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