0000921895-18-002086.txt : 20180710 0000921895-18-002086.hdr.sgml : 20180710 20180710172548 ACCESSION NUMBER: 0000921895-18-002086 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20180710 DATE AS OF CHANGE: 20180710 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: EDUCATIONAL DEVELOPMENT CORP CENTRAL INDEX KEY: 0000031667 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISCELLANEOUS NONDURABLE GOODS [5190] IRS NUMBER: 730750007 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-19013 FILM NUMBER: 18947627 BUSINESS ADDRESS: STREET 1: 10302 E 55TH PL #B CITY: TULSA STATE: OK ZIP: 74146 BUSINESS PHONE: 9186224522 MAIL ADDRESS: STREET 1: PO BOX 470663 CITY: TULSA STATE: OK ZIP: 741460663 FORMER COMPANY: FORMER CONFORMED NAME: TUTOR TAPES INTERNATIONAL CORP DATE OF NAME CHANGE: 19701030 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL TEACHING TAPES INC DATE OF NAME CHANGE: 19701030 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: Red Oak Partners, LLC CENTRAL INDEX KEY: 0001325533 IRS NUMBER: 020673129 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 150 E PALMETTO PARK ROAD STREET 2: SUITE 800 CITY: BOCA RATON STATE: FL ZIP: 33432 BUSINESS PHONE: 6466883436 MAIL ADDRESS: STREET 1: 1441 BROADWAY STREET 2: SUITE 5022 CITY: NEW YORK STATE: NY ZIP: 10018 SC 13D/A 1 sc13da111000edu_07102018.htm AMENDMENT NO. 1 TO THE SCHEDULE 13D

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

(Rule 13d-101)

INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT

TO § 240.13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO

§ 240.13d-2(a)

(Amendment No. 1)1

Educational Development Corporation

(Name of Issuer)

Common Stock, $0.20 par value

(Title of Class of Securities)

281479105

(CUSIP Number)

DAVID SANDBERG

RED OAK PARTNERS, LLC

150 E Palmetto Park Road, Suite 800

Boca Raton, FL 33432

(212) 614-8952

 

ANDREW FREEDMAN, ESQ.

OLSHAN FROME WOLOSKY LLP

1325 Avenue of the Americas

New York, New York 10019

(212) 451-2300

(Name, Address and Telephone Number of Person

Authorized to Receive Notices and Communications)

 

July 6, 2018

(Date of Event Which Requires Filing of This Statement)

 

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§ 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box ¨.

Note:  Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits.  See § 240.13d-7 for other parties to whom copies are to be sent.

 

 

 

1              The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

 

CUSIP No. 281479105

  1   NAME OF REPORTING PERSON  
         
        The Red Oak Fund, L.P.  
  2   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ☐
        (b) ☐
           
  3   SEC USE ONLY    
           
           
  4   SOURCE OF FUNDS  
         
        WC  
  5   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)     ☐
       
           
  6   CITIZENSHIP OR PLACE OF ORGANIZATION  
         
        DELAWARE  
NUMBER OF   7   SOLE VOTING POWER  
SHARES          
BENEFICIALLY         - 0 -  
OWNED BY   8   SHARED VOTING POWER  
EACH          
REPORTING         88,598  
PERSON WITH   9   SOLE DISPOSITIVE POWER  
         
          - 0 -  
    10   SHARED DISPOSITIVE POWER  
           
          88,598  
  11   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON  
         
        88,598  
  12   CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES     ☐
       
           
  13   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)  
         
        2.2%  
  14   TYPE OF REPORTING PERSON  
         
        PN  

  

2

CUSIP No. 281479105

  1   NAME OF REPORTING PERSON  
         
        The Red Oak Long Fund, L.P.  
  2   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ☐
        (b) ☐
           
  3   SEC USE ONLY    
           
           
  4   SOURCE OF FUNDS  
         
        WC  
  5   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)     ☐
       
           
  6   CITIZENSHIP OR PLACE OF ORGANIZATION  
         
        DELAWARE  
NUMBER OF   7   SOLE VOTING POWER  
SHARES          
BENEFICIALLY         - 0 -  
OWNED BY   8   SHARED VOTING POWER  
EACH          
REPORTING         37,449  
PERSON WITH   9   SOLE DISPOSITIVE POWER  
         
          - 0 -  
    10   SHARED DISPOSITIVE POWER  
           
          37,449  
  11   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON  
         
        37,449  
  12   CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES     ☐
       
           
  13   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)  
         
        Less than 1%  
  14   TYPE OF REPORTING PERSON  
         
        PN  

  

3

CUSIP No. 281479105

 

  1   NAME OF REPORTING PERSON  
         
        The Red Oak Institutional Founders Long Fund, L.P.  
  2   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ☐
        (b) ☐
           
  3   SEC USE ONLY    
           
           
  4   SOURCE OF FUNDS  
         
        WC  
  5   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)     ☐
       
           
  6   CITIZENSHIP OR PLACE OF ORGANIZATION  
         
        DELAWARE  
NUMBER OF   7   SOLE VOTING POWER  
SHARES          
BENEFICIALLY         - 0 -  
OWNED BY   8   SHARED VOTING POWER  
EACH          
REPORTING         129,705  
PERSON WITH   9   SOLE DISPOSITIVE POWER  
         
          - 0 -  
    10   SHARED DISPOSITIVE POWER  
           
          129,705  
  11   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON  
         
        129,705  
  12   CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES     ☐
       
           
  13   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)  
         
        3.2%  
  14   TYPE OF REPORTING PERSON  
         
        PN  

  

4

CUSIP No. 281479105

 

  1   NAME OF REPORTING PERSON  
         
        Pinnacle Opportunities Fund, LP  
  2   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ☐
        (b) ☐
           
  3   SEC USE ONLY    
           
           
  4   SOURCE OF FUNDS  
         
        WC  
  5   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)     ☐
       
           
  6   CITIZENSHIP OR PLACE OF ORGANIZATION  
         
        DELAWARE  
NUMBER OF   7   SOLE VOTING POWER  
SHARES          
BENEFICIALLY         - 0 -  
OWNED BY   8   SHARED VOTING POWER  
EACH          
REPORTING         60,665  
PERSON WITH   9   SOLE DISPOSITIVE POWER  
         
          - 0 -  
    10   SHARED DISPOSITIVE POWER  
           
          60,665  
  11   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON  
         
        60,665  
  12   CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES     ☐
       
           
  13   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)  
         
        1.5%  
  14   TYPE OF REPORTING PERSON  
         
        PN  

  

5

CUSIP No. 281479105

 

  1   NAME OF REPORTING PERSON  
         
        Pinnacle Capital Partners, LLC  
  2   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ☐
        (b) ☐
           
  3   SEC USE ONLY    
           
           
  4   SOURCE OF FUNDS  
         
        AF  
  5   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)     ☐
       
           
  6   CITIZENSHIP OR PLACE OF ORGANIZATION  
         
        FLORIDA  
NUMBER OF   7   SOLE VOTING POWER  
SHARES          
BENEFICIALLY         - 0 -  
OWNED BY   8   SHARED VOTING POWER  
EACH          
REPORTING         60,665  
PERSON WITH   9   SOLE DISPOSITIVE POWER  
         
          - 0 -  
    10   SHARED DISPOSITIVE POWER  
           
          60,665  
  11   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON  
         
        60,665  
  12   CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES     ☐
       
           
  13   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)  
         
        1.5%  
  14   TYPE OF REPORTING PERSON  
         
        OO  

  

6

CUSIP No. 281479105

 

  1   NAME OF REPORTING PERSON  
         
        Red Oak Partners, LLC  
  2   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ☐
        (b) ☐
           
  3   SEC USE ONLY    
           
           
  4   SOURCE OF FUNDS  
         
        AF  
  5   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)     ☐
       
           
  6   CITIZENSHIP OR PLACE OF ORGANIZATION  
         
        FLORIDA  
NUMBER OF   7   SOLE VOTING POWER  
SHARES          
BENEFICIALLY         - 0 -  
OWNED BY   8   SHARED VOTING POWER  
EACH          
REPORTING         316,417  
PERSON WITH   9   SOLE DISPOSITIVE POWER  
         
          - 0 -  
    10   SHARED DISPOSITIVE POWER  
           
          316,417  
  11   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON  
         
        316,417  
  12   CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES     ☐
       
           
  13   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)  
         
        7.7%  
  14   TYPE OF REPORTING PERSON  
         
        OO  

  

7

CUSIP No. 281479105

 

  1   NAME OF REPORTING PERSON  
         
        David Sandberg  
  2   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ☐
        (b) ☐
           
  3   SEC USE ONLY    
           
           
  4   SOURCE OF FUNDS  
         
        AF  
  5   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)     ☐
       
           
  6   CITIZENSHIP OR PLACE OF ORGANIZATION  
         
        USA  
NUMBER OF   7   SOLE VOTING POWER  
SHARES          
BENEFICIALLY         - 0 -  
OWNED BY   8   SHARED VOTING POWER  
EACH          
REPORTING         316,417  
PERSON WITH   9   SOLE DISPOSITIVE POWER  
         
          - 0 -  
    10   SHARED DISPOSITIVE POWER  
           
          316,417  
  11   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON  
         
        316,417  
  12   CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES     ☐
       
           
  13   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)  
         
        7.7%  
  14   TYPE OF REPORTING PERSON  
         
        IN  

  

8

CUSIP No. 281479105

 

The following constitutes Amendment No. 1 to the Schedule 13D filed by the undersigned (“Amendment No. 1”). This Amendment No. 1 amends the Schedule 13D as specifically set forth herein.

 

Item 2.Identity and Background.

Item 2(b) is hereby amended and restated to read as follows:

(b)The address of the principal business office of each of the Reporting Persons is 150 E Palmetto Park Road, Suite 800, Boca Raton, FL 33432.

  

Item 3.Source and Amount of Funds or Other Consideration.

Item 3 is hereby amended and restated to read as follows:

The shares of Common Stock purchased by the Funds were purchased with working capital (which may, at any given time, include margin loans made by brokerage firms in the ordinary course of business) in open market purchases, except as otherwise noted. The aggregate purchase price of the 316,417 shares of Common Stock beneficially owned by the Funds is approximately $3,086,711, including brokerage commissions.

Item 4.Purpose of Transaction.

Item 4 is hereby amended to add the following:

On July 6, 2018, Red Oak Partners announced that it had delivered a letter to the Issuer’s board of directors (the “Board”) to express its intention to oppose the election of the incumbent Class II Board nominees and vote against the proposed management equity incentive plan at the Issuer’s 2018 annual meeting of shareholders (the “Annual Meeting”) scheduled to be held on July 24, 2018. Red Oak Partners called upon the Board in the letter to engage with shareholders to address concerns with the Issuer’s corporate governance practices, stale Board composition and misaligned management incentive plan proposal.

Red Oak Partners also stated in the letter its belief that Board refreshment is necessary due to the seniority and lengthy tenure of current directors and the low percentage of shares owned by Board members and management other than Chairman and CEO Randall White and his son Craig White. Red Oak Partners noted in the letter that the average age of independent directors is 75.5 years; the average tenure is fourteen years; and that there are no term or age limits on directors.

Red Oak Partners cited the Issuer’s poor revenue growth and financial performance in 2018 and stated its belief that the Board’s oversight has been ineffective, with a misallocation of capital and failed IT implementation causing both operational and sales disruption and a financing issue that led to operational disruption and management distraction. The letter further stated Red Oak Partners’ belief that inaccurate disclosures and misleading omissions in the Issuer’s 2018 definitive proxy statement regarding the share ownership of Common Stock held by custodians and record holders demonstrates that the Board and management lack fundamental public company knowledge and experience.

Red Oak Partners further stated in the letter its belief that the Issuer’s 2019 long term incentive stock plan is misaligned with the best interests of shareholders because it proposes to pay executives excessive compensation for underperforming margin and revenue guidance publicly disclosed by the Issuer previously. Red Oak Partners expressed doubts that the Issuer’s incentive plan was developed based on credible comparable analysis or a review of best practices and reserved its right to seek the production of the Issuer’s compensation analysis through a books and records request under Delaware law.

Red Oak Partners stated that, despite several attempts to engage with the Board’s lead independent director John Clerico, Mr. Clerico had not responded, and as a result of the Board’s apparent disregard for reasonable governance and oversight Red Oak Partners intends to vote against the election of the Board’s director nominees, Ron McDaniel and Dr. Kara Gae Neal, and against the approval of the 2019 long term incentive stock plan at the Annual Meeting.

9

CUSIP No. 281479105

Red Oak Partners concluded the letter by urging the Board to postpone the Annual Meeting and inviting the Board to engage with Red Oak Partners as the Issuer’s largest outside shareholder to address significant concerns with governance, executive compensation and Board composition, including the separation of Chairman and CEO roles, updating the Bylaws to reflect current governance best practices and implementing a CEO succession plan. Such steps would, according to Red Oak Partners, bolster the Issuer’s credibility as a public company and its trustworthiness as a value-driven investment in the marketplace.

Red Oak Partners notes that leading proxy advisory firm Institutional Shareholder Services Inc. (“ISS”) has recently issued a report recommending that the Issuer’s shareholders vote against the re-election of incumbent nominees Ron McDaniel and Dr. Kara Gae Neal at the upcoming Annual Meeting.

The foregoing description of the letter does not purport to be complete and is qualified in its entirety by reference to the full text of the letter, which is filed as Exhibit 99.2, and is incorporated herein by reference.

Item 5.Interest in Securities of the Issuer.

Item 5 is hereby amended and restated to read as follows:

The aggregate percentage of shares of Common Stock reported owned by each Reporting Person is based upon 4,090,034 shares outstanding, which is the total number of shares of Common Stock outstanding as of June 18, 2018 as reported in the Issuer’s definitive proxy statement on Form DEF 14A, filed with the Securities and Exchange Commission on June 21, 2018.

A.Red Oak Fund
(a)As of the close of business on July 10, 2018, Red Oak Fund directly beneficially owned 88,598 shares of Common Stock.

Percentage: 2.2%

(b)1. Sole power to vote or direct vote: 0
2. Shared power to vote or direct vote: 88,598
3. Sole power to dispose or direct the disposition: 0
4. Shared power to dispose or direct the disposition: 88,598

 

(c)Red Oak Fund has not entered into any transactions in the shares of Common Stock during the past sixty days.
B.Red Oak Long Fund
(a)As of the close of business on July 10, 2018, Red Oak Long Fund directly beneficially owned 37,449 shares of Common Stock.

Percentage: Less than 1%

(b)1. Sole power to vote or direct vote: 0
2. Shared power to vote or direct vote: 37,449
3. Sole power to dispose or direct the disposition: 0
4. Shared power to dispose or direct the disposition: 37,449

 

10

CUSIP No. 281479105

 

(c)Red Oak Long Fund has not entered into any transactions in the shares of Common Stock during the past sixty days.
C.Red Oak Founders Fund
(a)As of the close of business on July 10, 2018, Red Oak Founders Fund directly beneficially owned 129,705 shares of Common Stock.

Percentage: Approximately 3.2%

(b)1. Sole power to vote or direct vote: 0
2. Shared power to vote or direct vote: 129,705
3. Sole power to dispose or direct the disposition: 0
4. Shared power to dispose or direct the disposition: 129,705

 

(c)Red Oak Founders Fund has not entered into any transactions in the shares of Common Stock during the past sixty days.
D.Pinnacle Fund
(a)As of the close of business on July 10, 2018, Pinnacle Fund directly beneficially owned 60,665 shares of Common Stock.

Percentage: Approximately 1.5%

(b)1. Sole power to vote or direct vote: 0
2. Shared power to vote or direct vote: 60,665
3. Sole power to dispose or direct the disposition: 0
4. Shared power to dispose or direct the disposition: 60,665

 

(c)Pinnacle Fund has not entered into any transactions in the shares of Common Stock during the past sixty days.
E.Pinnacle Partners
(a)As of the close of business on July 10, 2018, Pinnacle Partners, as the general partner of Pinnacle Fund, may be deemed to beneficially own the 60,665 shares of Common Stock owned directly by Pinnacle Fund.

Percentage: Approximately 1.5%

(b)1. Sole power to vote or direct vote: 0
2. Shared power to vote or direct vote: 60,665
3. Sole power to dispose or direct the disposition: 0
4. Shared power to dispose or direct the disposition: 60,665

 

(c)Pinnacle Partners has not entered into any transactions in the shares of Common Stock during the past sixty days.
11

CUSIP No. 281479105

 

F.Red Oak Partners
(a)As of the close of business on July 10, 2018, Red Oak Partners may be deemed to beneficially own 316,417 shares of Common stock. Red Oak Partners, as the general partner of each of Red Oak Fund, Red Oak Long Fund and Red Oak Founders Fund, and controlling member of the general partner of Pinnacle Fund, may be deemed to beneficially own (i) the 88,598 shares of Common Stock held by Red Oak Fund, (ii) the 37,449 shares of Common Stock held by Red Oak Long Fund, (iii) the 129,705 shares of Common Stock held by Red Oak Founders Fund, and (iv) the 60,665 shares of Common Stock held by Pinnacle Fund.

Percentage: Approximately 7.7%

(b)1. Sole power to vote or direct vote: 0
2. Shared power to vote or direct vote: 316,417
3. Sole power to dispose or direct the disposition: 0
4. Shared power to dispose or direct the disposition: 316,417

 

(c)Red Oak Partners has not entered into any transactions in the shares of Common Stock during the past sixty days.
G.David Sandberg
(a)Mr. Sandberg may be deemed to beneficially own 316,417 shares of Common Stock. Mr. Sandberg, as the managing member of Red Oak Partners, may be deemed to beneficially own the shares of Common Stock owned beneficially by Red Oak Partners.

Percentage: Approximately 7.7%

(b)1. Sole power to vote or direct vote: 0
2. Shared power to vote or direct vote: 316,417
3. Sole power to dispose or direct the disposition: 0
4. Shared power to dispose or direct the disposition: 316,417

 

(c)Mr. Sandberg has not entered into any transactions in the shares of Common Stock during the past sixty days.

The filing of this Schedule 13D shall not be construed as an admission that the Reporting Persons are, for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, the beneficial owners of any of the shares of Common Stock reported herein. Each Reporting Person disclaims beneficial ownership of such shares of Common Stock except to the extent of his or its pecuniary interest therein.

(d)No person other than the Reporting Persons is known to have the right to receive, or the power to direct the receipt of dividends from, or proceeds from the sale of, the shares of Common Stock.
(e)Not applicable.
12

CUSIP No. 281479105

 

Item 6.Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer.

Item 6 is hereby amended to add the following:

On July 10, 2018, the Reporting Persons entered into a Joint Filing Agreement in which the Reporting Persons agreed to the joint filing on behalf of each of them of statements on Schedule 13D with respect to the securities of the Issuer to the extent required by applicable law. The Joint Filing Agreement is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

Other than as described herein, there are no contracts, arrangements, understandings or relationships among the Reporting Persons, or between the Reporting Persons and any other person, with respect to the securities of the Issuer.

Item 7.Material to be Filed as Exhibits.

Item 7 is hereby amended to add the following Exhibits:

99.1Joint Filing Agreement by and between The Red Oak Fund, L.P., The Red Oak Long Fund, L.P., The Red Oak Institutional Founders Long Fund, L.P., Pinnacle Opportunities Fund, LP, Pinnacle Capital Partners, LLC, Red Oak Partners, LLC and David Sandberg, dated July 10, 2018.
99.2Letter to the Board, dated July 3, 2018.

13

CUSIP No. 281479105

 

SIGNATURES

After reasonable inquiry and to the best of his knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct.

Dated: July 10, 2018

 

 

  RED OAK PARTNERS, LLC
   
  By:

/s/ David Sandberg

    Name: David Sandberg
    Title: Managing Member

 

  THE RED OAK FUND, L.P.
   
  By: RED OAK PARTNERS, LLC, its general partner
     
  By:

/s/ David Sandberg

    Name: David Sandberg
    Title: Managing Member

 

  THE RED OAK INSTITUTIONAL FOUNDERS LOND FUND, L.P.
   
  By: RED OAK PARTNERS, LLC, its general partner
     
  By:

/s/ David Sandberg

    Name: David Sandberg
    Title: Managing Member

 

  THE RED OAK LONG FUND, L.P.
   
  By: RED OAK PARTNERS, LLC, its general partner
     
  By:

/s/ David Sandberg

    Name: David Sandberg
    Title: Managing Member

 

  PINNACLE CAPITAL PARTNERS, LLC
   
  By: RED OAK PARTNERS, LLC, its controlling member
     
  By:

/s/ David Sandberg

    Name: David Sandberg
    Title: Managing Member

 

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CUSIP No. 281479105

 

  PINNACLE OPPORTUNITIES FUND, LP
   
  By: PINNACLE CAPITAL PARTNERS, LLC, its general partner
     
  By:

/s/ David Sandberg

    Name: David Sandberg
    Title: Managing Member

 

  By:

/s/ David Sandberg

    DAVID SANDBERG

 

15

 

EX-99.1 2 ex991to3da111000edu_071018.htm JOINT FILING AGREEMENT

Exhibit 99.1 

 

JOINT FILING AGREEMENT

In accordance with Rule 13d-1(k)(1)(iii) under the Securities Exchange Act of 1934, as amended, the persons named below agree to the joint filing on behalf of each of them of a Statement on Schedule 13D (including additional amendments thereto) with respect to the shares of Common Stock, par value $0.20, of Educational Development Corporation, a Delaware corporation. This Joint Filing Agreement shall be filed as an Exhibit to such Statement.

Dated: July 10, 2018

 

  RED OAK PARTNERS, LLC
   
  By:

/s/ David Sandberg

    Name: David Sandberg
    Title: Managing Member

 

  THE RED OAK FUND, L.P.
   
  By: RED OAK PARTNERS, LLC, its general partner
     
  By:

/s/ David Sandberg

    Name: David Sandberg
    Title: Managing Member

 

  THE RED OAK INSTITUTIONAL FOUNDERS LOND FUND, L.P.
   
  By: RED OAK PARTNERS, LLC, its general partner
     
  By:

/s/ David Sandberg

    Name: David Sandberg
    Title: Managing Member

 

  THE RED OAK LONG FUND, L.P.
   
  By: RED OAK PARTNERS, LLC, its general partner
     
  By:

/s/ David Sandberg

    Name: David Sandberg
    Title: Managing Member

  

 

 

 

  PINNACLE CAPITAL PARTNERS, LLC
   
  By: RED OAK PARTNERS, LLC, its controlling member
     
  By:

/s/ David Sandberg

    Name: David Sandberg
    Title: Managing Member

 

  PINNACLE OPPORTUNITIES FUND, LP
   
  By: PINNACLE CAPITAL PARTNERS, LLC, its general partner
     
  By:

/s/ David Sandberg

    Name: David Sandberg
    Title: Managing Member

 

  By:

/s/ David Sandberg

    DAVID SANDBERG

 

EX-99.2 3 ex992to3da111000edu_071018.htm LETTER TO THE BOARD

Exhibit 99.2

 

July 3, 2018

 

Educational Development Corporation

5402 South 122nd East Avenue

Tulsa, OK 74146

Attention: Board of Directors

 

Dear Members of the Board,

 

As you are aware, Red Oak Partners, LLC (“Red Oak”) is a long-term shareholder of Educational Development Corporation (“EDUC” or the “Company”). Red Oak and funds under its control currently own 7.7% of the outstanding EDUC shares and is the largest unaffiliated outside shareholder according to public SEC filings. As a long-time investor in small and micro-cap public companies, Red Oak considers corporate governance and the fiduciary obligations of the Board to shareholders to be of utmost importance and has stressed the importance of good corporate governance and best practices to EDUC’s Chairman and CEO Randall White numerous times over the last few years. Red Oak has attempted on several occasions to contact John Clerico, the Board’s lead independent director, but has yet to receive any response.

 

Rather than focus on improving the Company’s corporate governance, the Board has proposed a long term incentive stock plan for executives that is completely misaligned with the interests of shareholders.

 

The Board’s apparent indifference to shareholder interests may very well be owing to the fact that apart from Mr. White and his son Craig, the Board and management have very little, if any, of their own “skin in the game” at EDUC. There is little to no economic alignment between shareholders and the independent directors despite significant board tenure, and three out of four of the incumbent directors are well past generally acceptable age limits for public company independent directors. We believe this has resulted in stale skillsets and perspective, and questionable objectivity and independence from their similarly long-tenured Chairman and CEO.

 

Given what we view as disregard for reasonable governance or oversight, we intend to vote against the election of the Board’s director nominees, Ron McDaniel and Dr. Kara Gae Neal, and against the approval of the ill-advised 2019 long term incentive stock plan at the upcoming 2018 Annual Meeting.

 

The 2019 Long Term Incentive Plan Is Grossly Misaligned with the Interests of the Company’s Unaffiliated Shareholders

 

The 2019 long term incentive stock plan is flawed in many ways and we urge you to reconsider this poorly constructed compensation package. To begin with, the first annual Net Revenue target of $100 million is more than 10% below the Net Revenue reported in fiscal year 2018 and more than 30% lower than EDUC’s publicly guided Net Revenue given throughout 2016 – in other words, the Board is proposing to pay executives for significantly underperforming on revenues not only vs. the prior year but vs. where management believed the business would be years ago. To make matters worse – and in an entirely egregious decision to us - you are proposing that executives be paid this excess compensation starting at a pre-tax profit percentage of 3%, which is less than half of the 7% margin achieved in 2018 and well below any margin guidance provided by the Company. In fact, per the Board’s proposed compensation plan, management can lose money in a given year yet receive this significant equity compensation if they achieve the minimum 3% margin the following year. Further, management can generate the same pre-tax profit in aggregate over the next three years as it did in 2018 (i.e., average a 65%+ decline in profit for the next three years!!) yet earn over $3 million in equity for that “achievement.” Although your Chairman informed us that the Board engaged an outside consultant to assist in the development of the plan, we find it hard to believe that this plan was based on credible comparables analysis or best practices.

 

 

 

In fifteen years operating within the public small and micro-cap universe, we have never seen a plan like this which rewards management for such poor performance. EDUC should make the compensation analysis publicly available immediately so that shareholders can understand what the outsized grant proposal is based on. If it fails to do so, we may demand that you produce it under a books and records request per our right as shareholders.

 

The Company’s Stale Corporate Governance Practices and Board Composition Leave a Lot to Be Desired

 

Regarding the current Board, there exist no term nor age limits, the average age of the independent directors is 75.5 years, average board tenure is fourteen years, and two directors own zero stock and the other two independents collectively own a trifling 0.7% of the outstanding shares. Clearly, there is a lack of alignment and excessive tenure. Additionally – and as I am sure you are aware and as Red Oak has discussed with your Chairman – it is a widely held best practice to separate the Chairman and CEO role. However, Mr. White has served in these dual roles as far back as public filings go (twenty plus years), reflecting no progress at a corporate governance level to improve in sync with other public companies and despite his son being a top four executive and thus creating an obvious conflict of interest in assessing compensation and performance. Instead, it appears that the Board provides little oversight and has let Mr. White operate the business as he sees fit, which we believe has contributed to various operational and financial missteps over the last few years.

 

While the Company achieved significant revenue growth during the 2015-2017 period, it was during this time of high growth that even closer Board oversight was needed. Instead, there was misallocation of capital and failed implementation on the IT side that caused both operational and sales disruption and a financing issue which caused operational disruption and management distraction, both of which could have been avoided with proper board oversight and involvement. Instead, management has caused a fracture in one of the key assets of the Company, its external sales force, which is still being blamed for both the poor revenue growth and financial performance in 2018. This poor performance continues to be reflected in the compensation proposal under which a deterioration in profits – even in the absence of reasonable growth – will reward management at levels many fold higher than they have ever earned before.

 

 

 

The Company’s Proxy Disclosures Are Misleading

 

Lastly, we have concerns regarding the disclosures in the Company’s proxy statement, specifically regarding the ownership of shares. It appears that the share ownership table contains inaccurate and misleading information and key omissions. First, the three firms shown as >5% owners do not in fact “own” the shares, but instead reflect the custody of where the shares are held. Other public companies do not show custodians as shareholders – if that was standard practice then every single public company would do so, since the same handful of custodians “hold” most shares for investors. We presume that your management team looked at DRS or record holder statements and saw the listed “holders” and confused this with actual owners of the stock, but this is yet another example of the combined lack of public company knowledge across the Board and current management team, and why it needs more help and experience. To compound this error, the proxy fails to include Red Oak’s ownership despite including it in the 2017 proxy and the Company and management remaining aware of our ownership.

 

We Call on the Board to Work Constructively with its Largest Unaffiliated Shareholder to Improve the Company’s Governance, Executive Compensation and Board Composition

 

We urge the Board to postpone the 2018 Annual Meeting and work closely and in good faith with us to address the issues we have raised, including Board refreshment, management compensation and corporate governance enhancements. We would expect our dialogue to include discussion around separation of Chairman and CEO roles, updating of the Company’s Bylaws to reflect current governance best practices, and a CEO succession plan (which should be in place regardless of, and especially given, Mr. White’s age). While our attempts to engage with the Board to date have fallen on deaf ears, these changes are necessary if EDUC is to be considered a credible public company, a trustworthy investment, and for its value to be optimized in the public market.

 

Finally – and to be clear – Red Oak is NOT seeking control of EDUC. Through announcing our intentions to vote against directors and the long term incentive stock plan at the 2018 Annual Meeting, we are seeking to demonstrate our strong dissatisfaction with the troubling status quo and our strong desire to ensure that the best interests of all shareholders are paramount in the boardroom. Should the Board fail to meaningfully engage with us to address our significant concerns, we will likely have little choice but to contest the Board with our own director slate at the 2019 Annual Meeting when Messrs. White and Clerico will be up for re-election. We hope that the Board will respond quickly and agreeably, and we stand ready to meet with you.

 

Sincerely,

 

 

David Sandberg

Managing Member

Red Oak Partners, LLC