<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 26, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
LEARNING TREE INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8299 95-3133814
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
6053 WEST CENTURY BOULEVARD
LOS ANGELES, CA 90045-0028
(310) 417-9700
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID C. COLLINS
CHIEF EXECUTIVE OFFICER
LEARNING TREE INTERNATIONAL, INC.
6053 WEST CENTURY BOULEVARD
LOS ANGELES, CA 90045-0028
(310) 417-9700
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
THEODORE E. GUTH, ESQ. THOMAS A. BEVILACQUA, ESQ.
IRELL & MANELLA LLP BROBECK, PHLEGER & HARRISON LLP
1800 AVENUE OF THE STARS, SUITE 900 TWO EMBARCADERO PLACE, 2200 GENG ROAD
LOS ANGELES, CALIFORNIA 90067 PALO ALTO, CALIFORNIA 94303
TEL: (310) 277-1010 TEL: (415) 424-0160
FAX: (310) 203-7199 FAX: (415) 496-2885
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box: [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of 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: [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.0001 par value.. 2,300,000 shares $28.25 $64,975,000 $22,405
- ------------------------------------------------------------------------------------------------------
</TABLE>
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(1) Includes up to 300,000 shares which the Underwriters have the option to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(c).
---------------
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 26, 1996
[LOGO OF LEARNING TREE(R) INTERNATIONAL]
2,000,000 SHARES
COMMON STOCK
Of the 2,000,000 shares of Common Stock offered hereby, 400,000 shares are
being sold by Learning Tree International, Inc. ("Learning Tree" or the
"Company") and 1,600,000 shares are being sold by certain stockholders of the
Company (the "Selling Stockholders"). See "Principal and Selling Stockholders."
The Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders. On August 23, 1996, the last sale price of the Common
Stock, as reported on the Nasdaq National Market, was $28.25 per share. See
"Price Range of Common Stock." The Common Stock is traded on the Nasdaq
National Market under the symbol "LTRE."
----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.SEE "RISK
FACTORS" ON PAGE 7.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
- --------------------------------------------------------------------------------
Total(2)................ $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Does not include amounts payable to M. Kane & Company, Inc. for financial
advisory services provided to the Company. See "Certain Transactions."
(2) Before deducting expenses payable by the Company and the Selling
Stockholders estimated at $301,419 and $1,364,581, respectively.
(3) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to an additional 300,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
and Proceeds to Selling Stockholders will be $ , $ , and $ ,
respectively.
----------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens
& Company"), San Francisco, California, on or about , 1996.
ROBERTSON, STEPHENS & COMPANY
PIPER JAFFRAY INC.
SMITH BARNEY INC.
M. KANE & COMPANY, INC.
The date of this Prospectus is , 1996.
<PAGE>
Inside Front Cover:
================================================================================
INFORMATION TECHNOLOGY EDUCATION AND TRAINING
Learning Tree International...providing training and education to IT
professionals employed by business and government organizations worldwide.
Courses at Learning Tree Sites Courses at Customer Sites
[Photograph of Education Center [Photograph of instructor working
located in Los Angeles, California.] with two students at Education
Center]
Courses are presented at Learning Learning Tree courses can be custom
Tree Education Centers, as well as tailored to individual customer needs
at hotels and conference facilities, and presented at customer sites
worldwide. anywhere in the world.
[Photograph of instructor teaching [Photograph of workers loading a van
a classroom of students] with the Company's software, hardware
and networking systems to be delivered
to a customer site.]
Courses are taught by technical Learning Tree provides software,
professionals and include extensive hardware and networking systems
hands-on, interactive exercises using for courses at customer sites.
networked classroom computers.
================================================================================
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
(IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>
Inside Front Cover:
[Map identifying location, and photographs of such locations, of the Company's
Education centers and Principal Offices]
[Photograph of Company's
Marketing Materials.]
Learning Tree promotes its
courses through direct mail
marketing to its proprietary
mail list of over 1,000,000
IT professionals and managers.
[Photograph of telemarketers.]
Customers call 1-800-THE TREE(R)
to enroll. Learning Tree tele-
marketers respond to phone, E-
mail, Web site and facsimile
orders and inquiries.
[Photograph of Salesman.]
Learning Tree's field sales con-
centrates on larger customers to
sell multi-course, customer-site
training programs and to sign
Training Advantage Agreements.
<PAGE>
[Photograph of computer screen showing
the company's world wide web site.]
Learning Tree's Internet Web site,
www.learningtree.com, features course
descriptions and schedules. Information
contained in the company's Web site shall
not be deemed to be part of this prospectus.
CUSTOMERS
The following organizations have each purchased $100,000 to $1,800,000 of
Learning Tree training in 1995, ranging from less than 1% to a high of 2.3% of
the Company's revenues. Generally each customer purchased this training
throughout the year in individual purchase decisions ranging from $2,000 to
$20,000 rather than through a single contract.
. Alcatel . Amadeus . Andersen Consulting . Asea Brown Bovari . AT&T .
Automobiles Peugeot . Barclays Bank . Bell Atlantic . Boeing . British Gas .
British Telecom . Bull . Control Data . Credit Lyonnais . CSC . Dassault .
Digital . EDS . E.I. DuPont . Electricite de France . Ericsson . Federal
Aviation Administration . Federal Reserve System . Ford Motor Company . France
Telecom . GEC . General Electric . Hewlett-Packard . Hitachi . Hughes . IBM .
Intel . Internal Revenue Service . JP Morgan . Kodak . Lockheed Martin . Matra
Communications . Ministry of Defence (UK) . Mobil . Motorola . NASA . National
Institutes of Health . National Westminster Bank . Network Systems Corp. .
Nixdorf Computer . Nortel . NYNEX . Ontario Hydro . Pacific Telecom . Perot
Systems . Prudential . Reuters . Revenue Canada . Royal Bank of Scotland . Royal
Canadian Mounted Police . Shell Oil . Siemens . Sprint . Sybase . Thomson-CSF .
Transport Canada . UNISYS . US Air Force . US Army . US Navy . US WEST . VISA
International . The World Bank . Xerox
[LOGO OF LEARNING TREE INTERNATIONAL]
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Price Range of Common Stock.............................................. 12
Capitalization........................................................... 13
Selected Consolidated Financial Data..................................... 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 15
Business................................................................. 24
Management............................................................... 37
Certain Transactions..................................................... 43
Principal and Selling Stockholders....................................... 45
Description of Capital Stock............................................. 46
Shares Eligible for Future Sale.......................................... 49
Underwriting............................................................. 51
Legal Matters............................................................ 53
Experts.................................................................. 53
Additional Information................................................... 53
Index to Consolidated Financial Statements............................... F-1
</TABLE>
AVAILABLE INFORMATION
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 and information statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy and information statements and other information filed by
the Company can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at
Seven World Trade Center, Suite 1300, New York, New York 10048, and at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained at prescribed rates from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC also makes electronic filings publicly
available on the Internet within 24 hours of acceptance. The SEC's Internet
address is http://www.sec.gov. The SEC Web site also contains reports, proxy
and information statements, and other information regarding registrants that
file electronically with the SEC.
Learning Tree(R), the Learning Tree and Professional Certification logos,
EDUCATION IS OUR BUSINESS(R), EDUCATION YOU CAN TRUST(R), WE BRING EDUCATION
TO LIFE(R), PRODUCTIVITY THROUGH EDUCATION(R), LearnTrack(TM), Training
Passport(R), Training Advantage(R), Alumni Gold(TM), 800-THE-TREE(R) and 800-
LRN-TREE(R) are trademarks and service marks of the Company. This Prospectus
also contains trademarks and tradenames of other companies.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and Consolidated Financial Statements and
notes thereto, appearing elsewhere in this Prospectus. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors."
THE COMPANY
Learning Tree International, Inc. ("Learning Tree" or the "Company"), is a
leading worldwide provider of education and training to professionals
responsible for programming, updating and maintaining the technology used to
structure, process and communicate information ("information technology" or
"IT") in business and government organizations. The Company develops, markets
and delivers a broad, proprietary library of instructor-led course titles
focused on client/server systems, Internet/intranet technologies, computer
networks, operating systems, databases, programming languages, graphical user
interfaces, object-oriented technology and IT management. The Company also
tests and certifies IT professionals in 18 IT job functions, and its courses
are recommended for college credit by the American Council on Education. In
addition to its instructor-led courses, the Company has recently developed and
is expanding a line of interactive computer-based training courses
incorporating audio and graphical elements ("multimedia CBT") that are designed
for both stand-alone CD-ROM and network-based delivery. The Company is paid
directly by the employers of its course participants and does not receive
funding from any government aid or loan programs. As a result, the Company does
not depend on government appropriations for those programs and is not subject
to certain governmental regulations.
The market for IT training is driven by technological change. As the rate of
this change accelerates, organizations find themselves increasingly hampered in
their ability to exploit the latest information technologies because their IT
professionals lack up-to-date knowledge and skills. According to International
Data Corporation ("IDC"), the worldwide market for the training of IT
professionals was approximately $10 billion in 1995. While much of the training
for IT professionals continues to be provided by internal training departments,
many organizations are expanding their use of external training providers due
to corporate downsizing and the lack of internal trainers experienced in the
latest technologies. The choice of training delivery formats and providers
generally is made by individual IT professionals or their managers. When
choosing an IT training provider, IT professionals and their managers seek a
provider who can provide a broad spectrum of course titles and multiple
delivery formats which result in efficient high quality education.
The Company believes that its approach to IT education and training offers
many advantages over other training providers due to the breadth and depth of
its course library, the quality and size of its instructor force, its vendor
independence and its ability to respond rapidly to customer demands for custom
training solutions and timely course delivery. The Company believes its courses
provide participants with skills and knowledge that they can immediately apply
in their jobs. Its instructor-led courses include extensive hands-on,
interactive exercises using networked classroom computers and its multimedia
CBT courses provide similarly high levels of interactivity. Learning Tree's
instructor-led course events typically deliver the equivalent of two semester
hours of college credit in an intensive four-day format, thus minimizing the
participants' time away from their jobs.
The Company devotes significant resources to expanding and updating its
instructor-led course library, which grew from 56 titles in fiscal 1993 to 98
titles as of June 30, 1996. The Company conducts its courses at its eight
Education Centers, in hotel and conference facilities, and at customer sites in
the United States, United Kingdom, France, Canada, Sweden, Japan and other
countries worldwide. The Company's
4
<PAGE>
international operations contributed approximately 55% of its revenues in
fiscal 1995. The Company's integrated marketing program targets individuals
through direct mail marketing to its proprietary mail list of over 1,000,000 IT
professionals and managers, and their employers through its direct sales force.
In addition, the Company's telemarketing sales force responds to phone, e-mail,
Web site and facsimile orders and inquiries. At June 30, 1996, the Company had
494 course instructors, all of whom are technical professionals with an average
of 20 years of IT industry experience and possess skills and knowledge that are
relevant to the subjects of the courses they teach.
The Company's strategy is to strengthen its position as a leading provider of
IT training worldwide by continuing to expand its library of proprietary,
instructor-led course titles; providing flexible training solutions; expanding
its line of proprietary multimedia CBT course titles; leveraging its integrated
marketing and sales program; building continuing relationships with its
individual course participants and its corporate customers; and leveraging its
international operations.
Learning Tree has developed a broad customer base focusing on Fortune 1000-
level companies, their international equivalents and government organizations
worldwide. Since inception, the Company has trained more than half a million
participants, and in fiscal 1995, its 60,000 course participants were employed
by more than 5,800 organizations around the world, such as AT&T, British
Telecom, Ford Motor Company, General Electric, Hewlett-Packard, Intel, JP
Morgan, Shell Oil and Xerox. Generally, each of the foregoing organizations
purchased training from the Company throughout fiscal 1995 in individual
purchase decisions ranging from $2,000 to $20,000 rather than through a single
contract, and no organization accounted for more than 2.3% of the Company's
revenues in fiscal 1995.
The Company began its business in 1974, incorporated in California in 1976
and reincorporated in Delaware in 1995. The Company's principal executive
offices are located at 6053 West Century Boulevard, Los Angeles, California
90045-0028, its telephone number is (310) 417-9700 and its address on the World
Wide Web is http://www.learningtree.com. Information contained in the Company's
Web site shall not be deemed to be part of this Prospectus. The Company is
involved in only one business segment. See Note 8 of Notes to Consolidated
Financial Statements.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company...... 400,000 shares
Common Stock Offered by the Selling
Stockholders............................ 1,600,000 shares(1)
Common Stock Outstanding after the
Offering................................ 14,663,012 shares(2)
Use of Proceeds.......................... For working capital, other general
corporate purposes and possible
acquisitions. See "Use of Proceeds."
Nasdaq National Market symbol............ LTRE
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
---------------------------- -----------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $ 49,329 $ 58,466 $ 78,818 $ 58,091 $ 73,604
Gross profit................... 29,575 34,801 48,087 35,732 45,106
Income (loss) from operations.. (1,360) (365) 8,074 6,329 9,424
Net income (loss).............. (887) (443) 6,480 5,451 7,468
Net income (loss) per common
share and common equivalent
share......................... (0.08) (0.04) 0.57 0.48 0.55
Weighted average number of
common and common equivalent
shares outstanding............ 11,478 11,512 11,364 11,363 13,551
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------
ACTUAL AS ADJUSTED (3)
------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $46,628 $56,892
Total current assets.................................. 61,802 72,066
Total assets.......................................... 72,170 82,434
Total current liabilities............................. 28,394 28,394
Long-term debt and capital leases, net of current
portion ............................................. 164 164
Total stockholders' equity............................ 41,874 52,138
</TABLE>
- --------
(1) The Company will not receive any proceeds from the sale of Common Stock
offered by the Selling Stockholders.
(2) Excludes an aggregate of 1,500,000 shares of Common Stock reserved for
issuance pursuant to the Company's 1995 Stock Option Plan. As of the date
of this Prospectus, no options have been granted pursuant to that Plan. See
"Management--Stock Option Plan."
(3) Adjusted to give effect to the sale of 400,000 shares of Common Stock
offered by the Company hereby, at an assumed public offering price of
$28.25, after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, and the application of
the net proceeds therefrom. See "Use of Proceeds."
Unless otherwise indicated, the information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. All share and per share
data have been adjusted to reflect a 3.66 to 1 split of the Common Stock
effected on October 6, 1995, and the conversion of the two classes of the
Company's common stock into a single class on December 6, 1995. See
"Description of Capital Stock--Common Stock" and "Underwriting."
6
<PAGE>
RISK FACTORS
In addition to other information contained in this Prospectus, the following
risk factors should be considered carefully in evaluating the Company and its
business before purchasing the Common Stock offered hereby. This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed
in the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed below.
FLUCTUATIONS IN OPERATING RESULTS
The Company has in the past experienced fluctuations in its quarterly
operating results and expects such fluctuations to continue in the future. The
Company's course development and sales and marketing expenses are incurred
based on its expectations regarding future market conditions and there can be
no assurance that the attendant revenues will occur. Specifically, the Company
intends to increase the amount of its expenditures for course development and
sales and marketing in the future. The Company may be unable to adjust its
expenditures in a timely manner to compensate for any unexpected revenue
shortfall. Any significant revenue shortfall would therefore have a material
adverse effect on the Company's results of operations. In addition, the
Company's operating results may fluctuate based on other factors, including
the frequency and availability of course events, the frequency and size of and
response to, the Company's direct mail marketing campaigns, the timing of the
introduction of new course titles and alternate delivery methods, the mix
between customer-site course events and Learning Tree-site course events,
competitive forces within the current and anticipated future markets served by
the Company, the spending patterns of its customers, currency fluctuations,
inclement weather and general economic conditions. Fluctuations in quarter-to-
quarter results may also occur depending on differences in the timing of, and
the time period between, the Company's expenditures on the development and
marketing of its courses and the receipt of revenues. The Company's revenues
and income have also varied significantly from quarter to quarter due to
seasonal factors. The Company generally has greater revenue and operating
income in the second half of its fiscal year (April through September). This
seasonality is due in part to seasonal spending patterns of the Company's
customers, and in part to quarterly differences in the frequency and size of
the Company's direct mail marketing campaigns, as well as weather, holiday and
vacation patterns. Fluctuations in operating results could result in
volatility in the price of the Common Stock. Furthermore, under the Company's
sales discount program known as the Passport Program, the Company recognizes
revenue for the attendance of a Passport holder at one of its courses based
upon the selling price of the Passport and the estimated average number of
courses Passport holders will actually attend. Upon the expiration of a
Passport, the Company records the differences, if any, between the revenues
previously recognized and the Passport's selling price. Since determining the
estimated average number of course events that will be attended by a Passport
holder is based on historical trends that may not continue in the future, an
increase in such average could result in potentially significant negative
adjustments to revenue as the increase in the rate becomes known. Due to all
of the foregoing factors, it is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
may be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Quarterly Results
of Operations" and Note 1 of Notes to Consolidated Financial Statements.
RISKS ASSOCIATED WITH CHANGING ECONOMIC CONDITIONS
The Company's revenues and profitability are subject to general economic
conditions. A significant portion of the Company's revenues are derived from
Fortune 1000-level companies and their international equivalents, which
historically have adjusted their expenditures for external IT training during
economic downturns. Should the economy weaken in any future period, these
companies may not increase or may reduce their expenditures on external IT
training, which would have an adverse impact on the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH CHANGES IN TECHNOLOGY
The Company's development of new course titles, or enhancements to existing
course titles must anticipate and keep pace with the introduction in the
marketplace of new hardware, software and networking
7
<PAGE>
technology. The need to respond to technological changes may require the
Company to make substantial, unanticipated expenditures in order to develop
new course titles and acquire additional equipment in order to deliver such
new course titles. There can be no assurance that the Company will be able to
respond successfully to technological change. If, because of financial,
technological or other constraints, the Company could not adequately
anticipate or respond to changes in computer platforms, customer preferences
and/or software technology, the Company's business and results of operations
would be materially adversely affected. See "Business--Development of
Instructor-led, Classroom Courses."
RISKS ASSOCIATED WITH GROWTH OF CBT COURSES
The market for IT education and training historically has consisted
primarily of instructor-led training. Multimedia and computer-based IT
training currently account for a small portion of the overall IT training
market, but according to IDC, CBT is growing at a faster rate than instructor-
led training. Although the Company has introduced a line of multimedia CBT
products, substantially all of the Company's revenues in fiscal 1996 are
expected to be derived from instructor-led training course events.
Accordingly, the Company's future success will depend upon, among other
factors, the extent to which the market continues to accept instructor-led
training as a method of delivery for IT training, the Company's ability to
develop and market instructor-led courses that compete effectively against CBT
courses offered by others, and the Company's ability to develop its own
curriculum of competitive multimedia CBT course titles. See "Business--
Competition."
COMPETITION
The IT education and training market is highly fragmented, with low barriers
to entry and no single competitor accounting for a dominant market share. The
Company's competitors include computer systems vendors, other independent
education and training companies, systems integrators and software vendors, as
well as many of the Company's own customers that maintain internal training
departments. Some of these competitors offer course titles and programs
similar to those of the Company at lower prices. In addition, some competitors
have greater financial and other resources than the Company. There can be no
assurance that the Company will be successful against such competition. See
"Business--Competition."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company maintains offices and education centers in five countries
outside the United States and in fiscal 1995 presented course events at its
education centers and third-party and customer sites in a total of
28 countries. In fiscal 1995, international revenues represented approximately
55% of the Company's revenues. Learning Tree intends, on an ongoing basis, to
seek ways to expand its international operations and expects that revenues
derived from international sources will continue to account for a significant
portion of its revenues. Inherent risks represented by the Company's
international operations include currency fluctuations, potential difficulties
in translating course subject matter into foreign languages, varying political
and economic conditions, unanticipated changes in regulation, trade barriers,
staffing problems and adverse tax consequences. There can be no assurance that
such factors will not have a material adverse effect on the Company in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's continuing and future success depends in large part on the
continued services of Dr. Collins, its Chief Executive Officer, and Mr. Garen,
its President, as well as certain of its other senior managers and other key
personnel. The loss of the services of certain of the Company's senior
managers or other key personnel could have a material adverse effect on the
Company. The Company's continuing and future success will also depend on its
ability to attract and retain highly-skilled personnel, including its
instructors. There can be no assurance that the Company will be successful in
these recruitment and training
8
<PAGE>
efforts, and the failure to hire and train the intended complement of
instructors may have a material adverse effect on the Company's operations.
See "Management."
RISKS ASSOCIATED WITH CURRENCY FLUCTUATIONS
The Company's consolidated financial statements are prepared in U.S. dollars
while the operations of its foreign subsidiaries are conducted in their
respective local currencies. Consequently, fluctuations in exchange rates may
have an adverse effect on the Company's consolidated operating results and
could result in exchange losses. In fiscal 1995, the Company realized $30,000
in exchange gains as a result of currency fluctuations. During the nine months
ended June 30, 1996, the Company reported $176,000 in exchange losses compared
to $239,000 in exchange gains for the same period in fiscal 1995. The impact
of future fluctuations in exchange rates cannot be predicted with any measure
of accuracy. No assurance can be given that any future exchange rate
fluctuations will not have a material adverse effect on the Company's
operations. To date, the Company has not sought to hedge the risks associated
with fluctuations in exchange rates and therefore continues to be subject to
such risks. In the future, the Company may undertake such transactions. If any
hedging techniques are implemented by the Company, there can be no assurance
that such techniques would be successful in eliminating or reducing the
effects of currency fluctuations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
HISTORY OF LOSSES; WORKING CAPITAL DEFICIENCY
The Company has incurred losses during its history, and most recently the
Company incurred operating losses in fiscal years 1993 and 1994 of $1,360,000
and $365,000, respectively, and net losses of $877,000 and $443,000,
respectively, in those years. There can be no assurance that the Company will
maintain its profitability in the future or that losses may not recur for any
reason, including the reasons attributed to prior losses. The Company has,
prior to its initial public offering in December 1995 (the "IPO"), generally
operated with a working capital deficiency. However, it has maintained a
positive working capital position since that time. As of June 30, 1996, the
Company had a positive working capital balance of $33.4 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS ASSOCIATED WITH INTELLECTUAL PROPERTY
The Company regards its course development process and its courses as
proprietary and relies primarily on a combination of statutory and common law
copyright, trademark and trade secret laws, customer licensing agreements,
employee and third-party nondisclosure agreements and other methods to protect
its proprietary rights. Notwithstanding the foregoing, a third party or
parties could copy or otherwise obtain and use the Company's course materials
in an unauthorized manner or use these materials to develop course titles
which are substantially similar to those of the Company. In addition, the
Company operates in countries that do not provide protection of proprietary
rights to the same extent as the United States. The Company's course materials
generally do not include any mechanisms to prohibit or prevent unauthorized
use. If substantial unauthorized use of the Company's products were to occur,
the Company's business and results of operations could be materially adversely
affected. There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar courses and delivery methods. Additionally,
there can be no assurance that third parties will not claim that the Company's
current or future course development outputs infringe on the proprietary
rights of others. The Company expects that it will be increasingly subject to
such claims as the number of products and competitors increases in the future.
Any such claim could result in a material adverse effect on the Company's
business. See "Business--Intellectual Property and Licenses."
RISKS ASSOCIATED WITH STATE AUTHORIZATION AND ACCREDITATION
Certain states assert authority to regulate non-degree granting education
providers if their educational programs are available to their residents.
Generally, the Company is exempt from such regulation because the
9
<PAGE>
Company contracts with the employer of the course participants and does not
participate in any federal or state student aid/loan programs. However, state
laws and regulations affect the Company's operations and may limit the ability
of the Company to obtain authorization to operate in certain states. If, in
the future, the Company were required to comply with, or found to be in
violation of, a state's current or future licensing or regulatory
requirements, it could be subject to civil or criminal sanctions, including
monetary penalties, and could be barred from providing educational services in
that state. See "Business--Regulatory Environment."
CONTROL BY MANAGEMENT
After completion of this Offering, senior management of the Company
collectively will own approximately 59.3% of the outstanding shares of Common
Stock (approximately 57.3% if the Underwriters' over-allotment option is
exercised in full). After completion of this Offering, Dr. Collins and Mr.
Garen will own approximately 27.4% and 26.2%, respectively, of the outstanding
shares of Common Stock (approximately 26.3% and 25.2%, respectively, if the
Underwriters' over-allotment option is exercised in full). Consequently,
senior management, and Dr. Collins and Mr. Garen in particular, will continue
to have a significant influence over the policies and affairs of the Company
and will be in a position to determine the outcome of corporate actions
requiring stockholder approval, including the election of directors, the
adoption of amendments to the Company's corporate documents and the approval
of mergers and sales of the Company's assets. See "Principal and Selling
Stockholders."
RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS
It is contemplated that part of the proceeds of this Offering may be used
for acquisitions. While the Company has no current agreements in place or
negotiations underway with respect to any acquisition, the Company plans
regularly to evaluate acquisition opportunities that fit within its business
plan. Acquisitions involve numerous risks, including potential difficulties in
the assimilation of acquired operations, diversion of management's attention
away from normal operating activities, negative financial impacts based on the
amortization of acquired intangible assets, the dilutive effects of the
issuance of Common Stock in connection with an acquisition, and potential loss
of key employees of the acquired operation. The Company has had no experience
in executing and implementing acquisitions and no assurance can be given as to
the success of the Company in executing and implementing acquisitions in the
future. See "Use of Proceeds."
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation and Bylaws include
provisions, including provisions for the issuance of preferred stock by the
Company's Board of Directors without stockholder action and the division of
the Company's Board of Directors into three classes, that may have the effect
of discouraging persons from pursuing a non-negotiated takeover of the Company
and preventing certain changes of control. Certain of these provisions may
also discourage a future acquisition of the Company not approved by the
Company's Board of Directors in which stockholders might receive maximum value
for their shares or which a substantial number and perhaps even a majority of
the Company's non-management stockholders believe to be in the best interest
of all stockholders. See "Description of Capital Stock--Preferred Stock," "--
Certain Effects of Authorized but Unissued Stock" and "--Provisions of
Certificate of Incorporation and Bylaws Affecting Change in Control."
VOLATILITY OF STOCK PRICE
The Company's IPO was completed in December 1995, and there can be no
assurance that a viable public market for the Common Stock will be sustained.
The market price of the Common Stock has fluctuated significantly since the
IPO. The Company believes that factors such as announcements of developments
related to the Company's business, announcements of new products or
enhancements by the Company or its competitors, sales of the Common Stock into
the public market, developments in the Company's relationships with its
customers, shortfalls or changes in revenues, gross margins, earnings or
losses or other financial results from public market analysts' expectations,
fluctuations in results of operations and general conditions in the Company's
market or the markets served by the Company's customers or the economy could
cause the price
10
<PAGE>
of the Common Stock to fluctuate, perhaps substantially. In addition, in
recent years the stock market in general, and the market for shares of
technology-related stocks in particular, have experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
affected companies. There can be no assurance that the market price of the
Common Stock will not continue to experience significant fluctuations in the
future, including fluctuations that are unrelated to the Company's
performance.
ABSENCE OF DIVIDENDS
The Company has not paid any cash dividends since its inception and does not
anticipate paying cash dividends in the foreseeable future. See "Dividend
Policy."
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock, or the availability of shares of Common Stock for
future sale, will have on the market price for the Common Stock prevailing
from time to time. Sales of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing
market prices for shares of the Common Stock. Upon completion of the Offering,
14,663,012 shares of Common Stock will be outstanding. Approximately
5,450,000 shares will be freely tradeable without restriction or further
registration under the Securities Act of 1933 (the "Securities Act") by
persons other than "affiliates" of the Company. In addition, approximately
118,000 shares will be eligible for immediate sale in the public market
without restriction pursuant to Rule 144(k) under the Securities Act. As of
the closing of this Offering, approximately 9,095,000 shares of Common Stock
will be "restricted securities" (as defined in Rule 144 under the Securities
Act). Approximately 8,697,000 shares of Common Stock are subject to lock-up
agreements under which the holders of such shares have agreed with the
representatives of the Underwriters not to sell or otherwise dispose of any of
such shares for a period of 90 days following the date of this Prospectus.
Following the expiration of such lock-up agreements, approximately 8,078,000
shares will become available for immediate resale in the public market, all of
which are subject to the volume and other restrictions of Rule 144 under the
Securities Act. In addition, the Company intends to register 1,500,000 shares
for issuance under its 1995 Stock Option Plan. See "Management--Stock Option
Plan," "Shares Eligible for Future Sale" and "Underwriting."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered by it in the Offering are estimated to be approximately $10,264,000,
assuming a public offering price of $28.25, after deducting the underwriting
discounts and commissions and estimated offering expenses. The Company will
not receive any proceeds from the sale of shares by the Selling Stockholders.
The Company intends to use the net proceeds from the Offering to increase
working capital and for other general corporate purposes. The Company also may
use a portion of the net proceeds to acquire technologies and related assets
or businesses complementary to the Company's operations, although the Company
has no agreements currently in place or negotiations underway with respect to
any acquisition.
Pending such uses, the net proceeds will be invested in short-term,
investment-grade, interest-bearing securities.
DIVIDEND POLICY
To date, the Company has not paid any cash dividends on its Common Stock.
Following the Offering, the Company anticipates that it will not pay dividends
on the Common Stock for the foreseeable future and that it will retain any
earnings for use in the operation of its business. The declaration and payment
of dividends by the Company are subject to the discretion of its Board of
Directors and to compliance with applicable law. Any determination as to the
payment of dividends in the future will depend upon, among other things,
general business conditions, the effect of such payment on the Company's
financial condition and other factors the Company's Board of Directors may in
the future consider to be relevant.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock began trading publicly on the Nasdaq National
Market under the symbol LTRE effective December 6, 1995. The following table
sets forth, for the periods indicated, the range of high and low sales prices
for the Common Stock on the Nasdaq National Market since December 6, 1995:
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Fiscal 1996
First Quarter (from December 6, 1995)..................... $17 1/4 $13 3/4
Second Quarter............................................ 20 1/4 13 1/4
Third Quarter............................................. 31 5/8 20
Fourth Quarter (through August 23, 1996).................. 30 20
</TABLE>
As of June 30, 1996 there were approximately 300 holders of record of the
Common Stock. On August 23, 1996, the last sale price reported on the Nasdaq
National Market for the Company's Common Stock was $28.25 per share.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 (i) on an actual basis and (ii) as adjusted to give effect to the
sale by the Company of 400,000 shares of Common Stock offered by the Company
hereby at an assumed public offering price of $28.25 per share, after
deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company. This table should be read in conjunction with
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Current portion of debt and capital leases........... $ 132,000 $ 132,000
----------- -----------
Long-term debt and capital leases, net of current
portion............................................. 164,000 164,000
----------- -----------
Stockholders' equity:
Common Stock, $.0001 par value, 25,000,000 shares
authorized, 14,263,012 shares issued and
outstanding, 14,663,012 shares, as adjusted....... 1,000 1,000
Additional paid-in capital, and as adjusted........ 32,023,000 42,287,000
Notes receivable from stockholders................. (156,000) (156,000)
Deferred compensation--stockholders................ (227,000) (227,000)
Cumulative foreign currency translation............ (734,000) (734,000)
Retained earnings.................................. 10,967,000 10,967,000
----------- -----------
Total stockholders' equity....................... 41,874,000 52,138,000
----------- -----------
Total capitalization........................... $42,170,000 $52,434,000
=========== ===========
</TABLE>
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company are
qualified by reference to and should be read in conjunction with the
consolidated financial statements and notes thereto and other financial data
included elsewhere in this Prospectus. The statement of operations data set
forth below for each of the three years in the period ended September 30, 1995
and the balance sheet data as of September 30, 1994 and 1995, are derived from
the Company's consolidated financial statements for those years which have
been audited by Arthur Andersen LLP, independent accountants, whose report
thereon is included elsewhere in this Prospectus. The statement of operations
data for each of the two years in the period ended September 30, 1992 and the
balance sheet data at September 30, 1991, 1992 and 1993 are derived from
audited financial statements of the Company not included in this Prospectus.
The statement of operations data for the nine months ended June 30, 1995 and
1996 and the balance sheet data at June 30, 1996 have been prepared on a basis
consistent with the audited consolidated financial statements and derived from
the unaudited consolidated financial statements included elsewhere in this
Prospectus. These historical results are not necessarily indicative of the
results to be expected in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $53,020 $53,366 $49,329 $58,466 $78,818 $58,091 $73,604
Cost of revenues........ 18,908 19,604 19,754 23,665 30,731 22,359 28,498
------- ------- ------- ------- ------- ------- -------
Gross profit........... 34,112 33,762 29,575 34,801 48,087 35,732 45,106
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Course development..... 2,759 3,098 3,387 3,978 4,954 3,579 4,420
Sales and marketing.... 18,786 17,674 17,923 21,243 22,883 16,829 21,803
General and
administrative........ 10,755 10,487 9,625 9,945 12,176 8,995 9,459
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 32,300 31,259 30,935 35,166 40,013 29,403 35,682
------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. 1,812 2,503 (1,360) (365) 8,074 6,329 9,424
Other income (expense),
net.................... (175) (83) 406 12 272 390 1,168
------- ------- ------- ------- ------- ------- -------
Income (loss) before
provision (credit) for
income taxes........... 1,637 2,420 (954) (353) 8,346 6,719 10,592
Provision (credit) for
income taxes........... 318 446 (77) 90 1,866 1,268 3,124
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 1,319 $ 1,974 $ (877) $ (443) $ 6,480 $ 5,451 $ 7,468
======= ======= ======= ======= ======= ======= =======
Net income (loss) per
common share and common
equivalent share....... $ 0.11 $ 0.17 $ (0.08) $ (0.04) $ 0.57 $ 0.48 $ 0.55
======= ======= ======= ======= ======= ======= =======
Weighted average number
of common and common
equivalent shares
outstanding............ 11,515 11,520 11,478 11,512 11,364 11,363 13,551
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------------------- AT JUNE 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 2,436 $ 2,571 $ 1,770 $ 2,774 $10,029 $46,628
Total current assets.... 8,413 9,509 9,210 10,772 21,336 61,802
Total assets............ 12,784 13,802 14,135 16,306 28,427 72,170
Total current
liabilities............ 11,185 11,067 12,871 16,425 22,843 28,394
Long-term debt and
capital leases, net of
current portion........ 291 213 714 446 272 164
Total stockholders'
equity (deficit)....... (2,164) (415) (2,171) (3,054) 3,305 41,874
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
OVERVIEW
Learning Tree International, Inc. (the "Company"), is a leading worldwide
provider of education and training for information technology ("IT")
professionals in business and government organizations. The Company's
customers are the companies and government agencies which pay for their
employees to attend the Company's course events. In fiscal 1995, the Company
had 101 customers that purchased more than $100,000 of training from Learning
Tree. In fiscal 1995, none of the Company's customers accounted for more than
2.3% of its revenues. The Company develops, markets and delivers a broad,
proprietary library of instructor-led course titles which are focused on
client/server systems, Internet/intranet technologies, computer networks,
operating systems, databases, programming languages, graphical user
interfaces, object-oriented technology and IT management. The Company tests
and certifies IT professionals in 18 IT job functions. The Company's courses
are recommended for college credit by the American Council on Education.
In addition to its instructor-led courses, the Company has recently
developed and is expanding a line of interactive computer-based training
courses incorporating audio and graphical elements ("multimedia CBT") that are
designed for both stand-alone CD-ROM and network-based delivery.
The Company has historically focused on instructor-led IT training in multi-
vendor, multi-platform computer systems ("open systems") emphasizing computer
technologies such as internetworking, operating systems and advanced
programming languages. Until the early 1990's, these technologies were used
almost exclusively by IT professionals involved in research, development and
engineering. Beginning in the early 1990's and accelerating through the
present, management information systems ("MIS") departments began shifting
from legacy mainframe systems to new client/server technologies, thus
expanding the market for training of MIS personnel in areas covered by the
Company's courses. These technologies have contributed significantly to the
increased use of computer systems by businesses and government organizations.
Beginning in fiscal 1993, in order to increase its market share, the Company
introduced a new marketing initiative by creating multiple enrollment
programs, such as its Training Passport, College Credit and Professional
Certification Programs, which give participants an incentive to enroll in a
series of Learning Tree course events. See "Business--Marketing and Sales."
Additionally, in 1993, the Company noted an increase in the response rate from
its direct mail marketing. Accordingly, the Company increased both its sales
and marketing expenditures and its course development expenditures. Through
its increased investment in course development, the Company expanded its
curriculum of course titles in client/server technology, networks and
databases covering additional topics relevant to the emerging training market
for MIS professionals. In management's view, these new course titles provided
an expanded role for the Company in the MIS training market by attracting MIS
participants both to its new and existing course titles. As an initial result
of these expenditures, the Company incurred operating and net losses in fiscal
1993 and the first two quarters of fiscal 1994. The Company returned to
profitability in the third quarter of fiscal 1994 and has remained profitable
in each succeeding quarter. In addition, the Company increased its revenues
from $49.3 million in fiscal 1993 to $58.5 million in fiscal 1994 and $78.8
million in fiscal 1995.
The Company's revenues have grown to record levels in the nine month period
ended June 30, 1996, increasing by 27% over the same period in fiscal 1995.
Further, the Company's backlog as of June 30, 1996 has grown by 30% when
compared to the backlog as of June 30, 1995. In response to the continued
strength in enrollments, the Company has further accelerated its development
of new course titles, expanded its future
15
<PAGE>
direct mailing plans to capture additional market share and has taken steps to
expand the number of classrooms in its education centers. However, there can be
no assurance that the Company will be able to achieve an increase in market
share after making such expenditures or will maintain its growth in revenues,
profitability or market share in the future. See "Risk Factors--History of
Losses."
The Company's instructor-led course events are taught in classrooms and
include extensive, hands-on exercises under the guidance of expert instructors.
The Company has structured its business so that the majority of its instructor-
led course costs depend upon the number of course events it conducts. The
Company schedules its four-day course events throughout the year as appropriate
to meet demand. Since the Company's instructors typically work full-time in the
IT industry and teach an average of eight to nine Learning Tree course events
each year as needed, the Company's instructor-related costs are largely
variable. In addition, although the expenses associated with its own Education
Centers are fixed, the Company can impact its overall facility expenses by
varying its use of rented hotel and conference facilities. Because the cost for
each course event does not increase significantly as additional participants
are included, the Company utilizes a variety of techniques to achieve a high
average number of participants per course event up to limits designed to
preserve the quality of each course event. These techniques include adding
additional events for a popular course title, combining two or more
undersubscribed events into one course event and adding an assistant instructor
to increase the maximum number of students in a course event.
One of the Company's multiple enrollment programs is the Training Passport
program. Purchasers of Passports pay a set price for the right to attend up to
eight courses (ten in the United Kingdom and France) within a twelve month
period. The amount of revenue recognized for each attendance in the Company's
courses by Passport holders is based upon the selling price of the Passport and
the estimated average number of courses Passport holders will actually attend.
Upon expiration of a Passport, the Company records the differences, if any,
between the revenues previously recognized and the Passport selling price. The
Company reviews the estimated average number of course events Passport holders
will attend on a monthly basis. The estimated attendance rate is based upon the
historical experience of the average actual number of course events Passport
holders have been attending. If the Passport attendance rate changes, based
upon this historical data, the Company adjusts the revenue recognition rate for
all active Passports and for all Passports sold thereafter. Although the
Company has seen no material changes in the historical attendance rates as the
number of course titles has increased from fiscal 1993 to present, it monitors
such potential effects. In general, determining the estimated average number of
course events that will be attended by a Passport holder is based on historical
trends that may not continue in the future. These estimates could differ in the
near term from amounts used in arriving at the reported revenue. See "Risk
Factors--Fluctuations in Operating Results" and Note 1 of Notes to Consolidated
Financial Statements.
BACKLOG
At June 30, 1996, the Company had a backlog of orders for courses in the
amount of $20.6 million, which represented a 30% increase over the backlog of
$15.8 million at June 30, 1995. Only a portion of the Company's backlog is
funded. There can be no assurance that the growth in the backlog experienced in
fiscal 1996 over fiscal 1995 will continue or that orders comprising the
backlog will be realized as revenue.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's consolidated statements of operations as a percentage of
revenues:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
------------------ -------------------
1993 1994 1995 1995 1996
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues............................. 100% 100% 100% 100% 100%
Cost of revenues..................... 40 41 39 39 39
--- --- --- -------- --------
Gross profit....................... 60 59 61 61 61
Operating expenses:
Course development................. 7 7 6 6 6
Sales and marketing................ 36 36 29 29 29
General and administrative......... 20 17 16 15 13
--- --- --- -------- --------
Total operating expenses......... 63 60 51 50 48
--- --- --- -------- --------
Income (loss) from operations........ (3) (1) 10 11 13
Other income (expense), net.......... 1 0 0 0 1
--- --- --- -------- --------
Income (loss) before provision
(credit) for income taxes........... (2) (1) 10 11 14
Provision (credit) for income taxes.. 0 0 2 2 4
--- --- --- -------- --------
Net income (loss).................... (2)% (1)% 8% 9% 10%
=== === === ======== ========
</TABLE>
NINE MONTHS ENDED JUNE 30, 1996 COMPARED WITH NINE MONTHS ENDED JUNE 30, 1995
For the nine months ended June 30, 1996, revenues increased by $15.5 million
or 27% to $73.6 million from $58.1 million for the nine months ended June 30,
1995. The growth of revenues is due, in part, to an increase in the number of
course participants to 51,272 compared to 44,934 in the corresponding nine
month period of the prior year. The additional course participants are
primarily attributable to increased direct mail marketing and an increase in
the number of course titles to 98 in the third quarter of fiscal 1996,
compared to 82 in the same period a year earlier. In addition, the growth in
course participants is attributable to the expansion of the number of Learning
Tree-site course events which the Company held at sites other than its
education centers in order to broaden its customer base. Revenues for the nine
month period ended June 30, 1996, also reflect higher average revenues per
course participant. The increase in the average revenues per course
participant is attributable to the increase in the proportion of higher-paying
single course event participants over those attending under the discounted
Passport Program as well as increased prices for customer-site course events.
The Company's cost of revenues primarily includes the costs associated with
the course instructor, course materials and equipment, freight, classroom
facilities and refreshments. For the nine months ended June 30, 1996, the cost
of revenues increased $6.1 million or 27% to $28.5 million from $22.4 million
for the corresponding period in the prior year. The increase in the cost of
revenues for the nine month period ended June 30, 1996 as compared to the same
period in the prior year, is primarily the result of an increased number of
course events. The number of course events increased 19% in the nine month
period ended June 30, 1996 to 3,279 from 2,745 course events in the nine month
period ended June 30, 1995. Costs per course event increased approximately 6%,
compared to the corresponding period in the prior year. The change in the
average cost per course event primarily reflects the higher costs of
conducting more course events at sites other than education centers due to
education center capacity constraints, an increase in the number of courses
held in cities where the Company has not established an education center and
an increase in the number of Learning Tree-site courses compared to those held
at customer sites. To accommodate the growth in course enrollments, the
Company is seeking additional education center facilities in certain
locations. In
17
<PAGE>
July 1996, the Company acquired new facilities in Reston, Virginia for the
sales, operations and administrative staff of its United States subsidiary.
The Company intends to convert the space presently occupied by these employees
in its education center in Reston, Virginia, to classroom facilities and
thereby increase the number of its classrooms from 13 to approximately 19.
Course development expense includes the costs of developing new course
titles and updating the Company's existing course library. The principal costs
are for internal product development staff and independent consultants who
serve as subject matter experts. For the nine months ended June 30, 1996,
course development expenses increased $841,000 or 24% to $4.4 million from
$3.6 million for the corresponding period in the prior year. This increase
reflects the costs associated with the Company's strategy of expanding its
course library to meet its customers' growing technology training needs,
updating and maintaining a growing course title library and developing a
multimedia CBT product line. In light of the strength in course enrollments,
the Company plans to capitalize on the opportunity to grow market share by
accelerating the growth of its course library, including additional titles in
the areas of the Internet, intranets, Java, Windows NT, programming languages
and databases. As a result, the amount of course development expenses are
expected to continue to increase through the remainder of fiscal 1996. Based
upon the number of course titles presently available and those nearing
completion of the development process, approximately 110 course titles are
expected to be offered during the fourth quarter of fiscal 1996.
To obtain greater control over the multimedia CBT development process,
course quality and costs of development, the Company has expanded its in-house
multimedia CBT development team and discontinued the use of outside CBT course
developers. Since introducing its first multimedia CBT course title in
February 1996, the Company has released ten multimedia CBT course titles as of
August 7, 1996. The Company began the initial marketing of its multimedia CBT
product line in January 1996, and intends to expand these sales and marketing
activities commensurate with the growth of titles in its multimedia CBT
library. While the Company continues to anticipate that its revenues in fiscal
1996 will be derived almost exclusively from instructor-led training, to date
the Company has received orders from approximately 200 corporate and
government customers for its multimedia CBT courses. The actual number of
titles which the Company will produce and their delivery dates are subject to
a number of factors such as the hiring and training of additional staff,
continued refinements in the development and production process and the
availability of subject matter experts who are also responsible for developing
and teaching the Company's instructor-led courses. See "Risk Factors--Risks
Associated With Growth of CBT Courses."
Sales and marketing expense consists of salaries, commissions and travel-
related costs for sales and marketing personnel, the costs of designing,
producing and distributing direct mail marketing and media advertisements, and
the costs of information systems to support these activities. Sales and
marketing expenses increased $5.0 million or 30% to $21.8 million for the nine
months ended June 30, 1996 from $16.8 million for the nine months ended June
30, 1995. The increase in sales and marketing expenses is due to an increase
in telemarketing and field sales staff and direct mail marketing intended to
reach a broader range of potential customers, to expand business with current
customers, to expand the Company's presence in certain U.S. cities and to
communicate the availability of new course titles. Accordingly, for the first
nine months of 1996, sales and marketing expenses increased as a percentage of
revenues compared to the same period of 1995. The Company intends to continue
expanding its direct mail and sales activities and anticipates that its sales
and marketing expenditures will continue to exceed 1995 expenditures as a
percentage of revenues.
For the nine months ended June 30, 1996, general and administrative expenses
increased $464,000 or 5% to $9.5 million from $9.0 million for the
corresponding period in the prior year. As a percentage of revenue, general
and administrative expenses have declined to 13% from 15% in the prior year as
a result of increased leveraging of the Company's infrastructure to support a
higher sales volume.
Other income (expense) is primarily comprised of interest expense, interest
income and foreign currency gains and losses. For the nine months ended June
30, 1996, other income increased $778,000 to $1.2 million from $390,000 for
the corresponding nine month period in the prior year. This increase was
primarily
18
<PAGE>
attributable to additional interest income arising from higher cash balances
which have been generated by operations and from the proceeds of the Company's
initial public offering in December 1995. The increase in interest income was
partially offset by foreign exchange losses of $176,000 in the nine month
period ended June 30, 1996, compared to foreign exchange gains of $239,000 in
the corresponding period of the prior year. These transaction gains and losses
arose from receivables and payables denominated in currencies other than the
functional currencies of the Company's foreign subsidiaries. Although the
Company's consolidated financial statements are stated in U.S. dollars,
several of the Company's subsidiaries have functional currencies other than
the U.S. dollar. Gains and losses arising from the translation of the balance
sheets of the Company's subsidiaries from the functional currencies to U.S.
dollars are reported as an adjustment to stockholders' equity. However,
fluctuations in exchange rates may have an effect on the Company's results of
operations, particularly its revenues and operating margins, when translating
the income statements to dollars. The impact of future exchange rates on the
Company's results of operations cannot be accurately predicted. To date, the
Company has not sought to hedge the risks associated with fluctuations in
exchange rates and therefore continues to be subject to such risks. In the
future, the Company may undertake such transactions. There can be no assurance
that any hedging techniques implemented by the Company would be successful in
eliminating or reducing the effects of currency fluctuations. See "Risk
Factors--Risks Associated With Currency Fluctuations."
For the nine month period ended June 30, 1996, the provision for income
taxes increased by $1.8 million to $3.1 million from $1.3 million for the nine
months ended June 30, 1995. This increase reflects an increase in income
before taxes as well as an increase in the effective tax rate in the current
period due to a smaller benefit from the utilization of tax loss carryforwards
in fiscal 1996 compared to 1995.
FISCAL 1995 COMPARED WITH FISCAL 1994
In fiscal 1995, revenues increased $20.3 million or 35% to $78.8 million
from $58.5 million in fiscal 1994. The increase in revenues reflects an
increase in both the number of course events and revenue per event. The number
of course events increased 26% to 3,688 in fiscal 1995 compared to 2,928 in
fiscal 1994 due to a corresponding increase in the number of participants. The
increased number of course participants reflects expansion of the number of
course titles and continued growth in sales of the Company's multi-course
programs, with revenues from the Passport Program increasing to $13.2 million
in fiscal 1995 from $8.8 million in fiscal 1994. Revenue per course event
increased by approximately 8% in fiscal 1995 compared to fiscal 1994 due to
(i) a faster rate of growth in the number of higher-paying single course event
participants than in the number of participants attending under the discounted
Passport Program, (ii) an increase in the average revenue per event for
Passport holders and (iii) a shift in the mix of course events from customer-
site course events toward Learning Tree-site course events, which generate
higher average revenues per course event. The Company's revenues and revenue
per course event discussed above reflect changes in the exchange rates used to
translate into dollars the Company's revenues that are denominated in foreign
currencies, which exchange rate changes added approximately $2.7 million in
revenues in fiscal 1995 compared to fiscal 1994.
The Company's cost of revenues increased $7.0 million or 30% to $30.7
million for fiscal 1995 compared to $23.7 million for fiscal 1994. This change
primarily was attributable to the increased number of course events in fiscal
1995 over fiscal 1994, since the average cost per course event was
substantially unchanged between the two periods. Because revenues per course
event grew while costs per course event remained substantially unchanged, the
gross profit margin grew to 61.0% in fiscal 1995 compared to 59.5% in fiscal
1994.
Course development expense increased $1.0 million or 25% to $5.0 million for
fiscal 1995 from $4.0 million for fiscal 1994. This increase reflects the 21%
growth in course titles from 72 at September 30, 1994 to 87 at September 30,
1995 as well as the cost of updating the larger existing course title library
and developing the multimedia CBT product line.
19
<PAGE>
Sales and marketing expense increased $1.7 million or 8% to $22.9 million
for fiscal 1995 from $21.2 million for fiscal 1994. While sales and marketing
expense increased in absolute terms, it declined as a percentage of revenues
to 29% in fiscal 1995 compared to 36% for fiscal 1994. The Company decided to
increase its sales and marketing expenses in fiscal 1996 in order to reach a
broader range of potential customers, to expand business with its current
customers, and to communicate the availability of its new course titles and
multimedia CBT product line.
General and administrative expense increased $2.3 million or 22% during
fiscal 1995 to $12.2 million from $9.9 million in fiscal 1994. This increase
in general and administrative expense is primarily the result of increases in
personnel, rent expense and performance-based incentive compensation. However,
these costs decreased as a percentage of revenues to 16% in fiscal 1995 from
17% in fiscal 1994.
Other income (expense), net primarily was comprised of interest expense,
interest income and foreign currency gains and losses. Interest income
increased $244,000 to $331,000 for fiscal 1995 from $87,000 in fiscal 1994,
reflecting the Company's increased cash balances. In fiscal 1995, the Company
recorded $30,000 in foreign exchange gains compared to $101,000 in fiscal
1994.
Learning Tree International, Inc. operates as a holding company with
operating subsidiaries in several countries, and each subsidiary is taxed
based on the laws of the jurisdiction in which it operates. Because taxes are
incurred at the subsidiary level, and one subsidiary's tax losses cannot
offset the taxable income of subsidiaries in other tax jurisdictions, the
Company's consolidated effective tax rate may vary. In fiscal 1995, certain of
the Company's subsidiaries utilized tax loss carryforwards to offset their
taxable income for the year. Accordingly, the tax provision for fiscal 1995
reflects the benefit from the use of such loss carryforwards as well as the
use of foreign tax credits. Additional tax loss carryforwards remain available
only in certain foreign subsidiaries to offset future taxable income, and the
Company's consolidated effective tax rate can be expected to increase in the
future. See Note 3 to the Notes to Consolidated Financial Statements.
The Company's revenues in fiscal 1995 increased in each geographical segment
compared to fiscal 1994, with the United States operations recording the
greatest percentage increase because of stronger demand for the Company's
client/server based courses. In addition, each of the geographical segments
recorded increased operating income in fiscal 1995 as compared to fiscal 1994
primarily because of increased revenues in each segment. The Company's
European segment recorded operating income of $4.1 million in fiscal 1995
compared to operating income of $95,000 in fiscal 1994 as a result of revenue
increases primarily in the United Kingdom and France. Likewise income from the
United States operations equalled $3.4 million in fiscal 1995 compared to
operating income of $104,000 in fiscal 1994 because of a 42% increase in
revenues. See Note 8 to Notes to Consolidated Financial Statements.
FISCAL 1994 COMPARED WITH FISCAL 1993
Revenues increased $9.2 million or 19% to $58.5 million in fiscal 1994
compared to $49.3 million in fiscal 1993. This increase reflects the net
effects of changes in both the number of course events and the revenue per
course event. The number of course events increased from 2,257 in fiscal 1993
to 2,928 in fiscal 1994. This increase was primarily attributable to (i) the
increase in the number of course titles, (ii) the expansion of multi-
enrollment programs introduced in the latter half of 1993, which included
Passports, Professional Certification and College Credit, and (iii) an
increase in the number of Training Advantage Agreements. Revenue per course
event decreased approximately 8% from fiscal 1993 to fiscal 1994, primarily
due to the introduction of the discount-priced, multi-course Passport program
and of two- and three-day course events that were priced, on average, lower
than the Company's four-day course events, partially offset by an increase in
the number of participants per course event. The Company's revenues and
revenue per course event discussed above reflect changes in the exchange rates
used to translate into dollars the Company's revenues that are denominated in
foreign currencies, with revenues decreasing by $1.1 million in fiscal 1994
compared to fiscal 1993 as a result of these exchange rate changes.
20
<PAGE>
The cost of revenues increased $3.9 million or 20% to $23.7 million in
fiscal 1994 from $19.8 million in fiscal 1993, but increased only slightly as
a percentage of revenues to 40.5% in fiscal 1994 from 40.0% in fiscal 1993.
The increase in the cost of revenues resulted from a 30% increase in the
number of course events, offset in part by a decrease in the cost per course
event.
Course development expense increased by $591,000 or 17% to $4.0 million in
fiscal 1994 from $3.4 million in fiscal 1993. This increase reflects the costs
associated with the Company's strategy of expanding its course library to meet
its customer's needs. The number of course titles increased 29% from 56 in
fiscal 1993 to 72 in fiscal 1994.
Sales and marketing expense increased $3.3 million or 19% to $21.2 million
in fiscal 1994 from $17.9 million in fiscal 1993 reflecting increased
marketing costs to support the Passport and Certification programs, the
expanded course title offerings, the availability of college credit and new
catalog formats. In addition, selling costs increased due to increased staff
and higher selling commissions attributable to the increase in revenues.
General and administrative expense increased $320,000 or 3% to $9.9 million
in fiscal 1994 from $9.6 million in fiscal 1993. As a percentage of revenue,
these costs declined from 20% in fiscal 1993 to 17% in fiscal 1994 as a result
of the nominal increase in costs compared to the growth in revenues.
Other income (expense), net was $12,000 of income in fiscal 1994, which
represented a decline of $394,000 compared to fiscal 1993 when the Company had
$406,000 of other income. This decrease was primarily the result of a decline
in foreign exchange gains from $543,000 in fiscal 1993 to $101,000 in fiscal
1994.
The fiscal 1994 tax provision of $90,000 reflects the provision for taxes on
profits in certain subsidiaries that could not be offset by losses in other
subsidiaries in other tax jurisdictions. The $77,000 credit for taxes in
fiscal 1993 reflects benefits realized for losses in certain subsidiaries that
were carried back to prior years.
The Company's revenues in fiscal 1994 increased in each geographical segment
compared to fiscal 1993, and sales in its United States operations increased
the greatest reflecting regional economic conditions and additional attendees
as a result of the multiple enrollment programs. In contrast, however, there
was only a slight increase in the United States operating results from
operating income of $94,000 in fiscal 1993 to $104,000 in fiscal 1994, mainly
as a result of increased marketing and product development expenditures.
However, the Company's European operations reported operating income of
$95,000 in fiscal 1994 compared to an operating loss of $1.2 million in fiscal
1993 as a result of increased sales in the United Kingdom and Sweden.
21
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth unaudited quarterly financial data for each
of the eight consecutive fiscal quarters ended June 30, 1996, including such
data expressed as a percentage of the Company's revenues. The Company believes
that this information includes all adjustments (which consisted solely of
normal recurring adjustments) necessary for a fair presentation of such
quarterly information when read in conjunction with the consolidated financial
statements included elsewhere herein. The operating results for any quarter
are not necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1994 1994 1995 1995 1995 1995 1996 1996
--------- -------- --------- -------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $15,888 $18,468 $17,774 $21,849 $20,727 $23,178 $22,712 $27,714
Cost of revenues........ 6,014 7,132 6,980 8,247 8,372 9,232 8,969 10,297
------- ------- ------- ------- ------- ------- ------- -------
Gross profit........... 9,874 11,336 10,794 13,602 12,355 13,946 13,743 17,417
Operating expenses
Course development..... 1,047 1,089 1,139 1,351 1,375 1,224 1,432 1,746
Sales and marketing.... 5,323 4,607 6,041 6,181 6,054 6,208 7,936 7,659
General and
administrative........ 2,950 3,042 2,946 3,007 3,181 3,343 2,810 3,306
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 9,320 8,738 10,126 10,539 10,610 10,793 12,178 12,711
------- ------- ------- ------- ------- ------- ------- -------
Income from operations.. 554 2,598 668 3,063 1,745 3,153 1,565 4,706
Other income (expense),
net.................... 334 (20) 313 97 (118) 157 470 541
------- ------- ------- ------- ------- ------- ------- -------
Income before provision
for income taxes....... 888 2,578 981 3,160 1,627 3,310 2,035 5,247
Provision for income
taxes.................. 34 522 143 603 598 943 634 1,547
------- ------- ------- ------- ------- ------- ------- -------
Net income.............. $ 854 $ 2,056 $ 838 $ 2,557 $ 1,029 $ 2,367 $ 1,401 $ 3,700
======= ======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF
REVENUES:
Revenues................ 100% 100% 100% 100% 100% 100% 100% 100%
Cost of revenues........ 38 39 39 38 40 40 40 37
------- ------- ------- ------- ------- ------- ------- -------
Gross profit........... 62 61 61 62 60 60 60 63
Operating Expenses
Course development..... 6 6 6 6 7 5 6 6
Sales and marketing.... 34 25 34 28 29 27 35 28
General and
administrative........ 19 16 17 14 15 14 12 12
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 59 47 57 48 51 46 53 46
------- ------- ------- ------- ------- ------- ------- -------
Income from operations.. 3 14 4 14 9 14 7 17
Other income (expense),
net.................... 2 0 2 0 (1) 0 2 2
------- ------- ------- ------- ------- ------- ------- -------
Income before provision
for income taxes....... 5 14 6 14 8 14 9 19
Provision for income
taxes.................. 0 3 1 3 3 4 3 6
------- ------- ------- ------- ------- ------- ------- -------
Net income.............. 5% 11% 5% 11% 5% 10% 6% 13%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The Company's expense levels are based in significant part on its
expectations regarding future revenues and are fixed to some extent in the
short term. Accordingly, the Company may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. Any
significant revenue shortfall therefore would have a material adverse effect
on the Company's results of operations. The Company has in the past
experienced fluctuations in its quarterly operating results and expects such
fluctuations to continue in the future. The Company's operating results may
fluctuate based on other factors, including the frequency and availability of
course events, the frequency and size of, and response to, the Company's
direct mail marketing campaigns, the timing of the introduction of new course
titles and alternate delivery methods, the mix between customer-site course
events and Learning Tree-site course events, competitive forces within the
current and anticipated future markets served by the Company, the spending
patterns of its customers, currency fluctuations, inclement weather and
general economic conditions. Fluctuations in quarter-to-quarter
22
<PAGE>
results may also occur depending on differences in the timing of, and the time
period between, the Company's expenditures on the development and marketing of
its courses and the receipt of revenues. See "Risk Factors--Fluctuations in
Operating Results."
The Company's revenues and income have also varied significantly from
quarter-to-quarter due to seasonal and other factors. The Company generally
has greater revenue and operating income in the second half of its fiscal year
(April through September) than in the first half of its fiscal year (October
through March). This seasonality is due in part to seasonal spending patterns
of the Company's customers arising from budgetary and other business factors
as well as weather, holiday and vacation considerations. In addition, the
seasonality of the Company's operating results reflects the quarterly
differences in the frequency and size of the Company's direct mail marketing
campaigns. There can be no assurance that these seasonal effects will remain
the same in the future.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased to $46.6 million at June 30, 1996 from
$10.0 million at September 30, 1995, primarily as a result of the $30.8
million of net proceeds received from the Company's initial public offering in
December 1995 and cash provided by operations. For the nine months ended June
30, 1996, cash provided by operations was approximately $14.0 million compared
to $8.1 million during the same period in the prior year. The increase in cash
provided by operations reflects the increase in profitability and increases in
deferred revenues arising from prepaid multi-enrollment programs. At June 30,
1996, the Company had working capital of $33.4 million and had unused
available lines of credit of approximately $464,000.
During the nine months ended June 30, 1996, the Company invested $4.8
million in equipment and leasehold improvements compared to $2.6 million in
the same period of the prior year. This increase is primarily related to
additional course equipment to support the growth in the number of course
events and to upgrade course equipment capabilities. The Company expects to
continue to invest in additional equipment and facilities during the fourth
quarter of fiscal 1996 and in fiscal 1997. In June 1996, the Company entered
into an agreement to either purchase or lease certain office facilities for
its United States subsidiary. As of June 30, 1996, the Company had no other
material future purchase obligations, capital commitments or debt.
Accordingly, management believes that its cash and cash equivalents on-hand
and the cash provided by operations will be sufficient to meet the Company's
cash requirements at least until the end of fiscal 1997.
In the past, the Company has had working capital deficiencies. At September
30, 1995, the Company's working capital deficiency was $1.5 million compared
to $5.7 million at September 30, 1994. The Company's historical working
capital position had been negatively impacted by operating losses, investments
in equipment and increases in deferred revenues arising from the multiple
enrollment programs. In fiscal 1993, 1994 and 1995, the Company invested $2.7
million, $2.0 million and $3.6 million, respectively, in course equipment,
leasehold improvements, information systems and other capital expenditures. In
addition, during fiscal 1994 and 1995, the Company expended $677,000 and
$666,000, respectively on financing activities. Such expenditures were
primarily for repayments of debt and capital leases which were offset, in
part, by sales of Common Stock and collections of stockholder notes. Positive
influences upon the Company's working capital position were cash from
operations and advance customer receipts arising from the multiple enrollment
programs. Net cash provided by operations amounted to $1.2 million in fiscal
1993, $3.6 million in fiscal 1994, and $11.4 million in fiscal 1995. The
increases in cash provided by operations were primarily due to improvements in
profitability during the second half of fiscal 1994 and all of fiscal 1995 and
to increased receipts arising from the prepaid multiple enrollment programs.
23
<PAGE>
BUSINESS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
OVERVIEW
Learning Tree International, Inc. ("Learning Tree" or the "Company"), is a
leading worldwide provider of education and training to IT professionals in
business and government organizations. The Company develops, markets and
delivers a broad, proprietary library of instructor-led course titles focused
on client/server systems, Internet/intranet technologies, computer networks,
operating systems, databases, programming languages, graphical user
interfaces, object-oriented technology and IT management. The Company also
tests and certifies IT professionals in 18 IT job functions, and its courses
are recommended for college credit by the American Council on Education. In
addition to its instructor-led courses, the Company has recently developed and
is expanding a line of multimedia CBT versions of its courses designed for
both stand-alone CD-ROM and network-based delivery. The Company is paid
directly by the employers of its course participants and does not receive
funding from any government aid or loan programs. As a result, the Company
does not depend on government appropriations for those programs and is not
subject to certain governmental regulations.
THE INFORMATION TECHNOLOGY EDUCATION AND TRAINING MARKET
The market for IT training is driven by technological change. As the rate of
this change accelerates, organizations find themselves increasingly hampered
in their ability to exploit the latest information technologies because their
IT professionals lack up-to-date knowledge and skills. Most organizations are
addressing this challenge by retraining their existing IT professionals. An
IDC study estimates that the 1995 worldwide market for IT education and
training was $14.9 billion, of which approximately $10 billion represented the
training of IT professionals. The market for training IT professionals is
driven by several factors including: (i) the proliferation of computers and
networks throughout all levels of organizations; (ii) the shift from legacy
mainframe systems to new client/server technologies; (iii) the continuous
introduction and evolution of new client/server hardware and software
technologies; (iv) the proliferation of Internet and intranet applications;
and (v) corporate downsizing, resulting in increased training requirements for
employees who must perform new job functions or multiple job tasks that
require knowledge of varied software applications and technologies.
Furthermore, since many businesses use hardware and software products provided
by a variety of vendors, their IT professionals require training on an
increasing number of products and technologies which apply across vendors,
platforms and operating systems.
While much of the training for IT professionals continues to be provided by
internal training departments, many organizations are expanding their use of
external training providers due to corporate downsizing, the lack of internal
trainers experienced in the latest technologies and the cost of developing and
maintaining internal training courses in rapidly evolving technologies. The
choice of training delivery formats and providers generally is made by
individual IT professionals or their immediate managers, even in large
organizations. When choosing an IT training provider, IT professionals and
their managers seek a provider who can respond to demanding requirements,
including: (i) high quality training; (ii) course titles that cover a broad
range of topics and skill levels; (iii) the ability to deliver an integrated
training program through multiple delivery formats; (iv) the willingness and
ability to tailor the training to the customer's particular needs;
(v) timeliness of the delivery of course events; (vi) qualified, technically
current instructors; (vii) the willingness to deliver training at convenient
locations, including the customer's business site; (viii) course titles
covering areas undergoing rapid technological change; (ix) an effective
training methodology, which delivers the maximum amount of practical
information in the minimum amount of time; (x) vendor-independent training;
(xi) the ability to provide testing and certification of technical competency;
and (xii) training that covers global implementation of networks and other IT
applications.
24
<PAGE>
IT training is primarily delivered by classroom instructors, video, CBT and
printed means. According to IDC, instructor-led classroom training continues
to dominate the worldwide IT training market, having grown by $4.6 billion
from $6.7 billion in 1990 to $11.3 billion in 1995. The Company believes that
instructor-led training will continue to dominate the market because course
participants value the personalized interaction and problem-solving with their
instructor and fellow participants concerning their specific projects and
applications as well as the insulation from workplace interruptions. However,
the use of desktop-based multimedia and CBT is gaining acceptance in the IT
training market. IDC estimates that the United States market for IT education
and training in multimedia and CBT formats has grown by $484 million from
$230 million in 1990 to $714 million in 1995.
THE LEARNING TREE APPROACH
The Company develops, markets and delivers proprietary course titles
covering a broad range of topics that it believes are designed to meet the
continually evolving training needs of IT professionals worldwide. Its
instructor-led course events take place at the Company's Education Centers, in
hotel and conference facilities, and at customer sites. As of June 30, 1996,
Learning Tree had 98 instructor-led course titles. These course titles are
regularly presented worldwide and cover IT topics such as client/server
systems, Internet/intranet technologies, computer networks, operating systems,
databases, programming languages, graphical user interfaces, object-oriented
technology, IT management and related topics. In February, 1996, the Company
introduced a line of multimedia CBT course titles to complement its
traditional instructor-led format of training. The Company had released ten
CBT course titles as of August 7, 1996.
The Company's courses provide participants with skills and knowledge that
they can immediately apply in their jobs. The course events include extensive
hands-on, interactive exercises using networked classroom computers. Learning
Tree course events typically deliver the equivalent of two semester hours of
college credit in an intensive four-day format, thus minimizing participants'
time away from the job. As of June 30, 1996, the Company had 494 course
instructors who are IT professionals possessing expert knowledge and practical
experience. These instructors work in a variety of industries applying the IT
skills and knowledge that are the subjects of the courses they teach. On
average, they teach approximately eight to nine Learning Tree course events
each year on an "as needed" basis.
Learning Tree places particular emphasis on the quality of its course
offerings. The Company employs a rigorous course development process designed
to ensure that each course title represents multiple points of view concerning
the application of the technology, provides information on different uses of
the technology throughout the world, and provides training that is relevant to
course participants working in diverse applications in a broad range of
industries. Learning Tree also maintains a centralized and ongoing program of
updating its proprietary course titles to maintain the courses' quality and
relevance. The Company tailors its courses for customer-site presentation as
appropriate, and the Company's instructors further adapt the course material
to participants' needs based on feedback received in the classroom.
Learning Tree meets customer demands for scheduling flexibility by holding
course events frequently at multiple locations around the world and by
delivering customer-site course events as required on short notice. The
Company believes that it has the resources to provide a rapid and flexible
response to its customers' needs by utilizing its large team of instructors,
its course development and customization processes, its team of customer
support specialists, its logistics team and its hundreds of classroom computer
workstations. In fiscal 1995, Learning Tree presented an average of over 300
course events per month worldwide.
The Company tests and certifies IT professionals in 18 IT job functions.
Since this program's inception in 1993, over 36,000 participants have
completed one or more certification examinations. In addition, the American
Council on Education recommends Learning Tree course events for college credit
to more than 1,500 North American universities and colleges. See "--Learning
Tree's Products." In the United Kingdom, participation in some Learning Tree
course events may be applied toward post-graduate level university credit.
25
<PAGE>
In response to the decentralized nature of IT training decision making, the
Company has developed a sophisticated direct mail marketing and telemarketing
capability, which it supplements by direct sales to corporations and
government organizations. The Company's direct mail marketing utilizes its
proprietary list of over 1,000,000 IT professionals and managers as well as
rented lists. This capability enables the Company to reach individual
professionals and managers in larger organizations and provides a cost-
effective channel to reach IT personnel in smaller organizations as well. The
Company also uses its Internet Web site (http://www.learningtree.com) to
market and communicate with prospective participants. Information contained in
the Company's Web site shall not be deemed to be part of this Prospectus.
In addition to its instructor-led training business, the Company believes
that opportunities exist in the rapidly growing market for multimedia CBT
training. As a result, the Company has introduced and is expanding its line of
multimedia CBT course titles. The Company's multimedia CBT courses can be
delivered to the workstation either by CD-ROM or over a customer's local area
or wide area networks. The content and instructional design of the Company's
multimedia CBT course titles capitalize on its library of computer-based
classroom course content.
LEARNING TREE'S STRATEGY
The Company's objective is to strengthen its position as one of the leading
providers of IT training worldwide. To achieve this goal, the Company employs
the following key strategies:
Continue Expanding its Library of Proprietary Instructor-led Course
Titles. The Company intends to continue developing additional course titles
and certification programs in order to increase sales to its existing customer
base and to attract new customers. The Company expanded its course library
from 56 titles in fiscal 1993 to 98 titles as of June 30, 1996. The Company
expects to add approximately 12 additional course titles during the remainder
of fiscal 1996. The new course titles introduced and to be introduced during
fiscal 1996 will cover rapidly developing areas such as Internet/intranet
technologies, Java, Windows NT, programming languages, and databases.
Provide Flexible Training Solutions. The Company intends to continue its
strategy of providing training when, where and in the manner desired by the
customer. Participants can attend any of Learning Tree's 98 courses, which on
average are presented once every two weeks around the world. The Company also
presents standard or customized courses on demand at its customers'
facilities, and it has begun to offer its own line of multimedia CBT courses.
Expansion of Multimedia CBT Course Titles. Learning Tree is leveraging its
highly interactive instructor-led educational model through the expansion of
its line of multimedia CBT software. The Company believes that it can leverage
its existing instructor-led course business by (i) developing its multimedia
CBT courses based upon the content of its hands-on classroom courses, (ii)
"piggybacking" the marketing and sales of its multimedia CBT products on its
existing marketing and sales programs, and (iii) providing its customers with
the flexibility to tailor a cost-effective combination of multimedia CBT and
classroom training to meet their needs. The Company also intends to continue
to explore the delivery of its multimedia CBT courses via on-line computer
services and over the Internet.
Leverage its Integrated Marketing and Sales Programs. The Company uses an
integrated strategy of marketing both to individual IT professionals through
its extensive direct mail marketing and Internet capability and to their
employers through its direct sales force. These efforts are supplemented by
its telemarketing sales force. The Company intends to continue increasing the
size of its direct mail marketing campaigns and its sales force to reach a
greater proportion of IT professionals and managers in both large and small
organizations. The Company also intends to leverage its marketing investment
by advertising an increasing number of instructor-led and multimedia CBT
course titles in each direct mail package at relatively small incremental cost
per title.
Build Continuing Relationships. The Company seeks to build continuing
relationships both with its individual course participants and its corporate
customers. The Company expands demand for its course
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events by motivating individual IT professionals to purchase a series of
course events through its Training Passport, Professional Certification and
College Credit Programs. In addition to increasing revenues directly, the
long-term relationships built by these programs encourage participants to
recommend the Company's course events to their colleagues. The Company also
seeks to create ongoing relationships with its largest U.S. and international
customers through its Training Advantage Program. These annually renewable
agreements allow all the employees of Training Advantage customers to receive
training and special services at negotiated prices.
Leverage International Operations. The Company intends to continue to expand
its international business, which accounted for approximately 55% of its
revenues in fiscal 1995. The Company's centrally-developed course titles
currently are translated into French, Swedish and Japanese and sold through
its operations in Great Britain, France, Canada, Sweden and Japan to customers
in those and other countries. The Company intends to open Education Centers in
additional territories as justified by increases in local demand.
LEARNING TREE'S PRODUCTS
Learning Tree courses are designed to be highly interactive. Most of its
instructor-led, classroom courses involve "hands-on" training on networked
Pentium-based or 486 workstations, which allow participants to practice and
better assimilate the skills being taught. Participants spend a significant
portion of each course working on computer-based exercises and participating
in group workshops. Each participant typically receives extensive course
materials that facilitate learning and serve as a post-course reference. The
Company's new line of multimedia CBT products are also designed to teach
students through interaction, and its multimedia CBT course titles incorporate
interactive "learn-by-doing" activities based on the Company's existing
classroom courses.
Instructor-led Courses. Learning Tree strives to build job-related curricula
by developing a sequence of course titles that create a cohesive program which
imparts the skills and knowledge required to perform particular job functions.
Each job-related curriculum is comprised of course titles that proceed from
introductory to advanced, and cover the breadth and depth of skills and
knowledge required for a particular job. At June 30, 1996, Learning Tree's
course library included 98 proprietary course titles comprising over 2,000
hours of classroom instruction. This course library is recommended for over
206 semester hours of undergraduate and graduate level college credit in
information systems by the American Council on Education (the "ACE"). In the
Company's experience, the final decision of each college or university to
grant or deny credit for the Company's courses as recommended by the ACE is
made on a case-by-case basis, taking into account a variety of factors such as
the academic standing of the student making the request, the requirements of
the particular degree program and limits on the number of credits that may be
obtained outside of the college or university. Subject to these rules
generally applicable to transfer credits, the Company believes that its course
participants have generally been granted credit upon application. The
following chart presents the Company's 98 proprietary course titles, and the
12 additional courses under development as of June 30, 1996:
<TABLE>
<CAPTION>
CURRICULUM COURSES
- ---------- -------
<S> <C>
Client/Server Introduction to Open Systems
Introduction to Client/Server Computing
Distributing Data in Client/Server Systems
Client/Server Application Development--Hands-On
Client/Server Systems: Analysis and Design
Managing and Supporting Client/Server Systems--Hands-On*
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
CURRICULUM COURSES
- ---------- -------
<S> <C>
Internet/Intranet Tech- Internet and System Security
nologies
Internet for Business Applications--Hands-On
Developing a Web Site--Hands-On
Java Programming--Hands-On
- -----------------------------------------------------------------------------
Windows Windows Networking--Hands-On*
Windows Configuration--Hands-On
Windows 95 Support and Networking--Hands-On
Windows NT Workstation and Server--Hands-On
TCP/IP Internetworking on Windows NT--Hands-On
Microsoft System Management Server--Hands-On
Microsoft Exchange--Hands-On*
UNIX and Windows NT Integration--Hands-On*
Netware to Windows NT Migration--Hands-On
Microsoft SQL Server Introduction--Hands-On
Microsoft SQL Server System Administration--Hands-On
- -----------------------------------------------------------------------------
Local Area Networks Local Area Networks
PC Networking--Hands-On
LAN Troubleshooting--Hands-On
High-Performance Cabling Systems
Fast LAN Technologies
- -----------------------------------------------------------------------------
NetWare NetWare 3.x Administration--Hands-On
NetWare 3.x Advanced Administration--Hands-On
NetWare 3.x Installation and Configuration--Hands-On
Updating from NetWare 3.x to NetWare 4.x--Hands-On
NetWare 4.x Administration--Hands-On
NetWare 4.x Advanced Administration--Hands-On
NetWare 4.x Installation & Configuration--Hands-On
NetWare 4.x Design and Implementation--Hands-On
NetWare 4.x Service and Support--Hands-On
Networking Technologies
TCP/IP for NetWare--Hands-On
- -----------------------------------------------------------------------------
Wide Area Networks Introduction to Datacomm and Networks
Network Planning, Support and Management
Computer Network Architectures and Protocols
X.25--Hands-On
Wide Area Networks Troubleshooting--Hands-On
SNMP--Hands-On
- -----------------------------------------------------------------------------
Internetworking Multivendor Networking
Internetworking: Bridges and Routers
Routers--Hands-On*
Introduction to TCP/IP--Hands-On
Internetworking with TCP/IP--Hands-On
- -----------------------------------------------------------------------------
Operating Systems X Window System Programming--Hands-On
TCP/IP Programming--Hands-On
UNIX Programming--Hands-On
UNIX--Hands-On
UNIX Tools and Utilities--Hands-On
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
CURRICULUM COURSES
- ---------- -------
<S> <C>
Operating Systems (con- UNIX Workstation Administration--Hands-On*
tinued)
UNIX Server Administration--Hands-On*
UNIX System and Network Administration--Hands-On
OS/2 Warp--Hands-On
- -----------------------------------------------------------------------------------
Telecommunications Telecommunications and Wide Area Networking
ISDN for Data Communications--Hands-On*
Introduction to ISDN
Wireless Networks
High-Speed Wide Area Networks
Implementing Fiber-Optic Communications
- -----------------------------------------------------------------------------------
Database Systems Relational Databases
Sybase SQL Server--Hands-On
Building a Data Warehouse--Hands-On*
Oracle7--Hands-On
Oracle7 for Database Administrators--Hands-On
Oracle7 for Application Developers--Hands-On
Tuning Oracle7 Applications--Hands-On
Complex SQL Queries--Hands-On
Oracle Forms--Hands-On
Oracle Reports--Hands-On
PowerBuilder 5 and Oracle7--Hands-On*
Lotus Notes Application Development--Hands-On
Lotus Notes System Administration--Hands-On*
- -----------------------------------------------------------------------------------
PC Support PC Configuration and Troubleshooting--Hands-On
Advanced PC Configuration--Hands-On
Macintosh Troubleshooting--Hands-On
- -----------------------------------------------------------------------------------
Graphical User Inter- Windows Programming--Hands-On
faces and Programming
Visual C++--Hands-On
Client/Server and System Programming for Windows--Hands-On
Advanced Windows Programming With MFC--Hands-On
Windows Open Services Architecture--Hands-On
Visual Basic--Hands-On
Microsoft Access--Hands-On
Integrating MS Office Applications--Hands-On
PowerBuilder--Hands-On
Visual Basic 4 for Enterprise Applications--Hands-On
C Programming--Hands-On
C Advanced Programming--Hands-On
C++ Object-Oriented Programming--Hands-On
Advanced C++ Programming--Hands-On
C++ for Non-C Programmers--Hands-On*
Ada 95 Programming--Hands-On
Distributed Programming Using DCE--Hands-On
- -----------------------------------------------------------------------------------
Software Development Object-Oriented Analysis and Design
Methods
Software Quality Assurance
Identifying User Requirements
Practical Software Testing Methods
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
CURRICULUM COURSES
- ---------- -------
<S> <C>
Software Development Methods Specifying and Managing Software Requirements
(continued)
Software Systems Analysis and Design
Software Project Planning and Management
Software Configuration Management
Systems Engineering
- ---------------------------------------------------------------------------
IT Soft Skills Business Process Re-engineering
Effective Skills for Technical Managers
Project Management--Hands-On
Influence Skills
Negotiating Skills
</TABLE>
- --------
* Course title under development as of June 30, 1996.
The Company presents its classroom courses at Learning Tree Education
Centers in Boston, Los Angeles, Washington D.C., Toronto, Ottawa, London,
Paris and Stockholm, as well as in rented hotel or conference centers in other
cities worldwide. The Company's Education Centers include 55 classrooms that
have been custom-designed to accommodate the technical demands of Learning
Tree's computer-based courses, including electronic projection of computer
screens, local area networks within the classroom, and multimedia presentation
capability.
In addition to the foregoing course titles, the Company also develops
courses for presentation at customer sites. These courses typically are
customized to cover particular topics and applications requested by the
customer. Learning Tree typically provides all of the software, hardware and
networking systems required for use in customer-site courses.
Multimedia CBT Courses. In February 1996, Learning Tree introduced a line of
multimedia CBT course titles based on the interactive content of its computer-
based classroom courses. The Company believes that the adaptation of its
classroom courses to the multimedia CBT format can be accelerated by the
incorporation of the proven hands-on exercises from its classroom courses, its
accumulated experience with course participants and by utilizing its large
instructor team as subject matter experts to support the process. The Company
designed its multimedia CBT courses to be interactive using a common interface
across all course titles. In addition, the Company structures its multimedia
CBT courses to complement its classroom-based offerings, thereby providing IT
professionals with the flexibility to learn and reinforce a given set of
skills and knowledge, from introductory to advanced levels, through a
combination of multimedia CBT and hands-on classroom-based training. The
Company's multimedia CBT courses are delivered to the workstation either by
CD-ROM or over the customer's local area network.
The Company has also developed LearnTrack, a CBT management software package
that provides training administrators with the capability to install and
distribute Learning Tree and third-party CBT courses, enroll participants in
the courses, monitor usage and print reports on course utilization, learner
progress and course completion.
To obtain greater control over the multimedia CBT development process,
course quality and costs of development, the Company has expanded its in-house
multimedia CBT development team and discontinued the use of outside CBT course
developers. Since introducing its first multimedia CBT course title in
February 1996, the Company has released ten multimedia CBT course titles as of
August 7, 1996. The Company began the initial marketing of its multimedia CBT
product line in January 1996, and intends to expand these sales and marketing
activities commensurate with the growth of titles in its multimedia CBT
library. While the Company continues to anticipate that its revenues in fiscal
1996 will be derived almost exclusively from instructor-led training, to date
the Company has received orders from approximately 200 corporate and
government customers for its multimedia CBT courses. The actual number of
titles which the Company will produce and their delivery dates are subject to
a number of factors such as the hiring and training of additional
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<PAGE>
staff, continued refinements in the development and production process and the
availability of subject matter experts who are also responsible for developing
and teaching the Company's instructor-led courses. See "Risk Factors--Risks
Associated With Growth of CBT Courses." Following is a summary of multimedia
CBT course titles available as of August 7, 1996:
<TABLE>
<CAPTION>
CURRICULUM COURSES
- ---------- -------
<S> <C>
Client/Server Client/Server Computing
- -------------------------------------------------------------------------------
Microsoft Windows and Installing and Using Windows 95
Windows NT
Introduction to Windows NT
- -------------------------------------------------------------------------------
Local Area Networks Local Area Networks
- -------------------------------------------------------------------------------
Internetworking Internetworking: Bridges and Routers
Introduction to TCP/IP
- -------------------------------------------------------------------------------
UNIX UNIX Basic Concepts and Usage
- -------------------------------------------------------------------------------
PC Support Introduction to PC Configuration and Troubleshooting
- -------------------------------------------------------------------------------
Graphical User Interfaces Windows Programming with Visual C++ and MFC
and Programming
Introduction to Visual Basic--Hands-On
</TABLE>
DEVELOPMENT OF INSTRUCTOR-LED, CLASSROOM COURSES
Learning Tree endeavors to identify and develop course titles that satisfy a
large market demand. Learning Tree seeks to accomplish this by (i) building
close working relationships with the development groups of leading IT vendors
in order to obtain information on upcoming products, (ii) canvassing its
expert instructors to identify general market trends and specific topics
within existing course titles that can be expanded to serve as new courses,
(iii) holding periodic discussions with its Training Advantage customers to
determine their upcoming project plans and training requirements, and (iv)
conducting market surveys of the Company's course participants. Moreover, the
members of executive management of the Company have strong IT educational and
professional backgrounds and stay closely involved with the course selection
and development process. See "Management--Executive Officers and Directors."
Each Learning Tree course title is developed by a team comprised of a
product manager who manages the project and instructional design process, a
product marketing manager, and three subject matter experts who generally are
selected from the Learning Tree author and instructor team. Learning Tree
endeavors to select a group of experts from different countries and industries
and with complementary applications backgrounds. The Company believes that its
use of a team of experts provides multiple points of view concerning the
application of the subject technology, information on different uses of that
technology throughout the world, and training that is relevant to course
participants working in diverse applications in a broad range of industries
worldwide. The result is a set of proprietary course materials and several
hundred pages of presentation graphics for each course. To ensure its courses
meet the needs of the market place and provide a high quality of instruction,
the Company requests that each course participant complete an evaluation of
the course and the instructor. Learning Tree course titles are updated
regularly to incorporate new technology and to improve their educational
effectiveness. Learning Tree courses currently are translated into French,
Japanese and Swedish and are taught by nationals in the local language in the
Company's United States, Canadian, United Kingdom, French, Swedish and
Japanese subsidiaries.
The Company has refined its development process and implemented support
systems in order to reduce its typical course development time from seven
months in fiscal 1993 to less than five months in fiscal 1995. As a result of
these efforts, Learning Tree has substantially increased the number of its
course titles from 56 in fiscal 1993 to 87 at September 30, 1995 and 98 at
June 30, 1996.
31
<PAGE>
LEARNING TREE INSTRUCTORS
The Company believes that its instructors are vital to its success. Learning
Tree instructors work either full-time for companies or as independent
consultants in a variety of industries applying the IT skills and knowledge
that are the subjects of the courses they teach. On average, the Company's
instructors have approximately 20 years of industry experience and teach an
average of eight to nine Learning Tree courses each year as needed. At June
30, 1996, the Company had 494 instructors.
The Company's future success will also depend on its ability to attract and
retain highly-skilled instructors. Each Learning Tree subsidiary has an
Instructor Resources Department that follows a formal process to recruit,
train, coach and manage its instructor team. The Company identifies new
instructor candidates primarily through referrals from its existing
instructors. Instructor candidates undergo a rigorous technical evaluation
prior to participating in Learning Tree's proprietary instructor training
program. The Company believes that its instructor force is relatively stable,
and its recruitment and training program focuses primarily on expanding the
Company's instructor staff to meet growing market demand. There can be no
assurance that the Company will be successful in these recruitment and
training efforts. See "Risk Factors--Dependence on Key Personnel."
CUSTOMERS
Learning Tree has developed a broad customer base focusing on Fortune 1000-
level companies and their international equivalents and government
organizations worldwide. In fiscal 1995, its over 60,000 course participants
were employed by approximately 5,800 organizations. The Company benefits from
a high level of recurring sales; of the Company's 100 largest fiscal 1993
worldwide customers, 98 were customers in fiscal 1995. In fiscal 1995, the
Company derived approximately 55% of its revenues internationally and 45% in
the United States.
32
<PAGE>
The Company's customers generally operate in the computer, communications,
electronics, systems integration, finance, aerospace, military, manufacturing,
and energy sectors, and a number of the customers are government
organizations. The Company's larger customers worldwide include the following
organizations that have purchased between $100,000 and $1.8 million of
Learning Tree training in fiscal 1995. The revenues from these individual
customers range from less than 1% to a high of 2.3% of the Company's fiscal
1995 revenues. Generally each customer purchased this training throughout the
year in individual purchase decisions ranging from $2,000 to $20,000 rather
than through a single contract.
Alcatel Ford Motor Company NYNEX
Amadeus France Telecom Ontario Hydro
Andersen Consulting GEC Pacific Telecom
Asea Brown Bovari General Electric Perot Systems
AT&T Hewlett-Packard Prudential
Automobiles Peugeot Hitachi Reuters
Barclays Bank Hughes Revenue Canada
Bell Atlantic IBM Royal Bank of Scotland
Boeing Intel Royal Canadian Mounted
Police
British Gas Internal Revenue Service
Shell Oil
British Telecom JP Morgan
Siemens
Bull Kodak
Sprint
Control Data Lockheed Martin
Sybase
Credit Lyonnais Matra Communications
Thomson-CSF
CSC Ministry Of Defence (UK)
Transport Canada
Dassault Mobil
UNISYS
Digital Motorola
US Air Force
EDS NASA
US Army
E.I. DuPont National Institutes of
Health US Navy
Electricite de France
(EDF) National Westminster US WEST
Bank
Ericsson VISA International
Network Systems Corp.
Federal Aviation The World Bank
Administration Nixdorf Computer
Xerox
Federal Reserve System Nortel
MARKETING AND SALES
Direct Mail Marketing and Advertising. Learning Tree markets its courses
primarily through direct mail marketing to its proprietary mail list of over
1,000,000 individuals (including course participants, their immediate
supervisors, department managers, training managers, and other people who have
inquired about the Company's courses) as well as to rented mailing lists of IT
professionals. By advertising all of its courses in a single mailing package,
the Company has been able to reduce its mailing cost per course title as it
has increased the number of its course titles. The Company anticipates that
including promotional materials for its multimedia CBT product line in its
mailing package can be accomplished at a relatively low incremental cost. The
Company also advertises in industry trade magazines and periodicals.
The Company believes that it achieves economies of scale by producing its
marketing materials centrally. Its centralized marketing department develops
the Company's catalogs, brochures and advertisements using
33
<PAGE>
color desktop publishing and electronic pre-press technology to create the
files used to produce direct full-color film for plate-making. This in-house
capability enables the Company to make quick improvements to its marketing
materials in order to feature the latest technological developments and
address market opportunities in a timely manner.
The Company has built a strong brand image through the frequent and
prominent use of its trademarks in its marketing materials and course
materials. These trademarks include the Learning Tree and professional
certification logos, its name, and its trademarks, including EDUCATION IS OUR
BUSINESS(R), EDUCATION YOU CAN TRUST(R), WE BRING EDUCATION TO LIFE(R),
PRODUCTIVITY THROUGH EDUCATION(R), Alumni Gold(TM), LearnTrack(TM), Training
Passport(R), Training Advantage(R), 800-THE-TREE(R) and 800-LRN-TREE(R).
Internet Marketing. The Company maintains a web site
(http://www.learningtree.com) for marketing its products and services over the
Internet. Information contained in the Company's Web site shall not be deemed
to be part of this Prospectus. The Company believes that the Internet will
become an increasingly significant marketing channel to prospective IT course
participants in the future.
Telemarketing Sales Force. At June 30, 1996, Learning Tree's telemarketing
sales force consisted of over 70 people who were responsible for responding to
phone, e-mail, Web site and facsimile orders and inquiries received by the
Company and pursuing sales opportunities. These telemarketers sell both to
individual prospective course participants, and to line managers and training
directors in assigned accounts. The Company has developed a proprietary
automated system which is integrated with its customer and course operations
databases and provide its telemarketers with on-line information that
facilitates rapid response to inbound callers, provides targeted lists for
outbound calling, records the results of calls and automates the sales follow-
up process. The Company believes its telemarketing sales force has been
instrumental to the Company's success in selling its multiple-enrollment
Training Passport programs.
Field Sales Force. The Learning Tree field sales force, which consisted of
over 40 sales people at June 30, 1996, generates a significant portion of the
Company's revenues. The field sales force concentrates its attention on the
Company's larger customers to sell multiple course customer-site training
programs, and to sign Training Advantage Agreements covering all formats of
Learning Tree training. The Company's Training Advantage Agreements provide
its nationwide and international customers with negotiated pricing and special
services.
The field sales force is assisted by the Company's Customer Support Group
which provides the administration and logistics support necessary to ensure
the successful presentation at the customer's site of Learning Tree's hands-
on, computer-based classroom courses. For large contracts requiring
customization, the customer support staff serve as team leaders to coordinate
rapid and effective cooperation between the instructor(s) which modify and
teach the courses, the internal development team who implements the changes,
the Company's technical support group which modifies the course hardware and
software as needed, and the logistics staff which assembles and ships course
equipment and materials for each course event.
Multiple Enrollment Programs. In March 1993, the Company introduced its
Training Passport program to encourage course participants to enroll in
multiple courses, and thereby increase the average attendance in its Learning
Tree-site courses. As the program is presently constituted, the holder of a
Learning Tree Training Passport may attend up to 8 courses (10 in the United
Kingdom and France) during a 12-month period. The list price for the Training
Passport is approximately three times the list price for an individual four-
day course.
The Company has also developed the Learning Tree Professional Certification
Programs for certifying IT professionals in 18 job functions in the areas of
the Company's focus. Professional certification is important to many
participants in Learning Tree courses as it provides documentation of their
qualifications. Each professional certification program requires completion of
a series of five Learning Tree courses and an examination associated with each
course. Since this program's inception in fiscal 1993, over 36,000
participants have completed one or more certification examinations.
34
<PAGE>
COMPETITION
The IT education and training market is highly fragmented, with low barriers
to entry and no single competitor accounting for a dominant market share.
According to a 1994 IDC study, internal company training departments were the
largest providers of training and education for IT professionals, delivering
35% of such services, with independent education and training companies
delivering 30%, technology manufacturers delivering 18%, systems integrators
delivering 10%, and other sources delivering the remaining 7%. Some of these
competitors offer course titles and programs similar to those of the Company
at lower prices. In addition, some competitors have greater financial and
other resources than the Company.
Internal Training Departments. Internal IT training departments generally
provide companies with the most control over the method and content of
training, enabling them to tailor the training to their specific needs.
However, the Company believes that industry trends toward downsizing and
outsourcing continue to reduce the size of IT training departments and
increase the percentage of IT training delivered by external providers.
Because internal trainers find it increasingly difficult to keep pace with new
technologies, lack the hands-on experience needed to teach the latest
technological developments, and lack the capacity to meet demand,
organizations increasingly supplement their internal training resources with
externally supplied training in order to meet their requirements.
Other Independent Education and Training Providers. The Company believes
that the majority of independent training providers are smaller organizations,
which often provide training as one of several services or product lines. Many
are "Authorized Training Centers" which present courses utilizing materials
prepared by computer hardware and software vendors such as Novell and
Microsoft. The Company differentiates itself from these providers based on its
size; scope and quality of its proprietary course offerings; worldwide
delivery capability; number, quality and experience of its instructors; and
vendor independence.
Computer Hardware and Software Vendors. Many hardware and software vendors
supply training bundled in the prices of their product. In addition, their
knowledge of upcoming developments in their products is likely to be better
than that of other training providers. Learning Tree differentiates itself
from computer systems manufacturers and software vendors by maintaining a
vendor-independent posture, and providing cross-platform training solutions.
CBT Providers. In February 1996, the Company introduced a line of multimedia
CBT products but anticipates that substantially all of the Company's revenue
in fiscal 1996 will be derived from its instructor-led, hands-on training
courses. In the CBT market, many of the Company's current and potential
competitors have substantially greater financial, technical, sales, marketing
and other resources, as well as greater name recognition in the CBT area than
the Company. In addition, the CBT area is characterized by significant price
competition. As a greater number of CBT providers enter the field, the Company
anticipates that it will face price pressure from competitors. The Company
differentiates itself from other CBT providers based on its field sales,
telemarketing and direct mail sales and marketing channels, its reputation for
providing quality training, the content of its multimedia CBT courses, the
frequent feedback the Company receives about its course content and teaching
methods from its established customer base, and its ability to provide users
with the flexibility to acquire a given set of skills and knowledge through
either multimedia CBT or classroom-based training or an integrated combination
of the two. However, there can be no assurance that the Company's products
will be more favorably viewed by the marketplace than other interactive
training software or that competitive pressures will not require the Company
to reduce its prices significantly. See "Risk Factors--Risks Associated With
Growth of CBT Courses."
INTELLECTUAL PROPERTY AND LICENSES
The Company regards its course development process and its course titles as
proprietary and relies primarily on a combination of statutory and common law
copyright, trademark and trade secret laws, customer licensing agreements,
employee and third-party nondisclosure agreements and other methods to protect
its
35
<PAGE>
proprietary rights. Notwithstanding the foregoing, a third party or parties
could copy or otherwise obtain and use the Company's course materials in an
unauthorized manner or use these materials to develop course titles which are
substantially similar to those of the Company. In addition, the Company
operates in countries that do not provide protection of proprietary rights to
the same extent as the United States. The Company's course materials generally
do not include any mechanisms to prohibit or prevent unauthorized use. If
substantial unauthorized use of the Company's products were to occur, the
Company's business and results of operations could be materially adversely
affected. There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar course titles or delivery methods. Additionally,
there can be no assurance that third parties will not claim that the Company's
current or future courses infringe on the proprietary rights of others. The
Company expects that it will be increasingly subject to such claims as the
number of products and competitors increases in the future. Any such claim
could result in a material adverse effect on the Company's business. See "Risk
Factors--Risks Associated With Intellectual Property."
REGULATORY ENVIRONMENT
Many federal, state and international governmental authorities assert
authority to regulate providers of educational programs. Generally, the
Company is exempt from such regulation because the Company contracts with the
employer of the course participants and does not participate in any federal or
state student aid/loan programs. If, in the future, the Company were required
to comply with, or found to be in violation of, a state's current or future
licensing or regulatory requirements, it could be subject to civil or criminal
sanctions, including monetary penalties, and could be barred from providing
educational services in that state. See "Risk Factors--Risks Associated With
State Authorization and Accreditation."
LITIGATION
The Company is not involved in any pending or threatened legal proceedings
that the Company believes could reasonably be expected to have a material
adverse effect on the Company's financial condition or results of operations.
EMPLOYEES
As of June 30, 1996, the Company had a total of 359 full-time employees, of
which 153 were employed outside the United States, as well as 494 instructors
to teach its courses. The Company considers its relations with its employees
to be good.
FACILITIES
As of June 30, 1996, all Learning Tree facilities were leased by the
Company. The leases expire at various times over the next ten years. Although
the Company believes that its facilities, as well as its rented hotel and
conference facilities, are adequate to meet its current needs, the Company has
recently purchased a 37,000 square foot facility for its U.S. subsidiary and
has entered into a letter of intent to lease an additional 11,000 square feet
for its Los Angeles headquarters. The Company intends to lease additional
facilities for a number of its subsidiaries in the foreseeable future. The
Company's headquarters is located at 6053 West Century Boulevard, Los Angeles,
California 90045. The table below sets forth certain information regarding
Learning Tree facilities--classroom sites and offices--as of June 30, 1996:
<TABLE>
<CAPTION>
LOCATION NO. OF AREA IN
(METROPOLITAN AREA) CLASSROOMS SQUARE FEET
- ------------------- ---------- -----------
<S> <C> <C>
Los Angeles, CA... 3 34,145
Boston, MA........ 2 5,555
Washington, DC (3
sites)........... 13 43,869
Santa Clara, CA... N/A 150
</TABLE>
<TABLE>
<CAPTION>
LOCATION NO. OF AREA IN
(METROPOLITAN AREA) CLASSROOMS SQUARE FEET
- ------------------- ---------- -----------
<S> <C> <C>
Paris, France..... 12 36,814
London, England (2
sites)........... 13 33,577
Toronto, Canada... 4 10,830
Ottawa, Canada.... 4 13,895
Stockholm,
Sweden........... 4 9,149
Tokyo, Japan...... N/A 646
</TABLE>
36
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information regarding the executive officers
and directors of the Company as of June 30, 1996. Biographical information for
each of the persons set forth in the table is presented below.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
David C. Collins(1)...... 55 Chairman of the Board of Directors and Chief
Executive Officer
Eric R. Garen............ 49 President and Director
Max S. Shevitz........... 41 Executive Vice President and Director
Gary R. Wright........... 39 Vice President, Finance, Chief Financial Officer and
Secretary
Mary C. Adams............ 40 Vice President, Administration, Investor Relations
and Assistant Secretary
W. Mathew Juechter(1)......63.Director
Michael W. Kane(1)....... 45 Director
Alan B. Salisbury........ 59 Director and President and General Manager, Learning
Tree International USA, Inc.
</TABLE>
- --------
(1)Member of the Audit Committee and the Compensation Committee.
Dr. Collins, a co-founder of the Company, has been Chairman of the Board and
Chief Executive Officer since the Company's business began in 1974 (under the
name Integrated Computer Systems Publishing Co., Inc.). Dr. Collins has a
Bachelor of Science degree (with distinction) in Electrical Engineering from
Stanford University, and Masters and Ph.D. degrees in Electrical Engineering
from the University of Southern California.
Mr. Garen, a co-founder of the Company, has served first as Executive Vice
President and then as President of the Company since the Company's business
began in 1974. Mr. Garen holds a Bachelors degree in Electrical Engineering
from the California Institute of Technology and a Masters degree in Computer
Science from the University of Southern California, both with honors.
Mr. Shevitz has been Executive Vice President of the Company since July
1994, and was General Manager of Learning Tree International U.S.A, Inc., a
subsidiary of the Company, from September 1988 to December 1993. From January
to July 1994, Mr. Shevitz was Executive Vice President at Sigma International,
Inc., a customer service training company. From 1986 to 1988, Mr. Shevitz was
the founder and President of MD Technology, Inc., a medical diagnostic
equipment company.
Mr. Wright has been Vice President, Finance and Chief Financial Officer of
the Company since January 1995, and from January 1990 to that time he was
Corporate Controller of the Company. From April 1983 to January 1990, Mr.
Wright was employed by The Flying Tiger Line Inc. and its parent company,
Tiger International, Inc., a publicly-held transportation company, where he
held a variety of financial executive positions, including Assistant
Controller and Director of Financial Reporting. Prior to April 1983, Mr.
Wright worked at the public accounting firm of Arthur Andersen LLP. Mr. Wright
is a certified public accountant.
Ms. Adams has served as Vice President, Administration since September 1995.
She began her association with the Company in September 1975 and has held a
variety of positions in the Company. Ms. Adams is also the President of
Advanced Technology Marketing, Inc., a wholly-owned subsidiary of the Company,
and manages the Company's Investor Relations Department.
37
<PAGE>
Mr. Juechter has been a director of the Company since June 1987. Since 1991,
he has been the Chief Executive Officer of ARC International Ltd., a
management consulting and training company. From 1986 to 1991, Mr. Juechter
was Managing Director of IRA, Inc. in St. Paul, Minnesota, a management
consulting company. Mr. Juechter was President and Chief Executive Officer of
Wilson Learning Corp., a multi-national training organization, from 1977 to
1986. From 1989 to 1995, Mr. Juechter served as President of the Board of
Governors of the American Society for Training and Development (ASTD).
Dr. Kane has served as a director of the Company since February 1995. Since
1991, he has been President and Chief Executive Officer of M. Kane & Company,
Inc., an investment banking firm focusing primarily on technology companies.
From 1987 to 1988, he was an investment banker with L.F. Rothschild & Co.,
Inc. and from 1988 to 1991 was an investment banker with Oppenheimer & Co.,
Inc. From 1984 to 1987, he practiced primarily corporate and securities law
with the law firm of Irell & Manella (corporate counsel to the Company), and
prior to that he was a Project Leader in the Systems Sciences Department of
The Rand Corporation and was an independent consultant to the satellite
telecommunications industry. Dr. Kane has a Bachelor of Arts degree in
Political Science from the University of Wisconsin--Madison and a Master's
degree in International Relations, a Ph.D. degree in Political Science and a
J.D. degree from the University of California, Los Angeles.
Dr. Salisbury has been President and General Manager of Learning Tree
International (USA), the Company's operating subsidiary in the United States,
since April 1993. From 1991 until he joined the Company in 1993, Dr. Salisbury
was Chief Operating Officer of Microelectronics and Computer Technology
Corporation (MCC), an organization involved in the research and development of
IT products located in Austin, Texas; and from 1987 to 1991, he was President
of the Contel Technology Center, the research and development group of an
independent telephone company located in Chantilly, Virginia. Dr. Salisbury is
a director of Sybase, Inc., a database software developer and Telepad
Corporation, a computer manufacturer. The author of numerous books and
articles related to information technology and training, Dr. Salisbury served
in the United States Army from 1958 to 1987, when he retired as Commanding
General of the U.S. Army Information Systems Engineering Command. He holds a
Bachelor of Science degree (with distinction) from the U.S. Military Academy,
and Masters and Ph.D. degrees in Electrical Engineering and Computer Science
from Stanford University.
David C. Collins and Mary C. Adams are married. There are no other family
relationships among any of the directors or executive officers of the Company.
BOARD OF DIRECTORS
The Company's Board of Directors has six members and is divided into three
classes. The term of office of one class of directors expires each year in
rotation so that one class is elected at each annual meeting of stockholders
for a full three-year term. However, the initial term of the first two classes
will expire at the annual meeting of stockholders to be held in 1997; and the
initial term of the third class will expire at the annual meeting of
stockholders to be held in 1998. Alan B. Salisbury and W. Mathew Juechter are
members of the first class; Max Shevitz and Michael W. Kane are members of the
second class; and David C. Collins and Eric R. Garen are members of the third
class. At each annual meeting of the stockholders, directors will be elected
for a three-year term to succeed the directors whose terms are then to expire.
The Company's officers serve at the discretion of the Board of Directors.
Directors' Compensation. No director who is an employee of the Company is
compensated for service as a member of the Board of Directors or for service
on any committee of the Board of Directors. Compensation for non-employee
directors (other than committee chairpersons) consists of a monthly retainer
of $1,000. Compensation for non-employee chairpersons of committees consists
of an annual retainer of $3,000. Compensation for all non-employee directors
also consists of a $500 fee for each Board meeting and a $250 fee for each
Committee meeting attended. Directors are reimbursed for travel and out-of-
pocket expenses incurred on behalf of the Company.
38
<PAGE>
Committees of the Board of Directors. The Board of Directors of the Company
has established an Audit Committee and a Compensation Committee.
Audit Committee. The Audit Committee will support the independence of the
Company's external and internal auditors and the objectivity of the Company's
financial statements. The Audit Committee will (a) review the Company's
principal policies for accounting, internal control and financial reporting,
(b) recommend to the Company's Board of Directors the engagement or discharge
of the external auditors, (c) review with the external auditors the plan,
scope and timing of their audit and (d) review the auditors' fees and, after
completion of the audit, review with management the external auditors' report.
The Audit Committee will also review, before publication, the annual financial
statements of the Company, the independence of the external auditors, the
adequacy of the Company's internal accounting control system, and the
Company's policies on business integrity and ethics and conflicts of interest.
The Audit Committee will also perform a number of other review functions
related to auditing the financial statements and internal controls. The
current members of the Audit Committee are Michael W. Kane, W. Mathew Juechter
and David C. Collins.
Compensation Committee. The Compensation Committee will (a) review and make
recommendations to the Company's Board of Directors with respect to the direct
and indirect compensation and employee benefits of the Chairman, President and
other elected officers of the Company, (b) review, administer and make
recommendations to the Company's Board of Directors with respect to any
incentive plans and bonus plans that include elected officers and (c) review
the Company's policies relating to the compensation of senior management and
other employees. In addition, the Committee will review management's long-
range planning for executive development and succession, establish and
periodically review policies on perquisites and perform certain other review
functions relating to management compensation and employee relations policies.
The members of the Compensation Committee are Michael W. Kane, W. Mathew
Juechter and David C. Collins.
Compensation Committee Interlocks and Insider Participation. During the
fiscal year ending September 30, 1995, the Company did not have a compensation
committee. All matters concerning executive compensation were addressed by Dr.
Collins and Mr. Garen.
39
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to
compensation for the Company's Chief Executive Officer and the three most
highly compensated executive officers of the Company with annual compensation
in excess of $100,000 during the fiscal year ended September 30, 1995:
SUMMARY COMPENSATION TABLE FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
----------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(2)
--------------------------- ----------- ----------- ---------------
<S> <C> <C> <C>
David C. Collins....................... $ 300,000 $ 215,115 $4,560
Chairman of the Board of Directors and
Chief Executive Officer
Eric R. Garen.......................... 300,000 215,115 4,560
President and Director
Max S. Shevitz......................... 100,000 323,222 4,518
Executive Vice President and Director
Gary R. Wright......................... 140,000 42,138 2,165
Vice President--Finance and Chief
Financial Officer and Secretary
Alan B. Salisbury...................... 174,695 180,717 4,749
President and General Manager, Learning
Tree International USA, Inc. and
Director
</TABLE>
- --------
(1) Certain of the Company's executive officers receive personal benefits in
addition to salary and cash bonuses, including car allowances. The
aggregate amount of such personal benefits, however, does not exceed the
lesser of $50,000 or 10% of the total of the annual salary and bonus
reported for the named executive officers.
(2) These amounts represent contributions made by the Company to a defined
contribution plan.
STOCK OPTION PLAN
In September 1995, the Company adopted the 1995 Stock Option Plan (the
"Stock Option Plan"), which provides for the issuance of incentive stock
options within the meaning of Section 422 of the Code and non-qualified stock
options to purchase an aggregate of up to 1,500,000 shares of the Common Stock
of the Company. The Stock Option Plan permits the grant of options to
officers, employees, directors and consultants of the Company.
The Stock Option Plan is administered by a committee of the Board of
Directors (the "Committee") composed of Mr. Garen and Dr. Collins, who are not
eligible to participate in the Plan. Each option will be evidenced by written
agreement in a form approved by the Committee. No options granted under the
Stock Option Plan will be transferable by the optionee other than by will or
by the laws of descent and distribution, and each option will be exercisable,
during the lifetime of the optionee, only by the optionee.
Under the Stock Option Plan, the exercise price of an incentive stock option
must be at least equal to 100% of the fair market value of the Common Stock on
the date of grant (110% of the fair market value in the case of options
granted to employees who hold more than ten percent of the voting power of
Company's capital stock on the date of grant). The exercise price of a non-
qualified stock option must be not less than the par value of a share of the
Common Stock on the date of grant. The term of an incentive or non-qualified
stock option is not to exceed ten years (five years in the case of an
incentive stock option granted to a ten percent holder). The Committee has the
discretion to determine the vesting schedule and the period required for full
exercisability of stock options; however, in no event can the Committee
shorten such period to less than six months. Upon exercise of any option
granted under the Stock Option Plan, the exercise price may be paid in cash,
and/or such other form of payment as may be permitted under the applicable
option agreement, including, without limitation, previously owned shares of
Common Stock.
40
<PAGE>
The Company intends to grant options to purchase an aggregate of between
300,000 and 500,000 shares of its Common Stock to its management, employees
and course instructors in the near future. It is anticipated that the exercise
price of such options will be at least 100% of the fair market value of the
underlying shares on the grant date and the options will vest ratably over a
four-year period.
OTHER EMPLOYEE BENEFIT PLANS
401(k) Plan (U.S. Employees). The Company has adopted the Learning Tree
International, Inc. Profit-Sharing and Deferred Savings Plan (the "401(k)
Plan"), which is intended to qualify under Section 401(k) of the Internal
Revenue Code of 1986, as amended (the "Code"). All employees of the Company
and its U.S. subsidiary who have attained 18 years of age and have met the
plan's service requirements are eligible to participate in the 401(k) Plan.
Each eligible employee may contribute to the 401(k) Plan, through payroll
deductions, up to 15% of his or her salary, subject to statutory limitations.
For each $1.00 invested by an employee, the Company contributes $0.25 up to
one and one-half percent of such employee's salary. In addition, the Company
makes qualified nonelective contributions to the 401(k) Plan on an annual
basis that are equivalent to one and one half percent of the annual
compensation of the participant. The 401(k) Plan permits, but does not
require, additional contributions to the 401(k) Plan by the Company. Under
Section 401(k) of the Code, contributions by employees or by the Company to
the 401(k) Plan, and income earned on plan contributions, are not taxable to
employees until withdrawn from the 401(k) Plan, and contributions by the
Company will be deductible by the Company when made. In August 1996, the
401(k) Plan was amended. Pursuant to such amendment and effective October 1,
1996, the Company will contribute $0.75 for each $1.00 invested by
participating employees. Such contributions by the Company cannot exceed four
and one-half percent of such employees' salaries. Furthermore, qualified non-
elective contributions will be eliminated as of that date.
Benefit Plans--United Kingdom Employees. The Company's United Kingdom
subsidiary maintains an employee contribution plan for the benefit of its
employees who have attained 25 years of age and have met certain service
requirements. Contributions to the plan range from 5.0% to 7.5% of each
eligible employee's base salary, depending on length of service. Each eligible
employee may make additional contributions up to an aggregate of 15% of the
employee's gross taxable earnings. The plan's funds are maintained and
administered by an independent insurance carrier.
EMPLOYMENT AGREEMENTS
Pursuant to an employment agreement dated as of October 1, 1995 (the
"Collins Agreement"), David C. Collins is employed as Chairman of the Board
and Chief Executive Officer of the Company. The Collins Agreement provides
that Dr. Collins will receive an annual base salary of $300,000 and additional
incentive compensation if certain performance targets are met. In fiscal 1995,
Dr. Collins earned $215,115 in incentive compensation. In addition, Dr.
Collins is entitled to reimbursement of reasonable travel and business
entertainment expenses authorized by the Company, as well as certain fringe
benefits. In the event of the termination of Dr. Collins' employment with the
Company, Dr. Collins has agreed, for a period of one year after the
termination, not to offer any service or product in competition with the
Company, whether directly or indirectly, in any area served by the Company at
the date of termination. The Collins Agreement has a term of three years and
is renewable, at Dr. Collins' option, for additional three year periods.
Pursuant to an employment agreement dated as of October 1, 1995 (the "Garen
Agreement"), Eric R. Garen is employed as President of the Company. The Garen
Agreement provides that Mr. Garen will receive an annual base salary of
$300,000 and additional incentive compensation if certain performance targets
are met. In fiscal 1995, Mr. Garen earned $215,115 in incentive compensation.
In addition, Mr. Garen is entitled to reimbursement of reasonable travel and
business entertainment expenses authorized by the Company, as well as certain
fringe benefits. In the event of the termination of Mr. Garen's employment
with the Company, Mr. Garen has agreed, for a period of one year after the
termination, not to offer any service or product in competition with the
Company, whether directly or indirectly, in any area served by the Company at
the date of termination. The Garen Agreement has a term of three years and is
renewable, at Mr. Garen's option, for additional three year periods.
41
<PAGE>
Pursuant to an employment agreement dated as of July 18, 1994, as amended
(the "Shevitz Agreement"), Max S. Shevitz is employed as Executive Vice
President of the Company. The Shevitz Agreement provides that Mr. Shevitz will
receive an annual base salary of $100,000, as well as incentive compensation
to be determined by the Board of Directors. In fiscal 1995, Mr. Shevitz earned
$323,222 in incentive compensation. In addition, Mr. Shevitz has agreed, for a
period of two years following the termination of the Shevitz Agreement, not to
(i) solicit any of the Company's customers with whom he did business or was
acquainted during the term of the Shevitz Agreement and (ii) disclose any
information pertaining to the Company's customers or the contents of any
mailing list prepared or used by the Company during or prior to the term of
the Shevitz Agreement. The Shevitz Agreement is terminable by either party at
any time upon two weeks' prior written notice.
Pursuant to an employment agreement dated as of January 8, 1990, as amended
(the "Wright Agreement"), Gary R. Wright is employed as Vice President-Finance
and Chief Financial Officer of the Company. The Wright Agreement provides
that, as of January 1995, Mr. Wright will receive an annual base salary of
$140,000, as well as incentive compensation to be determined by the Board of
Directors. In fiscal 1995, Mr. Wright earned $42,138 in incentive
compensation. In addition, Mr. Wright has agreed, for a period of two years
following the termination of the Wright Agreement, not to (i) solicit any of
the Company's customers with whom he did business or was acquainted during the
term of the Wright Agreement and (ii) disclose any information pertaining to
the Company's customers or the contents of any mailing list prepared or used
by the Company during or prior to the term of the Wright Agreement. The Wright
Agreement is terminable by either party at any time.
Pursuant to an employment agreement dated as of April 19, 1993 (the
"Salisbury Agreement"), Alan B. Salisbury is employed as President and General
Manager of Learning Tree International USA, Inc. (the "U.S. Subsidiary"). The
Salisbury Agreement provides that Dr. Salisbury will receive an annual base
salary of $174,695, as well as incentive compensation to be determined by the
Board of Directors. In fiscal 1995, Dr. Salisbury earned $180,717 in incentive
compensation. On termination of employment with the U.S. Subsidiary, Dr.
Salisbury will receive one month's salary per year of employment, with a
minimum of at least three months salary, and the pro rata portion of the
incentive compensation described above. In addition, Dr. Salisbury has agreed,
for a period of two years following the termination of the Salisbury
Agreement, not to (i) solicit any of the U.S. Subsidiary's customers with whom
he did business or was acquainted during the term of the Salisbury Agreement
and (ii) disclose any information pertaining to the U.S. Subsidiary's
customers or the contents of any mailing list prepared or used by the U.S.
Subsidiary during or prior to the term of the Salisbury Agreement. The
Salisbury Agreement is terminable by either party at any time.
STOCKHOLDERS AGREEMENT
Dr. Collins and Mr. Garen have entered into a Stockholders Agreement dated
as of October 1, 1995 (the "Stockholders Agreement"). The Stockholders
Agreement provides that (i) the non-transferring stockholder shall have a
right of first refusal with respect to any transfer that is not made to
certain affiliates or pursuant to either an underwritten public offering or
Rule 144 of the Securities Act (a "Restricted Transfer"); and (ii) in addition
to the foregoing restriction, no Restricted Transfer to any person or group
involving more than five percent of the then outstanding Common Stock may be
effected without the prior consent of the non-transferring stockholder.
42
<PAGE>
CERTAIN TRANSACTIONS
On January 6, 1995, the Company and M. Kane & Company, Inc. ("MKC") entered
into an agreement pursuant to which MKC agreed to provide financial advice and
assistance, including valuation-related analyses of the Company and advice to
the Company about strategic financial alternatives and to assist the Company
in structuring and conducting the Company's initial public offering. In
consideration for such services, MKC received a retainer of $10,000 per month
from January 1995 through June 1995, and was paid $15,000 per month from July
1995 until December 1995. MKC also received $776,250 or 1.875% of the gross
proceeds of the Company's initial public offering, less the monthly retainer
payments received by it. In addition, the Company reimbursed MKC for its
reasonable out-of-pocket fees and expenses. This agreement terminated upon the
settlement date of the Company's initial public offering. Michael W. Kane,
President of MKC, also is a Director of the Company. The Company believes that
the foregoing transactions were on terms no less favorable to the Company than
could be obtained from unaffiliated parties.
On July 12, 1996, the Company and MKC entered into an agreement pursuant to
which MKC agreed to provide financial advisory services and assist the Company
in structuring and conducting this Offering. In consideration of such
services, MKC will be compensated by a retainer of $15,000 per month from July
1996 until the month in which the closing or abandonment of this Offering
occurs. MKC will also receive 1.875% of the gross proceeds of this Offering,
less the monthly retainers received by it. In addition, the Company must
reimburse MKC for its reasonable out-of-pocket fees and expenses. This
agreement may be terminated by either party at any time upon thirty days'
notice, and the agreement will automatically terminate upon the earliest to
occur of the consummation or abandonment of this Offering or twelve months
after the date of the agreement.
During the Company's last three fiscal years, the Company has, from time to
time, issued shares of its Common Stock to its employees, including certain of
its executive officers and directors (see table below). Prior to the Company's
initial public offering, the price per share purchased by these executive
officers and directors was based on a formula valuation. The Company has not
sold any shares of its Common Stock to its executive officers and directors
since its initial public offering. The shares issued in fiscal 1995 and
certain of the shares issued in fiscal 1994 are subject to repurchase options,
in the event of termination of employment, at the sole discretion of the
Company. Such repurchase options expire over a four-year period at a rate of
25% per year.
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Max S. Shevitz.................................. 87,840(1) 175,680 --
Gary R. Wright.................................. -- -- 146,400
Michael W. Kane................................. -- -- 36,600
Alan B. Salisbury............................... 175,680 -- --
Mary C. Adams................................... -- 43,920 18,300
</TABLE>
--------
(1) Repurchased in fiscal 1994 by the Company pursuant to a repurchase
agreement.
In partial payment for the purchased shares described above, certain
officers and directors have executed promissory notes in favor of the Company
with interest at an annual rate of 7%. The maximum outstanding amounts of such
promissory notes during fiscal 1993, 1994 and 1995 and the amounts outstanding
at June 30, 1996, were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------- AT JUNE 30,
1993 1994 1995 1996
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
Max S. Shevitz...................... $ 53,345 $ 52,068 $153,115 $ --
Gary R. Wright...................... 13,034 9,481 129,421 107,171
Alan B. Salisbury................... 106,690 104,874 95,563 --
Michael W. Kane..................... -- -- 31,899 --
Mary C. Adams....................... -- 26,672 35,728 29,840
</TABLE>
43
<PAGE>
In March 1996, the Company repurchased 26,393 shares of Common Stock from
its employees and directors in exchange for the cancellation of notes
receivable from such stockholders in the amount of $446,000. In addition,
during March 1996, notes receivable from stockholders in the amount of $19,000
were offset against the equivalent amount of notes payable to such
stockholders. The number of shares repurchased in this transaction from
directors and officers of the Company and the note amounts offset were as
follows:
<TABLE>
<CAPTION>
NOTE NOTE
SHARES AGGREGATE PAYABLE RECEIVABLE
REPURCHASED CONSIDERATION OFFSET OFFSET
----------- ------------- ------- ----------
<S> <C> <C> <C> <C>
Max S. Shevitz.................. 8,480 $143,312 $1,640 $144,952
Alan B. Salisbury............... 4,603 77,791 -- 77,791
Michael W. Kane................. 1,764 29,812 -- 29,812
</TABLE>
44
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth the beneficial ownership of the Common Stock
of the Company as of June 30, 1996 and as adjusted to reflect the sale of the
shares of Common Stock offered hereby (assuming no exercise of the
Underwriters' over-allotment option) by (i) each person or entity known by the
Company to own beneficially more than 5% of the outstanding Common Stock, (ii)
each of the Company's directors, (iii) each of the persons named in the
Summary Compensation Table, (iv) all directors and executive officers as a
group and (v) each Selling Stockholder. Except as otherwise noted, the persons
or entities named have sole voting and investment power with respect to all
shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES SHARES BENEFICIALLY
OWNED PRIOR TO TO BE OWNED AFTER
OFFERING(1) SOLD OFFERING(1)
--------------------- --------- -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER(2) PERCENT NUMBER NUMBER PERCENT
- ------------------------------------ ------------ -------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
David C. Collins(3)(4).. 4,812,600 33.7% 800,000 4,012,600 27.4%
Eric R. Garen(3)........ 4,642,600 32.5 800,000 3,842,600 26.2
Max S. Shevitz(2)....... 167,200 1.2 0 167,200 1.1
Gary R. Wright(2)....... 183,000 1.3 0 183,000 1.2
Alan B. Salisbury....... 171,077 1.2 0 171,077 1.2
W. Mathew Juechter...... 87,840 * 0 87,840 *
Michael W. Kane(2)...... 34,836 * 0 34,836 *
All directors and
executive officers as a
group (8 persons)...... 10,296,793 72.2% 1,600,000 8,696,793 59.3%
</TABLE>
- --------
* Less than 1%.
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares that such person or group has the
right to acquire within 60 days after the date as of which information in
this table is provided; and for purposes of computing the percentage of
outstanding shares held by each person or group on that date, such shares
are deemed to be outstanding, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person.
(2) With respect to the following individuals, a certain number of shares are
subject to repurchase agreements allowing the Company to repurchase the
shares at specified prices and conditions, including termination of
employment of the stockholder: Mr. Wright (109,800 shares), Mr. Kane
(27,450 shares), Mr. Shevitz (87,840 shares).
(3) Dr. Collins is the Chairman of the Board of Directors and Chief Executive
Officer of the Company and Mr. Garen is the President and a director of
the Company. The address of these individuals is Learning Tree
International, Inc., 6053 West Century Boulevard, Los Angeles, California
90045-0028.
(4) David C. Collins and Mary C. Adams, the Company's Vice President,
Administration, are married but disclaim beneficial ownership of each
other's shares.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, $.0001 par value, and 10,000,000 shares of preferred stock,
$.0001 par value (the "Preferred Stock"). Prior to the Offering, 14,263,012
shares of Common Stock were outstanding. No shares of Preferred Stock have
been issued.
COMMON STOCK
All outstanding shares of the Common Stock are, and all shares of Common
Stock to be outstanding upon completion of the Offering will be, validly
issued, fully paid and nonassessable. Each outstanding share of Common Stock
will be entitled to such dividends as may be declared from time to time by the
Company's Board of Directors consistent with the provisions of the Company's
Certificate of Incorporation, Bylaws and applicable law. See "Dividend
Policy." Each outstanding share is entitled to one vote on all matters
submitted to a vote of stockholders. There are no cumulative voting rights,
and therefore, the holders of a majority of the shares voting for the election
of the classified Board of Directors can elect all of the Directors in any
class up for election, if they so choose. In the event of liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to receive on a pro rata basis any assets remaining after provision for
payment of creditors and after payment of any liquidation preferences to
holders of Preferred Stock. Holders of Common Stock have no conversion rights
or preemptive rights to purchase or subscribe for additional Common Stock or
any other securities of the Company.
PREFERRED STOCK
The authorized Preferred Stock of the Company is available for issuance from
time to time at the discretion of the Board of Directors of the Company
without stockholder approval. The Board of Directors has the authority to
prescribe, for each series of Preferred Stock it establishes, the number of
shares in that series, the consideration (not less than its par value) for
such shares in that series and the designations, powers, preferences and the
relative, participating, optional or other special rights, and such
qualifications, limitations or restrictions of the shares in that series.
Depending upon the rights of such Preferred Stock, the issuance of Preferred
Stock could have an adverse effect on holders of Common Stock by delaying or
preventing a change in control of the Company, making removal of the present
management of the Company more difficult or resulting in restrictions upon the
payment of dividends and other distributions to the holders of Common Stock.
The Company currently has no intention to issue any shares of any class or
series of its Preferred Stock.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
After the Offering, there will be 10,336,988 shares of Common Stock and
10,000,000 shares of Preferred Stock available for future issuance. Delaware
law does not require stockholder approval for any issuance of authorized
shares. These additional shares may be used for a variety of corporate
purposes, including future public offerings to raise additional capital or to
facilitate corporate acquisitions. The Company currently does not have any
plans to issue additional shares of Common Stock or Preferred Stock.
One of the effects of the existence of unissued and unreserved Common Stock
and Preferred Stock may be to enable the Board of Directors to issue shares to
persons friendly to current management, which issuance could render more
difficult or discourage an attempt to obtain control of the Company by means
of a merger, tender offer, proxy contest or otherwise, and thereby protect the
continuity of the Company's management and possibly deprive the stockholders
of opportunities to sell their shares of Common Stock at prices higher than
prevailing market prices. Such additional shares also could be used to dilute
the stock ownership of persons seeking to obtain control of the Company
pursuant to the operation of a stockholders' rights plan or otherwise.
46
<PAGE>
PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS AFFECTING CHANGE IN
CONTROL
The Certificate of Incorporation and Bylaws provide that the Board of
Directors will be divided into three classes of directors, each class to be as
nearly equal in number as possible. The term of office of one class of
directors expires each year in rotation so that one class is elected at each
annual meeting of stockholders for a full three-year term. Under Delaware law,
members of a classified Board of Directors can be removed by stockholders only
for "cause" unless a corporation's certificate of incorporation otherwise
provides (which the Company's Certificate of Incorporation does not). The
Certificate of Incorporation provides that the Board of Directors shall
consist of six members. The number of directors may be changed from time to
time by resolution of the Board of Directors. The affirmative vote of the
holders of a majority of the outstanding shares of capital stock of the
Company entitled to vote is required to amend, alter, change or repeal the
classified board of directors provisions of the Certificate of Incorporation
or to remove a director with cause prior to the expiration of his term. Under
the classified board of directors provisions described above, it would take at
least two elections of directors for any individual or group to gain control
of the Board of Directors. Accordingly, these provisions may discourage a
third party from making a tender offer or otherwise attempting to gain control
of the Company, and may maintain the incumbency of the Board of Directors.
DELAWARE GENERAL CORPORATION LAW
Pursuant to Section 203 of the Delaware General Corporation Law ("Section
203"), with certain exceptions, a Delaware corporation may not engage in any
of a broad range of business combinations, such as mergers, consolidations and
sales of assets, with an "interested stockholder" for a period of three years
from the date that such person became an interested stockholder unless (a) the
transaction that results in the person's becoming an interested stockholder,
or the business combination, is approved by the board of directors of the
corporation before the person becomes an interested stockholder, or (b) upon
consummation of the transaction which results in the stockholder becoming an
interested stockholder the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and officers,
and shares owned by certain employee stock plans or (c) on or after the date
the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and authorized at annual and
special meetings of stockholders and not by written consent, by holders of at
least two-thirds of the corporation's outstanding voting stock, excluding
shares owned by the interested stockholder. Under Section 203, an "interested
stockholder" is any person, other than the corporation and any direct or
indirect majority-owned subsidiaries, that is (a) the owner of 15% or more of
the outstanding voting stock of the corporation or (b) an affiliate or
associate of the corporation and the owner of 15% or more of the outstanding
voting stock of the corporation at any time within the three-year period
immediately prior to the date on which it is sought to be determined whether
such person is an interested stockholder or (c) an affiliate or associate of
such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The Company's Certificate of Incorporation does not exclude the
Company from the restrictions imposed under Section 203. The provisions of
Section 203 may encourage companies interested in acquiring the Company to
negotiate in advance with the Company's Board of Directors, because the
stockholder approval requirement would be avoided if a majority of the
directors then in office approve either the business combination or the
transaction which results in the stockholder becoming an interested
stockholder. Such provisions also may have the effect of preventing changes in
the management of the Company. It is possible that such provisions could make
it more difficult to accomplish transactions which stockholders may otherwise
deem to be in their best interests.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Amended and Restated Certificate and Bylaws contain certain
provisions permitted under the Delaware General Corporation Law (the "DGCL")
relating to the liability of directors. The
47
<PAGE>
provisions eliminate a director's liability for monetary damages for a breach
of fiduciary duty, except in certain circumstances involving wrongful acts,
such as the breach of a director's duty of loyalty or acts or omissions that
involve intentional misconduct or knowing violation of law. The Company's
Amended and Restated Certificate and Bylaws also contain provisions requiring
the Company to indemnify its directors and officers to the fullest extent
permitted by the DGCL. The Company believes that these provisions will assist
the Company in attracting and retaining qualified individuals to serve as
directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is American
Securities Transfer & Trust, Incorporated.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The Common Stock has only been publicly traded since the Company's initial
public offering on December 6, 1995, and there is no assurance that a
significant public market for the Common Stock will be sustained after this
Offering. Future sales of substantial amounts of shares of Common Stock in the
public market could adversely affect prevailing market prices and could impair
the Company's future ability to raise capital through the sale of its equity
securities.
Upon completion of this Offering, the Company will have 14,663,012 shares of
Common Stock outstanding approximately 5,450,000 of which will be freely
transferable without restriction or registration under the Securities Act,
except for any shares purchased by an existing "affiliate" of the Company, as
that term is defined in Rule 144 under the Securities Act (an "Affiliate"),
which shares will be subject to the resale limitation of Rule 144. There will
be an additional 9,095,000 shares of Common Stock outstanding which will be
"restricted securities" as defined in Rule 144 (the "Restricted Shares") of
which 8,078,000 shares will be subject to certain volume and other resale
restrictions. In addition, approximately 118,000 shares will be eligible for
immediate sale in the public market without restriction pursuant to
Rule 144(k) under the Securities Act.
Approximately 8,697,000 issued and outstanding shares of Common Stock
retained by certain existing shareholders and directors (the "Lock-up
Restricted Shares") and described above are subject to lock-up agreements
between the holders thereof and Robertson, Stephens & Company LLC, Piper
Jaffray Inc., Smith Barney Inc., and M. Kane & Company, Inc., the
representatives of the several Underwriters in this Offering
("Representatives"), pursuant to which the holders of Lock-up Restricted
Shares have agreed not to offer, sell, contract to sell or grant any option to
purchase or otherwise dispose of Common Stock of the Company until 90 days
after the date of this Prospectus. The Lock-up Restricted Shares may only be
sold prior to the expiration of the lock-up period upon the prior written
consent of the Representatives. Assuming no Lock-up Restricted Shares are
released from the lock-up agreements before the lock-up period expires, upon
such expiration none of the Lock-up Restricted Shares will be eligible for
sale pursuant to Rule 144(k) and approximately 8,078,000 Lock-up Restricted
Shares will be eligible for sale subject to the volume and other requirements
of Rule 144. The remaining Restricted Shares will become eligible for sale
pursuant to Rule 144 upon the expiration of their two-year holding periods.
Robertson, Stephens & Company LLC, in its sole discretion, may release any or
all of the Lock-up Restricted Shares, prior to the expiration of these lock-up
agreements, with or without public announcement of such release.
In general, under Rule 144 as currently in effect, beginning 90 days after
the Effective Date, a person (or persons whose shares are aggregated under
that Rule) who owns shares that were purchased from the Company (or any
Affiliate) at least two years previously, including persons who may be deemed
Affiliates of the Company, is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then
outstanding shares of the Company's Common Stock (approximately 146,630 shares
immediately after this offering) or the average weekly trading volume of the
Company's Common Stock in the over-the-counter market during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales under Rule 144 also are subject to
certain manner-of-sale provisions, notice requirements and the availability of
current public information about the Company. Any person (or persons whose
shares are aggregated) who is not deemed to have been an Affiliate of the
Company at any time during the 90 days preceding a sale, and who owns shares
within the definition of "restricted securities" under Rule 144 that were
purchased from the Company (or any Affiliate) at least three years previously,
would be entitled to sell those shares under Rule 144(k) without regard to the
volume limitations, manner of sale provisions, public requirements or notice
requirements.
49
<PAGE>
Subject to certain limited exceptions, the Company has agreed that until 90
days after the date of this Prospectus, the Company shall not offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
any rights to acquire Common Stock without the prior written consent of the
Representatives.
The Company intends to file a registration statement under the Securities
Act covering 1,500,000 shares of Common Stock issued or reserved for issuance
under the Company's 1995 Stock Option Plan. All the shares registered under
the registration statement will, subject to Rule 144 volume limitations
applicable to Affiliates and the lapsing of the repurchasing options granted
the Company, if any, under the terms of the options, be available for resale
in the open market upon the exercise of vested options. At June 30, 1996, no
options to purchase shares were issued or outstanding under the 1995 Stock
Option Plan. However, the Company intends to grant options to purchase an
aggregate of between 300,000 and 500,000 shares of Common Stock to its
employees in the near future. See "Management--Stock Option Plan".
50
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC, Piper Jaffray Inc., Smith Barney Inc. and
M. Kane & Company, Inc. (the "Representatives"), have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, to purchase
from the Company and the Selling Stockholders the number of shares of Common
Stock set forth opposite their respective names below. The Underwriters are
committed to purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Robertson, Stephens & Company LLC................................
Piper Jaffray Inc. ..............................................
Smith Barney Inc. ...............................................
M. Kane & Company, Inc...........................................
---------
Total.......................................................... 2,000,000
=========
</TABLE>
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public at the price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession of not more
than $ per share, of which $ may be reallowed to other dealers. After the
offering, the public offering price, concession and reallowance to dealers may
be reduced by the Representatives. No such reduction shall change the amount
of proceeds to be received by the Company or the Selling Stockholders as set
forth on the cover page of this Prospectus.
The Selling Stockholders have granted to the Underwriters an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to 300,000 additional shares of Common Stock at the same price per
share as the Company and the Selling Stockholders receive for the 2,000,000
shares that the Underwriters have agreed to purchase. To the extent that the
Underwriters exercise such option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage of such additional
shares as the number of shares of Common Stock to be purchased by it shown in
the above table represents as a percentage of the 2,000,000 shares offered
hereby. If purchased, such additional shares will be sold by the Underwriters
on the same terms as those on which the 2,000,000 shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Selling Stockholders and the Company against certain civil
liabilities, including liabilities under the Securities Act.
The directors and certain of the officers of the Company have agreed with
the Representatives for a period of 90 days after the date of this Prospectus
(the "Lock-Up Period"), subject to certain limited exceptions, not to offer to
sell, contract to sell or otherwise sell, dispose of, loan, pledge or grant
any rights with respect to any shares of Common Stock, any options or warrants
to purchase shares of Common Stock or any securities convertible or
exchangeable for shares of Common Stock now owned or hereafter acquired
directly by such holders or with respect to which they have the power of
disposition without the prior written consent of Robertson, Stephens & Company
LLC, which may, in its sole discretion and at any time or from time to time,
without notice, release all or any portion of the shares subject to the lock-
up agreements. In addition, the Company has agreed that during the Lock-Up
Period, it will not, without the prior written consent of Robertson, Stephens
& Company LLC, subject to certain limited exceptions, issue, sell, or
otherwise dispose of any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock other than the
Company's issuance of options under existing employee stock option plans.
51
<PAGE>
The offering price for the Common Stock will be determined by negotiations
among the Company and the Representatives of the Underwriters, based largely
upon the market price for the Common Stock as reported on the Nasdaq National
Market.
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group from making a market in the Company's Common
Stock during the period immediately preceding the commencement of sales in the
offering. The Commission has, however, adopted an exemption from these rules
that permits passive market making under certain conditions. These rules
permit an Underwriter or other member of the selling group to continue to make
a market in the Company's Common Stock subject to the conditions, among
others, that its bid not exceed the highest bid by a market maker not
connected with the offering and that its net purchases on any one trading day
not exceed prescribed limits. Pursuant to these exemptions, certain
Underwriters and other members of the selling group intend to engage in
passive market making in the Company's Common Stock during such period.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
Michael W. Kane, a principal of M. Kane & Company, Inc., one of the
Representatives, is a director of the Company and owns 34,836 shares of the
Company's Common Stock. In addition, M. Kane & Company, Inc. has provided
certain financial advisory services on behalf of the Company, for which it
received monetary compensation. See "Certain Transactions." M. Kane & Company,
Inc. was first registered as a broker-dealer in July 1994. Its President,
Michael W. Kane, previously has worked as an investment banker with
responsibility for underwritten public offerings. See "Management--Executive
Officers and Directors."
52
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company and the Selling Stockholders by Irell & Manella LLP, Los
Angeles, California. Certain legal matters with respect to this Offering are
being passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP,
Palo Alto, California.
EXPERTS
The consolidated financial statements of the Company as of September 30,
1994 and 1995, and for each of the three years in the period ended September
30, 1995 included in this Prospectus in the Registration Statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their report with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing in giving
said report.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form S-1
under the Securities Act of 1933, as amended, with respect to the shares of
Common Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission, to which Registration
Statement reference is hereby made. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Registration Statement and exhibits thereto may be inspected and copied at
prescribed rates at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. The SEC also makes electronic
filings publicly available on the Internet within 24 hours of acceptance. The
SEC's Internet address is http://www.sec.gov. The SEC Web site also contains
reports, proxy and information statements, and other information regarding
registrants that file electronically with the SEC. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed
in the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "Risk Factors."
53
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets at September 30, 1994 and 1995 and June 30,
1996..................................................................... F-3
Consolidated Statements of Operations for the fiscal years ended September
30, 1993, 1994 and 1995 and for the nine months ended June 30, 1995 and
1996..................................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the fiscal
years ended September 30, 1993, 1994 and 1995 and for the nine months
ended June 30, 1996...................................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended September
30, 1993, 1994 and 1995 and for the nine months ended June 30, 1995 and
1996..................................................................... F-7
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Learning Tree International, Inc.:
We have audited the accompanying consolidated balance sheets of Learning
Tree International, Inc. (a Delaware corporation) and subsidiaries as of
September 30, 1994 and 1995, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Learning
Tree International, Inc. and subsidiaries as of September 30, 1994 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended September 30, 1995, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Los Angeles, California
October 31, 1995
F-2
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
JUNE 30,
1994 1995 1996
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 2,774,000 $ 10,029,000 $46,628,000
Short-term interest-bearing invest-
ments held to maturity.............. -- -- 2,434,000
Trade accounts receivable, less
allowances of $197,000, $259,000 and
$306,000, respectively.............. 6,284,000 8,623,000 10,102,000
Prepaid marketing expenses........... 357,000 707,000 616,000
Prepaid expenses and other........... 1,357,000 1,977,000 2,022,000
----------- ------------ -----------
Total current assets............... 10,772,000 21,336,000 61,802,000
----------- ------------ -----------
Equipment and leasehold improvements:
Education and office equipment....... 12,168,000 15,352,000 19,558,000
Transportation equipment............. 80,000 80,000 79,000
Leasehold improvements............... 1,365,000 1,448,000 1,673,000
----------- ------------ -----------
13,613,000 16,880,000 21,310,000
Less: accumulated depreciation and
amortization........................ (9,306,000) (11,124,000) 13,101,000
----------- ------------ -----------
4,307,000 5,756,000 8,209,000
Deferred income taxes.................. 341,000 478,000 476,000
Other assets........................... 886,000 857,000 1,683,000
----------- ------------ -----------
Total assets....................... $16,306,000 $ 28,427,000 $72,170,000
=========== ============ ===========
LIABILITIES
Current liabilities:
Current portion of debt and capital
leases.............................. $ 561,000 $ 191,000 $ 132,000
Trade accounts payable............... 5,637,000 6,852,000 8,404,000
Deferred revenue..................... 7,035,000 10,346,000 13,698,000
Accrued payroll, benefits and related
taxes............................... 1,431,000 2,606,000 2,067,000
Other accrued liabilities............ 1,731,000 1,775,000 2,584,000
Income taxes payable................. 30,000 1,073,000 1,509,000
----------- ------------ -----------
Total current liabilities.......... 16,425,000 22,843,000 28,394,000
Long-term debt and capital leases, net
of current portion.................... 446,000 272,000 164,000
Deferred facilities rent............... 2,489,000 2,007,000 1,738,000
----------- ------------ -----------
Total liabilities.................. 19,360,000 25,122,000 30,296,000
----------- ------------ -----------
Commitments
STOCKHOLDERS' EQUITY (DEFICIT)
Class A Common Stock, $.0001 par
value, 23,000,000 shares authorized,
9,955,000, 9,955,000 and 0 shares
issued and outstanding,
respectively........................ 1,000 1,000 --
Class B Common Stock, nonvoting,
$.0001 par value, 2,000,000 shares
authorized, 835,000, 1,417,000 and 0
shares issued and outstanding,
respectively........................ -- -- --
Common Stock, $.0001 par value,
25,000,000 shares authorized, 0, 0
and 14,263,000 shares issued and
outstanding, respectively........... -- -- 1,000
Additional paid-in capital........... 322,000 1,216,000 32,023,000
Notes receivable from stockholders... (155,000) (679,000) (156,000)
Deferred compensation--stockholders.. -- (287,000) (227,000)
Cumulative foreign currency transla-
tion................................ (849,000) (882,000) (734,000)
Retained earnings (accumulated defi-
cit)................................ (2,373,000) 3,936,000 10,967,000
----------- ------------ -----------
Total stockholders' equity (defi-
cit).............................. (3,054,000) 3,305,000 41,874,000
----------- ------------ -----------
Total liabilities and stockholders'
equity (deficit).................. $16,306,000 $ 28,427,000 $72,170,000
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $49,329,000 $58,466,000 $78,818,000 $58,091,000 $73,604,000
Costs of revenues....... 19,754,000 23,665,000 30,731,000 22,359,000 28,498,000
----------- ----------- ----------- ----------- -----------
Gross profit.......... 29,575,000 34,801,000 48,087,000 35,732,000 45,106,000
----------- ----------- ----------- ----------- -----------
Operating expenses:
Course development.... 3,387,000 3,978,000 4,954,000 3,579,000 4,420,000
Sales and marketing... 17,923,000 21,243,000 22,883,000 16,829,000 21,803,000
General and adminis-
trative.............. 9,625,000 9,945,000 12,176,000 8,995,000 9,459,000
----------- ----------- ----------- ----------- -----------
30,935,000 35,166,000 40,013,000 29,403,000 35,682,000
----------- ----------- ----------- ----------- -----------
Income (loss) from oper-
ations................. (1,360,000) (365,000) 8,074,000 6,329,000 9,424,000
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest expense...... (105,000) (112,000) (84,000) (58,000) (37,000)
Interest income....... 70,000 87,000 331,000 147,000 1,385,000
Foreign exchange...... 543,000 101,000 30,000 239,000 (176,000)
Other................. (102,000) (64,000) (5,000) 62,000 (4,000)
----------- ----------- ----------- ----------- -----------
406,000 12,000 272,000 390,000 1,168,000
----------- ----------- ----------- ----------- -----------
Income (loss) before
provision (credit) for
income taxes........... (954,000) (353,000) 8,346,000 6,719,000 10,592,000
Provision (credit) for
income taxes........... (77,000) 90,000 1,866,000 1,268,000 3,124,000
----------- ----------- ----------- ----------- -----------
Net income (loss)....... $ (877,000) $ (443,000) $ 6,480,000 $ 5,451,000 $ 7,468,000
=========== =========== =========== =========== ===========
Net income (loss) per
common share and common
equivalent share....... $ (0.08) $ (0.04) $ 0.57 $ 0.48 $ 0.55
=========== =========== =========== =========== ===========
Weighted average number
of common and common
equivalent shares
outstanding............ 11,478,000 11,512,000 11,364,000 11,363,000 13,551,000
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CLASS CLASS NOTES RETAINED TOTAL
A B ADDITIONAL RECEIVABLE CURRENCY EARNINGS STOCKHOLDERS'
COMMON COMMON COMMON PAID-IN FROM DEFERRED TRANSLATION (ACCUMULATED EQUITY
STOCK STOCK STOCK* CAPITAL STOCKHOLDERS COMPENSATION ADJUSTMENT DEFICIT) (DEFICIT)
------ ------ ------ ---------- ------------ ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FISCAL YEAR 1993:
Balance,
September 30, 1992... $ -- $1,000 $ -- $ 259,000 $ (98,000) $ -- $ 143,000 $ (720,000) $ (415,000)
Sales of Common
Stock................ -- -- -- 197,000 (182,000) -- -- -- 15,000
Repurchase of Common
Stock................ -- -- -- (13,000) -- -- -- (74,000) (87,000)
Net loss.............. -- -- -- -- -- -- -- (877,000) (877,000)
Foreign currency
adjustments.......... -- -- -- -- -- -- (853,000) -- (853,000)
Collections on notes
receivable from
stockholders......... -- -- -- -- 46,000 -- -- -- 46,000
----- ------ ----- ---------- --------- --------- --------- ----------- -----------
Balance,
September 30, 1993... -- 1,000 -- 443,000 (234,000) -- (710,000) (1,671,000) (2,171,000)
FISCAL YEAR 1994:
Sales of Common
Stock................ -- -- -- 52,000 (48,000) -- -- -- 4,000
Repurchase of Common
Stock................ -- -- -- (173,000) 93,000 -- -- (259,000) (339,000)
Net loss.............. -- -- -- -- -- -- -- (443,000) (443,000)
Foreign currency
adjustments.......... -- -- -- -- -- -- (139,000) -- (139,000)
Collections on notes
receivable from
stockholders......... -- -- -- -- 34,000 -- -- -- 34,000
----- ------ ----- ---------- --------- --------- --------- ----------- -----------
Balance,
September 30, 1994... -- 1,000 -- 322,000 (155,000) -- (849,000) (2,373,000) (3,054,000)
FISCAL YEAR 1995:
Sales of Common
Stock................ -- -- -- 942,000 (579,000) (321,000) -- -- 42,000
Repurchase of Common
Stock................ -- -- -- (48,000) 23,000 -- -- (171,000) (196,000)
Net income............ -- -- -- -- -- -- -- 6,480,000 6,480,000
Amortization of
deferred
compensation......... -- -- -- -- -- 34,000 -- -- 34,000
Foreign currency
adjustments.......... -- -- -- -- -- -- (33,000) -- (33,000)
Collections on notes
receivable from
stockholders......... -- -- -- -- 32,000 -- -- -- 32,000
----- ------ ----- ---------- --------- --------- --------- ----------- -----------
Balance,
September 30, 1995... $ -- $1,000 $ -- $1,216,000 $(679,000) $(287,000) $(882,000) $ 3,936,000 $ 3,305,000
===== ====== ===== ========== ========= ========= ========= =========== ===========
</TABLE>
- -------
* Par value amounts round to less than one thousand dollars.
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CLASS NOTES RETAINED TOTAL
CLASS A B ADDITIONAL RECEIVABLE CURRENCY EARNINGS STOCKHOLDERS'
COMMON COMMON COMMON PAID-IN FROM DEFERRED TRANSLATION (ACCUMULATED EQUITY
STOCK STOCK STOCK* CAPITAL STOCKHOLDERS COMPENSATION ADJUSTMENT DEFICIT) (DEFICIT)
------ ------- ------ ----------- ------------ ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 30,
1995.............. $ -- $ 1,000 $ -- $ 1,216,000 $(679,000) $(287,000) $(882,000) $ 3,936,000 $ 3,305,000
------ ------- ----- ----------- --------- --------- --------- ----------- -----------
NINE MONTHS ENDED
JUNE 30, 1996
(unaudited)
Conversion of Class
A and B Common
Stock............. 1,000 (1,000) -- -- -- -- -- -- --
Sales of Common
Stock............. -- -- -- 30,847,000 -- -- -- -- 30,847,000
Repurchase of
Common Stock...... -- -- -- (40,000) 446,000 -- -- (437,000) (31,000)
Net income......... -- -- -- -- -- -- -- 7,468,000 7,468,000
Amortization of
deferred
compensation...... -- -- -- -- -- 60,000 -- -- 60,000
Foreign currency
adjustments....... -- -- -- -- -- -- 148,000 -- 148,000
Collections on
notes receivable
from
stockholders...... -- -- -- -- 77,000 -- -- -- 77,000
------ ------- ----- ----------- --------- --------- --------- ----------- -----------
Balance, June 30,
1996.............. $1,000 $ -- $ -- $32,023,000 $(156,000) $(227,000) $(734,000) $10,967,000 $41,874,000
====== ======= ===== =========== ========= ========= ========= =========== ===========
</TABLE>
- -------
* Par value amounts round to less than one thousand dollars
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE
FISCAL YEAR ENDED SEPTEMBER 30, 30,
------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows--operating
activities:
Net income (loss)..... $ (877,000) $ (443,000) $ 6,480,000 $5,451,000 $ 7,468,000
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Depreciation and
amortization....... 1,610,000 1,669,000 2,146,000 1,479,000 2,283,000
Deferred facilities
rent charges....... (257,000) (243,000) (481,000) (415,000) (262,000)
Amortization of
deferred
compensation....... -- -- 34,000 -- 60,000
Unrealized foreign
exchange gains..... (695,000) (132,000) (77,000) (327,000) 150,000
Change in net assets
and liabilities:
Trade accounts
receivable....... (524,000) (537,000) (2,195,000) (899,000) (1,576,000)
Prepaid marketing
expenses......... (258,000) 174,000 (335,000) (114,000) 87,000
Prepaid expenses
and other........ (127,000) (335,000) (692,000) (550,000) (11,000)
Income taxes...... (708,000) 130,000 960,000 459,000 381,000
Trade accounts
payable.......... 603,000 712,000 1,155,000 660,000 1,601,000
Deferred revenue.. 1,970,000 2,500,000 3,378,000 1,311,000 3,441,000
Accrued payroll,
benefits and
related taxes.... 154,000 71,000 1,025,000 404,000 (521,000)
Other accrued
liabilities...... 314,000 15,000 (21,000) 655,000 852,000
----------- ----------- ----------- ---------- -----------
Net cash provided by
operating
activities......... 1,205,000 3,581,000 11,377,000 8,114,000 13,953,000
----------- ----------- ----------- ---------- -----------
Cash flows--investing
activities:
Purchases of equipment
and leasehold
improvements......... (2,697,000) (2,023,000) (3,629,000) (2,611,000) (4,777,000)
Retirements of
equipment............ 78,000 86,000 81,000 102,000 5,000
Purchases of short-
term interest-bearing
investments held to
maturity............. -- -- -- -- (2,433,000)
Other, net............ 136,000 (45,000) 62,000 6,000 (847,000)
----------- ----------- ----------- ---------- -----------
Net cash used in
investing
activities......... (2,483,000) (1,982,000) (3,486,000) (2,503,000) (8,052,000)
----------- ----------- ----------- ---------- -----------
Cash flows--financing
activities:
Principal payments of
debt and capital
leases............... (672,000) (697,000) (799,000) (687,000) (148,000)
Proceeds from
additional debt...... 1,367,000 321,000 255,000 157,000 --
Sales of Common
Stock................ 15,000 4,000 42,000 2,000 30,847,000
Repurchase of Common
Stock................ (87,000) (339,000) (196,000) (195,000) (31,000)
Collections of
stockholder notes.... 46,000 34,000 32,000 21,000 58,000
----------- ----------- ----------- ---------- -----------
Net cash provided by
(used in) financing
activities......... 669,000 (677,000) (666,000) (702,000) 30,726,000
----------- ----------- ----------- ---------- -----------
Effects of exchange
rates on cash.......... (192,000) 82,000 30,000 24,000 (28,000)
----------- ----------- ----------- ---------- -----------
Net increase (decrease)
in cash and cash
equivalents............ (801,000) 1,004,000 7,255,000 4,933,000 36,599,000
Cash and cash
equivalents at the
beginning of the
period................. 2,571,000 1,770,000 2,774,000 2,774,000 10,029,000
----------- ----------- ----------- ---------- -----------
Cash and cash
equivalents at the end
of the period.......... $ 1,770,000 $ 2,774,000 $10,029,000 $7,707,000 $46,628,000
=========== =========== =========== ========== ===========
Supplemental
disclosures:
Income taxes paid..... $ 653,000 $ -- $ 1,036,000 $1,077,000 $ 2,897,000
=========== =========== =========== ========== ===========
Interest paid......... $ 110,000 $ 112,000 $ 119,000 $ 68,000 $ 36,000
=========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995 AND NINE MONTHS ENDED JUNE 30,
1996
(INFORMATION FOR THE NINE MONTHS ENDED JUNE 30, 1996 IS UNAUDITED.)
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Nature of the Business:
Learning Tree International, Inc. and subsidiaries (the "Company") develop,
publish and deliver advanced technology training courses covering a broad
range of topics which are designed to meet the training needs of Information
Technology ("IT") professionals worldwide. These courses are delivered
primarily at the Company's leased Education Centers located in the United
States, England, Canada, France and Sweden. Such course events are also
conducted in hotel and conference facilities, and at customer sites throughout
the world. The Company provides courses that are regularly presented worldwide
and cover such IT topics as client/server systems, computer networks,
operating systems, database systems, programming languages, graphical user
interfaces, object-oriented technology, IT management and related topics.
b. Reincorporation:
In September 1995, the Company reincorporated in Delaware. Since
reincorporating, the Company's authorized capital stock has consisted of
25,000,000 shares of Common Stock, $.0001 par value and 10,000,000 shares of
preferred stock, $.0001 par value ("Preferred Stock"). No shares of Preferred
Stock have been issued nor have the terms, conditions or preferences for such
Preferred Stock been established.
c. Stock Split:
On October 5, 1995, the Company effected a 3.66 for 1 split of the Company's
Class A and Class B Common Stock. All share and per share amounts in the
accompanying financial statements and footnotes have been retroactively
restated to reflect the stock split.
d. Basis of Presentation:
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures made are adequate to make the information presented not
misleading. These unaudited consolidated financial statements reflect all
adjustments and disclosures which are, in the opinion of management, necessary
for a fair presentation. All such adjustments are of a normal recurring
nature. These unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
appearing herein. The results for the interim nine month periods presented are
not necessarily indicative of the results to be expected for a full year.
e. Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of
Learning Tree International, Inc. and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Minority
interests in certain subsidiaries are not significant. Following is a summary
of the subsidiaries of the Company:
Learning Tree International USA, Inc. (U.S.)
Learning Tree International, K.K. (Japan)
Learning Tree International Ltd. (United Kingdom)
Learning Tree International S.A. (France)
F-8
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Learning Tree International AB (Sweden)
Learning Tree Publishing AB (Sweden)
Learning Tree International Inc. (Canada)
Advanced Technology Marketing, Inc. (U.S.)
Systems for Business and Industry, Inc. (U.S.)
Technology for Business and Industry, Inc. (U.S.)
f. Revenue Recognition:
The Company's revenues are received from corporate and governmental agencies
for the training of their employees. Course events range from two to five days
with an average of approximately four days. For individual course enrollments,
the Company recognizes revenues and the related direct costs of course events
upon commencement of each course event which approximates the amount
recognized on a straight-line basis over the duration of the course.
The Company offers a sales discount program referred to as the Passport
Program. The Passport Program allows an individual passport holder to attend
up to a maximum of eight courses (ten in United Kingdom and France) held by
the Company over a one year period for a fixed price. Under the Passport
Program, the amount of revenue recognized for each attendance in one of the
Company's courses is based upon the selling price of the Passport and the
estimated average number of courses passport holders will actually attend.
Upon expiration of a Passport, the Company records the differences, if any,
between the revenues previously recognized and the Passport selling price. The
Company reviews the estimated average number of course events Passport holders
will attend on a monthly basis. The estimated attendance rate is based upon
the historical experience of the average actual number of course events
Passport holders have been attending. In calculating historical rates, the
Company has used data for all expired Passports since the inception of the
Passport Program in March 1993. The average of the actual attendance rate for
all expired Passports has closely approximated the estimated rate utilized by
the Company. If the Passport attendance rate changes, based upon this
historical data, the Company adjusts the revenue recognition rate for all
active Passports and for all Passports sold thereafter. Although the Company
has seen no material changes in the historical rates as its number of course
titles has increased from fiscal 1993 to 1995, it monitors such potential
effects. In general, determining the estimated average number of course events
that will be attended by a Passport holder is based on historical trends that
may not continue in the future. These estimates could differ in the near term
from amounts used in arriving at the reported revenue. The Company believes it
is appropriate to recognize revenues on this basis in order to more closely
match revenue and related costs, as the substantial majority of its Passport
holders do not attend the maximum number of course events permitted under
their Passports. The Company believes that the use of historical data is
reasonable and appropriate because of the relative stability of the average
actual number of course events attended by the several thousand Passport
holders since the inception of the program in fiscal 1993.
g. Deferred Revenues:
Deferred revenues primarily relate to unearned revenues associated with the
Passport Program and refundable advance payments received from customers for
course events to be held in the future.
h. Prepaid Marketing Expenses:
Prepaid marketing expenses primarily include the outside costs associated
with the design, printing, postage and handling of direct mail advertising
materials to be mailed in the future. These costs are expensed in the month in
which the advertising materials are mailed since the benefit period for such
costs is short and
F-9
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the amount of such future benefit is not practically measurable. Marketing
expenses for the years ended September 30, 1993, 1994 and 1995 were
$11,522,000, $13,935,000 and $14,850,000, respectively.
i. Course Development Costs:
Instructor-led IT training course development costs are charged to
operations in the period incurred. Computer based IT training (CBT)
development costs are accounted for in accordance with Statement of Financial
Accounting Standards No. 86 (SFAS No. 86) "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed". SFAS No. 86
requires capitalization of certain software development costs upon the
establishment of technological feasibility. Based on the Company's computer
based training product development process, technological feasibility is
established upon the completion of a working model or a detail course design.
For the fiscal year ended September 30, 1995, $234,000 of computer based
training product development costs were charged to course development expense
in the accompanying consolidated statements of operations. No amounts were
incurred prior to fiscal 1995 and no significant amounts had been capitalized
as of September 30, 1995. Capitalized computer based training product
development costs are amortized on a product-by-product basis at the greater
of the amount computed using (a) the ratio of current revenues for a product
to the total of current and anticipated future revenues or (b) the straight-
line method over the estimated economic life of the product which is 24
months.
j. Foreign Currency:
The Company translates the financial statements of its foreign subsidiaries
from the local (functional) currencies to United States dollars in accordance
with SFAS No. 52. The rates of exchange at each fiscal year end are used for
translating the balance sheets and the average monthly rates of exchange for
each year are used for the statements of operations. Gains or losses arising
from the translation of the foreign subsidiaries' financial statements are
included in the accompanying consolidated balance sheets as a separate
component of stockholders' equity (deficit). Gains or losses resulting from
foreign currency transactions are included in the consolidated statements of
operations.
To date, the Company has not sought to hedge the risk associated with
fluctuations in currency exchange rates, and therefore continues to be subject
to such risk. In the fiscal year ended September 30, 1993, the Company
recorded foreign exchange gains of $543,000. This was primarily the result of
the weakening of the Swedish Krona and the strengthening of the Japanese Yen
relative to the U.S. dollar. In the year ended September 30, 1994, the Company
recorded foreign exchange gains of $101,000 primarily as a result of
strengthening of the French Francs and the Japanese Yen. Exchange gains in
fiscal 1995 were not significant.
k. Equipment and Leasehold Improvements:
Equipment and leasehold improvements are recorded at cost and depreciated or
amortized using the straight-line method over the following useful lives:
<TABLE>
<S> <C>
Education and office
equipment............... 3 to 5 years
Transportation
equipment............... 4 years
Leasehold improvements... 10 years or the life of the lease, if shorter
</TABLE>
Costs of normal maintenance and repairs and minor replacements are charged
to expense as incurred. The costs of assets sold or retired are eliminated
from the accounts along with the related accumulated depreciation or
amortization and any resulting gain or loss is included in income. Capitalized
equipment leases are recorded at the lower of the present value of the minimum
lease payments or the fair market value of the equipment at the beginning of
the lease term.
l. Facilities Leases:
The Company leases its facilities under various operating lease agreements.
Certain provisions of these leases provide for cash incentives, graduated rent
payments and other inducements. The Company recognizes
F-10
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
rent expense on a straight-line basis which more closely reflects the benefits
received. The value of any lease incentives or inducements, along with the
excess of rent expense recognized over rentals paid is recorded as deferred
facilities rent charges in the accompanying consolidated financial statements.
m. Computation of Net Income (Loss) per Common Share and Common Equivalent
Share:
Net income (loss) per common share and common equivalent share is computed
using the weighted average number of shares of Common Stock outstanding during
the period after giving retroactive effect to the 3.66 to 1 stock split that
occurred in October 1995. The weighted average number of common and common
equivalent shares outstanding was computed pursuant to the rules of the
Securities and Exchange Commission. Such rules which require that common stock
and common stock equivalents issued by the Company during the twelve months
preceding the Company's initial public offering at prices below the initial
public offering price (436,000 shares) be included in the calculation of the
shares outstanding for all periods presented, using the treasury stock method.
2. PREPAID EXPENSES AND OTHER
Prepaid expenses and other current assets at September 30, 1994 and 1995 and
June 30, 1996 consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------- JUNE 30,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Prepaid rent.................................. $ 475,000 $ 494,000 $ 487,000
Prepaid stock offering expenses............... -- 369,000 --
GST and VAT on advance billings............... 108,000 322,000 308,000
Other prepaid expenses........................ 448,000 302,000 370,000
Miscellaneous receivables..................... 44,000 162,000 524,000
Supplier deposits............................. 57,000 54,000 20,000
Other......................................... 225,000 274,000 313,000
---------- ---------- ----------
$1,357,000 $1,977,000 $2,022,000
========== ========== ==========
</TABLE>
3. INCOME TAXES:
The Company files a consolidated U.S. Federal income tax return which
includes substantially all of its domestic operations. The Company files
separate tax returns for each of its foreign subsidiaries in the countries in
which they reside.
Income (loss) before provision (credit) for income taxes consists of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------
1993 1994 1995
----------- --------- ----------
<S> <C> <C> <C>
Domestic............................... $ 786,000 $ 164,000 $3,645,000
Foreign................................ (1,740,000) (517,000) 4,701,000
----------- --------- ----------
Total................................ $ (954,000) $(353,000) $8,346,000
=========== ========= ==========
</TABLE>
F-11
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For the years ended September 30, 1993, 1994 and 1995, the provision
(credit) for income taxes was comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------
1993 1994 1995
-------- --------- ----------
<S> <C> <C> <C>
Current tax provision:
U.S. Federal......................... $ 59,000 $ 15,000 $ 732,000
State................................ 37,000 3,000 208,000
Foreign.............................. (57,000) 259,000 1,063,000
-------- --------- ----------
39,000 277,000 2,003,000
-------- --------- ----------
Deferred tax provision:
U.S. Federal......................... (51,000) (192,000) (181,000)
State................................ (35,000) 15,000 20,000
Foreign.............................. (30,000) (10,000) 24,000
-------- --------- ----------
(116,000) (187,000) (137,000)
-------- --------- ----------
Total provision (credit) for income
taxes................................. $(77,000) $ 90,000 $1,866,000
======== ========= ==========
</TABLE>
The following is a reconciliation of the provision (credit) for income taxes
and the credit for income taxes computed by applying the Federal statutory
rate to the income (loss) before taxes:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------
1993 1994 1995
--------- --------- ----------
<S> <C> <C> <C>
Income taxes at the statutory rate.... $(324,000) $(120,000) $2,837,000
Permanent differences................. 274,000 (142,000) (88,000)
Change in valuation allowance......... (714,000) 236,000 (923,000)
Effect of current and foreign losses.. 525,000 103,000 (23,000)
Use of foreign tax credits............ -- -- (133,000)
Alternative minimum taxes............. 34,000 -- --
State income taxes.................... 66,000 3,000 208,000
Other, net............................ 62,000 10,000 (12,000)
--------- --------- ----------
Total provision (credit) for income
taxes................................ $ (77,000) $ 90,000 $1,866,000
========= ========= ==========
</TABLE>
F-12
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" retroactive to October 1, 1990. Under this
method, deferred income tax assets and liabilities arise from carryforwards
and from temporary differences between the tax basis of assets and liabilities
and the book basis of such assets and liabilities as reported in the financial
statements. Valuation allowances were provided with respect to certain
deferred tax assets as of September 30, 1994 and 1995, to reduce the deferred
tax asset to a level which, more likely than not, will be realized. The net
deferred tax asset reflects management's estimates of the amount which will be
realized from the future profitability which can be predicted with reasonable
certainty. Following is a summary of the tax effect of carryforwards and
temporary differences which give rise to deferred tax assets and liabilities:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Domestic operations:
Deferred tax assets:
Deferred facilities rent charges............ $ 629,000 $ 524,000
AMT credit carryforwards.................... 131,000 --
Foreign tax credit carryforwards............ 204,000 434,000
Tax loss carryforwards...................... 180,000 --
Other....................................... 82,000 94,000
Deferred tax liabilities:
Depreciation and amortization............... (89,000) (158,000)
Other....................................... (16,000) (16,000)
----------- -----------
Net domestic deferred tax assets............ 1,121,000 878,000
----------- -----------
Foreign operations:
Deferred tax assets:
Tax loss carryforwards...................... 1,048,000 528,000
Depreciation and other...................... 102,000 78,000
----------- -----------
Net foreign deferred tax assets............. 1,150,000 606,000
----------- -----------
Valuation allowances............................ (1,930,000) (1,006,000)
----------- -----------
Net deferred tax assets......................... $ 341,000 $ 478,000
=========== ===========
</TABLE>
At September 30, 1995, the Company had approximately $434,000 of foreign tax
credit carryforwards available to offset taxes in future years. In addition,
the Company's Swedish, French and Canadian subsidiaries had tax loss
carryforwards of approximately $662,000 (4,600,000 Swedish Krona), $325,000
(1,600,000 French Francs) and $568,000 ($761,000 Canadian Dollars),
respectively. The tax credit carryforwards along with the estimated tax
benefit attributable to the loss carryforwards expire as follows:
<TABLE>
<S> <C>
2000............................ $545,000
2001............................ 193,000
Thereafter...................... 225,000
--------
$963,000
========
</TABLE>
F-13
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. DEBT AND CAPITAL LEASES:
Following is a summary of obligations under debt and capital leases as of
September 30, 1994 and 1995, respectively:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1994 1995
---------- ---------
<S> <C> <C>
Borrowings under line of credit with a foreign bank pay-
able in Swedish Krona.................................. $ 29,000 $ --
Note payable in British Pounds to a foreign bank, due in
varying monthly installments, with interest at 3
percent over the bank's prime rate (prime
6 percent in 1994)..................................... 312,000 --
Note payable in Canadian Dollars to a foreign bank, due
in varying monthly installments, with interest at 1.25
percent over the bank's prime rate..................... 8,000 --
Notes payable secured by equipment, due in monthly
installments of $15,100 plus interest at the bank's
prime plus 1.25 percent (prime 7.75 percent in 1994)... 196,000 --
Notes payable to former employees with various
maturities through 2001 bearing interest at 5 to 8
percent (See note 6)................................... 293,000 310,000
Capital lease obligations, due through 1998............. 169,000 153,000
---------- ---------
1,007,000 463,000
Less--current portion................................... (561,000) (191,000)
---------- ---------
$ 446,000 $ 272,000
========== =========
</TABLE>
Certain of the Company's foreign subsidiaries have established lines of
credit with local banks. The aggregate amount available under these facilities
as of September 30, 1995, was $275,000. At September 30, 1995, there were no
borrowings against these lines. Interest on borrowings under these facilities
is payable monthly at the bank's prime rate, (7.9 percent) plus 3 percent in
France and at 14 percent in Sweden.
The annual aggregate scheduled maturities of debt obligations for the five
fiscal years subsequent to September 30, 1995 are presented below:
<TABLE>
<S> <C>
1996............................ $125,000
1997............................ 69,000
1998............................ 48,000
1999............................ 29,000
2000............................ 24,000
Thereafter...................... 15,000
--------
$310,000
========
</TABLE>
The Company leases certain equipment costing approximately $339,000 under
capital lease agreements. The following summarizes the future minimum lease
payments under capitalized leases together with the present value of the
future minimum lease payments:
<TABLE>
<S> <C>
1996............................ $ 72,000
1997............................ 72,000
1998............................ 18,000
--------
162,000
Less--amount representing inter-
est............................ (9,000)
--------
$153,000
========
</TABLE>
F-14
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS:
The Company leases its facilities and certain equipment under various
operating lease agreements. The minimum future rental payments for all
operating leases are as follows:
<TABLE>
<S> <C>
1996......................... $ 3,865,000
1997......................... 3,582,000
1998......................... 3,456,000
1999......................... 3,359,000
2000......................... 3,288,000
Thereafter................... 5,614,000
-----------
$23,164,000
===========
</TABLE>
For the years ended September 30, 1993, 1994 and 1995, rent expense was
$4,196,000, $4,547,000 and $3,486,000, respectively. The agreements generally
require the payment of property taxes, insurance and maintenance in addition
to the minimum base rent.
6. COMMON STOCK:
Prior to December 6, 1995, the Company's Common Stock was divided into two
classes: Class A Voting Common Stock (Class A Stock) and Class B Non-Voting
Common Stock (Class B Stock). During fiscal years 1993, 1994 and 1995, the
Company issued approximately 300,000 shares, 81,000 shares and 736,000 shares
of Class B Stock, respectively, to certain employees. The purchase price of
these shares was determined based on the formula as defined in the stock
purchase agreements. Proceeds from the sale of these shares of Class B Stock
included cash and full recourse notes which bear interest at between five and
eight percent and are due in monthly principal and interest installments for
periods ranging from 48 to 96 months.
Approximately 611,000 shares of the Class B Stock are subject to repurchase
options. The repurchase option terms stipulate that the Company, at its sole
option, may repurchase these shares from the stockholder in the event the
stockholder leaves the employment of the Company for any reason. The Company
can repurchase the shares at an amount equal to the initial issue price plus
seven percent per annum. These repurchase options expire over a four-year
period at a rate of 25 percent per year.
The Company has recorded deferred compensation of $321,000, which represents
the excess of the appraised value of $1.40 per share in January 1995 and $1.90
per share in June 1995 (as determined by an independent appraisal) over the
initial issue price of $.94 per share of the 436,000 shares of Class B Stock
sold to certain employees during fiscal 1995. In management's view, the
initial public offering price per share was significantly higher than the
appraised value of the stock in January 1995 and June 1995 due to: (i) the
Company's increased earnings subsequent to the valuation dates, (ii) the
higher multiples of comparable companies in the market as compared with the
multiples prevailing at the valuation dates, (iii) the perceived value of the
Company's recent efforts in the CBT market, and (iv) a market discount
included in the appraised value to reflect the lack of marketability,
transferability and voting rights of the Class B Stock. The deferred
compensation is reflected as a reduction of stockholders' equity in the
accompanying financial statements and is being amortized as additional
compensation expense over the four-year term of the repurchase options. During
the fiscal year ended September 30, 1995, the Company has recorded $34,000 of
additional compensation expense relating the amortization of the deferred
compensation.
During the fiscal years ended September 30, 1993, 1994 and 1995, the
Company repurchased 135,000 shares, 498,000 shares and 153,000 shares of Class
B Stock, respectively, under the terms of the repurchase agreements. The
aggregate repurchase prices of these shares were $87,000, $432,000 and
$218,000 in fiscal 1993, 1994 and 1995, respectively. The settlement of these
stock repurchases was completed through the cancellation of notes receivable
from the selling stockholders, cash payments and the issuance of notes payable
by the Company of $87,000, $321,000 and $195,000 during fiscal 1993, 1994 and
1995, respectively. (See note 4.)
F-15
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Options
During the fiscal years ended September 30, 1989 and September 30, 1994, the
Company entered into agreements with certain employees to sell an aggregate of
300,000 shares of Class B common stock at the contractual formula value
(estimated fair market value) ranging from $0.28 to $0.94 per share. During
fiscal 1995, all of these options were exercised and the shares were issued.
7. EMPLOYEE BENEFIT PLAN:
The Company has adopted a defined contribution plan for the benefit of its
domestic employees who have met the eligibility requirements. The Learning
Tree International, Inc. Profit-Sharing and Deferred Savings Plan (the Plan)
is a profit-sharing plan qualifying under Section 401(k) of the Internal
Revenue Code.
Qualified employees may elect to contribute up to 15 percent of their
compensation to the Plan on a pre-tax basis, subject to statutory limitations.
The Company makes matching contributions at a rate of 25 percent of elective
contributions up to one and one-half percent of the compensation of such
contributors. Additionally, the Company makes qualified nonelective
contributions to the Plan on an annual basis. The qualified nonelective
contributions are equivalent to one and one-half percent of the annual
compensation of the qualified participants. The Company contributed $141,000,
$149,000 and $129,000 to the Plan for the fiscal years ended September 30,
1993, 1994 and 1995, respectively.
The Company has adopted similar plans for the benefit of its employees in
certain of its foreign subsidiaries. Contributions to these plans are subject
to various age, length of service and compensation level criteria as well as
certain limitations. For the fiscal years ended September 30, 1993, 1994 and
1995, the cost to the Company of these plans was approximately $71,000,
$81,000 and $110,000, respectively.
8. BUSINESS SEGMENT DATA:
The Company's sole business segment is the design and delivery of IT
education courses. There were no sales to any individual customers that
accounted for 10% or more of revenue in fiscal 1993, 1994 or 1995.
Information about the Company's operations in different geographic locations
for the years ended September 30, 1993, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
United States.......................... $19,828,000 $24,977,000 $35,390,000
Canada................................. 5,205,000 5,309,000 6,102,000
Europe................................. 23,317,000 26,876,000 35,637,000
Asia................................... 979,000 1,304,000 1,689,000
----------- ----------- -----------
Consolidated revenues................ $49,329,000 $58,466,000 $78,818,000
=========== =========== ===========
Income (loss) from operations:
United States.......................... $ 94,000 $ 104,000 $ 3,375,000
Canada................................. (469,000) (853,000) 342,000
Europe................................. (1,181,000) 95,000 4,056,000
Asia................................... 196,000 289,000 301,000
----------- ----------- -----------
Consolidated income (loss) from
operations.......................... $(1,360,000) $ (365,000) $ 8,074,000
=========== =========== ===========
Identifiable assets:
United States.......................... $ 6,763,000 $ 7,795,000 $14,657,000
Canada................................. 1,356,000 1,153,000 1,189,000
Europe................................. 5,899,000 7,190,000 12,428,000
Asia................................... 117,000 168,000 153,000
----------- ----------- -----------
Consolidated assets.................. $14,135,000 $16,306,000 $28,427,000
=========== =========== ===========
</TABLE>
F-16
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. VALUATION AND QUALIFYING ACCOUNTS
For the years ended September 30, 1993, 1994 and 1995, activity with respect
to the Company's allowance for doubtful accounts receivable is summarized as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1993 1994 1995
--------- -------- --------
<S> <C> <C> <C>
Beginning balance................................. $ 148,000 $139,000 $197,000
Charged to expense................................ 101,000 58,000 107,000
Amounts written off............................... (110,000) -- (45,000)
--------- -------- --------
Ending balance.................................... $ 139,000 $197,000 $259,000
========= ======== ========
</TABLE>
10. CASH FLOW INFORMATION
The Company considers highly liquid investments with original maturities of
90 days or less to be cash equivalents.
The Company purchased Class B Stock from employees for cancellation of notes
receivable of $0, $93,000 and $23,000 for the years ended September 30, 1993,
1994 and 1995, respectively. The Company sold Class B Stock to employees and
received promissory notes of $182,000, $48,000 and $579,000 as partial
consideration therefor during the fiscal years ended September 30, 1993, 1994
and 1995, respectively.
11. RELATED PARTY TRANSACTIONS
On January 6, 1995, the Company and M. Kane & Company, Inc. ("MKC") entered
into an agreement pursuant to which MKC agreed to provide financial advice and
assistance. In consideration for such services, MKC received 1.875% of the
gross proceeds of the initial public offering. This agreement terminated upon
the settlement date of the initial public offering. The president of MKC is a
Director of the Company.
12. SUBSEQUENT EVENTS:
Public Offering--
On December 6, 1995, 3,000,000 shares of the Company's Common Stock were
sold in an initial public offering, of which 2,500,000 shares were sold by the
Company and 500,000 shares were sold by certain stockholders of the Company.
The Company did not receive any proceeds from the sale of shares by its
stockholders. However, the Company received net proceeds of approximately
$26.0 million from its sale of shares in the initial public offering. Such
proceeds are being used for working capital and general purposes, including:
(i) increasing the marketing and advertising of the Company's computer-based
classroom training courses, (ii) developing additional classroom courses,
(iii) developing proprietary software for the Company's multimedia computer-
based training courses, and (iv) for general corporate purposes. The Company
also may use a portion of the net proceeds to acquire technologies and related
assets or businesses complementary to its operations, although the Company has
no agreements currently in place of negotiations under way with respect to any
acquisition.
Effective as of the closing of the initial public offering on December 6,
1995, each outstanding share of Class B Stock was converted into one fully
paid and non-assessable share of Class A Stock and, thereafter, the Common
Stock ceased being divided into series and instead has consisted of a single
class. There were 835,000 and 1,417,000 shares of Class B Stock outstanding at
September 30, 1994 and 1995, respectively.
F-17
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On January 5, 1996, an additional 450,000 shares of Common Stock were sold
by the Company pursuant to a purchase option granted to the underwriters at
the time of the initial public offering solely to cover over allotments. The
Company received net proceeds of approximately $4.8 million after deducting
underwriter commissions and other stock issuance costs.
Stock Option Plan--
In October 1995, the Company and its stockholders adopted the 1995 Stock
Option Plan (the "Stock Option Plan"), which provides for the issuance of
incentive stock options within the meaning of Section 422 of the Code and non-
qualified stock options to purchase an aggregate of up to 1,500,000 shares of
the Common Stock of the Company. The Stock Option Plan permits the grant of
options to officers, employees, directors and consultants of the Company. The
exercise price of incentive stock options granted will be greater than or
equal to the fair market value of the Common Stock at the date of grant and
the maximum term of the options may not exceed ten years. The vesting schedule
and the period required for full exercisability of the stock options are at
the discretion of the Board of Directors but in no event can it be less than
six months. As of June 30, 1996, no options have been granted under the Stock
Option Plan.
Employment Agreements--
The Company has entered into employment agreements with the Chief Executive
Officer and President of the Company for a minimum period of three years which
may be extended for additional periods of three years at the option of the
officer involved.
Cash Flow Information--
In March 1996, the Company repurchased 26,393 shares of Common Stock from
employees for the cancellation of notes receivable from such stockholders in
the amount of $446,000. In addition, during March 1996, notes receivable from
stockholders in the amount of $19,000 were offset against the equivalent
amount of notes payable to such stockholders.
During the nine months ended June 30, 1995, the Company repurchased 153,000
shares of Common Stock from employees for the cancellation of notes receivable
from such stockholders in the amount of $23,000 and the issuance of notes
payable by the Company of $195,000. During this same period, the Company sold
Common Stock to employees and received promissory notes of $22,000 as partial
consideration therefor.
Related Party Transactions--
On July 12, 1996, the Company and MKC entered into an agreement pursuant to
which MKC agreed to provide financial advice and assistance. As consideration
for such services, MKC is to receive a retainer of $15,000 per month until the
termination of the agreement. MKC is also entitled to 1.875% of the gross
proceeds of the proposed offering less any monthly retainer payments paid.
This agreement may be terminated by either party at any time upon thirty days'
notice, and it will terminate automatically upon the earlier of the completion
or abandonment of the proposed offering or twelve months.
F-18
<PAGE>
INSIDE BACK COVER:
[Graphic superimposing categories of the Companies Course Offerings over a
picture of a classroom.]
COURSES
At June 30, 1996, Learning Tree's course library included 98 proprietary course
titles comprising over 2,000 hours of classroom instruction, with an additional
12 course titles under development.
6 Client/Server Titles:
. Analysis and Design
. Application Development
. Data Management
4 Internet/Intranet Titles:
. HTML Web Development
. Java Programming
. Network Security
11 Windows Titles:
. Windows 95 . Windows NT
. System Management Server . SQL Server
. Exchange
33 Network Titles:
. LANs . WANs . Internetworking
. High-Speed Networks
. Multivendor Networking . Security
. TCP/IP . X.25 . ISDN . Telecom
. Wireless Networks . NetWare
9 Operating System Titles:
. Unix . OS/2 . Tools and Utilities
. System and Network Administration
13 Database Titles:
. Relational DBMS . Oracle
. Sybase . Lotus Notes
3 PC Support Titles:
. PC Troubleshooting
. Macintosh Support
17 Programming and GUI Titles:
. C . C++ . Visual C++ . Visual Basic
. Windows Programming . PowerBuilder
9 Software Development Titles:
. Object-Oriented Analysis and Design
. Software Engineering
5 IT Soft Skills Titles:
. Business Process Re-engineering
. Communication Skills . Team Building
. Project Management
===================
18 Professional Certification Programs
Each Professional Certification Program
requires completion of a series of five
Learning Tree courses and an examination
associated with each course.
[LOGO OF LEARNING TREE INTERNATIONAL]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Price Range of Common Stock.............................................. 12
Capitalization........................................................... 13
Selected Consolidated Financial Data..................................... 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 15
Business................................................................. 24
Management............................................................... 37
Certain Transactions..................................................... 43
Principal and Selling Stockholders....................................... 45
Description of Capital Stock............................................. 46
Shares Eligible for Future Sale.......................................... 49
Underwriting............................................................. 51
Legal Matters............................................................ 53
Experts.................................................................. 53
Additional Information................................................... 53
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,000,000 SHARES
[LOGO]
COMMON STOCK
------------------
PROSPECTUS
------------------
ROBERTSON, STEPHENS & COMPANY
PIPER JAFFRAY INC.
SMITH BARNEY INC.
M. KANE & COMPANY, INC.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions incurred or to be incurred in
connection with the sale of the Common Stock being registered (all amounts are
estimated except the SEC registration fee, the NASD filing fee and the Nasdaq
listing fee). Of such costs and expenses, it is estimated that the Registrant
will pay $301,419 and the Selling Stockholders will pay $1,364,581.
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 22,405
NASD filing fee............................................... 6,998
Nasdaq listing fee............................................ 10,000
Blue sky fees and expenses.................................... 10,000
Printing expenses............................................. 70,000
Legal fees and expenses....................................... 150,000
Accounting fees and expenses.................................. 25,000
Transfer agent and registrar fees............................. 4,000
Miscellaneous................................................. $1,367,597
----------
Total....................................................... $1,666,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Eight of the Company's Amended and Restated Certificate of
Incorporation and Article VIII of the Company's Bylaws (filed as Exhibits 3.1
and 3.2 hereto, respectively) provide for indemnification of officers and
directors and are incorporated herein by this reference.
Reference is made to Section 8 of the Underwriting Agreement (filed as
Exhibit 1.1 hereto) for certain provisions as to the indemnification of the
Underwriters by the Company and the Selling Stockholders and as to
indemnification by the Underwriters of the Company, officers and directors of
the Company and the Selling Stockholders against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
Section 145 of the General Corporation Law of the State of Delaware
provides, in part, that a corporation shall have the power to indemnify any
person who was or is a party or is threatened to be made a party to any suit
or proceedings because such person is or was a director, officer, employee or
agent of the corporation or was serving at the request of the corporation, as
a director, officer, employee or agent of another corporation, against all
costs actually and reasonably incurred by him in connection with such suit or
proceedings if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation. Similar
indemnity is permitted to be provided to such persons in connection with an
action or suit by or in the right of the corporation, provided such person
acted in good faith and in a manner he believed to be in or not opposed to the
best interests of the corporation, and provided further (unless a court of
competent jurisdiction otherwise determines) that such person shall not have
been adjudged liable to the corporation.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant made the following sales of securities in the past three
years that were not registered under the Securities Act of 1933 (all share
numbers adjusted for the 3.66-for-one split in October 1995 and the conversion
of the two classes of the Company's common stock into a single class on
December 6, 1995):
<TABLE>
<CAPTION>
NUMBER OF
DATE OF SHARES OF
PURCHASE COMMON AGGREGATE
GREEMENT(S)A PURCHASER STOCK CONSIDERATION
- ------------ --------- --------- -------------
<S> <C> <C> <C>
03/14/94......................... Mary C. Adams 43,920 $28,680
03/14/94......................... Richard S. Adamson 36,600 23,900
07/18/94......................... Max S. Shevitz 175,680(1) 164,640
11/10/94......................... Mary C. Adams 18,300(1) 17,500
01/17/95......................... Gary R. Wright 146,400(1) 137,200
02/15/95......................... Michael W. Kane 36,600(1) 34,300
05/22/95......................... David Blasi 36,600(1) 34,300
05/30/95......................... John Durbin 21,960(1) 20,580
05/30/95......................... David Pardo 43,920(1) 41,160
06/10/95......................... Richard S. Adamson 51,240(1) 48,020
07/07/95......................... Robert Beaumont 18,300(1) 17,150
07/07/95......................... Kevin M. Kell 18,300(1) 17,150
07/07/95......................... Linda Trude 36,600(1) 34,300
08/14/95......................... Cassandra M. Mason 7,320(1) 6,860
</TABLE>
- --------
(1) These shares were sold subject to repurchase agreements, allowing the
Company to repurchase the shares at specified prices and conditions upon
termination of employment of the stockholder.
Sales of the Registrant's capital stock described above were exempt from
registration under the Securities Act of 1933 as amended, as transactions by
an issuer not involving a public offering under Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES.
(a) Exhibits
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters or their Representative at the closings specified in the
Underwriting Agreement certificates in such denominations and registered in
such amounts as required by the Underwriters to permit prompt delivery to each
purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the items listed in Item
14 hereof, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange 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 person 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 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 Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
II-2
<PAGE>
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 purposes of determining any liability under the Act, 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.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT, LEARNING TREE INTERNATIONAL, INC., A CORPORATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA, ON
THE 26TH DAY OF AUGUST, 1996.
Learning Tree International, Inc.
By: /s/ David C. Collins, Ph.D.
___________________________________
Name: David C. Collins, Ph.D.
Title: Chairman of the Board of
Directors and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, each person whose signature appears
below constitutes and appoints Dr. David C. Collins, Eric R. Garen and Mary C.
Adams, jointly and severally, as attorneys-in-fact, each with power of
substitution, for such person in any and all capacities, to sign any
amendments to this Registration Statement or a related Registration Statement
filed pursuant to Rule 462, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-
in-fact, or his or her substitute or substitutes, may do or cause to be done
by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ David C. Collins, Ph.D. Chairman of the Board August 26, 1996
- ------------------------------------- and Chief Executive
DAVID C. COLLINS, PH.D. Officer (principal
executive officer)
/s/ Eric R. Garen President and Director August 26, 1996
- -------------------------------------
ERIC R. GAREN
/s/ Max S. Shevitz Executive Vice August 26, 1996
- ------------------------------------- Presidentand Director
MAX S. SHEVITZ
/s/ Gary R. Wright Vice President, Finance, August 26, 1996
- ------------------------------------- Chief Financial Officer
GARY R. WRIGHT and Secretary
(principal financial
officer and principal
accounting officer)
Director August , 1996
- -------------------------------------
W. MATHEW JUECHTER
/s/ Alan B. Salisbury, Ph.D. Director August 26, 1996
- -------------------------------------
ALAN B. SALISBURY, PH.D.
/s/ Michael W. Kane, Ph.D. Director August 26, 1996
- -------------------------------------
MICHAEL W. KANE, PH.D.
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
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<C> <S> <C>
1.1 Form of Underwriting Agreement between the Registrant,
the Selling Stockholders and Robertson, Stephens &
Company LLC, Piper Jaffray Inc., Smith Barney Inc., and
M. Kane & Company, Inc., as representatives of the
several underwriters named therein
3.1 Amended and Restated Certificate of Incorporation of
the Registrant*
3.2 By-Laws of the Registrant*
4.1 Specimen of Common Stock Certificate**
5.1 Opinion and consent of Irell & Manella LLP
10.1 Employment Agreement dated as of October 1, 1995
between Learning Tree International, Inc. and Dr. David
C. Collins**
10.2 Employment Agreement dated as of October 1, 1995
between Learning Tree International, Inc. and Eric R.
Garen**
10.3 Employment Agreement dated as of April 19, 1993 between
Learning Tree International (USA), Inc. and Alan B.
Salisbury*
10.4 Employment Agreement dated as of February 1978, as
amended, between Learning Tree International, Inc. and
Mary C. Adams**
10.5 Employment Agreement dated as of July 18, 1994, as
amended, between Learning Tree International, Inc. and
Max S. Shevitz*
10.6 Employment Agreement dated as of January 8, 1990, as
amended, between Learning Tree International, Inc. and
Gary R. Wright**
10.7 Form of Training Advantage Agreement*
10.8 1995 Stock Option Plan dated as of September 29, 1995**
10.9 Agreement dated July 12, 1996 between Learning Tree
International, Inc. and M. Kane & Company, Inc.
21.1 Subsidiaries of the Registrant***
23.1 Written consent of Arthur Andersen LLP
23.2 Written consent of Irell & Manella LLP (included in
their opinion filed as Exhibit 5.1 hereto)
24.1 Power of attorney appointing Dr. David C. Collins, Eric
R. Garen and Mary C. Adams to sign and file amendments
hereto (included on the signature page hereto)
</TABLE>
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* Incorporated by reference to the Company's Registration Statement on Form
S-1, No. 33-97842, filed on October 6, 1995 (the "Registration
Statement").
** Incorporated by reference to Amendment No. 1 to the Registration Statement
filed on November 13, 1995.
*** Incorporated by reference to Amendment No. 2 to the Registration Statement
filed on December 1, 1995.
<PAGE>
EXHIBIT 1.1
2,000,000 SHARES/1/
LEARNING TREE INTERNATIONAL, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
_____________, 1996
ROBERTSON, STEPHENS & COMPANY LLC
PIPER JAFFRAY INC.
SMITH BARNEY INC.
M. KANE & COMPANY, INC.
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street, Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
Learning Tree International, Inc., a Delaware corporation (the
"Company"), and certain stockholders of the Company named in Schedule B
hereto (hereafter called the "Selling Stockholders") address you as the
Representatives of each of the persons, firms and corporations listed in
Schedule A hereto (herein collectively called the "Underwriters") and hereby
confirm their respective agreements with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
---------------------
2,000,000 shares of its authorized and unissued Common Stock, par value
$.0001, to the several Underwriters. The Selling Stockholders, acting
severally and not jointly, propose to sell an aggregate of 1,600,000 shares of
the Company's authorized and outstanding Common Stock, par value $.0001, to
the several Underwriters. The 400,000 shares of Common Stock, par value
$.0001, of the Company to be sold by the Company are hereinafter called the
"Company Shares" and the 1,600,000 shares of Common Stock, par value $.0001,
to be sold by the Selling Stockholders are hereinafter called the "Selling
Stockholder Shares." The Company Shares and the Selling Stockholder Shares
are hereinafter collectively referred to as the "Firm Shares." The Selling
Stockholders also propose to grant to the Underwriters an option to purchase
up to 300,000 additional shares of the Company's Common Stock, par value
$.0001 (the "Option Shares"), as provided in Section 7 hereof. As used in
this Agreement, the term "Shares" shall include the Firm Shares and the
Option Shares. All shares of Common Stock, par value $.0001, of the Company
to be outstanding after giving effect to the sales contemplated hereby,
including the Shares, are hereinafter referred to as "Common Stock."
- -------------------
/1/ Plus an option to purchase up to 300,000 additional shares from the Selling
Stockholders to cover over-allotments, if any.
<PAGE>
2. Representations, Warranties and Agreements of the Company and the
-----------------------------------------------------------------
Selling Stockholders.
--------------------
I. The Company and the Selling Stockholders represent and warrant to and
agree with each Underwriter that:
(a) A registration statement on Form S-1 (File No. 333-___________) with
respect to the Shares, including a prospectus subject to completion, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the applicable rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act and has been filed with the Commission; such
amendments to such registration statement, such amended prospectuses subject to
completion and such abbreviated registration statements pursuant to Rule 462(b)
of the Rules and Regulations as may have been required prior to the date hereof
have been similarly prepared and filed with the Commission; and the Company will
file such additional amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
as may hereafter be required. Copies of such registration statement and
amendments, of each related prospectus subject to completion (the "Preliminary
Prospectuses") and of any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations have been delivered to you.
If the registration statement relating to the Shares has been declared
effective under the Act by the Commission, the Company will prepare and promptly
file with the Commission the information omitted from the registration statement
pursuant to Rule 430A(a) or, if Robertson, Stephens & Company LLC, on behalf of
the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the information required to be included in any term sheet
filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if Robertson,
Stephens & Company LLC, on behalf of the several Underwriters, shall agree to
the utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or (c),
as applicable, of the Rules and Regulations. The term "Registration
Statement" as used in this Agreement shall mean such registration statement,
including financial statements, schedules and exhibits, in the form in which it
became or becomes, as the case may be, effective (including, if the Company
omitted information from the registration statement pursuant to Rule 430A(a) or
files a term sheet pursuant to Rule 434 of the Rules and Regulations, the
information deemed to be a part of the registration statement at the time it
became effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and
Regulations) and, in the event of any amendment thereto or the filing of any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations relating thereto after the effective date of such registration
statement, shall also mean (from and after the effectiveness of such amendment
or the filing of such abbreviated registration statement) such registration
statement as so amended, together with any such abbreviated registration
statement. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in such Registration Statement at
the time it becomes effective (including, if the Company omitted information
from the Registration Statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations); provided, however, that if in reliance on Rule 434 of the Rules
-------- -------
and Regulations and with the consent of Robertson, Stephens & Company LLC, on
behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus subject
to completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Shares (including the information deemed to
be a part of the Registration Statement at the time it became effective pursuant
to Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if
any revised prospectus shall be provided to the Underwriters by the Company for
use in
<PAGE>
connection with the offering of the Shares that differs from the prospectus
referred to in the immediately preceding sentence (whether or not such revised
prospectus is required to be filed with the Commission pursuant to Rule 424(b)
of the Rules and Regulations), the term "Prospectus" shall refer to such
revised prospectus from and after the time it is first provided to the
Underwriters for such use. If in reliance on Rule 434 of the Rules and
Regulations and with the consent of Robertson, Stephens & Company LLC, on behalf
of the several Underwriters, the Company shall have provided to the Underwriters
a term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time
that a confirmation is sent or given for purposes of Section 2(10)(a) of the
Act, the Prospectus and the term sheet, together, will not be materially
different from the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus or instituted proceedings for that purpose,
and each such Preliminary Prospectus has conformed in all material respects to
the requirements of the Act and the Rules and Regulations and, as of its date,
has not included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date (hereinafter defined)
and on any later date on which Option Shares are to be purchased, (i) the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
-------- -------
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) Each of the Company and its subsidiaries has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation with full power and authority (corporate and
other) to own, lease and operate its properties and conduct its business as
described in the Prospectus; the Company owns all of the outstanding capital
stock of its subsidiaries (other than qualifying shares held for the benefit of
the Company) free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest; each of the Company and its subsidiaries is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the failure to
be so qualified or be in good standing would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise; no proceeding has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification; each of the Company and its subsidiaries
is in possession of and operating in compliance with all authorizations,
licenses, certificates, consents, orders and permits from state, federal and
other regulatory authorities which are material to the conduct of its business,
all of which are valid and in full force and effect; neither the Company nor any
of its subsidiaries is in violation of its respective charter or bylaws or in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any material bond, debenture, note or other
evidence of indebtedness, or in any material lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of its subsidiaries or their respective
-3-
<PAGE>
properties may be bound; and neither the Company nor any of its subsidiaries is
in material violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties of which it has knowledge. The
Company does not own or control, directly or indirectly, any corporation,
association or other entity other than Advanced Technology Marketing, Inc.,
Systems for Business and Industry, Inc., Technology for Business and Industry,
Inc., Learning Tree International USA, Inc., Learning Tree International, K.K.,
Learning Tree International Ltd., Learning Tree International S.A., Learning
Tree International AB, Learning Tree Publishing AB, and Learning Tree
International, Inc. Technology for Business and Industry, Inc. is a United
States Virgin Islands corporation and does not constitute a "significant
subsidiary" as defined in Rule 1-02(w) of Regulation S-X.
(d) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and is a valid
and binding agreement on the part of the Company, enforceable in accordance with
its terms, except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles; the performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a material breach or
material violation of any of the terms and provisions of, or constitute a
default under, (i) any material bond, debenture, note or other evidence of
indebtedness, or under any material lease, contract, indenture, mortgage, deed
of trust, loan agreement, joint venture or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which it or any of
its subsidiaries or their respective properties may be bound, (ii) the charter
or bylaws of the Company or any of its subsidiaries, or (iii) any law, order,
rule, regulation, writ, injunction, judgment or decree of any court, government
or governmental agency or body, domestic or foreign, having jurisdiction over
the Company or any of its subsidiaries or over their respective properties. No
consent, approval, authorization or order of or qualification with any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or over their
respective properties is required for the execution and delivery of this
Agreement and the consummation by the Company or any of its subsidiaries of the
transactions herein contemplated, except such as may be required under the Act,
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or under
state or other securities or Blue Sky laws, all of which requirements have been
satisfied in all material respects.
(e) There is not any pending or, to the best of the Company's and the
Selling Stockholders' knowledge, threatened action, suit, claim or proceeding
against the Company, any of its subsidiaries or any of their respective
properties, assets or rights before any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective officers or properties or otherwise which
(i) might result in any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise or might materially and
adversely affect their properties, assets or rights, (ii) might prevent
consummation of the transactions contemplated hereby or (iii) is required to be
disclosed in the Registration Statement or Prospectus and is not so disclosed;
and there are no agreements, contracts, leases or documents of the Company or
any of its subsidiaries of a character required to be described or referred to
in the Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which have not been accurately described in all material
respects in the Registration Statement or Prospectus or filed as exhibits to the
Registration Statement.
(f) All outstanding shares of capital stock of the Company (including the
Selling Stockholder Shares) have been duly authorized and validly issued and are
fully paid and nonassessable, have been issued in compliance with all federal
securities laws and in material compliance with all state securities laws, were
not issued in violation of or subject to any preemptive rights or other rights
to
-4-
<PAGE>
subscribe for or purchase securities, and the authorized and outstanding capital
stock of the Company is as set forth in the Prospectus under the caption
"Capitalization" and conforms in all material respects to the statements
relating thereto contained in the Registration Statement and the Prospectus (and
such statements correctly state the substance of the instruments defining the
capitalization of the Company); the Firm Shares and the Option Shares have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable, and will be sold free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; and no
preemptive right, co-sale right, registration right, right of first refusal or
other similar right of stockholders exists with respect to any of the Firm
Shares or Option Shares or the issuance and sale thereof other than those that
have been expressly waived prior to the date hereof and those that will
automatically expire upon the consummation of the transactions contemplated on
the Closing Date. No further approval or authorization of any stockholder, the
Board of Directors of the Company or others is required for the issuance and
sale or transfer of the Shares except as may be required under the Act, or under
state or other securities or Blue Sky laws. All issued and outstanding shares
of capital stock of each subsidiary of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, and were not issued in
violation of or subject to any preemptive right, or other rights to subscribe
for or purchase shares and are owned by the Company free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest.
Except as disclosed in or contemplated by the Prospectus and the financial
statements of the Company, and the related notes thereto, included in the
Prospectus, neither the Company nor any subsidiary has outstanding any options
to purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. The description of the Company's
stock option, stock bonus and other stock plans or arrangements, and the options
or other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(g) Arthur Andersen LLP, which has examined the consolidated financial
statements of the Company, together with the related schedules and notes, as of
September 30, 1994 and 1995, for each of the years in the three (3) years ended
September 30, 1995 and for the nine (9) month periods ended June 30, 1995 and
1996 filed with the Commission as a part of the Registration Statement, which
are included in the Prospectus, are independent accountants within the meaning
of the Act and the Rules and Regulations; the audited consolidated financial
statements of the Company, together with the related schedules and notes, and
the unaudited consolidated financial information, forming part of the
Registration Statement and Prospectus, fairly present the financial position and
the results of operations of the Company and its subsidiaries at the respective
dates and for the respective periods to which they apply; and all audited
consolidated financial statements of the Company, together with the related
schedules and notes, and the unaudited consolidated financial information, filed
with the Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated therein. The
selected and summary financial and statistical data included in the Registration
Statement present fairly the information shown therein and have been compiled on
a basis consistent with the audited financial statements presented therein. No
other financial statements or schedules are required to be included in the
Registration Statement.
(h) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been (i) any material
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise, (ii) any transaction entered into by the Company or its
subsidiaries that is material to the Company and its subsidiaries considered as
one enterprise, except transactions entered into in the ordinary course of
business, (iii) any obligation, direct or contingent, that is material to the
Company and its subsidiaries considered as one enterprise, incurred by the
Company or its subsidiaries,
-5-
<PAGE>
except obligations incurred in the ordinary course of business, (iv) any change
in the capital stock or outstanding indebtedness of the Company or any of its
subsidiaries that is material to the Company and its subsidiaries considered as
one enterprise, (v) any dividend or distribution of any kind declared, paid or
made on the capital stock of the Company or any of its subsidiaries, or (vi) any
loss or damage (whether or not insured) to the property of the Company or any of
its subsidiaries which has been sustained or will have been sustained which has
a material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(i) Except as set forth in the Registration Statement and Prospectus, (i)
each of the Company and its subsidiaries has good and marketable title to all
properties and assets described in the Registration Statement and Prospectus as
owned by it, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest, other than such as would not have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise, (ii) the agreements to which the Company or any of its
subsidiaries is a party described in the Registration Statement and Prospectus
are valid agreements, enforceable by the Company and its subsidiaries (as
applicable), except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles and, to the best of the Company's knowledge, the other contracting
party or parties thereto are not in material breach or material default under
any of such agreements, and (iii) each of the Company and its subsidiaries has
valid and enforceable leases for all properties described in the Registration
Statement and Prospectus as leased by it, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles. Except as set forth in the Registration Statement
and Prospectus, the Company owns or leases all such properties as are necessary
to its operations as now conducted or as proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the best of the Company's knowledge, might be asserted against the Company or
any of its subsidiaries that might reasonably be expected to have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise; and all tax liabilities are adequately provided for on the books
of the Company and its subsidiaries.
(k) The Company and its subsidiaries maintain insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for their respective businesses and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering real and personal property owned or leased by
the Company or its subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied for; and
neither the Company nor any such subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise.
(l) To the best of Company's and the Selling Stockholders' knowledge, no
labor disturbance by the employees of the Company or any of its subsidiaries
exists or is imminent; and the Company is not aware of any existing or imminent
labor disturbance by the employees of any of its principal suppliers, value-
added resellers, subcontractors, authorized dealers or distributors that might
reasonably be
-6-
<PAGE>
expected to result in a material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise. No collective bargaining
agreement exists with any of the Company's employees and, to the best of the
Company's and the Selling Stockholders' knowledge, no such agreement is
imminent.
(m) Each of the Company and its subsidiaries owns or possesses adequate
rights to use all patents, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names and copyrights which are necessary to
conduct its businesses as described in the Registration Statement and
Prospectus; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise; the Company has not received any notice of, and has no knowledge
of, any infringement of or conflict with asserted rights of the Company by
others with respect to any patent, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names or copyrights other than those
which would not reasonably be expected to have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise; and
the Company and the Selling Stockholders have not received any notice of, and
has no knowledge of, any infringement of or conflict with asserted rights of
others with respect to any patent, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names or copyrights which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise.
(n) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act and is listed on the Nasdaq National Market, and the Company has
taken no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the Nasdaq National Market, nor has the Company received any
notification that the Commission or the National Association of Securities
Dealers, Inc. ("NASD") is contemplating terminating such registration or
listing.
(o) The Company has been advised concerning the Investment Company Act of
1940, as amended (the "1940 Act"), and the rules and regulations thereunder,
and has in the past conducted, and intends in the future to conduct, its affairs
in such a manner as to ensure that it will not become an "investment company"
or a company "controlled" by an "investment company" within the meaning of
the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not distribute prior to the
later of (i) the Closing Date, or any date on which Option Shares are to be
purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Act.
(q) Neither the Company nor any of its subsidiaries has at any time during
the last five (5) years (i) made any unlawful contribution to any candidate for
foreign office or failed to disclose fully any contribution in violation of law,
or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States or
any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or indirectly,
any action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares.
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<PAGE>
(s) Each officer and director of the Company and each Selling Stockholder
has agreed in writing that such person will not, for a period of 90 days from
the date that the Registration Statement is declared effective by the Commission
(the "Lock-up Period") offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock or any securities convertible into or exchangeable
for shares of Common Stock (collectively, "Securities") now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to limited partners or stockholders
of such person, provided that the distributees thereof agree in writing to be
bound by the terms of this restriction, or (iii) with the prior written consent
of Robertson, Stephens & Company LLC. The foregoing restriction is expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that includes, relates to or derives any significant
part of its value from Securities. Furthermore, such person will also agree and
consent to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of the Securities held by such person except in
compliance with this restriction. The Company has provided to counsel for the
Underwriters a complete and accurate list of all securityholders of the Company
and the number and type of securities held by each securityholder. The Company
has provided to counsel for the Underwriters true, accurate and complete copies
of all of the agreements pursuant to which its officers, directors and
stockholders have agreed to such or similar restrictions (the "Lock-up
Agreements") presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its officers, directors
or other stockholders from any Lock-up Agreements currently existing or
hereafter effected without the prior written consent of Robertson, Stephens &
Company LLC.
(t) Except as set forth in the Registration Statement and Prospectus, (i)
the Company is in material compliance with all rules, laws and regulations
relating to the use, treatment, storage and disposal of toxic substances and
protection of health or the environment ("Environmental Laws") which are
applicable to its business, (ii) the Company has received no notice from any
governmental authority or third party of an asserted claim under Environmental
Laws, which claim is required to be disclosed in the Registration Statement and
the Prospectus, (iii) the Company will not reasonably be expected to be required
to make future material capital expenditures to comply with Environmental Laws
and (iv) no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. (S) 9601, et
--
seq.), or otherwise designated as a contaminated site under applicable state or
- ----
local law.
(u) The Company and each of its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(v) There are no outstanding loans, advances (except normal advances for
business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of
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<PAGE>
them, except as disclosed in the Registration Statement and the Prospectus and
except for loans to purchase shares of the Company's capital stock previously
disclosed to Underwriters' counsel.
(w) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or with
any person or affiliate located in Cuba.
II. Each Selling Stockholder, severally and not jointly, also represents
and warrants to and agrees with each Underwriter and the Company that:
(a) Such Selling Stockholder now has and on the Closing Date and on any
later date on which Option Shares are purchased will have valid marketable title
to the Shares to be sold by such Selling Stockholder, free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest other
than pursuant to this Agreement; and upon delivery of such Shares hereunder and
payment of the purchase price as herein contemplated, each of the Underwriters
will obtain valid marketable title to the Shares purchased by it from such
Selling Stockholder, free and clear of any pledge, lien, security interest
pertaining to such Selling Stockholder or such Selling Stockholder's property,
encumbrance, claim or equitable interest, including any liability for estate or
inheritance taxes, or any liability to or claims of any creditor, devisee,
legatee or beneficiary of such Selling Stockholder.
(b) Such Selling Stockholder has duly authorized (if applicable), executed
and delivered, in the form heretofore furnished to the Representatives, an
irrevocable Power of Attorney (the "Power of Attorney") appointing [David C.
Collins and Eric Garen] as attorneys-in-fact (collectively, the "Attorneys"
and individually, an "Attorney") and a Letter of Transmittal and Custody
Agreement (the "Custody Agreement") with American Securities Transfer,
Incorporated, as custodian (the "Custodian"); each of the Power of Attorney
and the Custody Agreement constitutes a valid and binding agreement on the part
of such Selling Stockholder, enforceable in accordance with its terms, except as
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and each of such
Selling Stockholder's Attorneys, acting alone, is authorized to execute and
deliver this Agreement and the certificate referred to in Section 6(g) hereof on
behalf of such Selling Stockholder, to determine the purchase price to be paid
by the several Underwriters to such Selling Stockholder as provided in Section 3
hereof, to authorize the delivery of the Selling Stockholder Shares and the
Option Shares to be sold by such Selling Stockholders under this Agreement and
to duly endorse (in blank or otherwise) the certificate or certificates
representing such Shares or a stock power or powers with respect thereto, to
accept payment therefor, and otherwise to act on behalf of such Selling
Stockholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders required for the
execution and delivery by such Selling Stockholder of the Power of Attorney and
the Custody Agreement, the execution and delivery by or on behalf of such
Selling Stockholder of this Agreement and the sale and delivery of the Selling
Stockholder Shares and the Option Shares to be sold by such Selling Stockholders
under this Agreement (other than, at the time of the execution hereof (if the
Registration Statement has not yet been declared effective by the Commission),
the issuance of the order of the Commission declaring the Registration Statement
effective and such consents, approvals, authorizations or orders as may be
necessary under state or other securities or Blue Sky laws) have been obtained
and are in full force and effect; such Selling Stockholder, if other than a
natural person, has been duly organized and is validly existing in good standing
under the laws of the jurisdiction of its organization as the type of entity
that it purports to be; and such Selling Stockholder has full legal right, power
and authority to enter into and perform its obligations under this Agreement and
such Power of Attorney and Custody Agreement, and to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder under this Agreement.
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<PAGE>
(d) Such Selling Stockholder will not, during the Lock-up Period, effect
the Disposition of any Securities now owned or hereafter acquired directly by
such Selling Stockholder or with respect to which such Selling Stockholder has
or hereafter acquires the power of disposition, otherwise than (i) as a bona
fide gift or gifts, provided the donee or donees thereof agree in writing to be
bound by this restriction, (ii) as a distribution to limited partners or
stockholders of such Selling Stockholder, provided that the distributees thereof
agree in writing to be bound by the terms of this restriction, or (iii) with the
prior written consent of Robertson, Stephens & Company LLC. The foregoing
restriction is expressly agreed to preclude the holder of the Securities from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than the
Selling Stockholder. Such prohibited hedging or other transactions would
including, without limitation, any short sale (whether or not against the box)
or any purchase, sale or grant of any right (including, without limitation, any
put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities. Such
Selling Stockholder also agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
securities held by such Selling Stockholder except in compliance with this
restriction.
(e) Certificates in negotiable form for all Shares to be sold by such
Selling Stockholder under this Agreement, together with a stock power or powers
duly endorsed in blank by such Selling Stockholder, have been placed in custody
with the Custodian for the purpose of effecting delivery hereunder.
(f) This Agreement has been duly executed and delivered by or on behalf of
such Selling Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; and the performance of this
Agreement and the consummation of the transactions herein contemplated will not
result in a material breach or violation of any of the terms and provisions of
or constitute a default under any material bond, debenture, note or other
evidence of indebtedness, or under any material lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which such Selling Stockholder is a party or by which such Selling
Stockholder, or any Selling Stockholder Shares or any Option Shares to be sold
by such Selling Stockholder hereunder, may be bound or, to the best of such
Selling Stockholders' knowledge, result in any material violation of any law,
order, rule, regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over such Selling Stockholder or over the properties of such
Selling Stockholder.
(g) Such Selling Stockholder has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(h) Such Selling Stockholder has not distributed and will not distribute
any prospectus or other offering material in connection with the offering and
sale of the Shares.
(i) All information furnished by or on behalf of such Selling Stockholder
relating to such Selling Stockholder and the Selling Stockholder Shares that is
contained in the representations and warranties of such Selling Stockholder in
such Selling Stockholder's Power of Attorney or set forth in the Registration
Statement and the Prospectus is, and at the time the Registration Statement
became or becomes, as the case may be, effective and at all times subsequent
thereto up to and on the Closing Date, and on any later date on which Option
Shares are to be purchased, was or will be, true, correct and complete, and does
not, and at the time the Registration Statement became or becomes, as the case
may be, effective and at all
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<PAGE>
times subsequent thereto up to and on the Closing Date (hereinafter defined),
and on any later date on which Option Shares are to be purchased will not,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make such information not
misleading.
(j) Such Selling Stockholder will review the Prospectus and will comply
with all agreements and satisfy all conditions on his part to be complied with
or satisfied pursuant to this Agreement on or prior to the Closing Date or, on
any later date on which Option Shares may be purchased, as the case may be, and
will advise one of its Attorneys and Robertson, Stephens & Company LLC prior to
the Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, if any statement to be made on behalf of such Selling
Stockholder in the certificate contemplated by Section 6(g) would be inaccurate
if made as of the Closing Date or such later date on which Option Shares are to
be purchased, as the case may be.
(k) Such Selling Stockholder does not have, or has waived prior to the date
hereof, any preemptive right, co-sale right or right of first refusal or other
similar right to purchase any of the Shares that are to be sold by the Company
or any of the other Selling Stockholders to the Underwriters pursuant to this
Agreement; such Selling Stockholder does not have, or has waived prior to the
date hereof, any registration right or other similar right to participate in the
offering made by the Prospectus, other than such rights of participation as have
been satisfied by the participation of such Selling Stockholder in the
transactions to which this Agreement relates in accordance with the terms of
this Agreement; and such Selling Stockholder does not own any warrants, options
or similar rights to acquire, and does not have any right or arrangement to
acquire, any capital stock, rights, warrants, options or other securities from
the Company, other than those described in the Registration Statement and the
Prospectus.
3. Purchase, Sale and Delivery of Shares. On the basis of the
-------------------------------------
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Stockholders, respectively, at a purchase price of $________ per
share, the respective number of Company Shares and Selling Stockholder Shares
set forth opposite the names of the Company and the Selling Stockholders in
Schedule B hereto. The obligation of each Underwriter to the Company and to
each Selling Stockholder shall be to purchase from the Company or such Selling
Stockholder that number of Company Shares or Selling Stockholder Shares, as the
case may be, which (as nearly as practicable, as determined by you) is in the
same proportion to the number of Company Shares or Selling Stockholder Shares,
as the case may be, set forth opposite the name of the Company or such Selling
Stockholder in Schedule B hereto as the number of Firm Shares which is set forth
opposite the name of such Underwriter in Schedule A hereto (subject to
adjustment as provided in Section 10) is to the total number of Firm Shares to
be purchased by all the Underwriters under this Agreement.
The certificates in negotiable form for the Selling Stockholder Shares have
been placed in custody (for delivery under this Agreement) under the Custody
Agreement. Each Selling Stockholder agrees that the certificates for the
Selling Stockholder Shares of such Selling Stockholder so held in custody are
subject to the interests of the Underwriters hereunder, that the arrangements
made by such Selling Stockholder for such custody, including the Power of
Attorney is to that extent irrevocable and that the obligations of such Selling
Stockholder hereunder shall not be terminated by the act of such Selling
Stockholder or by operation of law, whether by the death or incapacity of such
Selling Stockholder or the occurrence of any other event, except as specifically
provided herein or in the Custody Agreement. If any Selling Stockholder should
die or be incapacitated, or if any other such event should occur, before the
delivery of the certificates for the Selling Stockholder Shares hereunder, the
Selling Stockholder Shares to be sold by such Selling Stockholder shall, except
as specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death,
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<PAGE>
incapacity or other event had not occurred, regardless of whether the Custodian
shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be purchased by
the Underwriters pursuant to this Section 3 shall be made against payment of the
purchase price therefor by the several Underwriters by wire transfer of same-day
funds, payable to the order of the Company with regard to the Shares being
purchased from the Company, and to the order of the Custodian for the respective
accounts of the Selling Stockholders with regard to the Shares being purchased
from such Selling Stockholders, at the offices of Irell & Manella LLP, 1800
Avenue of the Stars, Suite 900, Los Angeles, California 90067 (or at such other
place as may be agreed upon among the Representatives and the Company and the
Selling Stockholders), at 7:00 A.M., San Francisco time (a) on the third (3rd)
full business day following the first day that Shares are traded, (b) if this
Agreement is executed and delivered after 1:30 P.M., San Francisco time, the
fourth (4th) full business day following the day that this Agreement is executed
and delivered or (c) at such other time and date not later than seven (7) full
business days following the first (1st) day that Shares are traded as the
Representatives and the Company and the Selling Stockholders may determine (or
at such time and date to which payment and delivery shall have been postponed
pursuant to Section 10 hereof), such time and date of payment and delivery being
herein called the "Closing Date"; provided, however, that if the Company has
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not made available to the Representatives copies of the Prospectus within the
time provided in Section 4(d) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full business
days following delivery of copies of the Prospectus to the Representatives. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location including, without limitation, in New
York City, as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the Closing Date. If the Representatives so elect,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the Representatives of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make a public offering (as such term is described in
Section 11 hereof) of the Firm Shares at a public offering price of $________
per share.
The information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), at the bottom of page
[3], concerning stabilization and over-allotment by the Underwriters, and under
the caption "Underwriting" in any Preliminary Prospectus and in the final form
of Prospectus filed pursuant to Rule 424(b) constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement, and you, on behalf of
the respective Underwriters, represent and warrant to the Company and the
Selling Stockholders that the statements made therein do not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the several
---------------------------------
Underwriters that:
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<PAGE>
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters ("Underwriters' Counsel"), may be necessary or advisable
in connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is required
to deliver a prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act; and it will file no amendment or supplement to the
Registration Statement or Prospectus which shall not previously have been
submitted to you a reasonable time prior to the proposed filing thereof or to
which you shall reasonably object in writing, subject, however, to compliance
with the Act and the Rules and Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive notice or
obtain knowledge, of the issuance of any stop order by the Commission suspending
the effectiveness of the Registration Statement or of the initiation or threat
of any proceeding for that purpose; and it will promptly use its best efforts to
prevent the issuance of any stop order or to obtain its withdrawal at the
earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not
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<PAGE>
otherwise required to be so qualified or to so execute a general consent to
service of process. In each jurisdiction in which the Shares shall have been
qualified as above provided, the Company will make and file such statements and
reports in each year as are or may be reasonably required by the laws of such
jurisdiction.
(d) The Company will furnish to you, as soon as available, and, in the case
of the Prospectus and any term sheet or abbreviated term sheet under Rule 434,
in no event later than the first (1st) full business day following the first day
that Shares are traded, copies of the Registration Statement (three of which
will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act (three of which will include all exhibits), all in such quantities as
you may from time to time reasonably request. Notwithstanding the foregoing, if
Robertson, Stephens & Company LLC, on behalf of the several Underwriters, shall
agree to the utilization of Rule 434 of the Rules and Regulations, the Company
shall provide to you copies of a Preliminary Prospectus updated in all respects
through the date specified by you in such quantities as you may from time to
time reasonably request.
(e) The Company will make generally available to its securityholders as
soon as practicable, but in any event not later than the forty-fifth (45th) day
following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and covering a twelve (12) month
period beginning after the effective date of the Registration Statement.
(f) During a period of five (5) years after the date hereof, the Company
will furnish to its stockholders as soon as practicable after the end of each
respective period, annual reports (including financial statements audited by
independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters hereunder, upon request (i)
concurrently with furnishing such reports to its stockholders, statements of
operations of the Company for each of the first three (3) quarters in the form
furnished to the Company's stockholders, (ii) concurrently with furnishing to
its stockholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of stockholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants, (iii)
concurrently with furnishing to its stockholders, copies of all reports
(financial or other) mailed to stockholders, (iv) concurrently with furnishing
to or filing with the relevant agency, copies of all reports and financial
statements furnished to or filed with the Commission, any securities exchange or
the National Association of Securities Dealers, Inc. ("NASD"), (v) every
material press release and every material news item or article in respect of the
Company or its affairs which was generally released to stockholders or prepared
by the Company or any of its subsidiaries, and (vi) any additional information
of a public nature concerning the Company or its subsidiaries, or its business
which you may reasonably request. During such five (5) year period, if the
Company shall have active subsidiaries, the foregoing financial statements shall
be on a consolidated basis to the extent that the accounts of the Company and
its subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the Shares
being sold by it in the manner set forth under the caption "Use of Proceeds"
in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary under the
jurisdiction of incorporation of the Company, a registrar (which may be the same
entity as the transfer agent) for its Common Stock.
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<PAGE>
(i) If the transactions contemplated hereby are not consummated by reason
of any failure, refusal or inability on the part of the Company or any Selling
Stockholder to perform any agreement on their respective parts to be performed
hereunder or to fulfill any condition of the Underwriters' obligations
hereunder, or if the Company shall terminate this Agreement pursuant to Section
11(a) hereof, or if the Underwriters shall terminate this Agreement pursuant to
Section 11(b)(i), the Company and the Selling Stockholders will reimburse the
several Underwriters for all out-of-pocket expenses (including reasonable fees
and disbursements of Underwriters' Counsel) incurred by the Underwriters in
investigating or preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price of the Common Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
(k) During the Lock-up Period, the Company will not, without the prior
written consent of Robertson Stephens & Company LLC, effect the Disposition of,
directly or indirectly, any Securities other than the sale of the Firm Shares
and the Option Shares hereunder. The foregoing sentence shall not apply to (A)
the shares of Common Stock to be sold to the Underwriters pursuant to this
Agreement and (B) options to purchase Common Stock granted or Common Stock
issued under the Company's presently authorized stock option plans described in
the Prospectus (the "Option Plan").
(l) During the Lock-up Period, the Selling Stockholders will not effect the
Disposition of any Securities now owned or hereafter acquired directly by such
Selling Stockholder or with respect to which such Selling Stockholder has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to limited partners or stockholders
of such Selling Stockholder, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction, or (iii) with the prior
written consent of Robertson, Stephens & Company LLC. The foregoing restriction
is expressly agreed to preclude the holder of the Securities from engaging in
any hedging or other transaction which is designed to or reasonably expected to
lead to or result in a Disposition of Securities during the Lock-up Period, even
if such Securities would be disposed of by someone other than the Selling
Stockholder. Such prohibited hedging or other transactions would include,
without limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities.
5. Expenses.
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(a) The Company and the Selling Stockholders agree with each Underwriter
that:
(i) The Company and the Selling Stockholders will pay and bear all costs
and expenses in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and exhibits),
Preliminary Prospectuses and the Prospectus and any amendments or supplements
thereto; the printing of this Agreement, the Agreement Among Underwriters, the
Selected Dealer Agreement, the Preliminary Blue Sky Survey and any Supplemental
Blue Sky Survey, the Underwriters' Questionnaire and Power of Attorney, and any
instruments
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related to any of the foregoing; the issuance and delivery of the Shares
hereunder to the several Underwriters, including transfer taxes, if any, the
cost of all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the Company; all
fees and other charges of the Company's independent certified public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary Prospectus
and the Prospectus, and any amendments or supplements to any of the foregoing;
NASD filing fees and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and reasonable fees
and disbursements of Underwriters' Counsel in connection with such NASD filings
and Blue Sky qualifications); and all other expenses directly incurred by the
Company and the Selling Stockholders in connection with the performance of their
obligations hereunder. Any additional expenses incurred as a result of the sale
of the Shares by the Selling Stockholders will be borne collectively by the
Company and the Selling Stockholders. The provisions of this Section 5(a)(i)
are intended to relieve the Underwriters from the payment of the expenses and
costs which the Selling Stockholders and the Company hereby agree to pay, but
shall not affect any agreement which the Selling Stockholders and the Company
may make, or may have made, for the sharing of any of such expenses and costs.
Such agreements shall not impair the obligations of the Company and the Selling
Stockholders hereunder to the several Underwriters.
(ii) In addition to its other obligations under Section 8(a) hereof, the
Company and the Selling Stockholders agree that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(a) hereof, they will reimburse the Underwriters on a
monthly basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's and/or the Selling
Stockholders' obligation to reimburse the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters shall
promptly return such payment to the Company and the Selling Stockholders
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by Bank of America NT & SA (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
Underwriters within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 8(b) hereof, the
Underwriters severally and not jointly agree that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(b) hereof, they will reimburse the Company and each
Selling Stockholder on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company and each such Selling
Stockholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each such Selling Stockholder shall promptly return
such payment to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company and each such Selling Stockholder
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Sections 5(a)(ii) and 5(b)
hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the reimbursing parties, shall be settled by arbitration
conducted under
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the provisions of the Constitution and Rules of the Board of Governors of the
New York Stock Exchange, Inc. or pursuant to the Code of Arbitration Procedure
of the NASD. Any such arbitration must be commenced by service of a written
demand for arbitration or a written notice of intention to arbitrate, therein
electing the arbitration tribunal. In the event the party demanding arbitration
does not make such designation of an arbitration tribunal in such demand or
notice, then the party responding to said demand or notice is authorized to do
so. Any such arbitration will be limited to the operation of the interim
reimbursement provisions contained in Sections 5(a)(ii) and 5(b) hereof and will
not resolve the ultimate propriety or enforceability of the obligation to
indemnify for expenses which is created by the provisions of Sections 8(a) or
8(b) hereof or the obligation to contribute to expenses which is created by the
provisions of Section 8(d) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
---------------------------------------
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholders
herein, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not later than
2:00 P.M., San Francisco time, on the date following the date of this Agreement,
or such later date as shall be consented to in writing by you; and no stop order
suspending the effectiveness thereof shall have been issued and no proceedings
for that purpose shall have been initiated or, to the knowledge of the Company,
any Selling Stockholder or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection with
this Agreement, the form of Registration Statement and the Prospectus, and the
registration, authorization, issue, sale and delivery of the Shares, shall have
been reasonably satisfactory to Underwriters' Counsel, and such counsel shall
have been furnished with such papers and information as they may reasonably have
requested to enable them to pass upon the matters referred to in this Section.
(c) Subsequent to the execution and delivery of this Agreement and prior to
the Closing Date there shall not have been any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise from that set
forth in the Registration Statement or Prospectus, which, in your sole judgment,
is material and adverse and that makes it, in your sole judgment, impracticable
or inadvisable to proceed with the public offering of the Shares as contemplated
by the Prospectus; and
(d) You shall have received on the Closing Date and on any later date on
which Option Shares are purchased, as the case may be, the following opinion of
counsel for the Company and the Selling Stockholders, dated the Closing Date or
such later date on which Option Shares are purchased addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for each
of the Underwriters, to the effect that:
(i) The Company and each of its subsidiaries incorporated in the United
States are validly existing as corporations in good standing under the laws of
its respective jurisdiction of its incorporation;
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(ii) The Company and each of its subsidiaries incorporated in the United
States have the corporate power and authority to own, lease and operate its
respective properties and to conduct its respective business as described in
the Prospectus;
(iii) The Company and each of its subsidiaries incorporated in the United
States are duly qualified to do business as foreign corporations and are in
good standing in each jurisdiction in which it owns or leases property or has
employees, except where the failure to be so qualified or be in good standing
would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations or business of the Company and its
subsidiaries considered as one enterprise. To such counsel's knowledge, the
Company does not own or control, directly or indirectly, any United States
corporation, United States association or other United States entity other
than Advanced Technology Marketing, Inc., Systems for Business, Inc. and
Learning Tree International USA, Inc.;
(iv) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus under the caption "Capitalization" as of the
dates stated therein, the issued and outstanding shares of capital stock of
the Company (including the Selling Stockholder Shares) have been duly and
validly issued and to such counsel's knowledge are fully paid and
nonassessable, and, to such counsel's knowledge, will not have been issued in
violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right;
(v) All issued and outstanding shares of capital stock of each United
States subsidiary of the Company have been duly authorized and validly issued
and to such counsel's knowledge are fully paid and nonassessable, and, to such
counsel's knowledge, have not been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first refusal or
other similar right and are registered in the name of the Company and, to such
counsel's knowledge, free and clear of any pledge, lien, security interest,
encumbrance, filed causes of action or equitable interest;
(vi) The Firm Shares or the Option Shares, as the case may be, to be issued
by the Company pursuant to the terms of this Agreement have been duly
authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully
paid and nonassessable, and to such counsel's knowledge, will not have been
issued in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right of
stockholders;
(vii) The Company has the corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Shares to be
issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered by
the Company and, assuming due authorization, execution and delivery by you, is
a valid and binding agreement of the Company, enforceable in accordance with
its terms, except insofar as indemnification provisions may be limited by
applicable law and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or
affecting creditors' rights generally or by general equitable principles;
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<PAGE>
(ix) The Registration Statement has become effective under the Act and, to
such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or threatened under the Act;
(x) The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the financial statements (including supporting
schedules) and financial data derived therefrom as to which such counsel need
express no opinion), as of the effective date of the Registration Statement,
complied as to form in all material respects with the requirements of the Act
and the applicable Rules and Regulations;
(xi) The information in the Prospectus under the caption "Risk Factors --
Shares Eligible for Future Sale," "Certain Transactions," "Description of
Capital Stock" and "Shares Eligible for Future Sale," to the extent that it
constitutes legal conclusions based on the facts known by such counsel, has
been reviewed by such counsel and is a materially accurate summary of such
matters and conclusions; and the forms of certificates evidencing the Common
Stock and filed as exhibits to the Registration Statement comply with Delaware
law;
(xii) The description in the Registration Statement and the Prospectus of
the charter and bylaws of the Company and of statutes of Delaware and the
United States are accurate and present the information required to be
presented by the Act and the applicable Rules and Regulations;
(xiii) To such counsel's knowledge, there are no agreements, contracts,
leases or documents to which the Company is a party of a character required to
be described or referred to in the Registration Statement or Prospectus or to
be filed as an exhibit to the Registration Statement which are not described
or referred to therein or filed as required;
(xiv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's charter or
bylaws or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a material
default under, any material bond, debenture, note or other evidence of
indebtedness, or under any material lease, contract, indenture, mortgage, deed
of trust, loan agreement, joint venture or other agreement or instrument known
to such counsel to which the Company is a party or by which its properties are
bound, or any applicable statute, rule or regulation known to such counsel or,
to such counsel's knowledge, any order, writ or decree of any court,
government or governmental agency or body having jurisdiction over the Company
or any of its subsidiaries, or over any of their properties or operations;
(xv) To such counsel's knowledge, no consent, approval, authorization or
order of or qualification with any court, government or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries
incorporated in the United States, or over any of their properties or
operations is necessary in connection with the consummation by the Company of
the issuance and sale of the Shares, except such as have been obtained under
the Act or such as may be required under state or other
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<PAGE>
securities or Blue Sky laws in connection with the purchase and the
distribution of the Shares by the Underwriters;
(xvi) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company or any of its
subsidiaries incorporated in the United States of a character required to be
disclosed in the Registration Statement or the Prospectus by the Act or the
Rules and Regulations, other than those described therein;
(xvii) To such counsel's knowledge, neither the Company nor any of its
subsidiaries incorporated in the United States is presently (a) in material
violation of its respective charter or bylaws, or (b) in material breach of
any applicable statute, rule or regulation known to such counsel or any order,
writ or decree of any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries, or over any of their properties
or operations; and
(xviii) To such counsel's knowledge, no holders of Common Stock or other
securities of the Company have registration rights with respect to securities
of the Company;
(xix) To such counsel's knowledge, each of the Selling Stockholders is of
adult age and is competent to enter into and to perform his obligations under
this Agreement and to sell, transfer, assign and deliver the Shares to be sold
by such Selling Stockholder hereunder;
(xx) To such counsel's knowledge, this Agreement has been duly executed and
delivered by or on behalf of each Selling Stockholder; and
(xxi) Assuming that (I) the Underwriters have no notice, actual or
constructive, of any adverse claims with respect to the Shares being sold
hereunder by such Selling Stockholder, (II) the certificates representing such
Shares are delivered to the Underwriters duly endorsed or accompanied by a
duly executed assignment separate from certificate in the State of California,
and (III) the transfer of such Shares to the Underwriters is duly registered
on the books of the Company, upon the delivery of and payment for the Shares
as contemplated in this Agreement, each of the Underwriters will receive valid
marketable title to the Shares purchased by it from such Selling Stockholder,
free and clear of all "adverse claims" as that term is defined in Section
8302 of the California Uniform Commercial Code.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time
the Registration Statement became effective and at all times subsequent
thereto up to and on the Closing Date and on any later date on which Option
Shares are to be purchased, the Registration Statement and any amendment or
supplement thereto (other than the financial statements including supporting
schedules and other financial and statistical information derived therefrom,
as to which such counsel need express no comment) contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
or at the Closing Date or any later date on which the
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Option Shares are to be purchased, as the case may be, the Registration
Statement, the Prospectus and any amendment or supplement thereto (except as
aforesaid) contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of fact
upon representations or certificates of officers of the Company, the Selling
Stockholders, and of government officials, in which case their opinion is to
state that they are so relying and that they have no knowledge of any material
misstatement or inaccuracy in any such opinion, representation or certificate.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to you, as Representatives of the Underwriters, and to Underwriters'
Counsel.
(e) You shall have received on the Closing Date and on any later date on
which Option Shares are purchased, as the case may be, the following opinions
of counsel for the Company's foreign subsidiaries, dated the Closing Date or
such later date on which Option Shares are purchased addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for
each of the Underwriters, to the effect that:
(i) Each of the Company's foreign subsidiaries is duly incorporated and are
validly existing as corporations in good standing under the laws of its
respective jurisdiction of its incorporation;
(ii) Each of the Company's foreign subsidiaries has the corporate power and
authority to own, lease and operate its respective properties and to conduct
its respective business as described in the Prospectus;
(iii) Each of the Company's foreign subsidiaries is duly qualified to do
business as foreign corporations and are in good standing in each
jurisdiction, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations or business of the Company and its
subsidiaries considered as one enterprise. To such counsel's knowledge, the
Company does not own or control, directly or indirectly, any foreign
corporation, foreign association or other foreign entity other than Learning
Tree International K.K., Learning Tree International Ltd., Learning Tree
International S.A., Learning Tree International AB, Learning Tree Publishing
AB, and Learning Tree International Inc.; and
(iv) All issued and outstanding shares of capital stock of each foreign
subsidiary of the Company have been duly authorized and validly issued and to
such counsel's knowledge are fully paid and nonassessable, and, to such
counsel's knowledge, have not been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first refusal or
other similar right and are registered in the name of the Company and, to such
counsel's knowledge, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest.
(f) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, an opinion of
Brobeck, Phleger & Harrison, in form and substance satisfactory to you, with
respect to the sufficiency of all such corporate proceedings and other legal
matters relating to this Agreement and the transactions contemplated hereby as
you may reasonably require, and the Company shall have furnished to such
counsel such documents as they may have requested for the purpose of enabling
them to pass upon such matters.
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(g) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, a letter from
Arthur Andersen LLP addressed to the Company and the Underwriters, dated the
Closing Date or such later date on which Option Shares are to be purchased, as
the case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a
date not more than five (5) business days prior to the Closing Date or such
later date on which Option Shares are to be purchased, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth
in the Original Letter are accurate as of the Closing Date or such later date
on which Option Shares are to be purchased, as the case may be, and (ii)
setting forth any revisions and additions to the statements and conclusions
set forth in the Original Letter which are necessary to reflect any changes in
the facts described in the Original Letter since the date of such letter, or
to reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise from that set
forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. The Original Letter from Arthur Andersen
LLP shall be addressed to or for the use of the Underwriters in form and
substance satisfactory to the Underwriters and shall (i) represent, to the
extent true, that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations, (ii) set forth their opinion with respect to
their examination of the consolidated balance sheet of the Company as of
September 30, 1995 and related consolidated statements of operations,
stockholders' equity, and cash flows for the twelve (12) months ended
September 30, 1995, and (iii) address other matters agreed upon by Arthur
Andersen LLP and you. In addition, you shall have received from Arthur
Andersen LLP a letter addressed to the Company and made available to you for
the use of the Underwriters stating that their review of the Company's system
of internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's consolidated
financial statements as of September 30, 1995, did not disclose any weaknesses
in internal controls that they considered to be material weaknesses.
(h) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the Chief Executive Officer
and Chief Financial Officer of the Company, to the effect that, and you shall
be satisfied that:
(i) The representations and warranties of the Company in this Agreement are
true and correct in all material respects, as if made on and as of the Closing
Date or any later date on which Option Shares are to be purchased, as the case
may be, and the Company has complied in all material respects with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date or any later date on which Option
Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
contained all material information required to be included therein by the Act
and the Rules and Regulations, and in
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all material respects conformed to the requirements of the Act and the Rules
and Regulations; the Registration Statement, and any amendment or supplement
thereto, did not and does not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; the Prospectus, and any amendment
or supplement thereto, did not and does not include any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an amended
or supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been (a) any material
adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise, (b) any transaction that is material to the
Company and its subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (c) any obligation, direct or
contingent, that is material to the Company and its subsidiaries considered as
one enterprise, incurred by the Company or its subsidiaries, except
obligations incurred in the ordinary course of business, (d) any change in the
capital stock or outstanding indebtedness of the Company or any of its
subsidiaries that is material to the Company and its subsidiaries considered
as one enterprise, (e) any dividend or distribution of any kind declared, paid
or made on the capital stock of the Company or any of its subsidiaries, or (f)
any loss or damage (whether or not insured) to the property of the Company or
any of its subsidiaries which has been sustained or will have been sustained
which has a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(i) You shall be satisfied that, and you shall have received a certificate,
dated the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, from the Attorneys for each Selling Stockholder
to the effect that, as of the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, they have not been informed
that:
(i) The representations and warranties made by such Selling Stockholder
herein are not true or correct in any material respect on the Closing Date or
on any later date on which Option Shares are to be purchased, as the case may
be; or
(ii) Such Selling Stockholder has not complied with any obligation or
satisfied any condition which is required to be performed or satisfied on the
part of such Selling Stockholder at or prior to the Closing Date or any later
date on which Option Shares are to be purchased, as the case may be.
(j) The Company shall have obtained and delivered to you an agreement from
each officer and director of the Company and each Selling Stockholder in
writing prior to the date hereof that such person will not, during the Lock-up
Period, effect the Disposition of any Securities now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be
bound by this restriction, (ii) as a distribution to limited partners or
stockholders of such person, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction, or (iii) with the prior
written consent of Robertson, Stephens & Company LLC. The foregoing
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restriction is expressly agreed to preclude the holder of the Securities from
engaging in any hedging or other transaction which is designed to or
reasonably expected to lead to or result in a Disposition of Securities during
the Lock-up Period, even if such Securities would be disposed of by someone
other than the such holder. Such prohibited hedging or other transactions
would including, without limitation, any short sale (whether or not against
the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person will have also agreed and consented to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of the Securities held by such person except in
compliance with this restriction.
(k) The Company and the Selling Stockholders shall have furnished to you
such further certificates and documents as you shall reasonably request
(including certificates of officers of the Company, as to the accuracy of the
representations and warranties of the Company and the Selling Stockholders
herein, as to the performance by the Company and the Selling Stockholders of
their respective obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder).
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company and the Selling Stockholders will
furnish you with such number of conformed copies of such opinions,
certificates, letters and documents as you shall reasonably request.
7. Option Shares.
-------------
(a) On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, the
Selling Stockholders hereby grant to the several Underwriters, for the purpose
of covering over-allotments in connection with the distribution and sale of
the Firm Shares only, a nontransferable option to purchase up to an aggregate
of 300,000 Option Shares at the purchase price per share for the Firm Shares
set forth in Section 3 hereof. Such option may be exercised by the
Representatives on behalf of the several Underwriters on one (1) or more
occasions in whole or in part during the period of thirty (30) days after the
date on which the Firm Shares are offered to the public, by giving written
notice to the Attorney-in-Fact for the Selling Stockholders. The number of
Option Shares to be purchased by each Underwriter upon the exercise of such
option shall be the same proportion of the total number of Option Shares to be
purchased by the several Underwriters pursuant to the exercise of such option
as the number of Firm Shares purchased by such Underwriter (set forth in
Schedule A hereto) bears to the total number of Firm Shares purchased by the
several Underwriters (set forth in Schedule A hereto), adjusted by the
Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be purchased
by the several Underwriters pursuant to the exercise of the option granted by
this Section 7 shall be made against payment of the purchase price therefor by
the several Underwriters by wire transfer of same-day funds, payable to the
order of [each of the Selling Stockholders]. Such delivery and payment shall
take place at the offices of Irell and Manella LLP, 1800 Avenue of the Stars,
Suite 900, Los Angeles, California 90067, or at such other place as may be
agreed upon among the Representatives and the Company (i) on the Closing Date,
if written notice of the exercise of such option is received by the Company at
least two (2) full business days prior to the Closing Date, or (ii) on a date
which shall not be later than the third (3rd) full business day following the
date the Company receives written notice of the exercise of such option, if
such notice is received by the Company less than two (2) full business days
prior to the Closing Date.
-24-
<PAGE>
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may
be made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the Representatives of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the date of payment and
delivery for the Option Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a) hereof, the
obligations of the several Underwriters to purchase such Option Shares will be
subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company and the Selling
Stockholders herein, to the accuracy of the statements of the Company, the
Selling Stockholders and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Stockholders of their respective obligations hereunder, and to the condition
that all proceedings taken at or prior to the payment date in connection with
the sale and transfer of such Option Shares shall be satisfactory in form and
substance to you and to Underwriters' Counsel, and you shall have been
furnished with all such documents, certificates and opinions as you may
request in order to evidence the accuracy and completeness of any of the
representations, warranties or statements, the performance of any of the
covenants or agreements of the Company and the Selling Stockholders or the
compliance with any of the conditions herein contained.
8. Indemnification and Contribution.
--------------------------------
(a) The Company and each of the Selling Stockholders, severally and not
jointly, agrees to indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject under the Act, the Exchange Act or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any breach of
any representation, warranty, agreement or covenant of the Company or such
Selling Stockholder herein contained, (ii) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement
or any amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or (iii) any untrue statement or
alleged untrue statement of any material fact contained in any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that neither the Company nor
-------- -------
such Selling Stockholder shall be liable in any such case to the extent that
any such loss, claim, damage, liability or action arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, such Preliminary Prospectus or
the Prospectus, or any such amendment or supplement thereto, in reliance upon,
and in conformity with, written information relating to any Underwriter
furnished to the Company by such Underwriter, directly or through you,
specifically for use in the preparation thereof and, provided further, that
-------- -------
the indemnity
-25-
<PAGE>
agreement provided in this Section 8(a) with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any losses, claims, damages, liabilities or actions based
upon any untrue statement or alleged untrue statement of material fact or
omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected had not been
sent or given to such person within the time required by the Act and the Rules
and Regulations, unless such failure is the result of noncompliance by the
Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company or such Selling Stockholder may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to indemnify and
hold harmless the Company and each Selling Stockholder against any losses,
claims, damages or liabilities, joint or several, to which the Company or such
Selling Stockholder may become subject under the Act or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any breach of
any representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(b) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter, directly or through you, specifically for use in
the preparation thereof, and agrees to reimburse the Company and each such
Selling Stockholder for any legal or other expenses reasonably incurred by the
Company or each such Selling Stockholder in connection with investigating or
defending any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer of
the Company who signed the Registration Statement and each director of the
Company, each Selling Stockholder and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any
liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party under
this Section 8, notify the indemnifying party in writing of the commencement
thereof but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise
than under this Section 8. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and,
to the extent that it shall elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
-------- -------
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those
-26-
<PAGE>
available to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a)
or 8(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the
indemnifying party shall have approved the terms of such settlement; provided
--------
that such consent shall not be unreasonably withheld. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution in any action
in which a claim for indemnification is made pursuant to this Section 8 but it
is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides
for indemnification in such case, all the parties hereto shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) as appropriate to reflect (i) the
relative benefits received by the indemnifying party or parties on the one
hand and by the indemnified party or parties on the other from the offering of
the Shares and (ii) the relative fault of the indemnifying party or parties on
the one hand and of the indemnified party or parties on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities. Benefits received from the offering of the
Shares shall be deemed to be allocated in such a manner that, except as set
forth in Section 8(e) hereof, the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the public offering price, and the Company and
the Selling Stockholders are responsible for the remaining portion, provided,
--------
however, that (i) no Underwriter shall be required to contribute any amount in
-------
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter in excess of the amount of damages which such Underwriter has
otherwise required to pay and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. Relative fault shall be determined by reference to, among
other things, whether any alleged untrue statement or omission relates to
information provided by the Company, each of the Selling Stockholders or the
Underwriters, the parties' relative intent, knowledge, access to information
and any other equitable considerations appropriate under the circumstances.
The contribution agreement in this Section 8(d) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls the Underwriters or the Company or any Selling Stockholder
within the meaning of the Act or the Exchange Act and each officer of the
Company who signed the Registration Statement and each director of the
Company.
(e) The liability of each Selling Stockholder under the representations,
warranties and agreements contained herein and under the indemnity agreements
contained in the provisions
-27-
<PAGE>
of this Section 8 shall be limited to an amount equal to the public offering
price of the Selling Stockholder Shares sold by such Selling Stockholder to
the Underwriters minus the amount of the underwriting discount paid thereon to
the Underwriters by such Selling Stockholder. The Company and such Selling
Stockholders may agree, as among themselves and without limiting the rights of
the Underwriters under this Agreement, as to the respective amounts of such
liability for which they each shall be responsible.
(f) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation,
the provisions of this Section 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Act and the Exchange Act.
9. Representations, Warranties, Covenants and Agreements to Survive
----------------------------------------------------------------
Delivery. All representations, warranties, covenants and agreements of the
--------
Company, the Selling Stockholders and the Underwriters herein or in
certificates delivered pursuant hereto, and the indemnity and contribution
agreements contained in Section 8 hereof shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any controlling person within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any Selling Stockholder, or
any of the Company's officers, directors or controlling persons within the
meaning of the Act or the Exchange Act, and shall survive the delivery of the
Shares to the several Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters
----------------------------
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of
Firm Shares which such defaulting Underwriter or Underwriters so agreed but
failed to purchase does not exceed 10% of the Firm Shares, the remaining
Underwriters shall be obligated, severally in proportion to their respective
commitments hereunder, to take up and pay for the Firm Shares of such
defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate number of
Firm Shares which such defaulting Underwriter or Underwriters agreed but
failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters
so agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or
underwriters shall have been substituted as aforesaid by such postponed
Closing Date, the Closing Date may, at the option of the Company, be postponed
for a further twenty-four (24) hours, if necessary, to allow the Company the
privilege of finding another underwriter or underwriters, satisfactory to you,
to purchase the Firm Shares which the defaulting Underwriter or Underwriters
so agreed but failed to purchase. If it shall be arranged for the remaining
Underwriters or substituted underwriter or underwriters to take up the Firm
Shares of the defaulting Underwriter or Underwriters as provided in this
Section 10, (i) the Company shall have the right to postpone the time of
delivery for a period of not more than seven (7) full business days, in order
to effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and
the Company agrees promptly to file any amendments to the Registration
Statement or supplements to the Prospectus which
-28-
<PAGE>
may thereby be made necessary, and (ii) the respective number of Firm Shares
to be purchased by the remaining Underwriters and substituted underwriter or
underwriters shall be taken as the basis of their underwriting obligation. If
the remaining Underwriters shall not take up and pay for all such Firm Shares
so agreed to be purchased by the defaulting Underwriter or Underwriters or
substitute another underwriter or underwriters as aforesaid and the Company
shall not find or shall not elect to seek another underwriter or underwriters
for such Firm Shares as aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the preceding
paragraph of this Section 10, neither the Company nor any Selling Stockholder
shall be liable to any Underwriter (except as provided in Sections 5 and 8
hereof) nor shall any Underwriter (other than an Underwriter who shall have
failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholders and the other Underwriters for damages, if any, resulting from
such default) be liable to the Company or any Selling Stockholder (except to
the extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
------------------------------------------------
(a) This Agreement shall become effective at the earlier of (i) 6:30 A.M.,
San Francisco time, on the first full business day following the effective
date of the Registration Statement, or (ii) the time of the public offering of
any of the Shares by the Underwriters after the Registration Statement becomes
effective. The time of the public offering shall mean the time of the release
by you, for publication, of the first newspaper advertisement relating to the
Shares, or the time at which the Shares are first generally offered by the
Underwriters to the public by letter, telephone, telegram or telecopy,
whichever shall first occur. By giving notice as set forth in Section 12
before the time this Agreement becomes effective, you, as Representatives of
the several Underwriters, or the Company, may prevent this Agreement from
becoming effective without liability of any party to any other party, except
as provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall have the
right to terminate this Agreement by giving notice as hereinafter specified at
any time at or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the
Company or any Selling Stockholder shall have failed, refused or been unable
to perform any agreement on its part to be performed, or because any other
condition of the Underwriters' obligations hereunder required to be fulfilled
is not fulfilled, including, without limitation, any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise from that set
forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse, or (ii) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices
shall have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or
(iv) if there shall have been a material adverse change in the general
political or economic conditions or financial markets as in your reasonable
judgment makes it inadvisable or impracticable to proceed with the offering,
sale and delivery of the Shares, or (v) if there shall have been an outbreak
or escalation of hostilities or of any other insurrection or armed conflict or
the declaration by the
-29-
<PAGE>
United States of a national emergency which, in the reasonable opinion of the
Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event
of termination pursuant to subparagraph (i) above, the Company shall remain
obligated to pay costs and expenses pursuant to Sections 4(j), 5 and 8 hereof.
Any termination pursuant to any of subparagraphs (ii) through (v) above shall
be without liability of any party to any other party except as provided in
Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed
by letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
-------
otherwise specifically provided, shall be in writing and if sent to you shall
be mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company,
such notice shall be mailed, delivered, telegraphed (and confirmed by letter)
or telecopied (and confirmed by letter) to 6053 West Century Boulevard, Los
Angeles, California 90045-0028, telecopier number (310) 645-4762, Attention:
David C. Collins, Chief Executive Officer; if sent to one or more of the
Selling Stockholders, such notice shall be sent mailed, delivered, telegraphed
(and confirmed by letter) or telecopied (and confirmed by letter) to
____________, as Attorney-in-Fact for the Selling Stockholders, at 6053 West
Century Boulevard, Los Angeles, California 90045-0028, telecopier number (310)
337-0434.
13. Parties. This Agreement shall inure to the benefit of and be binding
-------
upon the several Underwriters and the Company and the Selling Stockholders and
their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or corporation, other than the parties hereto and their
respective executors, administrators, successors and assigns, and the
controlling persons within the meaning of the Act or the Exchange Act,
officers and directors referred to in Section 8 hereof, any legal or equitable
right, remedy or claim in respect of this Agreement or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective executors, administrators, successors and assigns
and said controlling persons and said officers and directors, and for the
benefit of no other person or corporation. No purchaser of any of the Shares
from any Underwriter shall be construed a successor or assign by reason merely
of such purchase.
In all dealings with the Company and the Selling Stockholders under this
Agreement, you shall act on behalf of each of the several Underwriters, and
the Company and the Selling Stockholders shall be entitled to act and rely
upon any statement, request, notice or agreement made or given by you jointly
or by Robertson, Stephens & Company LLC on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed in
--------------
accordance with, the laws of the State of California.
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<PAGE>
15. Counterparts. This Agreement may be signed in several counterparts,
------------
each of which will constitute an original.
If the foregoing correctly sets forth the understanding among the Company,
the Selling Stockholders and the several Underwriters, please so indicate in
the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement among the Company, the Selling Stockholders and
the several Underwriters.
Very truly yours,
LEARNING TREE INTERNATIONAL, INC.
By
---------------------------------------
David C. Collins
Chief Executive Officer
SELLING STOCKHOLDERS
By
--------------------------------------
Attorney-in-Fact for the Selling
Stockholders named in Schedule B hereto
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
PIPER JAFFRAY INC.
SMITH BARNEY INC.
M. KANE & COMPANY, INC.
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
ROBERTSON, STEPHENS & COMPANY LLC
By ROBERTSON, STEPHENS & COMPANY, INC.
By
------------------------------------------
Authorized Signatory
-31-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
- ------------------------------------- -----------
<S> <C>
Robertson, Stephens & Company LLC...
Piper Jaffray Inc. .................
M. Kane & Company, Inc. ............
Smith Barney Inc. ..................
----------
Total.......................... 2,000,000
==========
</TABLE>
-32-
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Firm
Shares To
Company Be Sold
- ----------------------------------- -----------
<S> <C>
Learning Tree International, Inc... 400,000
-------
Total.......................... 400,000
=======
<CAPTION>
Number of
Firm
Shares To
Name of Selling Stockholder Be Sold
- ----------------------------------- -----------
<S> <C>
David C. Collins.................... 800,000
Eric R. Garen....................... 800,000
---------
Total.......................... 1,600,000
=========
<CAPTION>
Number of
Firm
Shares To
Name of Selling Stockholder Be Sold
- ----------------------------------- -----------
<S> <C>
David C. Collins.................... 150,000
Eric R. Garen....................... 150,000
---------
Total.......................... 300,000
=========
</TABLE>
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<PAGE>
EXHIBIT 5.1
IRELL & MANELLA LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
(310) 277-1010
August 26, 1996
Learning Tree International, Inc.
6053 West Century Boulevard
Los Angeles, California 90045-0028
Gentlemen and Ladies:
We have acted as counsel to Learning Tree International, Inc., a Delaware
corporation (the "Company"), in connection with its Registration Statement on
Form S-1 (the "Registration Statement") filed with the Securities and Exchange
Commission with respect to the registration of an aggregate of 2,300,000 shares
(the "Shares") of the Company's common stock, $0.0001 par value ("Common
Stock"), consisting of 400,000 shares of Common Stock to be offered and sold by
the Company, and 1,600,000 shares of Common Stock to be offered and sold by
David C. Collins and Eric R. Garen, current stockholders of the Company (the
"Selling Stockholders"), plus an additional 300,000 shares of Common Stock
subject to an underwriters' over-allotment option, all of which would be offered
and sold by the Selling Stockholders. As your counsel in connection with this
transaction, we have examined the proceedings proposed to be taken in connection
with said sale and issuance of the Shares and such other matters and documents
as we have deemed necessary or relevant as a basis for this opinion.
Based upon these examinations, it is our opinion that upon completion of
the proceedings being taken or which we, as your counsel, contemplate will be
taken prior to the issuance of the Shares, the Shares, when issued and sold in
the manner referred to in the Registration Statement, will be legally and
validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name, whenever appearing in the
Registration Statement, including the prospectus constituting a part thereof and
any amendments thereto. This opinion is furnished to you in connection with the
registration of the
<PAGE>
Learning Tree International, Inc.
August 26, 1996
Page 2
Shares, is solely for your benefit and may not be relied upon by, nor copies
delivered to, any other person or entity without our prior written consent.
Respectfully submitted,
/s/ IRELL & MANELLA LLP
IRELL & MANELLA LLP
<PAGE>
EXHIBIT 10.9
M. KANE & COMPANY, INC.
INVESTMENT BANKERS
10877 Wilshire Boulevard, Suite 603
Los Angeles, CA 90024-9998
(310) 208-1166
Member: NASD/SIPC
July 12, 1996
Learning Tree International, Inc.
6053 West Century Boulevard
Los Angeles, CA 90067
Attn:Dr. David C. Collins
Chairman and Chief Executive Officer
CONFIDENTIAL
This letter agreement ("Agreement") confirms the engagement of M. Kane &
Company, Inc., ("MKC") by Learning Tree International, Inc. and its affiliates
in existence now or hereinafter formed (the "Company") to render certain
financial advisory services to the Company.
1.0SERVICES. MKC agrees to perform the following services (the "Services"):
1.0.1 review the recent historical financial information and business
operations, prospects and forecasts of future financial results of the
Company which are made available to MKC by the Company and such other
matters as MKC deems relevant to enable it to render financial advice
and assistance to the Company;
1.0.2 derive the current (baseline) enterprise value of the Company on an
aggregate and market value basis and perform a time-phased valuation
analysis;
1.0.3 assist the Company to structure the financial aspects of its proposed
public offering ("Secondary"), including, without limitation the
approximate aggregate size of the Secondary and the preferred valuation
presentation strategy;
1.0.4 assist the Company to prepare an introductory presentation to
prospective co-managing (lead) underwriters in the form of a written
summary and, as necessary to a Road Show, an electronic presentation;
1.0.5 assist the Company to evaluate and select one or more co-managing
underwriters of the Secondary (including the lead manager);
1.0.6 assist the Company, with counsel, to negotiate the terms and conditions
relating to the Secondary;
1.0.7 assist the Company to prepare the "Business Section" of the S-1
Registration Statement;
1.0.8 assist the Company to prepare for underwriter financial due diligence,
and;
1.0.9 serve as a co-manager of the Secondary (non-lead), subject to MKC's
satisfaction, in its sole discretion, with its due diligence examination
of the Company and financial market conditions.
1.1 INTEGRITY OF INFORMATION. The Company recognizes and confirms that in
providing the Services, MKC will be using and relying upon data,
material and other information furnished by the Company and their
respective employees and representatives ("Information"). The Company
hereby agrees and
<PAGE>
represents that all Information furnished to MKC by the Company in
connection with this Agreement shall be accurate and complete in all
material respects at the time furnished and that if such Information, in
whole or in part, becomes materially inaccurate, misleading or incomplete
during the term of MKC's engagement hereunder, the Company will so advise
MKC in writing and correct any such inaccuracy or omission. Accordingly,
MKC assumes no responsibility for the accuracy and completeness of such
Information. MKC will not be required to make an independent verification
of any Information or independent evaluation of the Company's assets and
liabilities. All Information concerning the Company so furnished that is
not publicly available will be treated in strict confidence and will not
be revealed by MKC unless legally compelled. The Company agrees that it
and its counsel are responsible for ensuring that the Secondary,
including any legal agreements, applications or other materials used in
the Secondary (the "Offering Documents"), will comply in all respects
with applicable law.
2.0 COMPENSATION: The Company agrees to pay MKC via wire transfer or check
the following fees (the "Compensation") for the Services as follows, time
being of the essence and all such payments to be fully earned when paid:
2.1 a non-refundable cash Advisory Retainer (the "Advisory Retainer"),
payable at the rate of $15,000 per month commencing upon the execution of
this Agreement and every month thereafter until the consummation or
abandonment of the Secondary ("Retainer Payments"). All Retainer Payments
paid pursuant to the foregoing shall be credited against (that is,
deducted from), the "Success Fee(s)" (as hereinafter defined) which may
become due and payable hereunder after payment of the "Milestone Success
Fee" (as hereinafter defined).
2.2 the Company shall compensate MKC with a cash Success Fee ("Success Fee")
in the amount of one and seven-eighths percent (1.875%) of the "Gross
Proceeds" of the Secondary (the term "Gross Proceeds" being defined for
the purposes herein as aggregate offering size, including amounts sold by
selling shareholders and any amounts attributable to the exercise of the
over-allotment option by the underwriters). Upon the date of execution by
the Company of a letter of intent with a lead-managing underwriter to
engage in a Secondary at any time, the Company will remit to MKC twenty-
five percent (25.0%) of the estimated cash component of the Success Fee,
computed as 25.0% of 1.875% of the gross proceeds (or, if expressed as a
range, the average gross proceeds) identified in the letter of intent
(the "Milestone Success Fee"). The Advisory Retainer shall not be
credited against the Milestone Success Fee. The balance of the Success
Fee shall be paid on the settlement date(s) of the Secondary and the
exercise of the over-allotment option (if any), respectively, and shall
be net of all credits for any previously remitted Retainer payments and
the Milestone Success Fee. It is not necessary for MKC to actually serve
as the Company's co-manager of the Secondary to be entitled to receive
any of the Success Fees pursuant to this paragraph;
3.0 EXPENSES. In addition to the Compensation provided for hereunder, and
irrespective of whether a Secondary is consummated, the Company agrees to
reimburse MKC for all of its reasonable out-of-pocket fees and expenses
arising out of MKC's engagement hereunder, not to exceed $10,000 prior to
the Secondary Road Show (and an additional $15,000 during the Secondary
Road Show), without the Company's permission, which shall not be
unreasonably withheld. Reasonable out-of-pocket fees and expenses
include, but are not limited to, such costs as travel, accommodations,
telephone, telex, courier service, copying, direct computer and data base
expenses, secretarial overtime, fees and disbursements of legal counsel
and accountants and transaction closing announcements ("Expenses"). The
Company will advance MKC $5,000 for Expenses by wire transfer or check
upon the execution of this Agreement ("the Deposit"). All Expenses will
be accounted for monthly. Expenses initially will be offset against the
Deposit. All additional Expenses, to the extent permitted hereunder, will
be billed monthly and are payable when invoiced. All Expenses not
previously reimbursed shall be due and payable on the expiration or
termination of this Agreement. This Paragraph 3 shall survive the
termination or expiration of this Agreement.
<PAGE>
4.0 INDEMNIFICATION. Execution of this Agreement shall obligate the Company
to the indemnification terms set forth in Appendix A attached hereto and
incorporated herein by reference as if fully set forth below. This
Paragraph 4 shall survive the termination or expiration of this
Agreement.
5.0 TERM. The term ("Term") of this engagement shall extend from the date
hereof to the earlier of the consummation or abandonment of the
Secondary, or twelve (12) months, whichever comes first. Any party may
terminate this Agreement at will at any time, in which case the
effective date of termination will be the thirtieth (30th) calendar day
after delivery of written notice to the other party by the party
electing early termination. All written notices to be delivered under
this Agreement by any party hereto shall be deemed to be effective on
the earlier of: 1) the date of receipt of hard copy sent via registered
mail, return receipt requested ("Registered Mail"), or; 2) the date of
facsimile transmission confirmed by the receiving party and followed-up
by Registered Mail within five (5) business days. Upon termination or
expiration the Company shall pay to MKC all Compensation earned and, to
the extent not covered by the Deposit and permitted hereunder, all
Expenses incurred to the date thereof. MKC shall promptly return any
portion of the Deposit not chargeable against Expenses incurred pursuant
hereto prior either to the date of: 1) receipt of notice of termination;
or 2) expiration of the Agreement. MKC shall be entitled to (a) Success
Fee(s), as set forth in Paragraph 2, if a Secondary is consummated
within eighteen (18) months of the termination or expiration of this
Agreement. The Company's obligation hereunder shall survive the
termination or expiration of this Agreement.
6.0 DISCLOSURE. The Services or financial advice to be provided by MKC under
this Agreement shall not be disclosed publicly nor made available to
third parties without MKC's prior written approval, except as required
by law.
7.0 LIMITATION. The Company recognizes that MKC has been retained only by
the Company, and that the Company's engagement of MKC is not deemed to
be on behalf of and is not intended to confer rights upon any individual
shareholder, owner, creditor or partner of the Company (differentially
to any other within the same class) or any other person not a party
hereto as against MKC or any of MKC's affiliates or the respective
directors, officers, agents, employees or representatives of either MKC
or any of MKC's affiliates. Unless otherwise expressly agreed, no one
other than the Company is authorized to rely upon the engagement of MKC
hereunder or any statements, advice, opinions or conduct by MKC.
8.0 PUBLICITY. The Company and MKC mutually agree that any references to MKC
or the Company, or any affiliate of MKC or the Company, in any release
or communication, is subject to MKC's and the Company's prior written
approval, which consent will not be unreasonably withheld. If either MKC
resigns or is terminated prior to the dissemination of any Offering
Document or any other release or communication, reference made therein
to MKC shall be at MKC's express written option. If a Secondary is
consummated, MKC may place an appropriate announcement in the Wall
Street Journal and such other newspapers and periodicals as the Company
and MKC shall mutually determine, stating the essential facts of the
Secondary and the capacity within which MKC acted in connection with the
Secondary.
9.0 EXCLUSIVITY. The Company agrees to retain MKC on an exclusive basis to
perform the Services until the earlier of the expiration or termination
of this Agreement, with the exception that this Agreement contemplates
that the Company will be engaging co-managers for its prospective
Secondary. MKC may or may not, at the Company's option, serve as the
Company's co-manager for the Secondary. If the Company or any of its
management or directors receives an inquiry from any third party
concerning a possible transaction other than that contemplated here,
they will promptly inform MKC of the third party's prospective interest
in order that MKC can assess that party's interest and determine whether
that party should be considered for a transaction.
10.0 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE
OF DELAWARE AND MAY NOT BE AMENDED OR MODIFIED EXCEPT IN A WRITING
SIGNED BY ALL PARTIES.
<PAGE>
11.0 SUCCESSORS. This Agreement and all rights and obligations thereunder
shall be binding upon and inure to the benefit of each party's
successors, but may not be assigned without the prior written consent of
the other party.
12.0 THIRD PARTY SERVICES. MKC will not be liable for, or have its
compensation reduced by, any obligation the Company or anyone else may
incur to a third party for that third party's services in connection
with any transaction contemplated hereby.
Please confirm that the foregoing is in accordance with your understanding
by signing this letter. We appreciate the opportunity and look forward to
working with you on this assignment.
<TABLE>
<S> <C>
Agreed to and Accepted this 22 day of July, 1996.
Very truly yours,
M. KANE & COMPANY, INC. LEARNING TREE INTERNATIONAL, INC.
/s/ Michael W. Kane /s/ David C. Collins
By: _______________________________________ By: _______________________________________
Dr. Michael W. Kane Dr. David C. Collins
President Chairman and Chief Executive Officer
</TABLE>
<PAGE>
APPENDIX A
The Company agrees to indemnify MKC, including M. Kane & Company, Inc., its
employees, directors, officers, agents, affiliates, and each person, if any,
who controls it within the meaning of either Section 20 of the Securities
Exchange Act of 1934 or Section 15 of the Securities Act of 1933 (each such
person, including M. Kane & Company, Inc. is referred to as an "Indemnified
Party") from and against any losses, claims, damages and liabilities, joint or
several (including, all legal or other expenses reasonably incurred by an
Indemnified Party in connection with the investigation, preparation or
providing evidence for, or defense of, any threatened or pending claim, action
or proceeding, whether or not resulting in any liability) ("Damages"), as and
when incurred, to which such Indemnified Party, in connection with its
services or arising out of its engagement hereunder, may become subject under
any applicable Federal or state law or otherwise, including but not limited
to, liability (i) caused by or arising out of an untrue statement or an
alleged untrue statement of a material fact or the omission or the alleged
omission to state a material fact necessary in order to make the statement not
misleading in light of the circumstances under which it was made, (ii) caused
by or arising out of any act or failure to act, or (iii) arising out of MKC's
engagement or the rendering by any Indemnified Party of its services under
this Agreement; provided, however, that the Company will not be liable to the
Indemnified Party hereunder to the extent that any Damages are found in a
final non-appealable judgment by a court of competent jurisdiction to have
resulted solely from the gross negligence, bad faith or willful misconduct of
the Indemnified Party seeking indemnification hereunder. The Company also
agrees that the Indemnified Parties shall not have any liability (whether
direct or indirect, in contract or tort or otherwise) to the Company for or in
connection with the retention of MKC, except to the extent such liability is
found in a final non-appealable judgment by a court of competent jurisdiction
to have resulted solely from gross negligence, bad faith or willful
misconduct.
If for any reason other than a final non-appealable judgment finding any
Indemnified Party liable for Damages for its gross negligence, bad faith or
willful misconduct the foregoing indemnity is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless, then the Company
shall contribute to the amount paid or payable by an Indemnified Party as a
result of such Damages in such proportion as is appropriate to reflect not
only the relative benefits received by the Company and its shareholders on the
one hand and MKC on the other, but also the relative fault of the Company and
the Indemnified Party as well as any relevant equitable considerations,
subject to the limitation that in no event shall the total contribution of all
Indemnified Parties to all such Damages exceed the amount of Compensation
actually received and retained by MKC hereunder after deduction of all
applicable taxes to which the Indemnified Parties are subject. Promptly after
receipt by the Indemnified Party of notice of any claim or of the commencement
of any action in respect of which indemnity may be sought, the Indemnified
Party will notify the Company in writing of the receipt or commencement
thereof and the Company shall have the right to assume the defense of such
claim or action (including the employment of counsel reasonably satisfactory
to the Indemnified Party and the payment of fees and expenses of such
counsel), provided that the Indemnified Party shall have the right to control
its defense if, in the opinion of its counsel, the Indemnified Party's defense
is unique or separate to it as the case may be, as opposed to a defense
pertaining to the Company. In any event, the Indemnified Party shall have the
right to retain counsel reasonably satisfactory to the Company, at the
Company's expense, to represent it in any claim or action in respect of which
indemnity may be sought and agrees to cooperate with the Company and the
Company's counsel in the defense of such claim or action, it being understood,
however, that the Company shall not, in connection with any such claim or
action or separate but substantially similar or related claims or actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys, for all the Indemnified Parties unless the defense
of one Indemnified Party is unique or separate from that of another
Indemnified Party subject to the same claim or action. In the event that the
Company does not promptly assume the defense of a claim or action, the
Indemnified Party shall have the right to employ counsel reasonably
satisfactory to the Company, at the Company's expense, to defend such claim or
action. The omission by an Indemnified Party to promptly notify the Company of
the receipt or commencement of any claim or action in respect of which
indemnity may be sought will relieve the Company from any liability the
Company may have to such Indemnified Party only to the extent that such a
delay in notification materially prejudices the Company's defense of such
claim or action. The Company shall not be liable for any settlement of any
such claim or action effected without its written consent, which shall not be
unreasonably withheld or delayed. Any obligation pursuant to this Appendix A
shall survive the termination or expiration of this Agreement.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated October 31, 1995 included in or made a part of this registration
statement filed on August 26, 1996, and the reference to our firm elsewhere in
this registration statement.
/s/ ARTHUR ANDERSEN LLP
_____________________________________
ARTHUR ANDERSEN LLP
Los Angeles, California
August 23, 1996
