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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_________________________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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: 0-23606
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EDUCATIONAL INSIGHTS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2392545
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16941 KEEGAN AVENUE
CARSON, CA 90746
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 884-2000
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
--- ---
As of October 30, 1998 there were 7,040,000 shares of common stock outstanding.
Total number of sequential pages: 11 Exhibit Index is on page 11.
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Page 1 of 29 sequentially numbered pages
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PART I. ITEM 1. FINANCIAL STATEMENTS
EDUCATIONAL INSIGHTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(Unaudited, except for December 31, 1997 balance sheet information)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 897 $ 235
Accounts receivable, less allowances
of $452 in 1998 and $412 in 1997 10,483 10,478
Inventory 16,616 12,086
Income taxes receivable 394
Other receivables 61 193
Prepaid expenses and other current assets 733 593
Deferred income taxes 750 750
------- --------
Total current assets 29,934 24,335
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PROPERTY AND EQUIPMENT, Net 5,079 5,218
------- --------
OTHER ASSETS 1,157 577
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TOTAL $36,170 $30,130
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------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 121 $ 121
Line of credit 6,750 500
Accounts payable 3,244 3,045
Accrued expenses 1,745 1,391
Income taxes payable 34
Deferred income 57 101
------- --------
Total current liabilities 11,917 5,192
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LONG-TERM DEBT 974 1,064
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DEFERRED INCOME TAXES 355 355
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SHAREHOLDERS' EQUITY
Preferred stock, no par value;
10,000,000 shares authorized;
no shares issued
Common stock, no par value; 30,000,000 shares
authorized; 7,040,000 shares issued
in 1998 and 1997 18,644 18,644
Cumulative translation adjustment 140 130
Retained earnings 4,140 4,745
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Total shareholders' equity 22,924 23,519
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TOTAL $36,170 $30,130
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------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 2 of 29 sequentially numbered pages
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EDUCATIONAL INSIGHTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $12,084 $10,900 $26,881 $25,720
COST OF SALES 6,448 5,423 13,947 12,609
------- ------- ------- -------
GROSS PROFIT 5,636 5,477 12,934 13,111
------- ------- ------- -------
OPERATING EXPENSES:
Sales and marketing 2,096 2,147 5,353 5,338
Warehousing and distribution 874 834 2,523 2,670
Research and development 928 975 3,178 3,161
General and administrative 880 812 2,725 2,680
------- ------- ------- -------
Total operating expenses 4,778 4,768 13,779 13,849
------- ------- ------- -------
OPERATING INCOME (LOSS) 858 709 (845) (738)
------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense (138) (104) (247) (191)
Interest income 4 9 17 46
Other income (expense), net 20 (51) 81 93
------- ------- ------- -------
Total other income (expense) (114) (146) (149) (52)
------- ------- ------- -------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES 744 563 (994) (790)
PROVISION (BENEFIT) FOR INCOME TAXES 282 216 (389) (308)
------- ------- ------- -------
NET INCOME (LOSS) 462 347 (605) (482)
------- ------- ------- -------
OTHER COMPREHENSIVE INCOME -
Foreign currency translation adjustments
(Net of tax of $2 and $(1), $4 and $(6)
for the three and nine month periods
ended September 30, 1998 and 1997,
respectively.) 6 (2) 10 (14)
------- ------- ------- -------
COMPREHENSIVE INCOME $468 $345 $(595) $(496)
------- ------- ------- -------
------- ------- ------- -------
Net Income (Loss) Per Share - Basic and Diluted $0.07 $0.05 $(0.09) $(0.07)
------- ------- ------- -------
------- ------- ------- -------
Weighted Average Number of
Common and Common Equivalent
Shares Outstanding - Basic 7,040 7,040 7,040 7,040
------- ------- ------- -------
------- ------- ------- -------
Weighted Average Number of
Common and Common Equivalent
Shares Outstanding - Diluted 7,053 7,070 7,040 7,040
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 29 sequentially numbered pages
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EDUCATIONAL INSIGHTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (605) (482)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for doubtful accounts and sales returns 162 110
Provision for inventory obsolescence 124 47
Depreciation 748 769
Changes in operating assets and liabilities:
Accounts receivable (131) (521)
Inventory (4,603) (1,822)
Income taxes receivable (392) (311)
Other receivables 133 (45)
Prepaid expenses and other current assets (140) (194)
Other assets (576) 52
Accounts payable 108 293
Accrued expenses 354 (2)
Deferred income (45) (78)
Income taxes payable (35) (437)
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Net cash used in operating activities (4,898) (2,621)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (609) (653)
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Net cash used in investing activities (609) (653)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase / decrease in line of credit 6,250 2,800
Repayments of long-term debt (90) (81)
----------------------
Net cash provided by financing activities 6,160 2,719
------- ------
Effect of exchange rate changes on cash 9 (13)
------- ------
NET INCREASE (DECREASE) IN CASH 662 (568)
CASH, BEGINNING OF PERIOD 235 1,018
------- ------
CASH, END OF PERIOD $897 $450
------- ------
------- ------
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest $217 $185
Income taxes paid $28 $444
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 29 sequentially numbered pages
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EDUCATIONAL INSIGHTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The consolidated financial statements of Educational Insights, Inc. (the
"Company") include all of the accounts of the Company and its wholly owned
subsidiary. All significant inter-company balances and transactions have
been eliminated in consolidation.
The interim consolidated financial statements are not audited, but include
all adjustments (including normal recurring adjustments) which are, in the
opinion of management, necessary for a fair representation of the financial
position, results of operations and cash flows for the period.
The consolidated financial statements as presented herein should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto as filed with the Securities and Exchange Commission and
included in the Company's Form 10-K for the year ended December 31, 1997.
The Company's fiscal year ends December 31. The results of operations for the
period ended September 30,1998 are not indicative of the results that might
be expected for the full fiscal year.
2. INVENTORY
Inventory consists principally of finished goods held for sale and are stated
at the lower of cost or market. Cost is determined using the first-in,
first-out method.
3. NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income, which
is effective for periods beginning after December 15, 1997. SFAS No. 130
establishes standards for reporting and displaying comprehensive income by
their nature in the financial statements. In addition, the accumulated
balance of other comprehensive income must be displayed separately from
retained earnings and additional paid-in capital in the equity section of the
statement of financial position. Reclassification of financial statements
for earlier periods, provided for comparative purposes, is required.
Page 5 of 29 sequentially numbered pages
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PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited consolidated financial statements and accompanying notes included
in Part I - Item 1 of this Quarterly Report, and the audited consolidated
financial statements and accompanying notes and Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
The Company's business is highly seasonal. Typically, sales and
operating income are highest during the third and fourth quarters and lowest
during the first and second quarters. This seasonal pattern is primarily due
to the increased demand for the Company's products during the
"back-to-school" and year end holiday selling seasons.
SALES.
Sales increased by 10.9% or $1,184,000 to $12,084,000 in the quarter
ended September 30, 1998, from $10,900,000 in the quarter ended September 30,
1997. Sales increased in the Company's mass market and school supply market
and decreased in the specialty toy, international and private label markets.
Sales increased by 4.5% or $1,161,000 to $26,881,000 for the nine month
period ended September 30, 1998 from $25,720,000 for the nine months ended
September 30, 1997.
For the quarter and the nine month period, the increased sales in the
mass market was due to the continuing success of new products introduced in
late 1997 including the GeoSafari World and the Sea Monkeys-Registered
Trademark- product line. The Company attributes its increases in the school
supply market to increased emphasis on developing its field sales effort in
this market. The decrease in the specialty toy market is due to delays in
new product introductions and a decrease in the sales of GeoSafari product
line in this market.
GROSS PROFIT.
Gross profit margin as a percentage of sales decreased 3.6 percentage
points to 46.6% for the quarter ended September 30, 1998 from 50.2% for the
quarter ended September 30, 1997.
Gross profit margin decreased to 48.1% for the nine month period ended
September 30, 1998 from 51.0% for the nine month period ended September 30,
1997.
The decrease in gross profit margins on both the quarterly and
year-to-date basis resulted from both the continuing increase in the
proportion of ExploraToy (i.e., mass market) sales which have lower margins
as well as increases in the provision for the obsolescence of certain
inventory items.
SALES AND MARKETING EXPENSE.
Sales and marketing expense decreased by 2.4% or $51,000 to $2,096,000
for the quarter ended September 30, 1998 compared to $2,147,000 for the same
quarter of 1997.
Sales and marketing expense remained essentially unchanged at $5,353,000
or 19.9% of sales for the nine month period ended September 30, 1998 compared
to $5,338,000 or 20.8% of sales for the same period in 1997.
WAREHOUSING AND DISTRIBUTION EXPENSE.
Warehousing and distribution expense increased $40,000 to $874,000 or
7.2% of sales for the quarter ended September 30, 1998 compared to $834,000
or 7.7% of sales for the same quarter of 1997. The decrease in warehousing
costs for the nine month period is due in part to increased efficiency
resulting from the implementation of more modern, automated warehouse
management systems.
Page 6 of 29 sequentially numbered pages
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Warehousing and distribution expense decreased $147,000 to $2,523,000 or
9.4% of sales for the nine month period ended September 30, 1998 compared to
$2,670,000 or 10.4% of sales for the same period in 1997.
RESEARCH AND DEVELOPMENT EXPENSE.
Research and development expense decreased $47,000 to $928,000 or 7.7%
of sales for the quarter ended September 30, 1998 compared to $975,000 for
the same quarter in 1997.
Research and development expense remained essentially unchanged at
$3,178,000 or 11.8% of sales for the nine month period ended September 30,
1998 compared to $3,161,000 or 12.3% of sales for the same period in 1997.
GENERAL AND ADMINISTRATIVE EXPENSE.
General and administrative expense increased $68,000 to $880,000 or 7.3%
of sales for the quarter compared to $812,000 or 7.5% of sales for the third
quarter of 1997. The increase was primarily due to costs associated with the
recruitment and employment of the Company's new Chief Executive Officer.
General and administrative expense remained essentially unchanged at
$2,725,000 or 10.1% of sales for the nine month period ended September 30,
1998 compared to $2,680,000 or 10.4% of sales for the same period of 1997.
INTEREST EXPENSE.
Interest expense increased $34,000 to $138,000 for the quarter ended
September 30, 1998 compared to $104,000 for the same quarter of 1997 as a
result of increased borrowings under the Company's line of credit.
For the nine month period ended September 30, 1998, interest expense
increased by $56,000 to $247,000 compared to $191,000 for same period of
1997. The increase in interest expense was due primarily to increased
borrowings under the Company's line of credit which were used to finance
increases in inventory purchased in connection with the Company's new product
efforts in the mass market.
OTHER INCOME AND EXPENSE
Other income increased by $71,000 to $20,000 for the quarter ended
September 30, 1998 compared to expense of $51,000 for the same quarter in
1997. The increase is principally due to foreign exchange gains recorded at
the Company's UK subsidiary during the quarter.
For the nine month period ended September 30, 1998, other income
remained essentially unchanged at $81,000 compared to $93,000 for the same
period in 1997.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Except for the historical information contained herein, this Report
contains forward-looking statements which involve a number of risks and
uncertainties, including but not limited to continued successful development
and acceptance of new products, dependence on off-shore contract
manufacturers, competitive factors, dependence on new distribution channels,
dependence on education funding by Federal, State and local governments,
dependence on key development and marketing personnel, general economic
conditions and the risk factors listed from time-to-time in the Company's
filings with the Securities and Exchange Commission.
LIQUIDITY & CAPITAL RESOURCES
In recent years, the Company's working capital needs have been met
through funds generated from operations and from the Company's revolving line
of credit. The Company's principal need for working capital has been to meet
peak inventory and accounts receivable requirements associated with its
seasonal sales patterns. The Company increases inventory levels during the
spring and summer months in anticipation of increasing shipments in the
summer and fall. Accounts receivable have historically
Page 7 of 29 sequentially numbered pages
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increased during the summer and fall because of the Company's use of "dating"
programs wherein sales are made to the Company's customers for which payment
is deferred for one to three months based on the size of the sales orders.
Due to said sales patterns, the largest customer orders are shipped during
the summer and fall, hence increasing accounts receivable balances during the
third and fourth quarters.
For the nine month period ended September 30, 1998, the Company's
primary source of funds was the net increase in borrowings under its
revolving line of credit in the amount of $6,250,000.
The primary use of cash during the period ended September 30, 1998 was
for the funding of an increase in inventory in the amount of $4,603,000
principally due to purchases of ExploraToy product for anticipated fourth
quarter sales as well as approximately $500,000 of hardware and software
relating to the Company's Big Talk product which has not yet been
successfully launched due to unresolved technical problems.
The increase relating to other assets of $576,000 was not a use of cash
as it was primarily the result of the Company bartering certain inventory
(principally excess ExploraToy products) for credit towards the future
purchase of various goods and services. The dollar value recorded in other
assets relating to this transaction of approximately $500,000 is the net
realizable value of said inventory. This barter arrangement entitles the
Company to acquire up to approximately $1,200,000 of goods and services,
however, there can be no assurance that the Company will utilize all of said
credits.
The Company currently has a revolving line of credit with a bank, which
is collateralized by substantially all of the Company's assets. Under the
revolving line of credit agreement, which expires June 15, 1999, the Company
may borrow up to $9 million. The agreement requires the maintenance of
certain financial ratios, minimum annual net income amounts and tangible net
worth amounts, and provides for various restrictions including limitations on
capital expenditures and additional indebtedness. At September 30, 1998, the
Company had $6,750,000 outstanding against this line of credit.
The Company believes that borrowings available under the revolving line
of credit and anticipated funds from operations will satisfy the Company's
projected working capital and capital expenditure requirements for at least
the next 12 months.
Page 8 of 29 sequentially numbered pages
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Amended and Restated Loan Agreement dated September 3, 1998 between
the Company and Union Bank of California.
Employment Agreement dated September 4, 1998 between the Company
and Theodore J. Eischeid.
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the period in
question.
Page 9 of 29 sequentially numbered pages
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EDUCATIONAL INSIGHTS, INC.
Date: 11-11-98 By: /s/ Theodore J. Eischeid
------------------------ ------------------------------
Theodore J. Eischeid
President and Chief Executive
Officer
Date: 11-11-98 By: /s/ G. Reid Calcott
------------------------ ------------------------------
G. Reid Calcott
Chief Operating and Financial
Officer
Page 10 of 29 sequentially numbered pages
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INDEX TO EXHIBITS
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
10.20 Amended and Restated Loan Agreement dated 12
September 3, 1998 between the Company and Union
Bank of California.
10.21 Employment Agreement dated September 4, 1998 22
between the Company and Theodore J. Eischeid.
Page 11 of 29 sequentially numbered pages
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UNION BANK OF CALIFORNIA
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT ("Agreement") is made and
entered into as of September 3, 1998 by and between EDUCATIONAL INSIGHTS,
INC. a California corporation ("Borrower") and UNION BANK OF CALIFORNIA,
N.A., ("Bank"). This Agreement amends and restates in its entirety that
certain loan agreement dated May 27, 1997 between Bank and Borrower.
SECTION 1. THE LOAN
1.1.1 THE REVOLVING LOAN. Bank will loan to Borrower
an amount not to exceed Nine Million Dollars ($9,000,000) outstanding in the
aggregate at any one time (the "Revolving Loan"). Borrower may borrow, repay
and reborrow all or part of the Revolving Loan in amounts of not less than
One Hundred Thousand Dollars ($100,000) in accordance with the terms of the
Revolving Note. All borrowings of the Revolving Loan must be made before
June 15, 1999 at which time all unpaid principal and interest of the
Revolving Loan shall be due and payable. The Revolving Loan shall be
evidenced by a promissory note (the "Revolving Note") on the standard form
used by Bank for commercial loans. Bank shall enter each amount borrowed and
repaid in Bank's records and such entries shall be deemed to be the amount of
the Revolving Loan outstanding. Omission of Bank to make any such entries
shall not discharge Borrower of its obligation to repay in full with interest
all amounts borrowed.
1.1.1.1 THE COMMERCIAL LETTER OF CREDIT
SUBLIMIT. As a sublimit to the Revolving Loan, Bank shall issue, for the
account of Borrower, one or more irrevocable commercial letters of credit
(individually, an "L/C" and collectively, the "L/Cs") and calling for drafts
at sight or usance up to ninety (90) days covering the importation or
purchase of inventory of overseas suppliers. The aggregate amount available
to be drawn under all outstanding L/Cs and the aggregate amount of unpaid
reimbursement obligations under drawn L/Cs shall not exceed One Million Five
Hundred Thousand Dollars ($1,500,000) and shall reduce, dollar for dollar,
the maximum amount available under the Revolving Loan. All such commercial
L/Cs shall be drawn on such terms and conditions as are acceptable to Bank
and shall be governed by the terms of (and Borrower agrees to execute) Bank's
standard form for commercial L/C applications and reimbursement agreement and
shall not have an expiration date more than 360 days from its date of
issuance. No letter of credit shall expire after June 15, 2000.
1.1.2 TERM LOAN. Bank previously made a certain term
loan ("Term Loan") to Borrower, which matures on January 1, 2005. The current
outstanding principal amount of the Term Loan is One Million One Hundred Five
Thousand Four Hundred Sixteen Dollars and 03/100 Dollars ($1,105,416.03).
This Term Loan is evidenced by a promissory note ("Term Note") on the
standard form used by Bank for commercial loans. In the event of a
prepayment of principal and any resulting fees, any prepaid amounts shall be
applied to the scheduled principal payments in the reverse order of their
maturity.
1.2 TERMINOLOGY.
As used herein the word "Loan" shall mean, collectively,
all the credit facilities described above.
As used herein the word "Note" shall mean, collectively,
all the promissory notes described above.
As used herein, the words "Loan Documents" shall mean
all documents executed in connection with this Agreement.
1.3 BORROWING BASE. Notwithstanding any other provision of
this Agreement, Bank shall not be obligated to advance funds under the
Revolving Loan, if at any time the aggregate of Borrower's obligations to
Bank thereunder shall exceed the sum of eighty percent (80%) of Borrower's
Eligible Accounts plus, during the period beginning on September 3, 1998 and
ending on November 30, 1998, fifteen (15%) of Borrower's Eligible
Inventory. In no event, however, shall the aggregate amount of advances
based on Eligible Inventory exceed, at any one time, the sum of One Million
Seven Hundred Fifty
Page 12 of 29 sequentially numbered pages
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Thousand Dollars ($1,750,000). If at any time Borrower's obligations to Bank
under the above facilities exceed the sum so permitted, Borrower shall
immediately repay to Bank such excess.
1.3.1 ELIGIBLE ACCOUNTS. The term "Accounts" means all
presently existing and hereafter arising accounts receivable, contract
rights, chattel paper, and all other forms of obligations owing to Borrower,
payable in United States Dollars, arising out of the sale or lease of goods,
or the rendition of services by Borrower, whether or not earned by
performance, and any and all credit insurance, guaranties and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower and
Borrower's books and records relating to any of the foregoing.
The term "Eligible Accounts" means those Accounts, net of finance
charges, which are due and payable within sixty (60) days, or less, from due
date, have been validly assigned to Bank and strictly comply with all of
Borrower's warranties and representations to Bank, but Eligible Accounts
shall not include the following:
(a) Any Account with respect to which the account
debtor is an officer, shareholder, director, employee or agent of Borrower;
(b) Any Account with respect to which the account
debtor is a subsidiary of, related to, or affiliated or has common officers
or directors with Borrower;
(c) Any Account relating to goods placed on
consignment, guaranteed sale or other terms by reason of which the payment by
the account debtor may be conditional;
(d) Any Account with respect to which the account
debtor is the United States or any department, agency or instrumentality of
the United States;
(e) Any Account with respect to which Borrower is or
may become liable to the account debtor for goods sold or services rendered
by the account debtor to Borrower;
(f) Any Account with respect to which there is
asserted a defense, counterclaim, discount or setoff, whether well-founded or
otherwise, except for those discounts, allowances and returns arising in the
ordinary course of Borrower's business;
(g) Any Account with respect to which the account
debtor becomes insolvent, fails to pay its debts as they mature or goes out
of business or is owed by an account debtor which has become the subject of a
proceeding under any provision of the United States Bankruptcy Code, as
amended, or under any other bankruptcy or insolvency law, including, but not
limited to, assignments for the benefit of creditors, formal or informal
moratoriums, compositions or extensions with all or substantially all of its
creditors;
(h) Any Account owed by any account debtor with
respect to which twenty-five percent (25%) or more of the aggregate dollar
amount of its Accounts are not paid within sixty (60) days from the due date
of the invoice except as provided in attached Schedule A;
(i) Any Account that is not paid by the account
debtor within sixty (60) days of its due date;
(j) That portion of the Accounts owed by any single
account debtor which exceeds fifteen percent (15%) of all of the Accounts;
and
(k) Any Account which Bank reasonably deems not to be
an Eligible Account.
Page 13 of 29 sequentially numbered pages
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1.3.2 ELIGIBLE INVENTORY. The term "Eligible
Inventory" means that portion of Borrower's inventory of finished goods which
is (a) owned by Borrower, free and clear of all liens or encumbrances except
those in favor of Bank, (b) held for sale or lease by Borrower and normally
and currently saleable in the ordinary course of Borrower's business, (c) of
good and merchantable quality, free from defects, (d) located only at
locations of which Bank is notified in writing, and (e) as to which Bank has
been able to perfect and maintain perfected a first priority security
interest. Eligible Inventory does not include obsolete or unmerchantable
items, or inventory which Bank otherwise reasonably deems not be Eligible
Inventory.
The term Inventory means and includes all present and future inventory
in which Borrower had any interest, including but not limited to, goods,
machinery, equipment held by Borrower for sale or lease, or to be furnished
under a contract, of service and all of Borrower's present and future raw
materials, work in process, finished goods and packing and shipping
materials, wherever located, and any documents of title representing any of
the above.
1.4 PURPOSE OF LOAN. The proceeds of the Revolving Loan
shall be used for general working capital purposes.
1.5 INTEREST. The unpaid principal balance of the Revolving
Loan shall bear interest at the rate or rates provided in the Revolving Note
and selected by Borrower. The Revolving Loan may be prepaid in full or in
part only in accordance with the terms of the Revolving Note and any such
prepayment shall be subject to the prepayment fee provided for therein.
1.6 BALANCES. Borrower shall maintain its major depository
accounts with Bank until the Note and all sums payable pursuant to this
Agreement have been paid in full.
1.7 DISBURSEMENT. Upon execution hereof, Bank shall
disburse the proceeds of the Loan as provided in Bank's standard form
Authorization executed by Borrower.
1.8 SECURITY. Prior to any disbursement of the Revolving
Loan, Borrower shall have executed a security agreement, on Bank's standard
form, and a financing statement, suitable for filing in the office of the
Secretary of State of the State of California and any other state designated
by Bank, granting to Bank a first priority security interest in such of
Borrower's property as is described in said security agreement. Exceptions
to Bank's first priority, if any, are permitted only as otherwise provided in
this Agreement. At Bank's request, Borrower will also obtain executed
landlord's and mortgagee's waivers on Bank's form covering all of Borrower's
property located on leased or encumbered real property.
1.9 CONTROLLING DOCUMENT. In the event of any inconsistency
between the terms of this Agreement and any Note or any of the other Loan
Documents, the terms of such Note or other Loan Documents will prevail over
the terms of this Agreement.
SECTION 2. CONDITIONS PRECEDENT
Bank shall not be obligated to disburse all or any portion of the
proceeds of the Loan unless at or prior to the time for the making of such
disbursement, the following conditions have been fulfilled to Bank's
satisfaction:
2.1 COMPLIANCE. Borrower shall have performed and complied
with all terms and conditions required by this Agreement to be performed or
complied with by it prior to or at the date of the making of such
disbursement and shall have executed and delivered to Bank the Note and other
documents deemed necessary by Bank.
2.2 BORROWING RESOLUTION. Borrower shall have provided Bank
with certified copies of resolutions duly adopted by the Board of Directors
of Borrower, authorizing this Agreement and the Loan Documents. Such
resolutions
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shall also designate the persons who are authorized to act on Borrower's
behalf in connection with this Agreement and to do the things required of
Borrower pursuant to this Agreement.
2.3 TERMINATION STATEMENTS. Borrower shall have provided
Bank with UCC-2 termination statements executed by such secured creditors as
may be required by Bank suitable for filing with the Secretary of State in
each state designated by Bank.
2.4 CONTINUING COMPLIANCE. At the time any disbursement is
to be made, there shall not exist any event, condition or act which
constitutes an event of default under Section 6 hereof or any event,
condition or act which with notice, lapse of time or both would constitute
such event of default; nor shall there be any such event, condition, or act
immediately after the disbursement were it to be made.
SECTION 3. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
3.1 BUSINESS ACTIVITY. The principal business of Borrower
is developer and distributor of supplemental educational material.
3.2 AFFILIATES AND SUBSIDIARIES. Borrower's affiliates and
subsidiaries (those entities in which Borrower has either a controlling
interest or at least a 25% ownership interest) and their addresses, and the
names of Borrower's principal shareholders, are as provided on a schedule
delivered to Bank on or before the date of this Agreement.
3.3 AUTHORITY TO BORROW. The execution, delivery and
performance of this Agreement, the Note and all other agreements and
instruments required by Bank in connection with the Loan are not in
contravention of any of the terms of any indenture, agreement or undertaking
to which Borrower is a party or by which it or any of its property is bound
or affected.
3.4 FINANCIAL STATEMENTS. The financial statements of
Borrower, including both a balance sheet at June 30, 1998 together with
supporting schedules, and an income statement for the six (6) months ended
June 30, 1998, have heretofore been furnished to Bank, and are true and
complete and fairly represent the financial condition of Borrower during the
period covered thereby. Since June 30, 1998, there has been no material
adverse change in the financial condition or operations of Borrower.
3.5 TITLE. Except for assets which may have been disposed
of in the ordinary course of business, Borrower has good and marketable title
to all of the property reflected in its financial statements delivered to
Bank and to all property acquired by Borrower since the date of said
financial statements, free and clear of all liens, encumbrances, security
interests and adverse claims except those specifically referred to in said
financial statements.
3.6 LITIGATION. There is no litigation or proceeding
pending or threatened against Borrower or any of its property which is
reasonably likely to affect the financial condition, property or business of
Borrower in a materially adverse manner or result in liability in excess of
Borrower's insurance coverage.
3.7 DEFAULT. Borrower is not now in default in the payment
of any of its material obligations, and there exists no event, condition or
act which constitutes an event of default under Section 6 hereof and no
condition, event or act which with notice or lapse of time, or both, would
constitute an event of default.
3.8 ORGANIZATION. Borrower is duly organized and existing
under the laws of the state of its organization, and has the power and
authority to carry on the business in which it is engaged and/or proposes to
engage.
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3.9 POWER. Borrower has the power and authority to enter
into this Agreement and to execute and deliver the Note and all of the other
Loan Documents.
3.10 AUTHORIZATION. This Agreement and all things required by
this Agreement have been duly authorized by all requisite action of Borrower.
3.11 QUALIFICATION. Borrower is duly qualified and in good
standing in any jurisdiction where such qualification is required.
3.12 COMPLIANCE WITH LAWS. Borrower is not in violation with
respect to any applicable laws, rules, ordinances or regulations which
materially affect the operations or financial condition of Borrower.
3.13 ERISA. Any defined benefit pension plans as defined in
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of
Borrower meet, as of the date hereof, the minimum funding standards of
Section 302 of ERISA, and no Reportable Event or Prohibited Transaction as
defined in ERISA has occurred with respect to any such plan.
3.14 REGULATION U. No action has been taken or is currently
planned by Borrower, or any agent acting on its behalf, which would cause
this Agreement or the Note to violate Regulation U or any other regulation of
the Board of Governors of the Federal Reserve System or to violate the
Securities and Exchange Act of 1934, in each case as in effect now or as the
same may hereafter be in effect. Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock as
one of its important activities and none of the proceeds of the Loan will be
used directly or indirectly for such purpose.
3.15 CONTINUING REPRESENTATIONS. These representations shall
be considered to have been made again at and as of the date of each
disbursement of the Loan and shall be true and correct as of such date or
dates.
SECTION 4. AFFIRMATIVE COVENANTS
Until the Note and all sums payable pursuant to this Agreement or any
other of the Loan Documents have been paid in full, unless Bank waives
compliance in writing, Borrower agrees that:
4.1 USE OF PROCEEDS. Borrower will use the proceeds of the
Loan only as provided in subsection 1.4 above.
4.2 PAYMENT OF OBLIGATIONS. Borrower will pay and discharge
promptly all taxes, assessments and other governmental charges and claims
levied or imposed upon it or its property, or any part thereof, provided,
however, that Borrower shall have the right in good faith to contest any such
taxes, assessments, charges or claims and, pending the outcome of such
contest, to delay or refuse payment thereof provided that adequately funded
reserves are established by it to pay and discharge any such taxes,
assessments, charges and claims.
4.3 MAINTENANCE OF EXISTENCE. Borrower will maintain and
preserve its existence and assets and all rights, franchises, licenses and
other authority necessary for the conduct of its business and will maintain
and preserve its property, equipment and facilities in good order, condition
and repair. Bank may, at reasonable times, visit and inspect any of the
properties of Borrower.
4.4 RECORDS. Borrower will keep and maintain full and
accurate accounts and records of its operations according to generally
accepted accounting principles and will permit Bank to have access thereto,
to make examination and photocopies thereof, and to make audits during
regular business hours. Costs for such audits shall be paid by Borrower.
4.5 INFORMATION FURNISHED. Borrower will furnish to Bank:
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(a) Within forty-five (45) days after the close of
each fiscal quarter, except for the final quarter of each fiscal year, its
unaudited balance sheet as of the close of such fiscal quarter, its unaudited
income and expense statement with supportive schedules and statement of
retained earnings for that fiscal quarter, prepared in accordance with
generally accepted accounting principles;
(b) Within ninety (90) days after the close of each
fiscal year, a copy of its statement of financial condition including at
least its balance sheet as of the close of such fiscal year, its income and
expense statement and retained earnings statement for such fiscal year,
examined and prepared on an audited basis by independent certified public
accountants selected by Borrower and reasonably satisfactory to Bank, in
accordance with generally accepted accounting principles applied on a basis
consistent with that of the previous year;
(c) Within ninety days (90) days after the end of
each fiscal year, a copy of the financial statement of Educational Insights
U.K. for such fiscal year.
(d) Such other financial statements and information
as Bank may reasonably request from time to time;
(e) In connection with each financial statement
provided hereunder, a statement executed by the president, chief financial
officer or controller of Borrower, certifying that no default has occurred
and no event exists which with notice or the lapse of time, or both, would
result in a default hereunder;
(f) Prompt written notice to Bank of all events of
default under any of the terms or provisions of this Agreement or of any
other agreement, contract, document or instrument entered, or to be entered
into with Bank; and of any litigation which, if decided adversely to
Borrower, would have a material adverse effect on Borrower's financial
condition; and of any other matter which has resulted in, or is likely to
result in, a material adverse change in its financial condition or operations;
(g) Prompt written notice to Bank of any changes in
Borrower's officers; Borrower's name; and location of Borrower's principal
assets, principal place of business or chief executive office; and
(h) Within twenty-five (25) days after each
calendar month end, a copy of Borrower's monthly accounts receivable aging
and a certification of compliance with the Borrowing Base described above,
executed by Borrower's chief financial officer or other duly authorized
officer of Borrower, in form agreed to by Bank, which certificate shall
accurately report Borrower's accounts receivable, Eligible Accounts,
inventory and Eligible Inventory. Borrower will permit Bank to audit, at
Borrower's expense, Bank's collateral upon reasonable notice and during
regular business hours prior to May 31, 1999.
4.6 TANGIBLE NET WORTH. Borrower will at all times
maintain Tangible Net Worth of not less than Eighteen Million Dollars
($18,000,000). "Tangible Net Worth" shall mean net worth increased by
indebtedness of Borrower subordinated to Bank and decreased by patents,
licenses, trademarks, trade names, goodwill and other similar intangible
assets, organizational expenses, and monies due from affiliates (including
officers, shareholders and directors), royalties, and barter credits.
4.7 DEBT TO TANGIBLE NET WORTH. Borrower will at all times
maintain a ratio of total liabilities to Tangible Net Worth of not greater
than 1.0:1.0.
4.8 PROFITABILITY. Borrower will maintain its net profit,
after provision for income taxes, at not less than Three Hundred Thousand
Dollars ($300,000) for any fiscal year.
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4.9 QUICK RATIO. Borrower shall maintain at all times a
ratio of cash, accounts receivable and marketable securities to current
liabilities of not less than 1.0 :1.0, as such terms are defined by generally
accepted accounting principles.
4.10 EBITDA TO DEBT SERVICE RATIO. Borrower will maintain a
ratio of EBITDA, less dividends, to Debt Service of not less than 1.0:1.0.
"EBITDA" shall mean earnings before interest, taxes, depreciation, and
amortization. "Debt Service" shall mean the sum of the current portion of
term obligations coming due during the twelve (12) months following the date
of calculation plus interest, taxes, non-financed capital expenditures and
value of acquired or retired shares of its capital stock during the twelve
(12) months preceding the date of calculation. Compliance with this
subsection shall be measured as of the end of each fiscal quarter on a
rolling four-quarter basis.
4.11 INSURANCE. Borrower will keep all of its insurable
property, real, personal or mixed, insured by companies and in amounts agreed
to by Bank against fire and such other risks, and in such amounts, as is
customarily obtained by companies conducting similar business with respect to
like properties. Borrower will furnish to Bank statements of its insurance
coverage, will promptly furnish other or additional insurance deemed
necessary by and upon request of Bank to the extent that such insurance may
be available and hereby assigns to Bank, as security for Borrower's
obligations to Bank, the proceeds of any such insurance. Prior to any
disbursement of the Loan, Bank will be named loss payee on all policies
insuring collateral and such policies shall require at least ten (10) days'
written notice to Bank before any policy may be altered or canceled.
Borrower will maintain adequate worker's compensation insurance and adequate
insurance against liability for damage to persons or property.
4.12 ADDITIONAL REQUIREMENTS. Borrower will promptly, upon
demand by Bank, take such further action and execute all such additional
documents and instruments in connection with this Agreement as Bank in its
reasonable discretion deems necessary, and promptly supply Bank with such
other information concerning its affairs as Bank may request from time to
time.
4.13 LITIGATION AND ATTORNEYS' FEES. Borrower will pay
promptly to Bank upon demand, reasonable attorneys' fees (including but not
limited to the reasonable estimate of the allocated costs and expenses of
in-house legal counsel and legal staff) and all costs and other expenses paid
or incurred by Bank in collecting, modifying or compromising the Loan or in
enforcing or exercising its rights or remedies created by, connected with or
provided for in this Agreement or any of the Loan Documents, whether or not
an arbitration, judicial action or other proceeding is commenced. If such
proceeding is commenced, only the prevailing party shall be entitled to
attorneys' fees and court costs.
4.14 BANK EXPENSES. Borrower will pay or reimburse Bank for
all costs, expenses and fees incurred by Bank in preparing and documenting
this Agreement and the Loan, and all amendments and modifications thereof,
including but not limited to all filing and recording fees, costs of
appraisals, insurance and outside attorneys' fees.
4.15 REPORTS UNDER PENSION PLAN. Borrower will furnish to
Bank, as soon as possible and in any event within 15 days after Borrower
knows or has reason to know that any event or condition with respect to any
defined benefit pension plans of Borrower described in Section 3 above has
occurred, a statement of an authorized officer of Borrower describing such
event or condition and the action, if any, which Borrower proposes to take
with respect thereto.
SECTION 5. NEGATIVE COVENANTS
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Until the Note and all other sums payable pursuant to this
Agreement or any other of the Loan Documents have been paid in full, unless
Bank waives compliance in writing, Borrower agrees that:
5.1 ENCUMBRANCES AND LIENS. Borrower will not create,
assume or suffer to exist any mortgage, pledge, security interest,
encumbrance, or lien (other than for taxes not delinquent and for taxes and
other items being contested in good faith) on property of any kind, whether
real, personal or mixed, now owned or hereafter acquired, or upon the income
or profits thereof, except to Bank and except for minor encumbrances and
easements on real property which do not affect its market value, and except
for existing liens on Borrower's personal property and future purchase money
security interests encumbering only the personal property purchased. All of
such permitted personal property liens shall not exceed, in the aggregate,
Two Hundred Fifty Thousand Dollars ($250,000) at any time.
5.2 BORROWINGS. Borrower will not sell, discount or
otherwise transfer any account receivable or any note, draft or other
evidence of indebtedness, except to Bank or except to a financial institution
at face value for deposit or collection purposes only and without any fee
other than fees normally charged by the financial institution for deposit or
collection services. Borrower will not borrow any money, become contingently
liable to borrow money, nor enter any agreement to directly or indirectly
obtain borrowed money, except pursuant to agreements made with Bank in excess
of $500,000.
5.3 SALE OF ASSETS, LIQUIDATION OR MERGER. Borrower will
neither liquidate nor dissolve nor enter into any consolidation, merger,
partnership or other combination, nor convey, nor sell, nor lease all or the
greater part of its assets or business, nor purchase or lease all or the
greater part of the assets or business of another in excess of One Million
Dollars ($1,000,000) per year.
5.4 LOANS, ADVANCES AND GUARANTIES. Borrower will not,
except in the ordinary course of business as currently conducted, make any
loans or advances, become a guarantor or surety, pledge its credit or
properties in any manner or extend credit.
5.5 INVESTMENTS. Borrower will not purchase the debt or
equity of another person or entity in an amount greater than $500,000 except
for savings accounts and certificates of deposit of Bank, direct U.S.
Government obligations and commercial paper issued by corporations with the
top ratings of Moody's or Standard & Poor's, provided all such permitted
investments shall mature within one year of purchase.
5.6 PAYMENT OF DIVIDENDS. Borrower will not declare or pay
any dividends, other than a dividend payable in its own common stock, or
authorize or make any other distribution with respect to any of its stock now
or hereafter outstanding.
5.7 RETIREMENT OF STOCK. Borrower may not acquire or retire
any share of its capital stock for value: a) if such transaction would cause
the ratio of EBITDA, less dividends, to Debt Service (as defined in
Subsection 4.10) to be less than or equal to 1.25:1.0, as measured as of the
end of each fiscal quarter on a rolling four-quarter basis; b) if an Event
of Default has occured and is continuing at the time of the proposed
transaction; or c) if such transaction would cause any Event of Default.
5.8 PARENT AND SUBIDIARY PROPERTY. Borrower will not
transfer any property at less than cost to any affiliate.
5.9 CAPITAL EXPENDITURES. Borrower will not make capital
expenditures in excess of Two Million Dollars ($2,000,000) in any fiscal
year; and shall only make such expenditures as are necessary for Borrower in
the conduct of its ordinary course of business. Each said expenditure shall
be needed by Borrower in the ordinary course of its business. Expenditures
as used in this subsection shall include the current expense portion of all
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leases whether or not capitalized and shall also include the current portion
of any debt used to finance capital expenditures.
5.10 LEASE OBLIGATIONS. Borrower will not incur new lease
obligations as lessee which would result in aggregate lease payments for any
fiscal year exceeding One Hundred Thousand Dollars ($100,000). Each said
lease shall be of equipment or real property needed by Borrower in the
ordinary course of its business.
SECTION 6. EVENTS OF DEFAULT
The occurrence of any of the following events ("Events of Default")
shall terminate any obligation on the part of Bank to make or continue the
Loan and automatically, unless otherwise provided under the Note, shall make
all sums of interest and principal and any other amounts owing under the Loan
immediately due and payable, without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor, or any other
notices or demands:
6.1 Borrower shall default in the due and punctual payment
of the principal of or the interest on the Note or any of the other Loan
Documents; or
6.2 Any default shall occur under the Note; or
6.3 Borrower shall default in the due performance or
observance of any covenant or condition of the Loan Documents; or
6.4 There is a change in ownership whereas Burton Cutler,
Jay Cutler, Diana Cutler, Karen Duncan Cutler, Carol Cutler Csapo and Corey
Cutler Moncado, and children thereof collectively own or control less than
51% of the issued and outstanding stock of Borrower.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 ADDITIONAL REMEDIES. The rights, powers and remedies
given to Bank hereunder shall be cumulative and not alternative and shall be
in addition to all rights, powers and remedies given to Bank by law against
Borrower or any other person, including but not limited to Bank's rights of
setoff or banker's lien.
7.2 NONWAIVER. Any forbearance or failure or delay by Bank
in exercising any right, power or remedy hereunder shall not be deemed a
waiver thereof and any single or partial exercise of any right, power or
remedy shall not preclude the further exercise thereof. No waiver shall be
effective unless it is in writing and signed by an officer of Bank.
7.3 INUREMENT. The benefits of this Agreement shall inure
to the successors and assigns of Bank and the permitted successors and
assignees of Borrower, and any assignment by Borrower without Bank's consent
shall be null and void.
7.4 APPLICABLE LAW. This Agreement and all other agreements
and instruments required by Bank in connection therewith shall be governed by
and construed according to the laws of the State of California.
7.5 SEVERABILITY. Should any one or more provisions of this
Agreement be determined to be illegal or unenforceable, all other provisions
nevertheless shall be effective. In the event of any conflict between the
provisions of this Agreement and the provisions of any note or reimbursement
agreement evidencing any indebtedness hereunder, the provisions of such note
or reimbursement agreement shall prevail.
7.6 INTEGRATION CLAUSE. Except for documents and
instruments specifically referenced herein, this Agreement constitutes the
entire agreement between Bank and Borrower regarding the Loan and all prior
communications verbal or written between Borrower and Bank shall be of no
further effect or evidentiary value.
7.7 CONSTRUCTION. The section and subsection headings herein
are
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for convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
7.8 AMENDMENTS. This Agreement may be amended only in
writing signed by all parties hereto.
7.9 COUNTERPARTS. Borrower and Bank may execute one or more
counterparts to this Agreement, each of which shall be deemed an original,
but when together shall be one and the same instrument.
SECTION 8. SERVICE OF NOTICES
8.1 Any notices or other communications provided for or
allowed hereunder shall be effective only when given by one of the following
methods and addressed to the respective party at its address given with the
signatures at the end of this Agreement and shall be considered to have been
validly given: (a) upon delivery, if delivered personally; (b) upon receipt,
if mailed, first class postage prepaid, with the United States Postal
Service; on the next business day, if sent by overnight courier service of
recognized standing; and (d) upon telephoned confirmation of receipt, if
telecopied.
8.2 The addresses to which notices or demands are to be
given may be changed from time to time by notice delivered as provided above.
THIS AGREEMENT is executed on behalf of the parties by duly
authorized officers as of the date first above written.
UNION BANK OF CALIFORNIA, N.A. EDUCATIONAL INSIGHTS, INC.
By: /s/ Cheryl L. Gage By: /s/ G. R. Calcott
Cheryl Gage
Title: Vice President Title: CFO
Address: 970 West 190th Street Address: 16941 Keegan Ave.
Torrance, California 90502 Carson, California 90746
Attention: Cheryl Gage Attention: G. R. Calcott
Telecopier: (310) 767-5872 Telecopier: (310) 605-5048
Telephone: (310) 767-5866 Telephone: (310) 884-2000
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), dated for reference purposes and
effective on and as of September 4, 1998, by and between EDUCATIONAL
INSIGHTS, INC., a California corporation ("EI") and THEODORE J. EISCHEID
("Eischeid"), is made with reference to and incorporation of the following:
RECITALS:
A. EI desires to employ Eischeid as its President and Chief Executive
Officer and Eischeid is willing to accept such employment by EI, on the terms
and subject to the conditions set forth in this Agreement:
NOW THEREFORE, for valuable consideration given and received, the parties
agree as follows:
1. EMPLOYMENT.
1.1. "AT-WILL" EMPLOYMENT. Eischeid's employment with EI shall begin
on and as of the effective date first above written but neither this
Agreement nor Eischeid's employment with EI has any fixed term. Eischeid's
employment with EI is terminable "at-will"; that is, this Agreement and
Eischeid's employment with EI may be terminated at any time (on notice given
if and as hereafter provided) by either party, for any reason whatsoever, or
for no reason at all, and without necessity of justification or explanation,
in the sole and absolute discretion of the terminating party. This "at-will"
employment, and this Section 1.1, may not be superseded, amended, altered,
supplemented or made subject to interpretation or construction in any way
whatsoever except pursuant to a subsequent written instrument which makes
specific reference to this Section 1.1 of this Agreement and is signed by
both (a) an officer of EI specifically authorized and directed to perform
such act by resolution of the Board of Directors of EI (the "Board") duly
adopted at a meeting of the Board duly held and (b) Eischeid. Without
limiting the foregoing in any way, neither this Section 1.1 nor the "at-will"
nature of Eischeid's employment may be superseded, amended, altered,
supplemented or made subject to interpretation or construction by any other
writing or by any verbal or non-verbal utterance, conduct, act or omission.
1.2. NO FUTURE COMMITMENTS. No promises or commitments have been made
by EI to Eischeid regarding term of employment, future positions or duties,
future work assignments, future compensation or benefits, extensions of this
Agreement or any other terms or conditions of employment except as
specifically set forth in this Agreement. EI's willingness to employ
Eischeid and to pay or extend to Eischeid the salary, other compensation and
payments and benefits specified herein are the sole consideration for
Eischeid's obligations under this Agreement. Eischeid agrees that he will not
assert any claim for other or different consideration from EI or any other
person for performance of Eischeid's obligations under this Agreement.
2. EISCHEID'S DUTIES AND OBLIGATIONS.
2.1. POSITION. Subject to the remaining provisions of this Agreement,
(a) Eischeid shall be appointed (in accordance with EI's Bylaws) as a
Director on the Board to serve in such capacity subject to EI's Bylaws as in
effect from time-to-time hereafter and, (b) shall be employed by and serve EI
as its President and Chief Executive Officer ("CEO"). In his capacities as
an employee, President and CEO of EI, Eischeid shall do and perform all
services, acts or things necessary or advisable to manage and conduct the
business of EI, including the hiring and terminating of employees, at all
times subject to (c) the strategic policies and employee/personnel policies
as set by the Board from time to time, with and by which Eischeid shall
comply and be bound and (d) the specific consent of the Board when required
by the terms of this Agreement. In order to accommodate Eischeid, Eischeid
is not required to immediately begin performance of his duties. Rather,
Eischeid shall begin performance of his duties hereunder as soon as is
practicable for him after the effective date of this Agreement but not later
than September 21, 1998 (the "start date").
2.2. SPECIFIC MATTERS REQUIRING CONSENT OF BOARD. Without limiting the
effect of powers customarily reserved to the Board or other policies
promulgated by
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the Board from time to time, Eischeid shall not, without specific prior
written approval of the Board, do or obligate EI to do any of the following:
(a) Enter into any agreements with any institutional lender;
(b) Permit any customer of EI to become indebted to EI in an
amount in excess of $750,000.00 for more than 120 days;
(c) Purchase capital equipment for amounts in excess of the
aggregate amounts budgeted for such expenditures and approved by the Board;
(d) Sell any single capital asset, or any group of capital assets,
of EI having a market value in excess of that permitted under EI's
institutional borrowing arrangements as in effect from time to time;
(e) Commit EI to the expenditure of more than $500,000.00 in the
development of any single new product; or
(f) Commit EI to any merger, consolidation, acquisition of
properties or products or product lines, partnership or alliance or joint
undertaking requiring the commitment of EI capital stock or the direct or
indirect expenditure of more than $1,000,000.00.
2.3. DEVOTION TO EI'S BUSINESS. Subject to the provisions of Section
2.6(a) of this Agreement, Eischeid (a) shall devote his entire productive
time, ability and attention to the business of EI during his employment with
EI and (b) shall not engage in any other business duties or pursuits
whatsoever, or directly or indirectly render any services of a business,
commercial or professional nature to any other person or organization for
compensation, without the prior written consent of the Board. However, the
expenditure of reasonable amounts of time for educational, charitable,
professional and/or trade-related activities shall not be deemed a breach of
this Agreement if those activities do not materially interfere with the
services required under this Agreement.
2.4. NO COMPETITIVE ACTIVITIES.
(a) Eischeid represents and warrants to EI that Eischeid is not
subject to any non-competition or non-disclosure agreement with any third
party(ies) which does or would in any way prohibit Eischeid's employment with
EI or (except as contemplated by Section 2.6 of this Agreement) the
performance of his duties hereunder.
(b) Subject to the provisions of Section 2.6(a) of this Agreement,
during his employment with EI Eischeid shall not, directly or indirectly,
either as an employee, employer, consultant, agent, principal, partner,
stockholder, corporate officer, director or in any other individual or
representative capacity, engage or participate in any business that is in
competition in any manner whatsoever with the business of EI. However, this
Section 2.4 shall not be interpreted to prohibit Eischeid from making passive
personal investments or conducting other private business affairs if those
activities do not materially interfere with the services required under this
Agreement.
2.5. UNIQUENESS OF EISCHEID'S SERVICES. Eischeid represents and agrees
that the services to be performed under the terms of this contract are of a
special, unique, unusual, extraordinary and intellectual character that gives
them a peculiar value, the loss of which cannot be reasonably or adequately
compensated in damages in an action at law. Eischeid therefore expressly
agrees that EI, in addition to any other rights or remedies that EI may
possess, shall be entitled to injunctive and other equitable relief to
prevent or remedy a breach of this Agreement by Eischeid.
2.6 BINNEY & SMITH INC. AGREEMENT.
(a) Eischeid has provided to EI a copy of that agreement, entitled
"Agreement", among Binney & Smith Inc., Theodore J. Eischeid and
Revell-Monogram, Inc. dated Sept 4, 1998 (the "Binney & Smith Agreement").
Based on Eischeid's covenants, representations and warranties set forth in
Section 2.6(b) below (on which EI is relying notwithstanding any review of
the Binney & Smith Agreement by EI and/or its attorneys'), and on condition
that such performance shall not materially
Page 23 of 29 sequentially numbered pages
<PAGE>
interfere with the performance of Eischeid's duties as CEO/President of EI,
Eischeid's performance of the obligations imposed on him under paragraphs
9.G., 9.J. and 9.K. of the Binney & Smith Agreement shall not be deemed to
constitute a breach of this Agreement by Eischeid. The foregoing shall not
be interpreted or construed to permit Eischeid to engage in any other
activity which would constitute a breach or violation of this Agreement,
whether such activity arises under or is related to any amendment,
modification or supplement of or to the Binney & Smith Agreement or otherwise.
(b) Eischeid represents and warrants to EI that,
(1) That copy of the Binney & Smith Agreement provided to EI
is a true copy of such agreement as in effect this date and contains all
provisions material to this Agreement and the performance of Eischeid's
obligations hereunder; and
(2) Eischeid's use or disclosure of any of the information
described in paragraph 9. J. of the Binney & Smith Agreement is not necessary
to the performance of any of his obligations under this Agreement.
2.7. CONFIDENTIALITY. Eischeid is employed in a position of trust and
confidence. As a material inducement to EI, Eischeid covenants with EI as
follows:
(a) As used herein, the phrase "confidential information of EI"
means all information which is (1) disclosed to Eischeid or known by Eischeid
as a consequence of or through Eischeid's employment with EI (including,
without limitation, information belonging to third parties or entities
affiliated with or related to EI and information conceived, originated or
developed by Eischeid in the performance of his duties hereunder), (2)
regularly used in the operation of EI's business and (3) not generally known
in the relevant industry about EI's products, product development and design,
marketing, purchasing practices, costing and pricing processes, planning
strategies, future plans as developed, customer relationships, employee
relationships and finances.
(b) In the course of the performance of his duties hereunder,
Eischeid will have access to and become acquainted with confidential
information of EI. Except as is required in the course of his employment
hereunder, Eischeid shall not, directly or indirectly, use, misuse,
misappropriate, disseminate or disclose, or use for his own or another's
benefit, any confidential information of EI either during the effectiveness
of this Agreement or at any other time thereafter.
(c) All files (computer and otherwise), records, documents,
notebooks, computer codes and programs, drawings, specifications, equipment
and similar repositories of or containing confidential information of EI,
including all copies and forms thereof, whether prepared by Eischeid or
others, are and shall remain exclusively the property of EI and, to the
extent then in Eischeid's possession or control, shall be left with or
immediately returned to EI on any termination of Eischeid's employment.
(d) Eischeid shall honor, and shall not breach, any prior
obligations Eischeid may have with respect to any trade secret, proprietary
information or confidential information of third parties (specifically
including previous employers) which he may possess. Eischeid shall not
utilize any of such information, or any materials evidencing any such
information, in the performance of his duties hereunder without the prior
written consent of the owner thereof.
(e) Except as disclosure may be required by law, the terms and
conditions of this Agreement shall be kept confidential by the parties.
(f) The provisions of this Section 2.7 shall survive, in full
force and effect, any termination of Eischeid's employment with EI or of this
Agreement. Eischeid acknowledges that EI would not have an adequate remedy
at law for the material breach of the provisions of this Section 2.7 by
Eischeid or any person affiliated with Eischeid. Accordingly, EI shall be
entitled to obtain all such injunctive relief, temporary and permanent,
against Eischeid as may be necessary to restrain or prevent such possible or
threatened breach.
Page 24 of 29 sequentially numbered pages
<PAGE>
3. SALARY, OTHER COMPENSATION AND BENEFITS.
3.1. SALARY. Subject to the remaining terms and conditions of this
Agreement, EI shall pay to Eischeid an initial salary for the twelve (12)
calendar months beginning the start date at the rate of $19,166.67 per month
($230,000.00 annualized), gross, payable according to EI's customary payroll
procedures. Eischeid's salary shall be reviewed annually by EI's
Compensation Committee of the Board ("Compensation Committee") based on such
criteria as the Compensation Committee shall establish in its discretion. In
the event that Eischeid's salary is decreased, Eischeid may elect to be
terminated; if he so elects, Eischeid shall be compensated as if such
termination were a Termination Other Than For Cause pursuant to Section 4.4
of this Agreement.
3.2. INCENTIVE PAYMENTS.
(a) As an incentive to Eischeid to accept employment with EI, EI
shall pay to Eischeid the sum of $63,000.00 within forty-five (45) days next
following the start date if Eischeid is then employed by EI; provided,
however, and notwithstanding the foregoing to the contrary, if Eischeid is
not then employed by reason of either a Termination Other Than For Cause or a
Termination on Change of Control (as those terms are defined in Sections
4.1(b) and 4.1(c) below, respectively), EI shall nevertheless pay such
$63,000.00 sum to Eischeid within forty-five (45) days next following the
start date.
(b) Beginning with calendar year 1999 and for so long as Eischeid
is employed by EI, Eischeid shall be eligible to earn a discretionary bonus
for each year. The actual amount and terms and timing of payment of any such
bonus are to be determined in the sole discretion of the Board based on
criteria it determines and upon its evaluation of Eischeid's performance
during such year; provided, however, that (1) with Eischeid's advice and
consultation, the Board shall, from time to time, establish "targets" of EI
profitability as one of several criteria for evaluating Eischeid's
performance and (2) Eischeid's bonus shall be tied to a sliding scale
relative to criteria achievement with an amount equal to at least fifty
percent (50%) of his then current year's base salary to be earned by Eischeid
if such criteria are met or exceeded.
3.3. MOVING EXPENSE ALLOWANCE. If Eischeid is then employed by EI, EI
shall pay to Eischeid the sum of $50,000.00, in ten (10) consecutive monthly
installments of $5,000.00 each beginning on the first day of the first full
calendar month next following the start date, as a non-accountable moving
expense allowance.
3.4. INCENTIVE STOCK OPTION. EI shall, pursuant to and in accordance
with EI's Stock Awards Plan (the "Awards Plan"), immediately grant and issue
to Eischeid an Incentive Stock Option evidencing Eischeid's right to purchase
up to 300,000 shares of EI's common stock in accordance with the provisions
of an option agreement prepared as provided by the Awards Plan (the "Option")
the enjoyment of which shall be conditioned on Eischeid's subsequent
employment with EI on the start date.
3.5. BENEFITS. During his employment with EI, Eischeid shall be
eligible to participate in such of EI's benefit plans as may be, from time to
time, generally available to executive officers of EI, including, without
limitation, medical and life insurance, retirement and/or savings and profit
sharing plans, if any. For purposes of establishing the length of service
under any such benefit plans or programs, Eischeid's employment with EI will
be deemed to have commenced on the start date. EI will provide Eischeid with
directors' and officers' liability insurance consistent with current and
future coverage provided to its Board Members. EI acknowledges that if
Eischeid does not initially participate in the medical plan (it is currently
anticipated that Eischeid will not participate until March 15, 2000) that
there will not be any limitation or waiting period due to the pre-existing
condition provisions when Eischeid does begin to participate.
3.6. REIMBURSEMENT FOR EXPENSES. During Eischeid's employment with EI,
EI shall reimburse Eischeid for reasonable and properly documented
out-of-pocket business and/or entertainment expenses incurred by Eischeid in
connection with the performance of his duties under this Agreement.
4. PAYMENTS ON TERMINATION.
Page 25 of 29 sequentially numbered pages
<PAGE>
4.1 DEFINITIONS. For the purposes of this Article 4, the following
terms shall have the following meanings:
(a) "Termination For Cause" shall mean and include termination of
Eischeid's employment by EI by reason of Eischeid's theft, embezzlement,
fraud, unethical or immoral activities involving EI, continued incapacity to
perform his duties and/or material reduction of work hours by Eischeid for
any reason whatsoever.
(b) "Termination Other Than For Cause" shall mean and include
Eischeid's death and/or termination of Eischeid's employment by EI for any
reason other than a Termination For Cause or Termination on Change of Control
(as that phrase is hereafter defined).
(c) "Termination on Change of Control" shall mean a termination of
Eischeid's employment with EI as a result of a "Change of Control" as that
phrase is defined in Section 19.2 of the Awards Plan.
4.2. NOTICE OF TERMINATION. EI may effect a Termination for Cause
without prior notice of any kind. Except in the instance of Eischeid's death
which shall automatically terminate Eischeid's employment, EI may effect a
Termination Other Than For Cause upon giving not less than thirty (30) days'
prior written notice to the other of such termination.
4.3. PAYMENTS ON TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION. In the
event of a Termination For Cause, voluntary termination by Eischeid except in
connection with a Change of Control (Section 4.5), EI shall promptly pay to
Eischeid all accrued salary, other compensation to the extent earned, vested
deferred compensation (other than pension plan or applicable plan), any
benefits under any EI plans in which Eischeid is a participant to the full
extent of Eischeid's then existing rights under such plans, accrued vacation
pay and any appropriate business expenses incurred by Eischeid in connection
with his duties hereunder, all to the date of termination. EISCHEID SHALL NOT
BE PAID, NOR SHALL EI HAVE ANY OBLIGATION TO PAY, ANY OTHER COMPENSATION OR
PAYMENT OF ANY KIND, INCLUDING WITHOUT LIMITATION, SEVERANCE COMPENSATION.
4.4. PAYMENTS ON TERMINATION OTHER THAN FOR CAUSE. In the event of a
Termination Other Than For Cause, EI shall promptly pay to Eischeid or, in the
event of Eischeid's death, his then designated beneficiary:
(a) All accrued salary, other compensation to the extent earned,
vested deferred compensation (other than pension plan or profit sharing plan
benefits which will be paid in accordance with the applicable plan), any
benefits under any EI plans in which Eischeid is a participant to the full
extent of Eischeid's then rights under such plans, accrued vacation pay and any
appropriate business expenses incurred by Eischeid in connection with his duties
hereunder, all to the date of termination; and
(b) Subject to the provisions of Section 4.7, as severance
compensation,
(1) An amount equal to one year's then base salary, plus
(2) An amount equal to the earned portion, if any, of the
discretionary bonus referred to in Section 3.2(b) of this Agreement, pro rated
to the date of termination, plus
(3) If, and on condition that, the Option has not then fully
vested according to its terms, an amount equal to (A) the excess of the
"closing" price for EI common stock as quoted at the date of termination over
the Option "strike price" multiplied by (B) the number of shares of EI common
stock not then vested under the terms of the Option.
4.5. PAYMENTS ON TERMINATION ON CHANGE OF CONTROL. In the event of a
Termination On Change of Control, EI shall promptly pay to Eischeid:
(a) All accrued salary, other compensation to the extent earned,
vested deferred compensation (other than pension plan or profit sharing plan
benefits which will be paid in accordance with the applicable plan), any
benefits under any EI plans in which Eischeid is a participant to the full
extent of Eischeid's then
Page 26 of 29 sequentially numbered pages
<PAGE>
rights under such plans, accrued vacation pay and any appropriate business
expenses incurred by Eischeid in connection with his duties hereunder, all to
the date of termination; and
(b) Subject to the provisions of 4.7, as severance compensation,
(1) An amount equal to the earned portion, if any, of the
discretionary bonus referred to in Section 3.2(b) of this Agreement, pro
rated to the date of termination, plus
(2) An amount equal to one year's then base salary; provided,
however, that if Eischeid is employed by a new employer in connection with
such Change of Control, such amount shall be payable to Eischeid by EI only
if, and when, Eischeid's employment with such new employer is terminated
(whether terminated by Eischeid or such new employer for any reason other
than cause) prior to the first anniversary of the effective date of such
Change of Control.
4.6. OFFSETTING INDEBTEDNESS; NO OTHER PAYMENTS UPON TERMINATION. The
foregoing severance payments shall be reduced by the amount of any
indebtedness of Eischeid to EI then unpaid, whether or not then due or owing.
Eischeid shall not receive, and EI shall have no obligation to pay to
Eischeid, any other payments of any kind on the event of termination of
Eischeid's employment with EI.
4.7. RELEASE.
(a) As a condition to the payment of any severance compensation in
Section 4.4 (b) and/or 4.5 (b) above, Eischeid agrees to execute a release
as described below. Excepting only Eischeid's rights of enforcement of EI's
promises as expressly set forth herein, Eischeid hereby releases, acquits and
forever discharges EI, and all of its affiliate and subsidiary corporations,
their present and former, principals, officers, agents, associates,
representatives, directors, employees, predecessors, successors and assigns
and all persons acting by, through, under or in concert with them, or any of
them, jointly and individually, of and from any and all other claims,
demands, causes of action, obligations, damages and liabilities, WHETHER
KNOWN OR UNKNOWN, WHICH EISCHEID HAS OR MAY HEREAFTER OBTAIN OR ACCRUE based
on or arising out of events occurring prior to the date executed ("Claims")
on account of Eischeid's employment, any termination of his employment and/or
any fact, matter, incident, claim, injury or event, circumstance, happening,
occurrence and/or thing of any kind or nature whatsoever pertaining thereto,
including but not limited to emotional distress; any and all claims for
wrongful discharge; intentional or negligent infliction of emotional
distress; unlawful discrimination based upon age, race, sex, marital status,
religion, national origin, medical condition, disability, handicap or
otherwise; breach of any implied covenant of good faith and fair dealing;
violation of any section of the Labor Code of the State of California; the
California Fair Employment and Housing Act ("FEHA"), Title VII of the Civil
Rights Act of 1964 ("Title VII"), the Age Discrimination in Employment Act of
1967, as amended ("ADEA"), the Americans with Disabilities Act ("ADA") or any
other relevant federal, state or local law(s) or regulation(s); unpaid wages,
salary, bonuses, commissions or other compensation of any sort; damages of
any nature, including compensatory, general, special or punitive; and/or
costs, fees or other expenses, including attorney's fees, incurred in any of
these matters.
(b) Eischeid understands and expressly waives any and all rights
and benefits conferred by the provisions of Section 1542 of the Civil Code of
the State of California based on or arising out of events occurring prior to
the date executed, which reads as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH, IF KNOWN BY HIM, MUST HAVE
MATERIALLY EFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
Eischeid understands and acknowledges that the significance and consequence
of the foregoing waiver of Section 1542 of the Civil Code is that, excepting
only enforcement of EI's promises hereunder, EVEN IF EISCHEID SHOULD
EVENTUALLY SUFFER DAMAGES ARISING OUT OF EISCHEID'S EMPLOYMENT WITH EI, OR
THE TERMINATION OF SUCH EMPLOYMENT FOR ANY REASON, EISCHEID WILL NOT BE
PERMITTED TO MAKE ANY CLAIM FOR THOSE DAMAGES. Furthermore, Eischeid
acknowledges that Eischeid intends these
Page 27 of 29 sequentially numbered pages
<PAGE>
consequences even as to Claims for injury or damages that may exist as of the
date of this Agreement but which Eischeid does not know exist, and which, if
known, would materially affect Eischeid's decision to execute this Agreement,
regardless of whether such lack of knowledge is a result of ignorance,
oversight, error, negligence or any other cause. Eischeid does not waive any
claims, known or unknown, arising after the date the release is executed.
(c) In accordance with the Older Workers Benefit Protection Act of
1990, Eischeid expressly acknowledges his awareness and understanding of the
following:
(1) Eischeid has the right to and should consult with an
attorney before signing this Agreement;
(2) Eischeid has twenty-one (21) days from the date on which he
receives this Agreement to consider this Agreement; and
(3) Eischeid has seven (7) days after signing this Agreement to
revoke this Agreement. The revocation must be in writing, must specifically
revoke this Agreement, and must be received by EI prior to the eighth calendar
day following the execution of this Agreement. Unless so revoked by Eischeid,
this Agreement shall become enforceable and irrevocable according to its terms
on the eighth calendar day next following execution of this Agreement.
5. GENERAL PROVISIONS.
5.1. WITHHOLDINGS. All compensation and benefits to Eischeid hereunder
shall be reduced by all federal, state, local and other withholdings and similar
taxes and payments required by applicable law.
5.2. NOTICES. Any notices permitted or required under this Agreement
shall be deemed given upon the date of personal delivery or forty-eight (48)
hours after deposit in the United States mail, postage fully prepaid, certified
with return receipt requested, addressed as follows:
If to EI, at:
Educational Insights, Inc.
16941 Keegan Ave.
Carson, CA 90746-1307
Attn.: Chairman, Board of Directors
If to Eischeid, at:
Mr. Theodore J. Eischeid
78 Quail Drive
Lake Forest, IL 60045
or at any other address as any party may, from time to time, designate by notice
given in compliance with this Section 5.2.
5.3. LAW GOVERNING. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, the place of its intended
performance.
5.4. TITLES AND CAPTIONS. All section titles or captions contained in
this Agreement are for convenience only and shall not be deemed part of the
context nor effect the interpretation of this Agreement.
5.5. ASSIGNMENT; AGREEMENT BINDING. This Agreement may be assigned by EI
to any successor-in-interest to all or substantially all of EI's assets,
properties and business, but not otherwise without the prior written consent of
Eischeid. This Agreement and the obligations imposed on Eischeid hereunder are
personal and unique to Eischeid; accordingly, Eischeid shall not assign this
Agreement, or any interest in this Agreement, without the prior written consent
of EI. Any assignment, or attempted assignment, in violation of the foregoing
shall be of no force or effect
Page 28 of 29 sequentially numbered pages
<PAGE>
and need not be recognized by the non-assigning party. This Agreement shall
be binding upon the authorized successors and assigns of the parties hereto.
5.6. ATTORNEY FEES. In the event a suit or action is brought by any
party under this Agreement to enforce any of its terms, or in any appeal
therefrom, it is agreed that each party shall bear its own attorneys' fees
and costs except as provided by statute. In the event any arbitration or
mediation pertaining to this Agreement and its enforcement or interpretation
is maintained by the parties, each party shall pay its own costs and
attorneys' fees and one-half of any arbitrator or mediator fees and expenses
incurred.
5.7. ARBITRATION. If at any time during Eischeid's employment or
thereafter any dispute, difference or disagreement shall arise upon or in
respect of the Agreement or the meaning and construction hereof, as an
express condition precedent to the maintenance of any legal proceeding
related thereto, every such dispute, difference and disagreement shall first
be referred to a single arbitrator agreed upon by the parties, or if no
single arbitrator can be agreed upon, an arbitrator or arbitrators shall be
selected in accordance with the rules of the American Arbitration Association
and such dispute, difference or disagreement shall be settled by arbitration
in Los Angeles County, CA, in accordance with the then prevailing commercial
rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof.
5.8. PRESUMPTION. This Agreement or any section thereof shall not be
construed against any party due to the fact that this Agreement or any
section hereof was drafted by such party.
5.9. FURTHER ACTION. The parties hereto shall execute and deliver all
documents, provide all information and take or forbear from all such action
as may be necessary or appropriate to achieve the purposes of the Agreement.
5.10. PARTIES IN INTEREST. Nothing herein shall be construed to be to
the benefit of any third party, nor is it intended that any provision shall
be for the benefit of any third party.
5.11. SAVINGS CLAUSE. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such
provision to persons or circumstances other than those as to which it is held
invalid, shall not be affected thereby.
5.12. SEPARATE COUNSEL. The parties acknowledge that each party has
been represented in this transaction by legal counsel of its choice.
5.13. ENTIRE AGREEMENT. This Agreement contains the entire
understanding between the parties and supersedes any prior understandings and
agreements between them respecting the subject matter of this Agreement.
This Agreement may be amended, altered or supplemented only by a written
instrument referring specifically to this Agreement signed by the parties
hereto.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement,
by the undersigned thereunto duly authorized, at Carson, CA, on and as of the
date first above written.
EDUCATIONAL INSIGHTS, INC.
("EI")
By: /s/ Jay Cutler /s/ Theodore J. Eischeid
--------------------------- --------------------------
Jay Cutler, President/CEO THEODORE J. EISCHEID
("EISCHEID")
Page 29 of 29 sequentially numbered pages
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 897
<SECURITIES> 0
<RECEIVABLES> 10,935
<ALLOWANCES> 452
<INVENTORY> 16,616
<CURRENT-ASSETS> 29,934
<PP&E> 5,079
<DEPRECIATION> 0
<TOTAL-ASSETS> 36,170
<CURRENT-LIABILITIES> 11,917
<BONDS> 974
0
0
<COMMON> 18,644
<OTHER-SE> 4,280
<TOTAL-LIABILITY-AND-EQUITY> 36,170
<SALES> 26,881
<TOTAL-REVENUES> 26,881
<CGS> 13,947
<TOTAL-COSTS> 13,947
<OTHER-EXPENSES> 13,779
<LOSS-PROVISION> 162
<INTEREST-EXPENSE> 138
<INCOME-PRETAX> (994)
<INCOME-TAX> (389)
<INCOME-CONTINUING> (605)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (605)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
