<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by Registrant / x /
Filed by a Party other than the Registrant / /
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Nobel Learning Communities, Inc.
(Name of Registrant As Specified in Charter)
(Name of Person(s) Filing the Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
N/A
2) Aggregate number of securities to which transaction applies:
N/A
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
N/A
4) Proposed maximum aggregate value of transaction:
N/A
5) Total fee paid:
N/A
[ ] Fee paid previously with preliminary materials.
<PAGE>
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
N/A
2) Form, Schedule, or Registration Statement No.:
N/A
3) Filing party:
N/A
4) Date filed:
N/A
<PAGE>
[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 18, 1999
To the Stockholders:
The 1999 Annual Meeting of Stockholders of Nobel Learning Communities, Inc.
will be held at 10:00 a.m. on November 18, 1999 at The Desmond Great Valley
Hotel and Conference Center, One Liberty Boulevard, Malvern, PA 19355
(telephone: (610) 296-9800)) for the following purposes:
1. To elect three directors to serve for a three-year term.
2. To ratify the selection of PricewaterhouseCoopers L.L.P. as the Company's
independent auditors for fiscal year ended June 30, 2000.
3. To consider and vote on a proposal to amend the 1995 Stock Incentive Plan (a)
to increase the aggregate number of shares of the Company's Common Stock
which may be subject to awards under such Plan, (b) to increase the number of
shares subject to an option which a participant may receive in any year and
(c) to increase the number of shares subject to options which is granted
annually to each nonemployee director and to modify the conditions to such
grant.
4. To transact such other business as may properly come before the Meeting or
any adjournment thereof.
Only stockholders of record at the close of business on September 24, 1999
will be entitled to notice of, and to vote at, the Meeting and any adjournment
or adjournments thereof.
Information concerning the matters to be acted upon at the Meeting is set
forth in the accompanying Proxy Statement.
All stockholders are cordially invited to attend the Meeting in person.
HOWEVER, TO ASSURE YOUR REPRESENTATION AT THE MEETING, WE URGE YOU TO MARK, SIGN
AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE POSTAGE-
PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. Any stockholder attending the
Meeting may vote in person even if he or she returned a proxy.
Sincerely,
/s/Yvonne DeAngelo
Yvonne DeAngelo
Vice President - Finance and
Administration and Secretary
Media, PA
October 7, 1999
<PAGE>
CONTENTS
Solicitation of Proxy, Revocability and Voting......................... 1
Security Ownership..................................................... 3
Proposal 1: Election of Directors..................................... 7
Proposal 2: Ratification of Appointment of Independent Accountants.... 11
Proposal 3: Amendment to 1995 Stock Incentive Plan.................... 12
Executive Compensation................................................. 18
Stock Performance...................................................... 25
Compliance with Section 16(a) of the Securities Exchange Act of 1934... 27
Certain Relationships and Related Transactions......................... 27
General Information.................................................... 28
Deadline for Receipt of Stockholder Proposals.......................... 28
<PAGE>
NOBEL LEARNING COMMUNITIES, INC.
PROXY STATEMENT
SOLICITATION OF PROXY, REVOCABILITY AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of Nobel
Learning Communities, Inc., a Delaware corporation (the "Company"), for use at
the 1999 Annual Meeting of Stockholders (the "Meeting") to be held on November
18, 1999. Only stockholders of record on September 24, 1999 will be entitled to
notice of, and to vote at, the Meeting. Each share of common stock ("Common
Stock") outstanding on the record date is entitled to one vote on each matter to
be considered; and each share of preferred stock ("Preferred Stock") is entitled
to the number of votes on each matter to be considered equal to the number of
full shares of Common Stock into which such share of Preferred Stock is
convertible (calculated by rounding any fractional share down to the nearest
whole number). As of the record date of the meeting, each share of Series A
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock was
convertible into .2940, 0.25 and 0.25 shares of Common Stock, respectively. On
September 16, 1999, the Company had 5,921,365 shares of Common Stock, 1,028,694
shares of Series A Preferred Stock, 2,500,000 shares of Series C Preferred Stock
and 1,063,830 shares of Series D Preferred Stock issued and outstanding.
The Company's principal executive offices are located at Rose Tree Corporate
Center II, 1400 North Providence Road, Suite 3055, Media, Pennsylvania 19063.
The approximate date on which this Proxy Statement and the accompanying proxy
are first being sent to stockholders is October 7, 1999.
QUORUM AND VOTING
The presence at the Meeting, in person or by proxy, of the holders of shares
representing a majority of the votes represented by the Common Stock and
Preferred Stock is necessary to constitute a quorum for the transaction of
business. The holders of the Common Stock and the Preferred Stock vote
together, and not as a separate class, on all matters to be submitted to
stockholders at the Meeting. The election of directors will be determined by a
plurality vote and the three nominees receiving the most "FOR" votes will be
elected. Approval of the proposals to ratify the selection of auditors and to
approve amendments to the Company's 1995 Stock Incentive Plan will require the
affirmative vote of the holders of a majority of the votes represented by the
shares of the Company's Common Stock and Preferred Stock present at the Meeting
in person or by proxy and entitled to vote. Because directors are elected by a
plurality of the votes cast, withholding authority to vote with respect to one
or more nominees will have no effect on the outcome of the election, although
such shares would be counted as present for purposes of determining the
existence of a quorum. Similarly, any "broker nonvotes" (i.e., shares held by a
broker or nominee which are represented at the Meeting, but with respect to
which such broker or nominee is not empowered to vote on a particular proposal)
are not considered to be votes cast
<PAGE>
and therefore would have no effect on the outcome of the election of directors,
although they would be counted as present for purposes of determining the
existence of a quorum. Other than with respect to the election of directors, all
other matters that come before the Meeting require an approval of a majority of
the votes represented by the shares of stock present and entitled to vote
thereon. Therefore, abstentions as to particular proposals will have the same
effect as votes against such proposals. Broker non-votes will be treated as
shares not entitled to vote and will not be included in the calculation of the
number of votes represented by shares present and entitled to vote. Accordingly,
broker non-votes will have no effect on the outcome of the proposals to ratify
the selection of auditors and to approve the amendments to the 1995 Stock
Incentive Plan.
REVOCABILITY OF PROXIES
Any person giving a proxy in the form accompanying this proxy statement has
the power to revoke it at any time before its exercise. It may be revoked by
filing with the Secretary of the Company or by the presentation at the Meeting
of an instrument of revocation or a duly executed proxy bearing a later date.
It also may be revoked by attendance at the Meeting and the casting of a written
ballot in person. Unless so revoked, the shares represented by proxies will be
voted at the Meeting in accordance with instructions or, as to any matter as to
which no instructions are given, for the election of the proposed nominees and
in favor of Proposals 2 and 3.
SOLICITATION
The Company will bear the entire cost of preparing, assembling, printing and
mailing this proxy statement, the accompanying proxy, and any additional
material which may be furnished to stockholders. Copies of solicitation
material will be furnished to brokerage houses, fiduciaries and custodians to
forward to beneficial owners of stock held in their names. The solicitation of
proxies will be made by the use of the mails and through direct communication
with certain stockholders or their representatives by officers, directors and
employees of the Company, who will receive no additional compensation therefor.
The Company has engaged Stocktrans, Inc., the transfer agent for the Company's
Common Stock and Preferred Stock, to solicit proxies and distribute materials to
brokerage houses, banks, custodians and other nominee holders. The Company will
pay Stocktrans approximately $5,000 for these services.
2
<PAGE>
SECURITY OWNERSHIP
Common Stock
The following table shows information concerning the beneficial ownership of
the Company's Common Stock as of August 5, 1999 by each director, by each
executive officer named in the Summary Compensation Table appearing elsewhere in
this proxy statement, by all directors and executive officers as a group, and by
each person who is known to the Company to be the beneficial owner of more than
5% of the Company's Common Stock. The number of shares beneficially owned by
each person is determined under the rules of the Securities and Exchange
Commission and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership
includes any shares as to which the person has sole or shared voting power or
investment power and also any shares which the person has the right to acquire
within 60 days of August 5, 1999 through the exercise of any stock option or
right or conversion of any convertible security or otherwise. As of August 5,
1999, the only persons or group of persons known to the Company as beneficially
owning more than 5% of the outstanding Common Stock of the Company were the
following: A. J. Clegg; Allied Capital Corporation and its affiliates; Edison
Venture Fund II, L.P.; Gintel Asset Management, Inc.; and KU Learning, L.L.C.
The address of each such holder of more than 5% of the outstanding Common Stock
is set forth in the footnote relating to its holdings.
Number of Shares Percent
of Common Stock of
Name of Beneficial Owner Beneficially Owned Class (1)
- ------------------------ ------------------ ---------
A. J. Clegg 594,573 (2) 9.50%
Edward H. Chambers 23,230 (3) *
John R. Frock 63,094 (4) *
Peter H. Havens 13,109 (5) *
Eugene Monaco 3,500 (6) *
Pamela S. Lewis 0 *
William L. Walton 1,107,256 (7) 15.76%
Robert Zobel 8,704 (8) *
William E. Bailey 14,400 (9) *
B. Robin Eglin 21,967 (10) *
Barry S. Swirsky 19,358 (11) *
Allied Capital Corporation 1,106,256 (12) 15.74%
Edison Venture Fund II, L.P. 654,032 (13) 9.98%
Gintel Asset Management, Inc. 492,500 (14) 8.32%
KU Learning, L.L.C. 1,283,500 (15) 21.68%
All directors and executive 787,243 (16) 12.42%
officers as a group
(14 persons)
* Less than 1%. [See notes on following page]
3
<PAGE>
(1) The percentages of class set forth in the table reflect the percentage of
outstanding Common Stock currently owned by each holder listed and the
percentage of outstanding Common Stock which would be owned by each such
holder giving effect to the conversion of all shares of Preferred Stock and
exercise of all options and warrants held by such holder, but not to such
conversion or exercise by any other person.
(2) Consists of 254,887 shares of Common Stock currently outstanding, 140,385
shares issuable upon conversion of the Company's Series A Preferred Stock,
100,806 shares issuable upon conversion of the Company's Series C Preferred
Stock, 20,161 shares issuable upon the exercise of warrants and 78,333
issuable upon exercise of currently exercisable stock options. Of the
254,887 shares of Common Stock currently outstanding, Mr. Clegg's
beneficial owner of 66,572 shares arises by virtue of his right to vote
shares held of record by his children and of 5,500 shares arises by virtue
of ownership of shares of record by his spouse. Does not include shares
owned by Mr. Clegg's adult children with respect to which he has no voting
rights, as to which he disclaims beneficial ownership. A. J. Clegg's
address is c/o Nobel Learning Communities, Inc., Rose Tree Corporate Center
II, 1400 North Providence Road, Suite 3055, Media, Pennsylvania 19063.
(3) Consists of 10,250 shares of Common Stock which Mr. Chambers has the right
to purchase upon the exercise of currently exercisable options, 1,470
shares of Common Stock issuable upon the conversion of the Company's Series
A Preferred Stock, and 11,510 shares of Common Stock held by Mr. Chambers.
(4) Consists of 30,894 shares of Common Stock which Mr. Frock has the right to
purchase upon the exercise of currently exercisable options, 14,700 shares
of Common Stock issuable upon the conversion of the Company's Series A
Preferred Stock and 17,500 shares of Common Stock held by Mr. Frock.
(5) Consists of 7,750 shares of Common Stock which Mr. Havens has the right to
purchase upon the exercise of currently exercisable options, 3,234 shares
of Common Stock issuable upon the conversion of the Company's Series A
Preferred Stock, and 2,125 shares of Common Stock held by Mr. Havens.
(6) Consists of 500 shares of Common Stock which Mr. Monaco has the right to
purchase upon the exercise of currently exercisable options and 3,000
shares of Common Stock held by Mr. Monaco.
(7) Mr. Walton owns 1,000 shares of Common Stock directly. By virtue of his
position as Chief Executive Officer of Allied Capital Corporation, Mr.
Walton may under the SEC's rules also be deemed a beneficial owner of the
shares owned by Allied Capital Corporation and its affiliates (see footnote
12). Accordingly, these shares are also reflected in the table as shares
beneficially owned by Mr. Walton. Mr. Walton disclaims beneficial ownership
of such shares.
(8) Consists of 4,000 shares of Common Stock held by Mr. Zobel and 4,704 shares
of Common Stock issuable upon the conversion of shares of the Company's
Series A Preferred Stock held by a partnership of which Mr. Zobel is
general partner. Does not include 1,000 shares of Common Stock held in a
custodian account for Mr. Zobel's children, of which Mr. Zobel's wife is
custodian, as to which Mr. Zobel disclaims beneficial ownership.
(9) Consists of 10,000 shares of Common Stock which Mr. Bailey has the right to
purchase upon the exercise of currently exercisable options and 4,400
shares of Common Stock held by Mr. Bailey.
(10) Consists of 20,967 shares of Common Stock which Mr. Eglin has the right to
purchase upon the exercise of currently exercisable options and 1,000
shares of Common Stock held by Mr. Eglin.
(11) Consists of 19,058 shares of Common Stock which Mr. Swirsky has the right
to purchase upon the exercise of currently exercisable options and 300
shares of Common Stock held by Mr. Swirsky.
(12) Consists of 265,958 shares of Common Stock issuable upon the conversion of
the Company's Series D Preferred Stock and 840,298 issuable upon the
exercise of warrants held by Allied Capital Corporation and Allied
Investment Corporation. Allied Capital Corporation and its affiliates have
their principal executive offices at 1666 K St., N.W., Suite 901,
Washington, DC 20006.
4
<PAGE>
(13) Based on information most recently reported to the Company. Consists of
104,839 shares of Common Stock which Edison Venture Fund II, L.P. has the
right to purchase upon the exercise of warrants, 524,193 shares of Common
Stock issuable upon the conversion of the Company's Series C Preferred
Stock, and 25,000 shares of Common Stock held by the Edison Venture Fund
II, L.P. Edison Venture Fund II, L.P. has its principal executive office at
997 Lenox Drive #3, Lawrenceville, New Jersey 08648.
(14) Based on a Schedule 13G filed with the SEC on February 3, 1998. Gintel
Asset Management is the investment advisor to various investors and,
pursuant to contractual relationships with such investors, has the right to
vote and dispose of these shares. Robert M. Gintel, is Chief Executive
Officer and 100% shareholder of Gintel Asset Management, Inc., whose
business address is 6 Greenwich Office Park, Greenwich, CT 06831.
(15) Based on a Schedule 13D filed with the SEC on January 16, 1998 and amended
June 2, 1998. Shares are beneficially owned by KU Learning, L.L.C. and its
affiliates. The business address of such persons is 844 Moraga Drive, Los
Angeles, CA 90049.
(16) Consists of shares shown as beneficially held by all natural persons in
this table, and an additional 475 shares owned by executive officers (4)
not named in the table and 24,833 shares of Common Stock which such
executive officers have the right to purchase upon the exercise of
currently exercisable options.
5
<PAGE>
Preferred Stock
The following table shows information concerning the beneficial ownership
of the Company's Series A Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock as of August 5, 1999 by each director, by each executive officer
named in the Summary Compensation Table appearing elsewhere in this proxy
statement, by all directors and executive officers as a group and by each person
who is known to the Company to be the beneficial owner of more than 5% of any
series of Preferred Stock. Directors and executive officers omitted from a
section of the following table do not beneficially own any shares of the series
of Preferred Stock to which such section relates.
<TABLE>
<CAPTION>
Number of Shares
Name of of Preferred Stock Percent
Security Name of Beneficial Owner (1) Beneficially Owned of Class
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series A Edward H. Chambers 5,000 0.49%
Preferred A. J. Clegg 477,500 46.42%
Stock John R. Frock 50,000 4.86%
Peter H. Havens 11,000 1.07%
Emanuel Shemin 101,487 9.87%
Robert Zobel 16,000 (2) 1.56%
All directors and executive officers 559,500 54.39%
as a group (15 persons)
- ------------------------------------------------------------------------------------
Series C A. J. Clegg 403,226 16.13%
Preferred Edison Venture Fund II, L.P. 2,096,774 83.87%
Stock All directors and executive officers 2,500,000 100.00%
as a group (15 persons)
- ------------------------------------------------------------------------------------
Series D Allied Capital Corporation 1,063,830 (3) 100.00%
Preferred William L. Walton 1,063,830 (3) 100.00%
Stock All directors and executive officers 1,063,830 (3) 100.00%
as a group (15 persons)
- ------------------------------------------------------------------------------------
</TABLE>
(1) As reflected on the records of the Company's transfer agent, Mr. Shemin's
address is 800 South Ocean Blvd. LPH4, Boca Raton, FL 33432. Mr. Clegg's
address is c/o Nobel Learning Communities, Inc., Rose Tree Corporate Center
II, 1400 North Providence Road, Suite 3055, Media, Pennsylvania 19063.
Edison Venture Fund II, L.P. has its principal executive office at 997
Lenox Drive #3, Lawrenceville, New Jersey 08648. Allied Capital Corporation
and affiliates have their principal executive offices at 1666 K St., N.W.,
Suite 901, Washington, DC 20006.
(2) By partnership of which Mr. Zobel is a general partner.
(3) Shares are owned by Allied Capital Corporation and Allied Investment
Corporation. Mr. Walton, a director of the Company, is Chief Executive
Officer of Allied Capital Corporation. By virtue of his position as Chief
Executive Officer, Mr. Walton may under the SEC's rules also be deemed a
beneficial owner of the shares owned by Allied Capital Corporation and its
affiliates. (These shares are also included in shares reflected as owned by
Mr. Walton in the table.) Mr. Walton disclaims beneficial ownership of such
shares.
6
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
(Item 1 on Proxy Card)
NOMINEES
At the Meeting, three directors are to be elected to serve for a three year
term and until their successors have been duly elected and qualified. The
entire Board of Directors consists of eight persons. Each nominee is currently
a director. Directors will be elected by a plurality of the shares present and
voting at the meeting. If so authorized, the persons named in the accompanying
proxy card intend to vote for the election of each nominee. Stockholders who do
not wish their shares to be voted for a particular nominee may so indicate in
the space provided on the proxy card. If any of the nominees are not available
to serve at the time of the Meeting, the persons named in the proxies may vote
the proxies for such other persons as they may choose unless the Board of
Directors reduces the number of directors to be elected.
The names of the nominees and the continuing directors, and certain
information about them, are set forth below:
<TABLE>
<CAPTION>
Name of Nominee Director
or Director Age Principal Occupation Since
- -----------------------------------------------------------------------------------
Nominees for a term expiring in 2001 (Class III Directors):
<S> <C> <C> <C>
Edward Chambers 62 Executive Vice President - Finance and 1988
Administration of Wawa, Inc.
A. J. Clegg 60 Chairman of Board of Directors and 1992
Chief Executive Officer of the Company
Peter H. Havens 45 Chairman of Baldwin Management, LLC 1991
Continuing Directors with a term expiring in 2000 (Class I Directors):
John R. Frock 56 Executive Vice President - Corporate 1992
Development and Assistant Secretary of
the Company
Eugene G. Monaco 71 Judge, Delaware County Court (retired) 1995
Robert Zobel 51 Chief Financial Officer of Mars, Inc. 1998
Continuting Director with a term expiring in 2001 (Class II Directors):
Pamela S. Lewis 42 Professor of Management and Dean of the 1999
LeBow College of Business at Drexel
University
William L. Walton 49 Chairman, President and Chief Executive 1998
Officer of Allied Capital Corporation
</TABLE>
7
<PAGE>
The following description contains certain information concerning the
nominees, including current positions and principal occupations during the past
five years.
Edward H. Chambers. Mr. Chambers has served as Executive Vice President -
Finance and Administration of Wawa, Inc. since March 1988. During the period
April 1984 through March 1988, he served as President and Chief Executive
Officer, and as a director, of Northern Lites, Ltd., an owner and operator of
quick-service restaurants operating pursuant to a franchise from D'Lites of
America, Inc. From 1982 to July 1984, Mr. Chambers was President - Retail
Operations of Kentucky Fried Chicken Corp., a franchiser of quick-service
restaurants. He is also a director of Riddle Memorial Hospital.
A.J. Clegg. Mr. Clegg was named Chairman of the Board and Chief Executive
Officer of the Company on May 29, 1992. Since 1989, Mr. Clegg has also served
on the Advisory Board of Drexel University and, in 1996, was named as a member
of the Board of Trustees of Drexel University. Since June 1990, Mr. Clegg has
also served as the Chairman and CEO of JBS Investment Banking, Ltd., which
provided investment management and consulting services to businesses, including
the Company. In 1979, he formed Empery Corporation, an operator of businesses
in the cable television and printing industries, and held the offices of
Chairman, President and CEO during his tenure (1979-1993). In addition, Mr.
Clegg served as Chairman and CEO of TVC, Inc. (1983-1993), a distributor of
cable television components; and Design Mark Industries (1988-1993), a
manufacturer of electronic senswitches. Mr. Clegg has also served on the board
of directors of Ferguson International Holdings, PLC, a United Kingdom company,
from March 1990 to April 1991; and was Chairman and CEO of Globe Ticket and
Label Company from December 1984 to February 1991.
John R. Frock. Mr. Frock was named Executive Vice President - Corporate
Development on August 1, 1994. Mr. Frock was elected to the Board of Directors
of the Company on May 29, 1992. From 1992 to 1995, Mr. Frock was the President
and Chief Operating Officer of JBS Investment Banking, Ltd., which provided
investment management and consulting services to businesses (which included the
Company). Mr. Frock served as the Chairman and Chief Executive Officer of Avant
Guarde Enterprises, Ltd. from March 1992 through August 1996. Prior to that, Mr.
Frock was President and Chief Operating Officer of SBF Communications Graphics,
a business forms printer located in Philadelphia, PA; President of Globe Ticket
and Label Company; and President of the Graphics Group of Empery Corporation.
Peter H. Havens. Mr. Havens is Chairman of Baldwin Management, LLC, an
investment management concern. Previously, he was the Executive Vice President
of Bryn Mawr Bank Corporation overseeing the Investment Management and Trust
Division. From 1982 through May 1995, Mr. Havens served as manager of Kewanee
Enterprises, a private investment firm located in Bryn Mawr, Pennsylvania. He
is also Chairman of the Board of Directors of Petroferm, Inc. and a director of
Independence Seaport Museum, Lankenau Hospital Foundation and Ursinus College.
8
<PAGE>
Pamela S. Lewis. Dr. Lewis has been Professor of Management and Dean of the
Bennett S. LeBow College of Business at Drexel University since June 1997. From
1987 to 1997, Dr. Lewis served as Chairman of the Department of Management at
the University of Central Florida. Her professional specialization is in the
field of strategic planning with a particular emphasis on competitive and
marketing strategy. She has written and lectured on these topics extensively.
Dr. Lewis also serves on the board of directors of C & D Technologies, Inc.,
Charming Shoppes, Inc., Transitional Work Corporation, Inc. and the Pennsylvania
Economy League.
Eugene G. Monaco. Mr. Monaco has both a J.D. from Temple Law School and M.S.
in Mechanical Engineering from the University of Delaware and, from January 1,
1990 until his retirement in late 1995, served as a Judge for the Delaware
County District Court. He also served as an Instructor in Kinematics and
Dynamics at Drexel University, a Lecturer in child abuse at Penn State
University, and was the Chief Negotiator for the Rose Tree Media School Board.
He also served as Assistant District Attorney in Media, Pennsylvania and
Engineering Negotiator for Westinghouse Electric for 32 years.
William L. Walton. Mr. Walton has been President, Chairman and Chief
Executive Officer of Allied Capital Corporation since 1997 and is Chairman of
Business Mortgage Investors, Inc. Mr. Walton was chief executive officer of
Success Lab, Inc., which engages in children's educational services, from 1993
to 1996; chief executive officer of Language Odyssey, which engages in
educational publishing and services from 1992 to 1996; and managing director of
Butler Capital Corporation from 1987 to 1991.
Robert Zobel. Mr. Zobel has been Vice President of Finance, Chief Financial
Officer, Treasurer and Secretary of MARS, Inc. since February 1996. From 1974
through February 1996, Mr. Zobel was associated with Deloitte & Touche LLP
(formerly Touche Ross & Co.) as an employee and since September 1981 as a
partner. Mr. Zobel earned a B.A. degree from Claremont McKenna College, a J.D.
degree from Willamette University College of law and a LLM degree in tax from
Boston University.
William L. Walton serves on the Board as the designee of Allied Capital
Corporation, the holder of all of the Series D Convertible Preferred Stock, a
$10,000,000 subordinated promissory note and warrants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED ABOVE.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company held a total of four meetings during the
fiscal year ended June 30, 1999. In addition, the Board of Directors adopted
resolutions by unanimous consent two times during the 1999 fiscal year. Each
member of the Board of Directors attended at least 75% of the aggregate of the
number of meetings of the Board and Board Committees of which he or she was a
member during the 1999 fiscal year.
The Board of Directors has an Audit Committee and a Compensation Committee.
9
<PAGE>
The Audit Committee of the Board of Directors presently consists of Mr.
Chambers (Chairman) and Mr. Havens. It held five meetings during the 1999
fiscal year. The Audit Committee recommends the engagement of the Company's
independent accountants and is primarily responsible for approving the services
performed by the Company's independent accountants and for reviewing and
evaluating the Company's accounting principles and its system of internal
accounting controls.
The Compensation Committee of the Board of Directors presently consists of Mr.
Chambers (Chairman), Mr. Walton and Mr. Zobel. The Committee reviews and
recommends compensation and compensation changes for executives of the Company
and the Board of Directors and administers the Company's stock option and stock
grant plans. The Committee met four times during the 1999 fiscal year.
COMPENSATION OF DIRECTORS
The Company pays directors an annual retainer of $10,000 (except directors who
are also employees of the Company, who receive $6,000), which is paid quarterly,
and pays members of committees of the Board $750 per meeting for each committee
meeting attended. (Executive officers' compensation reported in the Summary
Compensation Table does not include these fees.)
The Company's 1995 Stock Incentive Plan, as amended, provides that as
of the date 90 days following the closing of each fiscal year that the Plan is
in effect, each individual serving as a director of the Company who is not an
officer or employee of the Company will be granted a nonqualified stock option
to purchase 2,000 shares of Common Stock if the individual served as a director
for the entire fiscal year then ended and the Company's pre-tax income for such
fiscal year increased at least 20% from the prior fiscal year. Pursuant to the
Plan, Messrs. Chambers, Havens and Monaco will receive an option to purchase
2,000 shares of Common Stock on September 28, 1999. No options were granted for
Fiscal 1997 or Fiscal 1998. If Proposal 3 is adopted, (a) commencing with
awards following the close of the fiscal year ending June 30, 2000, the number
of shares subject to a nonqualified stock option to be granted annually would
increase to 5,000 and (b) commencing with the fiscal year ended June 30, 1999,
if a individual has served as a director for a portion, but not all, of a fiscal
year, such individual will receive a nonqualified stock option grant with
respect to that fiscal year pro rata based on the portion of the fiscal year
that he did serve. Accordingly, if Proposal 3 is adopted, Mr. Walton will
receive an option to purchase 1,227 shares of Common Stock and Mr. Zobel will
receive an option to purchase 1,561 shares of Common Stock. Such option grants
would be effective immediately following stockholder approval.
10
<PAGE>
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(Item 2 on Proxy Card)
The Board of Directors has selected PricewaterhouseCoopers L.L.P.,
independent accountants, to audit the consolidated financial statements of the
Company for its 2000 fiscal year and recommends that the stockholders vote for
ratification of such appointment. If the stockholders do not ratify this
appointment, the Board of Directors will reconsider its selection. A
representative of PricewaterhouseCoopers, L.L.P. is expected to be present at
the Annual Meeting and will have the opportunity to make a statement if desired
and is expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
11
<PAGE>
PROPOSAL 3
AMENDMENTS TO 1995 STOCK INCENTIVE PLAN
(Item 3 on Proxy Card)
On October 5, 1999, the Company's Board of Directors (the "Board") adopted,
subject to stockholder approval, certain amendments (the "Plan Amendments") to
the Company's 1995 Stock Incentive Plan (the "Plan"). The purpose of the Plan
is to assist the Company and any subsidiary of the Company ("Subsidiary") in (i)
attracting and retaining officers and other key management level employees of
outstanding ability ("Key Employees" as defined in the Plan), (ii) attracting
and retaining directors of the Company or a Subsidiary who are not officers or
employees thereof ("Outside Directors"), and (iii) motivating Key Employees and
Outside Directors to exercise their best efforts on behalf of the Company and
its Subsidiaries.
The Plan Amendments include the following:
1) increase of the aggregate number of shares of Common Stock which may be
subject to Awards under such Plan from 750,000 to 1,300,000.
2) increase of the number of shares of Common Stock subject to an Option
which a participant may receive in any year from 40,000 to 150,000.
3) with respect to Options granted to each nonemployee director, (a)
commencing with grants following the close of the fiscal year ending
June 30, 2000, increase of the number of Options granted each year
(subject to the stated performance criteria) from 2,000 to 5,000 and
(b) commencing with grants following the close of the fiscal year ended
June 30, 1999, provide that if a individual has served as a director
for a portion, but not all, of the fiscal year then ended, such
individual will receive an Option grant pro rata based on the portion
of the fiscal year that he did serve.
The following is a description of the Plan. Such description is intended
merely as a summary of its principal features and is qualified in its entirety
by reference to the Plan.
Under the Plan, currently 750,000 shares of Common Stock are reserved (subject
to adjustment to reflect stock dividends, stock splits, share combinations, and
similar changes in the capitalization of the Company) for the granting of
incentive stock options ("ISOs") and non-qualified stock options ("NQSOs")
(collectively, "Options"), stock appreciation rights ("SARs"), restricted stock
("Restricted Stock") and unrestricted stock ("Unrestricted Stock")
(collectively, the "Awards"). If the Plan Amendments are adopted, the number of
shares of Common Stock reserved for Awards under the Plan will increase to
1,300,000. As of September 15, 1999, there were outstanding Options under the
Plan to purchase an aggregate of 621,557 shares, which Options were held by 57
Key Employees and Outside Directors.
There are approximately 200 Key Employees and six Outside Directors eligible
to participate in the Plan. Key Employees are eligible to receive any type of
Award, while Outside Directors are only eligible to receive NQSOs.
12
<PAGE>
Currently, no Key Employee may receive Options for more than 40,000 shares of
Common Stock during any calendar year. If the Plan Amendments are adopted, such
restriction will be changed to prohibit any Key Employee from receiving Options
for more than 150,000 shares of Common Stock during any calendar year.
Currently, as of the date 90 days following the close of each fiscal year of
the Company, each individual serving as an Outside Director is granted an NQSO
to purchase 2,000 shares of Common Stock, if the individual served as a director
for the entire previous fiscal year and the Company's pre-tax income for such
fiscal year increased at least 20% from the prior fiscal year. If the Plan
Amendments are adopted, commencing with grants following the close of the fiscal
year ending June 30, 2000, the number of Options granted each year upon
satisfaction of the stated conditions will increase to 5,000. Further,
commencing with grants following the close of the fiscal year ended June 30,
1999, if a individual has served as a director for only a portion of the fiscal
year then ended, such individual will receive an Option grant pro rata based on
the portion of the fiscal year that he did serve. Accordingly, if the Plan
Amendments are adopted, Mr. Zobel, who joined the Board on September 19, 1998,
will receive an NQSO to purchase 1,561 shares of Common Stock and Mr. Walton,
who joined the Board on November 19, 1998, will receive an NQSO to purchase
1,227 shares of Common Stock. Such option grants would be effective immediately
following stockholder approval.
The Plan is administered by the Compensation Committee, which is currently
comprised of Mr. Chambers (Chairman), Mr. Walton and Mr. Zobel. The Committee
has full authority to interpret the Plan, to establish appropriate rules and
regulations, to select Key Employees who will receive Awards under the Plan, to
grant Awards on behalf of the Company, to set the dates and authorized terms of
such Awards, and generally to administer the Plan. With respect to the
eligibility of Outside Directors, the Plan is intended to be a "formula award"
plan as defined by Rule 16b-3 promulgated under the Securities Exchange Act of
1934 (the "Exchange Act") and, as such, the Committee does not have any
discretionary authority with respect to the grant of NQSOs to Outside Directors.
Options granted under the Plan to Key Employees shall have an exercise price
of not less than fair market value of the Common Stock on the date of the grant
and may not extend for more than ten years, subject to more stringent
limitations in the case of ISOs granted to an optionee who is a 10% or greater
stockholder. NQSOs granted under the Plan to Outside Directors have an exercise
price equal to the fair market value of the shares of Common Stock on the date
the Option is granted. NQSOs granted to Outside Directors have a term of ten
years from the date of the grant. Options granted to Key Employees are
exercisable in such installments as the Committee may determine, but not earlier
than six months from the later of the date of the grant, except under specified
circumstances. NQSOs granted to Outside Directors are exercisable commencing
six months after the date of the grant. On September 15, 1999, the last
reported sales price of the Company's Common Stock on The Nasdaq National Market
System was $5.75.
Any Option held by a Key Employee or Outside Director who dies while still
performing services for the Company or a Subsidiary, or whose employment with
the Company or a Subsidiary is terminated prior to the expiration date of such
Option, will remain exercisable by
13
<PAGE>
the Key Employee or Outside Director, or his or her personal representative, for
a period of time following the Key Employee's or Outside Director's termination
of service or death as provided in the Plan and the applicable option agreement.
Upon exercise of an Option, a Key Employee must pay the exercise price in cash,
or, if the Committee shall so determine in its discretion, either in whole or in
part by the delivery of Common Stock held by the Key Employee, subject to the
limitations set forth in the Plan. The exercise price of an NQSO granted to an
Outside Director must be paid in cash or its equivalent.
ISOs are also subject to certain additional terms and conditions required by
the Internal Revenue Code of 1986, as amended (the "Code"). To the extent that
the fair market value (determined as of the date of the option grant) of the
Common Stock with respect to which ISOs are exercisable for the first time in
any one year as to any optionee exceeds $100,000, such option shall be treated
as a NQSO for tax purposes.
In the Committee's discretion, a Key Employee granted an Option may also be
granted the right in lieu of exercising all or a portion of an Option, to elect
instead to receive an amount equal to the difference between the fair market
value of all, or a specified number, of the shares of Common Stock subject to
such Option on the date such right is exercised and the exercise price under
such Option. Such right is referred to as a Stock Appreciation Right ("SAR").
This amount may be paid in cash or in Common Stock, or in a combination of cash
and Common Stock as the Committee shall determine. Any SAR is exercisable only
at a time when the Option to which it is related is exercisable. (More
stringent rules apply if the Key Employee is a director or officer of the
Company within the meaning of Section 16 of the Exchange Act and cash is being
paid upon exercise of the SAR.) An SAR shall be granted in tandem with an
Option and the Option-SAR shall be considered exercised when either the
underlying Option or SAR is exercised. An SAR expires no later than the
termination of the Option to which it relates and is transferable only if and
when the underlying Option is transferable, and may be exercised only when the
fair market value of the Common Stock subject to the Option exceeds the exercise
price of the Option.
The Committee, in its discretion, may make such Restricted Stock Awards under
the Plan to Key Employees as it determines are warranted. Restricted Stock
Awards may be subject to one or more vesting periods and any additional terms,
conditions or restrictions as the Committee may deem advisable. If the Company
issues certificates representing the Common Stock subject to the Restricted
Stock Award in the name of the Key Employee, such Common Stock will bear a
legend indicating their restrictions and the Key Employee shall execute a stock
power to be held with the certificates by the Company. However, the Key
Employee shall be entitled to receive dividends paid on such Common Stock, shall
have the right to vote such Common Stock, and shall have all other stockholders'
rights with respect to such Common Stock. The Committee shall specify in the
Restricted Stock Award agreement the manner of determining the number of
unvested shares of Common Stock which shall become vested in the Key Employee if
his or her employment is terminated prior to the later of the expiration of the
vesting period or the satisfaction of any conditions. Different vesting
provisions may apply to a Key Employee's termination due to death or disability.
Any remaining unvested shares of Common Stock shall be forfeited upon
termination of employment unless the Committee determines otherwise.
14
<PAGE>
The Committee may grant Restricted Stock Awards under which the Key Employee
shall not be required to make any payment or under which the Key Employee shall
pay all (or any lesser amount than all) of the fair market value of the Common
Stock determined as of the date of the grant.
The Committee may make Unrestricted Stock Awards to Key Employees and each
certificate for shares of unrestricted Common Stock shall be registered in the
name of the Key Employee and be delivered to him or to her.
Upon a change in control of the Company (as defined in the Plan), the
Committee (as it is constituted on the day preceding the date of the change in
control) may, in its discretion, accelerate the vesting and exercisability of
outstanding Options and SARs granted to Key Employees and accelerate the vesting
of Restricted Stock Awards granted to Key Employees. (Option Agreements and
Restricted Stock Award Agreements may also provide for automatic vesting upon a
Change of Control.) In the event of certain corporate reorganizations, each
outstanding Award will be assumed by the surviving or successor corporation.
However, the Committee may terminate all or a portion of the outstanding Options
granted to Key Employees if it determines that such termination is in the best
interests of the Company. In such case, the Key Employee will be given not less
than seven days' notice prior to termination and, (assuming adoption of the Plan
Amendments) if the Option is not exercised prior to the closing of such
corporate transaction, the Company shall pay to the Key Employee an amount equal
to the consideration paid, or to be paid, per share of Common Stock to holders
of Common Stock in connection with such corporate transaction (as determined in
good faith by the Committee) less the applicable exercise price of the Option.
The Plan became effective on December 13, 1995, and terminates on December 13,
2005. The Plan Amendments became effective on October 5, 1999, subject to
stockholder approval. The Board of Directors of the Company may amend, suspend
or discontinue the Plan, except that without the approval of the stockholders:
(1) the class of persons eligible to receive Awards shall not be changed nor
shall any other requirement as to eligibility for participation in the Plan be
materially modified; (2) the maximum number of shares of Common Stock with
respect to which Awards may be granted under the Plan shall not be increased
(otherwise than in connection with certain changes in the capitalization of the
Company); (3) the benefits accruing to individuals participating in the Plan
shall not be materially increased; (4) the duration of the Plan shall not be
extended; and (5) no amendment which would require stockholder approval pursuant
to Treas Reg. (S)1.162-27(e)(4)(vi) may be made. However, no amendment to the
Plan that would affect (1) the amount and price of the Common Stock subject to
NQSOs to be granted to Outside Directors, (2) the timing of such grants to
Outside Directors, or (3) the formula, if any, that determines the amount, price
and timing of NQSO grants to Outside Directors, shall be made more than once
every six months, other than to comport with changes in the Code or the Employee
Retirement Income Security Act of 1974 ("ERISA").
15
<PAGE>
TAX TREATMENT
If an option is treated as an ISO, the optionee will recognize no U.S. Federal
taxable income upon grant of the ISO. Upon the exercise of an ISO, the optionee
recognizes no taxable income provided the optionee was an employee of the
Company during the entire period from the date of the grant of the ISO until
three months before the date of exercise or in the case of an optionee whose
employment terminates due to disability, until twelve months before the date of
exercise. (Of course, in both of these situations, the ISO itself may provide a
shorter exercise period after employment ceases.) Notwithstanding the
preceding, the excess of the fair market value of the Common Stock over the
exercise price, both determined at the time of exercise, generally will be
included in the optionee's alternative minimum taxable income in the year of
exercise.
Upon an optionee's sale of the Common Stock (assuming that the sale occurs no
sooner than two years after grant of the ISO and one year after exercise of the
ISO), any gain will be taxed to the optionee as long-term capital gain. If the
optionee disposes of the shares of Common Stock prior to the expiration of the
above holding period, the optionee will recognize ordinary income in an amount
generally measured as the difference between the exercise price and the lower of
the fair market value of the Common Stock at the exercise date or the sale price
of the Common Stock. Any gain or loss recognized on such a disposition of the
Common Stock in excess of the amount treated as ordinary income will be
characterized as capital gain or loss. The Company will be allowed a business
expense deduction to the extent the optionee recognizes ordinary income.
An optionee will not recognize any U.S. Federal taxable income at the time the
optionee is granted an NQSO. However, upon exercise of the NQSO, the optionee
will recognize ordinary income for Federal income tax purposes in an amount
generally measured as the excess of the then fair market value of the Common
Stock over the exercise price. If the Company complies with the applicable
income tax withholding or information reporting requirements, it will be
entitled to a business expense deduction in the same amount and at the same time
as the optionee recognizes ordinary income. Upon an optionee's sale of such
shares, any difference between the sale price and fair market value of such
shares on the date of exercise will be treated as capital gain or loss and will
qualify for long-term capital gain or loss treatment if the shares of Common
Stock have been held for more than one year.
Upon the grant of a SAR, the optionee recognizes no taxable income. Upon
exercise of a SAR, the optionee recognizes ordinary income as of the date of
exercise in an amount equal to the excess of the fair market value of the Common
Stock on the date of exercise over the exercise price. An optionee exercising a
SAR is subject to Federal income tax withholding on the income recognized as a
result of the exercise of the SAR. The Company is entitled to a deduction (in
the same year in which the grantee recognizes income) to the extent of the
amount includible in the gross income of the optionee.
Upon the making of a Restricted Stock Award, the grantee will recognize no
taxable income unless the grantee files a "section 83(b) election" with the
Internal Revenue Service within thirty days after the award. Upon payment of
dividends with respect to unvested stock, the grantee will recognize ordinary
income and the Company generally will be entitled to a deduction (in the same
16
<PAGE>
year in which the grantee recognizes income) equal to the amount includible in
the gross income of the grantee.
Upon vesting of Common Stock in a grantee, the grantee will recognize ordinary
income in an amount equal to the fair market value of such Common Stock on the
date of vesting minus any purchase price paid for the restricted shares. The
Company will generally be entitled to a deduction (in the same year in which the
grantee recognizes income) equal to the amount of ordinary income includible in
the gross income of the grantee.
Upon the making of an Unrestricted Stock Award or the making of a Restricted
Stock Award with respect to which the grantee makes a section 83(b) election,
the grantee will recognize ordinary income in an amount equal to the fair market
value of such Common Stock on the date of the grant (determined without regard
to any restrictions that will lapse) and the grantee is subject to Federal
income tax withholding. The grantee's holding period for Common Stock begins on
the day of the grant. When the grantee disposes of such Common Stock, he/she
will recognize a long-term or short term capital gain (or loss) under Code rules
which govern stock dispositions, assuming that the Common Stock is held by the
grantee as capital assets. The Company will generally be entitled to a
deduction (in the same year in which the grantee recognizes income) equal to the
amount of ordinary income includible in the gross income of the grantee.
Different rules for measuring ordinary income may apply if the optionee is
subject to Section 16 of the Securities Exchange Act of 1934, as amended.
The foregoing does not purport to be a complete summary of the effect of
Federal income taxation upon holders of Options, SARs, Restricted Stock or
Unrestricted Stock or upon the Company. It also does not reflect provisions of
the income tax laws of any municipality, state or foreign country.
THE BOARD OF DIRECTORS BELIEVES THAT THE PLAN HAS BEEN AN IMPORTANT
TOOL FOR THE COMPANY IN ITS EFFORTS TO ATTRACT AND RETAIN TALENTED EMPLOYEES AND
OUTSIDE DIRECTORS AND THAT THE PLAN AMENDMENTS ARE IMPORTANT TO ALLOW THE
COMPANY TO REMAIN COMPETITIVE. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
PROPOSAL 3.
17
<PAGE>
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Company's Compensation Committee is comprised of three outside directors
of the Company, currently Messrs. Chambers (Chairman), Walton and Zobel. At
least annually, the Compensation Committee reviews the compensation levels of
the Company's executive officers and certain other key employees and makes
recommendations to the Board of Directors regarding compensation of such
persons. In general, the Compensation Committee endeavors to base the
compensation of the executive officers on individual performance, performance
against established financial goals based on the Company's strategic plan, and
comparative compensation paid to executives of direct competitors and of non-
financial service companies.
The Compensation Committee's review of compensation, other than that of the
Chairman and Chief Executive Officer, is based on the recommendations of the
Company's internal compensation committee, which consists of A.J. Clegg
(Chairman) and John R. Frock (Executive Vice President). Executive officers'
compensation generally consists of base salary (which comprises a significant
portion of total compensation), bonus (which is based on the Company's
performance and/or specific goals), fringe benefits and stock options. All
executive officers are reviewed annually for performance. Salary changes have
been effective in March; due to the change in the Company's fiscal year,
commencing in October 1999, salary changes will be effective in October.
Bonuses are distributed after the results of the audit of the financial
statements have been verified.
In 1995, Towers and Perrin conducted a compensation survey for the Company.
Each year since 1995, the Compensation Committee has utilized the Towers and
Perrin survey, together with inflation data and other current compensation data
for executives of direct competitors to establish appropriate salary ranges for
the Company's executive positions. The Compensation Committee has established
actual salaries and other compensation within these salary ranges, based on
subjective evaluations of the executive's and the Company's performance both
during the current year and over time.
In Fiscal 1999, the Company engaged William M. Mercer, Inc. ("Mercer") to
perform an updated compensation survey for the Company's executive positions.
In assessing the competitiveness of compensation for the Company's executives,
Mercer referenced compensation data for organizations of similar size in the
private education and professional / business services industries. Also, Mercer
met with the Company's executive management to learn about the Company's
executives' responsibilities. The Compensation Committee will first use the
Mercer survey for October 1999 salary adjustments.
The Chairman and Chief Executive Officer's compensation commencing in March
1999 included an annual base salary of $278,000, a bonus plan tied to the
Company's net income as compared to the annual plan submitted to and approved by
the Board of Directors in December 1998 and customary fringe benefits. Mr.
Clegg's salary reflected a $20,000 increase over the prior year. The increase
was based on the Compensation Committee's subjective evaluation of the Company's
performance.
18
<PAGE>
In Fiscal 1999, bonuses for all executive officers were based on the Company's
performance as compared to the Company's Business Plan. The Chairman's bonus
was based on attaining the net income objective. The Company did not achieve
its financial goals for the year, and no bonuses were paid to executives
officers.
Compensation Committee
Mr. Edward Chambers
Mr. William Walton
Mr. Robert Zobel
19
<PAGE>
COMPENSATION TABLES
The following tables contain compensation data for the Chief Executive Officer
and the Company's four other most highly compensated executive officers (based
on total annual salary and bonus for the fiscal year ended June 30, 1999).
(Note that the Fiscal Year 1998 consisted of only six months.)
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------------------------
OTHER SECURITIES ALL OTHER
ANNUAL RESTRICTED UNDERLYING COMPEN-
NAME AND FISCAL COMPEN- STOCK OPTIONS/ SATION/3/
PRINCIPAL POSITION YEAR/1/ SALARY BONUS SATION/2/ AWARDS SARS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A.J. CLEGG 1999 $263,769 $0 - 0 40,000 $6,311
Chairman, President and 1998 125,887 0 - 0 20,000 1,645
Chief Executive Officer 1997 231,778 0 - 0 40,000 3,217
1996 208,465 0 - 0 0 3,332
- ---------------------------------------------------------------------------------------------------------
WILLIAM E. BAILEY /4/ 1999 $112,307 $0 - 0 30,000 $ 573
Chief Financial Officer; 1998 46,538 0 - 0 25,000 277
Executive Vice President
- ---------------------------------------------------------------------------------------------------------
B. ROBIN EGLIN 1999 $120,976 $0 $14,815 0 40,000 $2,488
Executive Vice President - 1998 57,699 0 7,357 0 13,900 550
Nobel Learning Solutions 1997 108,106 0 13,988 0 20,000 1,067
1996 101,018 0 13,841 0 0 1,086
- ---------------------------------------------------------------------------------------------------------
JOHN R. FROCK 1999 $129,156 $0 $15,017 0 40,000 $3,754
Executive Vice President - 1998 62,348 0 7,168 0 12,682 1,153
Corporate Development 1997 119,530 0 13,690 0 40,000 1,645
1996 112,119 0 13,560 /5/ 0 1,587
- ---------------------------------------------------------------------------------------------------------
BARRY S. SWIRSKY 1999 $107,423 $0 $12,793 0 27,825 $1,926
General Counsel 1998 51,636 0 5,858 0 12,175 342
1997 98,950 0 - 0 15,000 632
1996 93,250 0 - 0 0 160
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) The 1998 fiscal year consisted of the six months ended June 30, 1998.
(2) The amounts reported for B. Robin Eglin consist of $7,800, $3,900, $7,800
and $7,800 for automobile expenses in fiscal 1999, 1998, 1997 and 1996,
respectively, and $7,015, $6,188, $6,041 and $4,530 for health insurance in
1999, 1998, 1997 and 1996, respectively. The amounts reported for John R.
Frock consist of $7,800, $3,900, $7,800 and $7,800 for automobile expenses
in fiscal 1999, 1998, 1997 and 1996, respectively, and $7,217,
20
<PAGE>
$3,268, $5,890 and $5,760 for health insurance in fiscal 1999, 1998, 1997
and 1996, respectively. The amounts reported for Mr. Swirsky in fiscal 1999
consist of $6,000 for automobile expenses and $6,793 for health insurance
and in fiscal 1998 consist of $2,000 for automobile expenses and $3,858 for
health insurance. Perquisites and other personal benefits for Mr. Clegg and
Mr. Bailey in all years and for Mr. Swirsky in 1997 and 1996 did not exceed
10% of the executive officer's salary and bonus, and accordingly have been
omitted from the table as permitted by the rules of the Securities and
Exchange Commission.
(3) Other compensation in fiscal 1999 consisted of:
----------------------------------------------------------------
Executive Life Insurance Employer matching 401(k)
plan contributions
----------------------------------------------------------------
A.J. Clegg $2,038 $4,273
----------------------------------------------------------------
William E. Bailey $ 573 --
----------------------------------------------------------------
B. Robin Eglin $ 488 $2,000
----------------------------------------------------------------
John R. Frock $1,645 $2,109
----------------------------------------------------------------
Barry S. Swirsky $ 160 $1,766
----------------------------------------------------------------
(4) William Bailey joined the Company in January 1998.
(5) The Company made a Restricted Stock Award to Mr. Frock under the 1995 Stock
Incentive Plan of 25,000 shares of Common Stock on March 19, 1996. However,
these shares were never issued, and the Company and Mr. Frock subsequently
agreed to the cancellation of such award.
21
<PAGE>
OPTIONS/STOCK APPRECIATION RIGHTS GRANTED IN FISCAL 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM (10 YRS) /1/
-----------------------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/ SARS EXERCISE AT 0% AT 5% AT 10%
OPTION/ GRANTED TO ALL OR BASE ANNUAL ANNUAL ANNUAL
SARS EMPLOYEES IN F PRICE PER EXPIRATION GROWTH GROWTH GROWTH
NAME OF EXECUTIVE GRANTED/ 2/ 1999 /3/ SHARE DATE RATE RATE RATE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A. J. Clegg 40,000 10.14% $4.6875 4/9/09 $0 $117,918 $298,827
William E. Bailey 30,000 7.61% $4.6875 4/9/09 $0 $ 88,438 $224,120
B. Robin Eglin 40,000 10.14% $4.6875 4/9/09 $0 $117,918 $298,827
John R. Frock 40,000 10.14% $4.6875 4/9/09 $0 $117,918 $298,827
Barry S. Swirsky 27,825 7.06% $4.6875 4/9/09 $0 $ 82,027 $207,871
</TABLE>
(1) The potential realizable values are based on an assumption that the stock
price of the shares of Common Stock of the Company appreciate at the annual
rate shown (compounded annually) from the date of grant until the end of the
option term. These values do not take into account option provisions
providing for termination of an option following termination of employment,
nontransferability, or vesting over periods of up to three years. These
amounts are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's estimate
of future stock price growth of the shares of the Company's Common Stock.
(2) Options granted vest in increments of one-third of the total number of
options granted on the first, second and third anniversary dates of the date
of grant.
(3) During Fiscal 1999, the Company granted to employees options to purchase an
aggregate of 394,325 shares of Common Stock.
22
<PAGE>
AGGREGATED OPTION/STOCK APPRECIATION RIGHTS EXERCISED IN FISCAL 1999
AND VALUE OF OPTIONS AT JUNE 30, 1999
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
EXERCISED IN FISCAL 1999 OPTIONS AT JUNE 30, 1999 JUNE 30, 1999
--------------------------------------------------------------------------------------
SHARES
ACQUIRED ON VALUE
NAME OF EXECUTIVE EXERCISE REALIZED EXERCISABLE UNEXERCISEABLE EXERCISABLE UNEXERCISEABLE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A. J. Clegg 0 0 78,333 66,667 $0 $12,500
William E. Bailey 0 0 10,000 45,000 $0 $ 9,375
B. Robin Eglin 0 0 20,967 55,933 $0 $12,500
John R. Frock 0 0 30,894 61,788 $0 $12,500
Barry S. Swirsky 0 0 19,058 40,942 $0 $ 8,695
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
None of the above named executive officers held any stock appreciation rights at
June 30, 1999.
EXECUTIVE SEVERANCE PLAN
In March 1997, the Company adopted an Executive Severance Pay Plan (the
"Severance Pay Plan"). The Severance Pay Plan covers each of the five executive
officers named in the table on page 20, as well as certain other officers and
key executives of the Company, and persons who succeed to the positions held by
such executives and such other additional employees or positions as determined
by written resolution of the Board from time to time (collectively, the
"Eligible Executives"). Under the Severance Pay Plan, if the employment of an
Eligible Executive with the Company terminates following a Change in Control (as
defined in the Severance Pay Plan) of the Company, under specified
circumstances, the Eligible Executive will be entitled to receive the severance
benefit specified in the Severance Pay Plan. The amount payable to an Eligible
Executive would equal (a) the Eligible Executive's salary for a period of months
equal to six plus the number of years of service of the Eligible Executive as of
the date of termination (or two times the number of years of service, if he or
she has completed at least three years of service as of the termination date),
subject to a maximum of 18 months' pay, plus (b) the bonus which would have been
payable to the Eligible Executive for the year in which employment was
terminated pro rated based on the number of months of employment in the year of
termination.
23
<PAGE>
EMPLOYMENT AGREEMENT WITH EXECUTIVE OFFICER
In October 1999, the Company executed an employment agreement with William E.
Bailey for the three year period beginning on the commencement of his employment
in January 1998. Mr. Bailey's base salary ($118,000 as of March 1999) is
reviewed annually, but any adjustment is in the Company's sole discretion. Mr.
Bailey is eligible to receive an annual bonus to be determined in the Company's
sole discretion of the Company. Pursuant to his offer letter, on his first day
of employment, the Company granted Mr. Bailey options to purchase 25,000 shares
of the Company's common stock, vesting over a three year period (10,000 after
each of one and two years and 5,000 in the third year). The Company also agreed
to provide Mr. Bailey with a $6,000 per year car allowance, term life insurance
in the amount of his base salary plus $10,000 for his benefit and other benefits
provided to the Company's senior executives. Further, the Company paid Mr.
Bailey $10,000 to reimburse him for relocation expenses, and the Company will
pay him an additional $15,000 for relocation expense if he sells his former
home.
AGREEMENT WITH EXECUTIVE OFFICER
The Company and John R. Frock are parties to a Noncompete Agreement which
provides that the Company will make a payment to Mr. Frock of $255,000 following
his termination for any reason if, within 30 days of his termination date, Mr.
Frock delivers a letter to the Company agreeing not to engage in specified
activities in competition with the Company for four years. The Company and Mr.
Frock are also parties to a Contingent Severance Agreement which provides that
if Mr. Frock's employment is terminated because (i) the Company terminates Mr.
Frock's employment without Cause (as defined in the agreement) or (ii) Mr. Frock
resigns following a Change in Control (as defined in the agreement), within 20
days following the date of termination, the Company must make a severance
payment to Mr. Frock in such amount. The Company will not under any
circumstance be required to make a payment to Mr. Frock under both the
Noncompete Agreement and the Contingent Severance Agreement.
24
<PAGE>
STOCK PERFORMANCE
The following line graphs compares the cumulative total stockholder return on
the Company's Common Stock with the total return of the Nasdaq Stock Market
(U.S. Companies) and indexes of peer group companies for the period June 30,
1994 through June 30, 1999 as calculated by the Center for Research in Security
Prices. The graphs assume that the value of the investment in the Company's
Common Stock and each index was $100 at June 30, 1994 and that all dividends
paid by the companies included in the indexes were reinvested. The Company has
changed the composition of its peer group, because several of the companies in
the original peer group are no longer public companies, having been acquired by
private entities.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
GRAPH 1 - ORIGINAL PEER GROUP
[GRAPH APPEARS HERE]
6/94 6/95 6/96 6/97 6/98 6/99
Nobel Learning Communities, Inc. 100.0 161.1 311.1 188.9 200.0 111.1
Nasdaq Stock Market 100.0 133.5 171.4 208.4 274.4 393.6
(U.S. Companies)
Self-Determined Peer Group 100.0 128.5 228.7 279.0 399.3 354.6
The self determined peer group includes: Children's Discovery Centers of
America, Inc.; ITT Educational Services, Inc.; La Petite Academy, Inc.; Youth
Services International, Inc., DeVry Inc.; Kindercare Learning Centers, Inc.; and
Sylvan Learning Systems, Inc.
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization of the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100 at 6/30/94.
25
<PAGE>
GRAPH 2 - NEW PEER GROUP
[GRAPH APPEARS HERE]
6/94 6/95 6/96 6/97 6/98 6/99
Nobel Learning Communities, Inc. 100.0 161.1 311.1 188.9 200.0 111.1
Nasdaq Stock Market 100.0 133.5 171.4 208.4 274.4 393.6
(U.S. Companies)
Self-Determined Peer Group 100.0 140.7 267.2 337.9 499.9 440.9
The self determined peer group includes: Bright Horizons Family Solutions,
Inc.; Childtime Learning Centers, Inc.; DeVry Inc.; ITT Educational Services,
Inc.; Sylvan Learning Systems, Inc. and Tesseract Group Inc.
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization of the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100 at 6/30/94.
26
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
its Common Stock, to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of the Company's Common
Stock. Executive officers, directors and ten percent stockholders are required
by SEC regulations to furnish the Company with a copy of all Section 16(a) forms
("Forms 3, 4, and 5") that they file. To the Company's knowledge, based solely
on a review of copies of the Forms 3, 4 and 5 furnished to the Company and
written representations as to all transactions in the Company's securities
effected during the period from July 1, 1998 through June 30, 1999, all
applicable Section 16(a) filing requirements were complied with, except for
filings with respect to stock options granted in April 1999.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1998, the Company issued a $10,000,000 10% senior subordinated note to
Allied Capital Corporation, of which William L. Walton, a director of the
Company, is President, Chairman and Chief Executive Officer. Payments on the
senior subordinated note are subordinate to the Company's senior bank debt. In
connection with the financing transaction, the Company also issued to Allied
Capital Corporation warrants to acquire 531,255 shares of the Company's common
stock and granted to Allied Capital Corporation certain rights to require the
Company to register the shares of Common Stock issuable upon exercise of the
warrants under the Securities Act of 1933.
In July 1999, the Company sold its nine preschools located in Indiana to
Children's Discovery Centers of America, Inc. (CDC) for a sale price of
$575,000. At the closing, CDC assumed all obligations of the Company under the
leases for the premises at which the preschools were located. CDC is controlled
by KU Learning, L.L.C., which controls a significant percentage of the Company's
common stock. See "Security Ownership - Common Stock." The purchase price was
negotiated by arms-length negotiation between the parties.
The Company loaned to Daryl Dixon, the Company's President and Chief
Operating Officer, the sum of $90,000 upon the commencement of his employment
(to repay a loan with his prior employer). The loan accrues interest at a rate
of 8% per annum. Each month during Mr. Dixon's employment, the Company will
forgive 1/36 of the principal amount and associated interest of this loan.
27
<PAGE>
GENERAL INFORMATION
Stockholders who wish to obtain, free of charge, a copy of the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1999, as filed
with the Securities and Exchange Commission, may do so by writing or calling
Yvonne DeAngelo, Vice President - Finance and Administration and Secretary,
Nobel Learning Communities, Inc., Rose Tree Corporate Center II, 1400 North
Providence Road, Suite 3055, Media, Pennsylvania 19063, telephone (610) 891-8200
or by sending an electronic mail message to [email protected].
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be presented by
such stockholders at the Company's 2000 Annual of Meeting of Stockholders must
be received by the Company no later than June 12, 2000 and be otherwise in
compliance with applicable laws and regulations in order for such proposals to
be included in the Proxy Statement. In addition, the Company's Certificate of
Incorporation requires that any stockholder who wishes to make a nomination for
the office of director or to initiate a proposal or other business at the 2000
Annual Meeting must give the Company advance notice by September 4, 2000 (or, if
the date of the 2000 Annual Meeting is before October 29, 2000 or after December
8, 2000, by the date ten days following the date that the Company first mails to
stockholders the Company's notice of the meeting), and that notice must meet
certain other requirements set forth in the Company's Certificate of
Incorporation.
By Order of the Board of Directors
Yvonne DeAngelo
Vice President - Finance and Administration and Secretary
October 7, 1999
28
<PAGE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
NOBEL LEARNING COMMUNITIES, INC.
The undersigned hereby appoints A.J. Clegg, Yvonne DeAngelo and William E.
Bailey proxies for the undersigned, each with power to appoint his or her
substitute, and authorizes each of them acting alone, or together if more than
one is present, to represent and to vote, as specified below, all of the shares
of the undersigned held of record by the undersigned on September 24, 1999, at
the 1999 Annual Meeting of Stockholders of Nobel Learning Communities, Inc.
(the "Company") on November 18, 1999, and at all adjournments thereof, on the
matters set forth herein and in the discretion of the proxies for the
transaction of such other business as may come before the meeting.
1. Election of three directors to serve for a three year term (until the Annual
Meeting of Stockholders in the year 2002)
<TABLE>
<C> <S>
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY to vote for
(except as marked to the contrary below): all nominees listed below
</TABLE>
Edward Chambers A. J. Clegg Peter H. Havens
INSTRUCTION: To withhold authority to vote for any individual nominee, print
that nominee's name in the following space:
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2. Ratification of the selection of PricewaterhouseCoopers L.L.P. as the
Company's independent auditors for fiscal year 2000.
[_] FOR [_] AGAINST [_] ABSTAIN
(OVER)
<PAGE>
3. Approval of amendments to the Company's 1995 Stock Incentive Plan (a) to
increase the number of awards which can be made thereunder, (b) to increase
the number of shares subject to an Option which a participant may receive in
any year and (c) to increase the number of shares subject to Options which
is granted annually to each nonemployee director and to modify the
conditions to such grant.
[_] FOR [_] AGAINST [_] ABSTAIN
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF EACH
NOMINEE, "FOR" RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS L.L.P AS
AUDITORS FOR THE COMPANY'S 2000 FISCAL YEAR, AND "FOR" THE PROPOSAL TO AMEND
THE COMPANY'S 1995 STOCK INCENTIVE PLAN.
Date: __________________________ , 1999
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Your name should appear exactly as
your name appears in the space at the
left. For joint accounts, any co-owner
may sign. When signing in a fiduciary
or representative capacity, please
give your full title as such. If a
corporation or partnership, sign in
full corporate or partnership name by
authorized officer or partner.
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PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
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