-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HW/Ehr4jM22GkRl0dxUv4LErIwNd5cknwJoPzqcZsirPb7pFI5DXtWymEZZQGdgu q5XRAEFcNMKc4W0Mo+AOWw== 0000928385-96-000489.txt : 19960510 0000928385-96-000489.hdr.sgml : 19960510 ACCESSION NUMBER: 0000928385-96-000489 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19960509 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYLVAN LEARNING SYSTEMS INC CENTRAL INDEX KEY: 0000912766 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 521492296 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 333-01674 FILM NUMBER: 96558566 BUSINESS ADDRESS: STREET 1: 9135 GUILFORD RD CITY: COLUMBIA STATE: MD ZIP: 21046 BUSINESS PHONE: 4108800889 MAIL ADDRESS: STREET 2: 9135 GUILFORD ROAD CITY: COLUMBIA STATE: MD ZIP: 21046 POS AM 1 FORM S-1 ON FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 9, 1996. REGISTRATION NO. 333-1674 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 POST-EFFECTIVE AMENDMENT NO. 1 ON FORM S-3 TO FORM S-1 ON FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 SYLVAN LEARNING SYSTEMS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MARYLAND 52-1492296 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 9135 GUILFORD ROAD COLUMBIA, MARYLAND 21046 (410) 880-0889 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE) DOUGLAS L. BECKER, PRESIDENT SYLVAN LEARNING SYSTEMS, INC. 9135 GUILFORD ROAD COLUMBIA, MARYLAND 21046 (410) 880-0889 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: RICHARD C. TILGHMAN, JR. PIPER & MARBURY L.L.P. 36 SOUTH CHARLES STREET BALTIMORE, MARYLAND 21201 (410) 576-1678 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered in connection with dividend or interest reinvestment plans, check the following box: [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_]_________________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: [_] - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- LOGO 320,072 Shares SYLVAN LEARNING SYSTEMS, INC. Common Stock ------------ Of the 320,072 shares of Common Stock offered hereby, 270,072 shares are being sold by a certain stockholder of Sylvan Learning Systems, Inc. ("Sylvan" or the "Company"), and 50,000 shares are being sold upon exercise of options (the "Options") held by certain selling option holders (the "Selling Optionholders") and together with the Selling Warrantholders, the "Selling Securityholders"). The Company will not receive any proceeds from the sale of the Common Stock by the Selling Security-holders, except the aggregate exercise price for the Options. See "Principal and Selling Securityholders." The Common Stock is quoted on The Nasdaq Stock Market (National Market) under the symbol "SLVN." On May 7, 1996 the last sale price for the Common Stock as reported on The Nasdaq Stock Market (National Market) was $39 5/8 per share. See "Price Range of Common Stock and Dividend Policy." One or more of the Selling Securityholders may from time to time sell shares of the Common Stock offered hereby in transactions on the Nasdaq Stock Market (National Market), in privately-negotiated transactions or otherwise, in each case at prices satisfactory to each such Selling Stockholder. See "Plan of Distribution." The brokers or dealers through or to whom the shares of Common Stock covered hereby may be sold may be deemed "underwriters" within the meaning of the Securities Act of 1933, in which event all brokerage commissions or discounts and other compensation received by such brokers or dealers may be deemed underwriting compensation. ------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------ THE DATE OF THIS PROSPECTUS IS MAY 9, 1996. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission"), a Registration Statement on Form S-1 under the Securities Act of 1933, as amended (the "Securities Act") with respect to the Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. In addition, the Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith files reports, proxy statements and other information with the Commission. The exhibits and schedules to the Registration Statement which are not a part of this Prospectus and reports, proxy statements and other information filed by the Company with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission at 7 World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, 14th Floor, Chicago, Illinois 60661. Copies of such material can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at rates prescribed by the Commission. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Commission (File No. 0-22844) pursuant to the 1934 Act are incorporated herein by reference: 1. The Company's Current Report on Form 8-K filed on February 28, 1995 (relating to the Company's acquisition of Remedial Education and Diagnostic Services, Inc.), as amended by its Current Reports on Form 8-K/A filed on March 17, 1995 and November 22, 1995. 2. The Company's Current Report on Form 8-K filed on May 5, 1995 (relating to the Company's acquisition of The PACE Group), as amended by its Current Report on Form 8-K/A filed on November 22, 1995. 3. The Company's Annual Report on Form 10-K for the year ended December 31, 1995; 4. The description of Common Stock contained in Item 4 of the Company's Registration Statement on Form 8-A, filed with the Commission under the 1934 Act; and 5. All other documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act subsequent to the date of filing of the Registration Statement of which this Prospectus is a part and prior to the termination of the offering made hereby. The Company will provide without charge to each person to whom a copy of this Prospectus is delivered, upon the request of any such person, a copy of any or all of the documents which have been incorporated herein by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests for such documents should be directed to Sylvan Learning Systems, Inc., 9135 Guilford Road, Columbia, Maryland 21046, Attention: Chief Financial Officer, telephone: (410) 880-0889. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. 2 THE COMPANY Sylvan Learning Systems, Inc. is a leading international private provider of educational and computer-based testing services. The Company delivers a broad array of supplemental and remedial educational services and computer-based testing through three principal divisions. Through its Core Educational Services division, the Company designs and delivers individualized tutorial services to school-age children through its network of 565 franchised and Company-owned Sylvan Learning Centers in 50 states, five Canadian provinces, and Hong Kong. The Company's Testing Services division administers computer- based tests for major corporations, professional associations and government agencies through its network of centers ("Technology Centers"), which are located throughout the world. In addition, the Company's Contract Educational Services division offers educational services to public and non-public school districts receiving funding under federal and state programs and provides contract educational and training services on-site to employees of large corporations. In 1995, total systemwide revenues were approximately $194.1 million, composed of $132.1 million from core educational services ($115.3 million from franchised Learning Centers and $16.8 million from Company-owned Learning Centers, product sales and franchise sales fees), $34.6 million from testing services and $27.4 million from contract educational services. Sylvan has developed a proprietary program that enables professionals throughout the Sylvan Learning Center Network to deliver consistent, high quality, individualized tutoring. During the 15 years of Sylvan Learning Center operations, more than 600,000 students have completed the Sylvan tutorial program. From the end of 1991, during which year the current management of the Company assumed control, through 1995, average monthly royalties from franchised Learning Centers grew approximately 65%, primarily because of a wider array of services offered and increased student enrollment. Sylvan began providing computer-based testing services in 1992. The Company's testing services revenues grew from $3.6 million in 1993 to $34.6 million in 1995. Sylvan has established a worldwide network of computer-based testing centers and has the current capacity to deliver more than 1.6 million computer-based tests annually through 1,041 Technology Centers. The Company serves as the exclusive commercial provider of computer-based standardized tests currently administered by Educational Testing Service ("ETS"), the leading educational testing organization in the United States. ETS develops and administers more than 9.5 million tests annually. The Company currently offers the Graduate Record Exam ("GRE"), the registered and practical nurses licensing exam ("NCLEX") and the National Teachers Exam (the "PRAXIS" series). Sylvan expects to begin offering the computer-based version of the Graduate Management Admissions Test ("GMAT"), the graduate business school entrance examination, in October 1997. In addition, the Company entered into a ten-year contract with ETS to develop test sites and provide computer-based testing internationally, and initial testing under this contract began in early 1995. ETS has stated its intention to make computer-based testing available through Sylvan in 170 countries by 1997. The Company also offers computer-based tests for organizations licensing or certifying pilots, airplane mechanics, life insurance agents and pathology laboratory technicians and recently began offering computer-based tests for Novell certification. Sylvan offers its educational services under contract to public and non- public school districts receiving funds under federal and state educational programs. The Company's revenues from contract educational services grew from $13.6 million to $27.4, or 102%, from 1994 to 1995. The Title I program, administered by the U.S. Department of Education, allocated approximately $6.6 billion during the 1995-96 school year to local school districts through state governments to provide supplemental and remedial educational services to academically and economically disadvantaged students attending public and non- public schools. As of December 31, 1995, the Company had contracts to provide remedial educational services to an aggregate of 52 public schools located in Baltimore and other Maryland school districts, the 3 District of Columbia, Ohio, Pennsylvania, Texas, Florida, Minnesota, Delaware, New Jersey and, pursuant to a contract executed in July 1995, Chicago, Illinois. In addition, Sylvan offers its contract educational services to adults in the corporate workplace through its PACE subsidiary and its Sylvan- At-Work program. The Company's executive offices are located at 9135 Guilford Road, Columbia, Maryland 21046, and its telephone number is (410) 880-0889. USE OF PROCEEDS The Company will not receive any proceeds from the sale of the 220,072 shares of the Common Stock offered by the Selling Securityholders hereby. The Company will receive aggregate proceeds of approximately $987,000 from the exercise of the Options in connection with this offering. The Company plans to use the proceeds from the exercise of the Options for working capital and other general corporate purposes to support the planned growth in its business. Pending application of these proceeds, the Company intends to invest the proceeds in short-term, interest-bearing securities. SELLING SECURITYHOLDERS The following table sets forth information regarding the beneficial ownership of the Company's Common Stock as of January 31, 1996 by (i) the Selling Securityholders, (ii) each person who owns beneficially more than 5% of the Company's Common Stock, (iii) each of the directors of the Company, (iv) the Chief Executive Officer and each of the named executive officers and (v) all directors and executive officers as a group. Unless otherwise indicated, the named persons exercise sole voting and investment power over the shares that are shown as beneficially owned by them.
SHARES SHARES TO BE BENEFICIALLY SHARES SOLD IN THIS OWNED AFTER BENEFICIALLY OWNED OFFERING(1) THIS OFFERING --------------------- ------------ -------------- NAME NUMBER PERCENT NUMBER NUMBER PERCENT ---- ----------- --------- ------------ ------ ------- Vincent J. Lasprogata (2).... 15,955 * 15,955 -- -- Patrick Gentile (2).......... 11,170 * 11,170 -- -- Robert Czukoski (2).......... 3,190 * 3,190 -- -- John Bakken (2).............. 5,320 * 5,320 -- -- John C. Butera (2)........... 6,385 * 6,385 -- -- Paul Donnelly (2)............ 2,660 * 2,660 -- -- Michael Scatena (2).......... 5,320 * 5,320 -- -- George P. Stricker (3)....... 275,072 1.8 270,072 5,000 *
- -------- * Represents beneficial ownership of not more than one percent of the outstanding Sylvan Common Stock. (1) The shares of Common Stock issuable upon exercise of the Options are included in the shares offered by this Prospectus. (2) Consists of the number of shares issuable to this holder upon exercise of his Option, although options to purchase half of this number of shares are not exercisable until January 4, 1997. (3) Includes options to purchase 5,000 shares of Common Stock. Mr. Stricker acquired 350,072 shares of Common Stock pursuant to an Agreement and Plan of Reorganization dated February 17, 1995 by and between the Company and Remedial Education and Diagnostic Services, Inc., pursuant to which Sylvan acquired READS through a merger. Mr. Stricker sold 80,000 of those shares in the Company's December 1995 public offering. 4 Pursuant to an Agreement to Exchange Stock by and between the Company and Remediation and Education Support Systems, Inc. of Pennsylvania ("RESS") dated as of September 30, 1994, Sylvan acquired RESS's interests in certain contracts and prospective contracts, including certain contracts to provide remedial educational service to certain non-public schools under the Federal Title I Program. In connection with the acquisition of these assets, Sylvan granted Options to purchase 50,000 shares of Common Stock to the Trust for RESS Shareholders (the "Trust") with an exercise price of $19.74 per share. Options to purchase 25,000 shares became exercisable on January 4, 1996, and Options to acquire the remaining 25,000 shares will become exercisable beginning January 4, 1997. Effective July 27, 1995, the Trust assigned the Options to each of Messrs. Lasprogata, Gentile, Czukoski, Bakken, Butera, Donnelly and Scaterna in the amounts listed in the above table. The Options will expire on January 4, 2000. PLAN OF DISTRIBUTION The Company's Common Stock is quoted on the Nasdaq Stock Market (National Market) under the symbol "SLVN." One or more of the Selling Securityholders may from time to time sell shares of Common Stock offered hereby in transactions on the Nasdaq Stock Market (National Market), in privately- negotiated transactions or otherwise, in each case at prices satisfactory to such Selling Securityholder. The brokers or dealers through or to whom the shares of Common Stock offered hereby may be sold may be deemed "underwriters" within the meaning of the Securities Act of 1933, in which event, all brokerage commissions or discounts and other compensation received by such brokers or dealers may be deemed underwriting compensation. The Common Stock offered hereby will be sold by the Selling Securityholders acting as principals for their own account, and the Company will receive no proceeds from this offering. The Selling Securityholders will pay all applicable stock transfer taxes, transfer fees and brokerage commissions or discounts. The Company has agreed to bear the cost of preparing the Registration Statement of which this Prospectus is a part and all filing fees and legal and accounting expenses in connection with registration of the shares offered hereby under federal and state securities laws. LEGAL MATTERS Certain legal matters with respect to the shares of Common Stock offered hereby will be passed upon for the Company by Piper & Marbury L.L.P., Baltimore, Maryland. EXPERTS The consolidated financial statements of Sylvan Learning Systems, Inc., and subsidiaries; the consolidated financial statements of Drake Prometric, L.P.; the combined financial statements of The PACE Group; and the combined financial statements of Remedial Education and Diagnostic Services, Inc. and READS, Inc. appearing or incorporated by reference in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, to the extent indicated in their reports thereon also appearing elsewhere herein and in the Registration Statement or incorporated by reference. Such consolidated financial statements have been included herein or incorporated herein by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. 5 INDEX TO DRAKE PROMETRIC, L.P. FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors.......................................... F-1 Consolidated Balance Sheets as of September 30, 1994 and 1995........... F-2 Consolidated Statements of Income for the years ended September 30, 1993, 1994 and 1995.................................................... F-3 Consolidated Statements of Cash Flows for the years ended September 30, 1993, 1994 and 1995.................................................... F-4 Consolidated Statements of Partners' Equity for the years ended September 30, 1993, 1994 and 1995...................................... F-5 Notes to Consolidated Financial Statements.............................. F-6
6 REPORT OF INDEPENDENT AUDITORS Board of Directors and Partners Drake Prometric, L.P. We have audited the accompanying consolidated balance sheets of Drake Prometric, L.P. as of September 30, 1994 and 1995, and the related consolidated statements of income, cash flows and partners' equity for each of the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Drake Prometric, L.P. at September 30, 1994 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. Ernst & Young LLP Minneapolis, Minnesota November 14, 1995 F-1 DRAKE PROMETRIC, L.P. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 ------------------------ 1994 1995 ----------- ----------- ASSETS Current assets: Cash and cash equivalents......................... $ 8,540,000 $ 3,514,000 Accounts receivable, less allowance of $121,000 and $79,000, respectively........................ 2,463,000 4,605,000 Accounts receivable from affiliate of partner..... 51,000 333,000 Inventories....................................... 14,000 81,000 Other current assets.............................. 239,000 396,000 ----------- ----------- Total current assets................................ 11,307,000 8,929,000 Furniture and equipment............................. 3,678,000 8,143,000 Less accumulated depreciation....................... (1,200,000) (2,240,000) ----------- ----------- 2,478,000 5,903,000 Intangible assets, less accumulated amortization of $390,000 and $432,000, respectively................ 244,000 299,000 ----------- ----------- Total assets.................................... $14,029,000 $15,131,000 =========== =========== LIABILITIES AND PARTNERS' EQUITY Current liabilities: Accounts payable.................................. $ 3,645,000 $ 6,590,000 Accrued payroll and related liabilities........... 1,325,000 1,378,000 Accrued expenses.................................. 888,000 3,412,000 Payable to partners............................... 238,000 -- Payable to affiliate of partner................... 28,000 -- Deferred revenue.................................. 6,761,000 6,009,000 ----------- ----------- Total current liabilities....................... 12,885,000 17,389,000 Partners' equity.................................... 1,144,000 58,000 Less accounts receivable from partners.............. -- (2,316,000) ----------- ----------- 1,144,000 (2,258,000) ----------- ----------- Total liabilities and partners' equity.......... $14,029,000 $15,131,000 =========== ===========
See accompanying notes. F-2 DRAKE PROMETRIC, L.P. CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED SEPTEMBER 30 ------------------------------------- 1993 1994 1995 ----------- ----------- ----------- Net revenue: Testing services..................... $18,442,000 $32,537,000 $43,404,000 Training products and services....... 705,000 346,000 47,000 ----------- ----------- ----------- Total revenues..................... 19,147,000 32,883,000 43,451,000 Expenses: Testing services expense............. 12,436,000 21,917,000 26,489,000 Training products and services expense............................. 253,000 78,000 6,000 Selling, general and administrative expense............................. 3,827,000 6,039,000 6,804,000 ----------- ----------- ----------- Total expenses..................... 16,516,000 28,034,000 33,299,000 ----------- ----------- ----------- Operating income....................... 2,631,000 4,849,000 10,152,000 Interest income........................ 66,000 229,000 446,000 Interest expense....................... (150,000) (127,000) (3,000) Expenses incurred in connection with the sale of the Company............... -- -- (3,016,000) Other income (expense)................. 185,000 (41,000) (377,000) ----------- ----------- ----------- 101,000 61,000 (2,950,000) ----------- ----------- ----------- Net income............................. $ 2,732,000 $ 4,910,000 $ 7,202,000 =========== =========== ===========
See accompanying notes. F-3 DRAKE PROMETRIC, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30 ------------------------------------- 1993 1994 1995 ---------- ----------- ------------ OPERATING ACTIVITIES Net income............................. $2,732,000 $ 4,910,000 $ 7,202,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........ 555,000 755,000 1,178,000 Deferred compensation................ (83,000) (979,000) -- Changes in operating assets and liabilities: Accounts receivable................ (362,000) (1,036,000) (2,142,000) Accounts receivable from affiliate of partner........................ (41,000) 13,000 (282,000) Inventories and other current assets............................ (142,000) (47,000) (224,000) Accounts payable................... 52,000 1,812,000 2,945,000 Accrued payroll and related liabilities....................... (165,000) 967,000 53,000 Accrued expenses................... 205,000 504,000 2,524,000 Payable to partners................ 153,000 27,000 (238,000) Payable to affiliate of partner.... (68,000) (81,000) (28,000) Deferred revenue................... 1,969,000 4,271,000 (752,000) ---------- ----------- ------------ Net cash provided by operating activities............................ 4,805,000 11,116,000 10,236,000 INVESTING ACTIVITIES Increase in intangibles................ -- -- (97,000) Purchases of furniture and equipment... (473,000) (2,504,000) (4,561,000) ---------- ----------- ------------ Net cash used in investing activities.. (473,000) (2,504,000) (4,658,000) FINANCING ACTIVITIES Payments on notes payable.............. (547,000) (750,000) -- Distributions to partners.............. -- (4,957,000) (10,470,000) Capital contributed by partner......... 602,000 -- -- ---------- ----------- ------------ Net cash provided by (used in) financing activities.................. 55,000 (5,707,000) (10,470,000) ---------- ----------- ------------ Increase (decrease) in cash............ 4,387,000 2,905,000 (4,892,000) Effect of exchange rates on cash....... (81,000) 101,000 (134,000) Cash and cash equivalents at beginning of year............................... 1,228,000 5,534,000 8,540,000 ---------- ----------- ------------ Cash and cash equivalents at end of year.................................. $5,534,000 $ 8,540,000 $ 3,514,000 ========== =========== ============
See accompanying notes. F-4 DRAKE PROMETRIC, L.P. CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
PARTNERS' EQUITY (DEFICIT) ------------ Balance September 30, 1992................................. $ (2,163,000) Capital contribution by partner.......................... 602,000 Translation adjustments.................................. (81,000) Net income............................................... 2,732,000 ------------ Balance September 30, 1993................................. 1,090,000 Distributions to partners................................ (4,957,000) Translation adjustments.................................. 101,000 Net income............................................... 4,910,000 ------------ Balance September 30, 1994................................. 1,144,000 Capital contribution by partners......................... 2,316,000 Distributions to partners................................ (10,470,000) Translation adjustments.................................. (134,000) Net income............................................... 7,202,000 ------------ Balance September 30, 1995................................. $ 58,000 ============
See accompanying notes. F-5 DRAKE PROMETRIC, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 1. DESCRIPTION OF BUSINESS Drake Prometric, L.P. (the Company) assists in the development of professional certification tests and administers them at certification centers throughout the world. The Company was formed on March 9, 1990. Office Overload, Inc. (OOI), NJK Associates Corporation (NJK), and United School Services of America, Inc. (USSA) are the limited partners and ITS General, Inc. (IGI) is the general partner. ITS General, Inc. is owned 70% and 30% by OOI and NJK, respectively. NJK and USSA are owned by the same individual. Prior to January 1993, the Company operated a training division involved in the development and sale of software based training and services. The Company sold the division in January 1993 for $300,000. 2. ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements as presented reflect the closing balance sheet of the Company prior to the consolidation of the Company with Sylvan Learning Systems, Inc. as a result of the transaction described in Note 8. Principles of Consolidation The consolidated financial statements include the results of Drake Prometric, L.P. and its wholly owned foreign subsidiaries, Computer Certification Services, Ltd. (U.K.); Computer Certification Services, GmbH (Germany); Drake Training & Technologies, KK (Japan); and Computer Certification Services, Ltd. (Australia); from their dates of formation in July 1992, August 1992, October 1993 and October 1993, respectively. Foreign Currency Translation Foreign assets and liabilities are translated using the rates of exchange at the end of the year. Results of operations are translated using the average rates prevailing throughout the year. Translation gains or losses which are accumulated as a separate component of partners' equity were approximately $114,000 at September 30, 1995. Cash Equivalents The Company considers all liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. Furniture and Equipment Furniture and equipment consists of furniture and fixtures, leasehold improvements and computer equipment which are recorded at cost. These assets are depreciated using the straight-line method over estimated useful lives ranging from three to seven years, or, for leasehold improvements, the lesser of the remaining lease term or seven years. Intangible Assets Intangible assets are being amortized over two to five years. F-6 DRAKE PROMETRIC, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Income Taxes The Company is a partnership and its net income is included in the income tax returns of the partners. For the year ended September 30, 1995, the Company's foreign subsidiaries have recorded income tax expense of $345,000, which is included in other expenses in the statement of income of the Company. For periods prior to September 30, 1995, the foreign subsidiaries' income tax expense was not material. Research and Development The Company expenses research and development costs as incurred. For the years ended September 30, 1993, 1994 and 1995 research and development expense was $631,000, $523,000 and $179,000, respectively. Revenue Recognition The Company assists customers in the development of the various certification tests administered for the customers' professional certification requirements. Revenue for test development work is recognized as the work is performed. The Company generally receives candidate fees at the time of test registration. Revenue from such testing is recognized when the test is taken. Direct expenses related to certification testing include payments to Drake Authorized Testing Centers (DATCs). DATCs are independent contractors who through their facilities provide testing services to certification candidates utilizing Drake software. DATCs are compensated for their services on a fee- per-test basis, and the Company recognizes the expense upon the recognition of the related certification revenue. Reclassifications Certain amounts in prior years' financial statements are reclassified to conform to the September 30, 1995 presentation. 3. NOTES PAYABLE The Company had notes payable to OOI provided for under the terms of the initial partnership agreement with a balance of $750,000 at September 30, 1993. The notes provided for interest at 2% above the prime rate. The Company paid the outstanding balance and accrued interest in fiscal 1994. Interest paid on notes payable was $356,000 and $255,000 for the years ended September 30, 1993 and 1994, respectively. 4. RELATED PARTY TRANSACTIONS The Company has entered into several agreements and transactions with the partners and their affiliates, including the Drake International Group of Companies (DIG) which have certain common ownership interest with OOI. The following table summarizes these transactions. F-7 DRAKE PROMETRIC, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) BALANCE SHEET INFORMATION
SEPTEMBER 30 ----------------- 1994 1995 -------- -------- NJK Accounts receivable........................................... $ -- $ 67,000 ======== ======== OOI Accounts payable.............................................. $238,000 $ -- ======== ======== DIG Accounts receivable........................................... $ 51,000 $266,000 ======== ======== Accounts payable.............................................. $ 28,000 $ -- ======== ========
STATEMENT OF INCOME INFORMATION
YEAR ENDED SEPTEMBER 30 -------------------------- 1993 1994 1995 -------- -------- -------- DIG Expenses paid to DIG related to shared facilities and accounting services in the UK and Australia.. $174,000 $275,000 $ 75,000 Expenses related to authorized testing centers owned by DIG..................................... 94,000 160,000 297,000 -------- -------- -------- Total expenses paid to DIG........................ $268,000 $435,000 $372,000 ======== ======== ======== Royalties received from DIG for administering tests in regions of the world not yet served by the Company...................................... $274,000 $ 34,000 $ -- ======== ======== ======== NJK Consulting expense to an affiliate of NJK......... $ 80,000 $ 60,000 $ -- ======== ======== ========
5. OPERATING LEASES The Company leases all of its office space under operating leases. Certain leases contain rent escalation clauses and renewal options and require payment of maintenance and taxes on the leased properties. Rent expense is amortized on a straight-line basis over the lease term. Rent expense for the years ended September 30, 1993, 1994 and 1995 was $289,000, $549,000 and $913,000, respectively. The minimum future lease payments under operating leases are as follows: Year ending September 30 1996......................................................... $ 620,000 1997......................................................... 274,000 1998......................................................... 72,000 1999......................................................... 58,000 2000......................................................... 29,000 ---------- $1,053,000 ==========
F-8 DRAKE PROMETRIC, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. GEOGRAPHIC INFORMATION The Company operates in one industry selling computer-based testing and training products and services. The Company reports information related to geographic locations based on the location of the regional service centers, as follows:
NORTH AMERICA/ ASIA/ SOUTH PACIFIC AMERICA EUROPE RIM TOTAL ----------- ---------- ---------- ----------- REVENUE Year ended September 30, 1993........................... $15,078,000 $3,801,000 $ 268,000 $19,147,000 1994........................... 25,182,000 5,661,000 2,040,000 32,883,000 1995........................... 28,607,000 9,668,000 5,176,000 43,451,000 OPERATING INCOME (LOSS) Year ended September 30, 1993........................... $ 2,081,000 $ 611,000 $ (61,000) $ 2,631,000 1994........................... 4,017,000 578,000 254,000 4,849,000 1995........................... 5,485,000 2,886,000 1,781,000 10,152,000 IDENTIFIABLE ASSETS AT: September 30, 1994............. $ 9,219,000 $3,061,000 $1,749,000 $14,029,000 September 30, 1995............. 10,275,000 2,817,000 2,039,000 15,131,000
The amounts reported in the North America/South America column consist primarily of revenue and operating income generated in the United States, and assets located in the United States. 7. MAJOR TEST SPONSORS The Company has contracts with two major test sponsors to deliver worldwide testing services to independent test candidates. Revenues generated from the test candidates related to the two major test sponsors (in years when revenue from such candidates exceeded 10% of revenues) are shown below:
YEAR ENDED SEPTEMBER 30 ----------------------------------- 1993 1994 1995 ----------- ----------- ----------- Test sponsor A.............................. $15,258,000 $24,765,000 $27,272,000 Test sponsor B.............................. -- -- 6,498,000
8. ACQUISITION OF THE COMPANY In July 1995, the Company entered into a definitive merger agreement (the Agreement) with Sylvan Learning Systems, Inc. (Sylvan). Pursuant to the terms of the Agreement, Drake transferred effective control to Sylvan on September 30, 1995, and Sylvan has agreed to purchase the Company by remitting to the partners of the Company $20 million in cash or promissory notes and 3,809,524 shares of Sylvan common stock (which at the date the transaction was announced had a value of approximately $72 million). The Agreement further provides for a contingent payment of up to $40 million if established revenue targets are met in 1998 or 1999. The purchase price is subject to various adjustments based on, among other conditions, the Company's working capital, collection of accounts receivables, levels of defined revenues and absence of unrecorded liabilities. The partners of the Company will place an agreed number of shares of Sylvan's common stock into escrow to provide for any such adjustments to the purchase price. F-9 DRAKE PROMETRIC, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company has separately disclosed in its consolidated statement of income $3,016,000 of expenses directly related to the acquisition, including $1,963,000 of expenses estimated to be payable at closing. The estimated amounts were determined by reference to written agreements with certain parties, invoices from professional service providers, and estimates of fees for services provided by professionals subsequent to their latest billing date. The accrued amounts include an amount payable to OOI of $500,000 pursuant to terms of the Company's partnership arrangement. No amounts have been accrued related to an agreement with an investment banker that requires a contingent payment equal to 2% of the contingent purchase price described above, which may equal $800,000 if the full amount of the contingent consideration of $40 million is paid. The partners of the Company are obligated under the Agreement to pay for 56% of the Company's transaction costs up to $1,590,000 and 100% of all costs thereafter. The consolidated balance sheet at September 30, 1995 reflects a receivable from the partners of $2,316,000 (shown as a reduction of partners' equity) for amounts due from partners for reimbursement of such costs. This reimbursement has been reflected as a contribution to partners' equity. F-10 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO- SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEI- THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ------------ TABLE OF CONTENTS
PAGE ---- Available Information...................................................... 2 Incorporation by Reference................................................. 2 The Company................................................................ 3 Use of Proceeds............................................................ 4 Selling Securityholders.................................................... 4 Plan of Distribution....................................................... 5 Legal Matters.............................................................. 5 Experts.................................................................... 5 Index to Financial Statements.............................................. 6
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 320,072 Shares LOGO SYLVAN LEARNING SYSTEMS, INC. Common Stock ------------- PROSPECTUS ------------- May 9, 1996 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the expenses in connection with this Registration Statement. The Company will pay all expenses of the offering. All of such expenses are estimates, other than the filing fees payable to the Securities and Exchange Commission and Nasdaq. Securities and Exchange Commission Filing Fee..................... $ 3,394 Nasdaq Listing Fee................................................ 6,400 Printing Fees and Expenses........................................ 20,000 Legal Fees and Expenses........................................... 10,000 Accounting Fees and Expenses...................................... 10,000 Miscellaneous..................................................... 1,206 ------- Total......................................................... $51,000 =======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Charter provides that, to the fullest extent that limitations on the liability of directors and officers are permitted by the Maryland General Corporation Law, no director or officer of the Company shall have any liability to the Company or its stockholders for monetary damages. The Maryland General Corporation Law provides that a corporation's charter may include a provision which restricts or limits the liability of its directors or officers to the corporation or its stockholders for money damages except: (1) to the extent that it is provided that the person actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received, or (2) to the extent that a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding in the proceeding that the person's action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. The Company's Charter and By-laws provide that the Company shall indemnify and advance expenses to its currently acting and its former directors to the fullest extent permitted by the Maryland General Corporation Law and that the Company shall indemnify and advance expenses to its officers to the same extent as its directors and to such further extent as is consistent with law. The Charter and By-laws provides that the Company will indemnify its directors and officers and may indemnify employees or agents of the Company to the fullest extent permitted by law against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Company. In addition, the Company's Charter provides that its directors and officers will not be liable to stockholders for money damages, except in limited instances. However, nothing in the Charter or By-laws of the Company protects or indemnifies a director, officer, employee or agent against any liability to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. To the extent that a director has been successful in defense of any proceeding, the Maryland General Corporation Law provides that he shall be indemnified against reasonable expenses incurred in connection therewith. II-1 ITEM 16. EXHIBITS (a) Exhibits:
EXHIBIT NO. DESCRIPTION ----------- ----------- 3.01 Articles of Amendment and Restatement of the Charter** 3.02 Amended and Restated Bylaws** 4.01 Specimen Common Stock Certificate** 4.02 Registration Rights Agreement dated as of January 26, 1993 by and among Sylvan KEE Systems, Inc., the Holders of Junior Preferred Stock and the Investors Listed on Exhibit A Hereto** 4.03 Form of Option to Purchase Common Stock dated July 27, 1995+ 5.01 Opinion of Piper & Marbury L.L.P.+ 10.01 Agreement and Plan of Reorganization dated February 17, 1995 by and between Registrant and Remedial Education and Diagnostic Services, Inc.*** 23.01 Consent of Ernst & Young LLP 23.02 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.1)+ 24.01 Power of Attorney+
- -------- + Previously filed on February 26, 1996 with the Registration Statement on Form S-1 (No. 333-1674) ** Incorporated by reference from the Exhibits to the Company's Registration Statement on Form S-1 (Registration No. 33-69558) *** Incorporated by reference to the Company's Current Report on Form 8-K dated February 27, 1995. ITEM 17. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in this Registration Statement or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling persons of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A II-2 and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (d) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a port-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that are incorporated by reference in the registration statement. (2) That for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-3 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-1 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN COLUMBIA, MARYLAND ON THIS 8TH DAY OF MAY, 1996. Sylvan Learning Systems, Inc. By /s/ Douglas L. Becker --------------------------------- DOUGLAS L. BECKER President and Co-Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ R. Christopher Hoehn-Saric Co-Chief Executive May 8, 1996 - ------------------------------------ Officer, Chairman R. CHRISTOPHER HOEHN-SARIC of the Board of Directors and Director (Co- Principal Executive Officer) /s/ B. Lee McGee Chief Financial May 8, 1996 - ------------------------------------ Officer (Principal B. LEE MCGEE Financial and Accounting Officer) /s/ Douglas L. Becker Co-Chief Executive May 8, 1996 - ------------------------------------ Officer, DOUGLAS L. BECKER President, Secretary and Director (Co- Principal Executive Officer) Director - ------------------------------------ DONALD V. BERLANTI /s/ Patrick A. Hopf* Director May 8, 1996 - ------------------------------------ PATRICK A. HOPF Director - ------------------------------------ G. COOK JORDAN, JR. /s/ J. Phillip Samper Director May 8, 1996 - ------------------------------------ J. PHILLIP SAMPER /s/ James H. McGuire* Director May 8, 1996 - ------------------------------------ JAMES H. MCGUIRE Director - ------------------------------------ R. WILLIAM POLLOCK *By: Douglas L. Becker ------------------------------- Douglas L. Becker Attorney-in-Fact
II-4 EX-23 2 CONSENT OF ERNST & YOUNG EXHIBIT 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Post-Effective Amendment No. 1 to Form S-1 or Form S-3, No. 333-1674) and related Prospectus of Sylvan Learning Systems, Inc. for the registration of 320,072 shares of its common stock and to the incorporation by reference therein of our reports (a) dated February 16, 1996, with respect to the consolidated financial statements and schedule of Sylvan Learning Systems, Inc. included in its Annual Report on Form 10-K for the year ended December 31, 1995; (b) dated March 17, 1995, with respect to the combined financial statements of The PACE Group included in the Current Report on Form 8-K of Sylvan Learning Systems, Inc. dated May 5, 1995 and (c) dated February 4, 1995, with respect to the combined financial statements of Remedial Education and Diagnostic Services, Inc. and READS, Inc. included in the Current Report on Form 8-K of Sylvan Learning Systems, Inc. dated February 17, 1995, all as filed with the Securities and Exchange Commission, and to the use of our report included in this Registration Statement and related Prospectus of our report dated November 14, 1995, with respect to the consolidated financial statements of Drake Prometric, L.P. /s/ ERNST & YOUNG LLP Baltimore, Maryland May 6, 1996 -----END PRIVACY-ENHANCED MESSAGE-----