filed, or any such
proceedings are commenced, against Borrower or Guarantor under the bankruptcy
law of any jurisdiction, and Borrower or Guarantor by any act or omission
indicates its approval, consent, or acquiescence, or an order for relief is
entered in an involuntary case under the federal bankruptcy laws as now or
hereafter constituted, or an order, judgment or decree is entered appointing
any trustee, custodian, receiver, liquidator, or similar official for Borrower
or Guarantor or any substantial part of the assets of either of them or
adjudicating Borrower or Guarantor bankrupt or insolvent, or approving the
petition in any such proceedings, and such order, judgment, or decree remains
in effect for ninety (90) days; or
(k) Borrower or Guarantor conceals, removes, or permits to be
concealed or removed, any part of its Property, with intent to hinder, delay
or defraud its creditors or any of them, or makes or suffers a transfer of any
of its Property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or shall have made any transfer of its Property to
or for the benefit of a creditor at a time when other creditors similarly
situated have not been paid; or
<PAGE>
(l) Borrower fails to be in compliance with the covenant in
Section 0 hereof at the end of two (2), consecutive quarter-annual accounting
periods of Guarantor; or
(m) Any court finds or rules that Lender does not, or will not,
have a valid, first-priority Lien as provided in the Loan Documents, on any
Collateral purportedly provided by Borrower and Borrower fails to provide
Lender with such a valid, first-priority Lien within thirty (30) days
thereafter; or
(n) The liquidation or dissolution of Guarantor, or Guarantor's
sale, conveyance or lease of substantially all of its assets.
If an Event of Default occurs, then Lender shall have the right, subject to
Section 0 below, to do any or all of the following: (1) declare all, or any
part, of all Indebtedness evidenced by any of the Notes to be, and thereupon
all the same shall forthwith become, immediately due and payable; (2)
terminate all Commitments; and (3) exercise any and all other rights available
under the Loan Documents, at law, or in equity.
8.2 Other Remedies. In addition to and cumulative of any rights or
remedies provided in Section 0 hereof, if any one or more Events of Default
shall have occurred, Lender may proceed to protect and enforce its rights
hereunder by any appropriate proceedings, and the Liens evidenced by the
Security Documents shall be subject to foreclosure in any commercially
reasonable manner. Lender may also proceed to enforce the specific
performance of any covenant contained in any of the Loan Documents, to enforce
the payment of the Notes, and to enforce any other legal or equitable right
provided under any of the Loan Documents or otherwise existing under any law.
8.3 Remedies Cumulative. No remedy, right or power conferred upon
Lender is intended to be exclusive of any other remedy, right or power given
hereunder or now or hereafter existing at law, in equity, or otherwise, and
all such remedies, rights and powers shall be cumulative.
8.4 Notice and Right to Cure. Any provisions (other than the last
sentence of this Section 0) herein to the contrary notwithstanding, Lender
shall not, as the result of any Curable Event of Default, exercise any remedy
provided in any of the Loan Documents unless Lender has previously given
written notice of that Curable Event of Default to Borrower and that Curable
Event of Default has continued for a certain period (the "Cure Period") after
such written notice was so given. With respect to each Curable Event of
Default that is a failure to pay, or a default in paying, any amount of money,
<PAGE>
the Cure Period shall be ten (10) days; and with respect to all other Curable
Events of Default, the Cure Period shall be thirty (30) days. As used herein,
"Curable Event of Default" means any Event of Default except any event
described in Subsections (d), (e), (f), (h), (i), (j), (k), (l), or (m) of
Section 0. In no event shall Lender have any obligation to advance any funds
to Borrower, at a time when an Event of Default or a Default exists.
8.5 Pending Merger. Lender acknowledges the pending merger between
NEC and Sylvan Learning Systems, where Sylvan Learning Systems will become the
surviving entity, and that such merger, when consummated, will not create an
Event of Default or have any effect on this Agreement.
9. Miscellaneous.
9.1 No Waiver. Neither Lender's failure to exercise, nor its delay in
exercising, any power or right under the other Loan Documents shall operate as
a waiver thereof. Neither any single or partial exercise of any such right or
power, nor any abandonment or discontinuance of steps to enforce such a right
or power, shall preclude any other exercise thereof or of any other right or
power. No course of dealing between Borrower and Lender shall operate as a
waiver of any right of Lender. No modification or waiver of any provision of
any Loan Document, nor any consent to any departure therefrom, shall be
effective unless the same shall be in writing and signed by the person against
whom enforcement thereof is sought, and then such waiver or consent shall be
effective only in the specific instance for which given.
9.2 Notices. All notices under the Loan Documents shall be in writing
and either (i) personally delivered against receipt therefor, (ii) sent by
overnight courier against receipt therefor, or (iii) mailed by registered or
certified United States mail, return receipt requested, addressed as follows:
<PAGE>
(a) If to Borrower:
Steck-Vaughn Company
4515 Seton Center Parkway
Suite 300
Austin, Texas 78759
Attention: Vice President, Finance; with a copy to:
National Education Corporation
2601 Main Street
Irvine, California 92714
Attention: General Counsel
(b) If to Lender:
NationsBank of Texas, N.A.
P.O. Box 908
Austin, Texas 78781-0908
(Attention: Ms. Sylvia H. Maggio);
or to such other address of a party hereto as that party may designate by
notice hereunder. Notices shall be deemed to have been given when personally
delivered or, if mailed, on the next Business Day after mailing.
9.3 Governing Law. Each Loan Document shall be governed by and
construed in accordance with the laws of the State of Texas and the United
States of America. Any legal proceeding against Lender arising out of, or in
connection with, any of the Loan Documents shall be brought in the District
Courts of Travis County, Texas, or in the United States District Court for the
Western District of Texas, Austin Division.
9.4 Survival; Parties Bound. All representations, warranties,
covenants and agreements made by or on behalf of Borrower in connection
herewith shall survive the execution and delivery of the Loan Documents, shall
not be affected by any investigation made by any Person, shall bind Borrower
and its successors and assigns, and shall inure to the benefit of Lender and
its successors and assigns. Lender's agreement to make Loan to Borrower shall
not inure to the benefit of any successor or assign of Borrower. The term of
this Agreement shall be until the final maturity of all the Notes and the
payment of all amounts due under the Loan Documents, whereupon it shall
terminate; provided, however, that if Borrower pays all amounts owing under
the Loan Documents and agrees in writing that Lender has no further
obligations under the Loan Documents, then this Agreement shall terminate.
<PAGE>
9.5 Counterparts. This Agreement may be executed in several identical
counterparts, and by the parties hereto on separate counterparts; and each
counterpart, when so executed and delivered, shall constitute an original
instrument. All such separate counterparts shall constitute but one and the
same instrument.
9.6 Usury Not Intended; Refund of Any Excess Payments. It is the
intent of the parties in the execution and performance of this Agreement to
contract in strict compliance with the usury laws of the State of Texas and
the United States of America from time to time in effect. In furtherance
thereof, Lender and Borrower stipulate and agree that none of the terms and
provisions contained in the Loan Documents shall ever be construed to create a
contract to pay for the use, forbearance or detention of money, interest at a
rate in excess of the Highest Lawful Rate, and that for purposes hereof
"interest" shall include the aggregate of all charges which constitute
interest under such laws and are contracted for, reserved, taken, charged or
received under the Loan Documents. In determining whether or not the interest
paid or payable, under any specific contingency, exceeds the Highest Lawful
Rate, Borrower and Lender shall, to the maximum extent permitted under
applicable law, (a) treat the Loan as a single extension of credit, (b)
characterize any nonprincipal payment as an expense, fee or premium rather
than as interest, (c) exclude voluntary prepayments and the effects thereof,
and (d) "spread" the total amount of interest throughout the entire
contemplated term of the Loan. The provisions of this paragraph shall control
over all other provisions of the Loan Documents which may be in apparent
conflict herewith.
9.7 Captions. The headings and captions appearing in the Loan
Documents have been included solely for convenience and shall not be
considered in construing the Loan Documents.
9.8 Expenses. Any provision to the contrary notwith-standing, and
whether or not the transactions contemplated by this Agreement shall be
consummated, Borrower shall pay on demand all out-of-pocket expenses
(including, without limitation, the fees and expenses of counsel for Lender)
in connection with the negotiation, preparation, execution, filing, recording,
refiling, re-recording, modification, supplementing and waiver of the Loan
Documents and the making, servicing and collection of the Loan. Borrower's
obligations under this and the following section shall survive the termination
of this Agreement and the payment of the Notes.
<PAGE>
9.9 Indemnification. Borrower shall indemnify, defend and hold Lender
harmless from and against any and all loss, liability, obligation, damage,
penalty, judgment, claim, deficiency and expense (including interest,
penalties, attorneys' fees and amounts paid in settlement) to which Lender may
become subject arising out of or based upon the Loan Documents or any Loan,
except for Lender's failure to perform its obligations under the Loan
Documents or any Legal Requirements.
9.10 Entire Agreement. The Loan Documents embody the entire agreement
between Borrower and Lender and supersede all prior proposals, agreements and
understandings relating to the subject matter hereof. Each of Lender and
Borrower certifies that it is relying on no representation, warranty, covenant
or agreement except for those set forth in the Loan Documents.
9.11 Severability. If any provision of any Loan Documents shall be
invalid, illegal or unenforceable in any respect under any applicable law, the
validity, legality and enforceability of the remaining provisions shall not be
affected or impaired thereby.
9.12 Sale or Assignment. Lender reserves the right, in its sole
discretion, without notice to Borrower, to sell participations in all or any
part of any Loan as long as Lender remains the "lead bank."
9.13 Loan Agreement Controls. If there are any conflicts or
inconsistencies among this Agreement and any of the other Loan Documents, this
Agreement shall prevail and control.
9.14 Commitment. Lender has no commitment to lend sums to Borrower
other than as specifically set forth herein.
9.15 Arbitration.
(a) Basic Requirements. Any controversy or claim between or
among any of the Parties and Lender, including, but not limited to, any claim
arising out of or relating to this Agreement or any related agreements or
instruments and any claim based on or arising from any alleged tort, shall be
determined by binding arbitration in accordance with the Federal Arbitration
Act (or if not applicable, the applicable state law), the Rules of Practice
and Procedure for the Arbitration of Commercial Disputes of Judicial
Arbitration and Mediation Services, Inc. (J.A.M.S.) and the "Special Rules"
set forth below. In the event of any inconsistency, the Special Rules shall
control. Judgment upon any arbitration award may be entered in any court
having jurisdiction. Any one or more of the Parties, and/or Lender, may bring
an action, including a summary or expedited proceeding, to compel arbitration
of any controversy or claim to which this Agreement applies, in any court
having jurisdiction over such action.
<PAGE>
(b) Special Rules. The arbitration shall be (i) conducted in the
city of Borrower's domicile at the time of this Agreement's execution, and
(ii) administered by J.A.M.S., who will appoint an arbitrator. If J.A.M.S. is
unable or legally precluded from administering the arbitration, then the
American Arbitration Association will serve. All arbitration hearings will be
commenced within ninety (90) days of the demand for arbitration; and, the
arbitrator shall, only upon a showing of cause, be permitted to extend the
commencement of such hearing for no more than an additional sixty (60) days.
(c) Reservation of Rights. Nothing in this Agreement shall be
deemed to (i) limit the applicability of any otherwise applicable statutes of
limitation or any waivers contained in this Agreement; or (ii) be a waiver by
Lender of the protection afforded to it by 12 U.S.C '91 or any substantially
equivalent state law; or (iii) limit the right of Lender (a) to exercise self
help remedies as permitted by the Texas Uniform Commercial Code - Secured
Transactions, or (b) to foreclosure of any lien or security interest against
the Collateral, or (c) to obtain from a court provisional or ancillary
remedies such as (but not limited to) injunctive relief, writ of possession,
or the appointment of a receiver. Lender may exercise such self help rights,
cause a foreclosure of any such lien or security interest, or obtain any such
provisional or ancillary remedies before, during, or after the pendency of any
arbitration proceeding brought pursuant to this Agreement. Neither Lender's
exercise of self help remedies, nor Lender's institution or maintenance of an
action for foreclosure or any such provisional or ancillary remedies, shall
constitute a waiver of the right of any of the Parties, or Lender, to compel
arbitration of the merits of the controversy or claim occasioning resort to
such exercise, institution or maintenance.
9.16 Waiver of Offset Rights. Lender shall have no right to offset any
of Borrower's funds or moneys on deposit with Lender against any of Borrower's
liabilities or obligations under the Loan Documents; provided, however that
this Section 0 shall not impair or diminish any security interest granted by
Borrower or Lender's rights to enforce any such security interest.
<PAGE>
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
BORROWER: LENDER:
STECK-VAUGHN COMPANY NATIONSBANK OF TEXAS, N.A.
(a Delaware corporation) (a national banking association)
By: _________________________ By: ____________________________
Print Name: __________________ Print Name: ____________________
Title: _______________________ Title: _________________________
CONSENT AND APPROVAL
NATIONAL EDUCATION CORPORATION ("NEC"), a Delaware corporation, consents
to, and approves of, the signing and making of the above Loan Agreement by
Steck-Vaughn Company ("Borrower"), a Delaware corporation; and, NEC represents
to NationsBank of Texas, N.A., a national banking association, that (i)
Borrower has the power and authority to make, and perform its obligations
under, such Loan Agreement, and (ii) Guarantor (as defined in such Loan
Agreement) has the power and authority to make, and perform its obligations
under, the Guaranty Agreement (as defined in such Loan Agreement).
Dated: _______________, 1997.
NATIONAL EDUCATION CORPORATION
(a Delaware corporation)
By: ____________________________
Print Name: ____________________
Title: _________________________
<PAGE>
<TABLE>
EXHIBIT 11.1
STECK-VAUGHN PUBLISHING CORPORATION
EXHIBIT 11.1
To Form 10-Q dated June 30, 1997
CALCULATION OF EARNINGS PER SHARE
(amounts in thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------------------- -------------------
<S> <C> <C> <C> <C>
Net Income (Loss) $ 1,866 $ (2,976) $ 2,556 $ (2,179)
======================= ===================
Common Stock
Shares outstanding from the
beginning of the period 14,472 14,317 14,345 14,313
Shares issued, weighted for
period held 154 3 85 4
Assumed exercise of stock options
using the treasury stock method 96 109 94 90
Purchase of treasury shares,
weighted for period held - - (12) -
----------------------- -------------------
Weighted Average Shares Outstanding 14,722 14,429 14,512 14,407
======================= ===================
Earnings (Loss) per Share $ 0.13 $ (0.21) $ 0.18 $ (0.15)
======================= ====================
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,820
<SECURITIES> 1,457
<RECEIVABLES> 22,894
<ALLOWANCES> (2,215)
<INVENTORY> 24,341
<CURRENT-ASSETS> 64,064
<PP&E> 18,424
<DEPRECIATION> (8,479)
<TOTAL-ASSETS> 96,620
<CURRENT-LIABILITIES> 15,569
<BONDS> 0
0
0
<COMMON> 38,233
<OTHER-SE> (2,028)
<TOTAL-LIABILITY-AND-EQUITY> 96,620
<SALES> 38,832
<TOTAL-REVENUES> 38,832
<CGS> 11,634
<TOTAL-COSTS> 21,246
<OTHER-EXPENSES> 1,160
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 608
<INCOME-PRETAX> 4,190
<INCOME-TAX> 1,634
<INCOME-CONTINUING> 2,556
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,556
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
