<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. )
Filed by the 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
Sylvan Learning Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No filing 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:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(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):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] 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:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
YOUR VOTE IS IMPORTANT. Please execute and return the enclosed proxy card
promptly, whether or not you plan to attend the Sylvan Learning Systems, Inc.
Annual Meeting.
SYLVAN LEARNING SYSTEMS, INC.
LOGO
SYLVAN LEARNING SYSTEMS, INC.
1000 Lancaster Street
Baltimore, Maryland 21202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
June 30, 1997
To the Stockholders of Sylvan Learning Systems, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders of Sylvan
Learning Systems, Inc. ("Sylvan") will be held at the offices of the Company,
3rd floor Rotunda room, 1000 Lancaster Street, Baltimore, Maryland, on June
30, 1997 at 9:30 a.m. for the following purposes:
I. To elect two (2) directors of the Company.
II. To approve and ratify amendments to the 1993 Employee Stock Option Plan
which increase the number of shares authorized for issuance upon
exercise of options granted thereunder from 2,625,000 to 3,200,000
shares.
III. To approve and ratify the adoption of the Sylvan Learning Systems,
Inc. Employee Stock Purchase Plan.
IV. To ratify the selection of Ernst & Young LLP as the independent
auditors of Sylvan for the fiscal year ending December 31, 1997.
V. To transact such other business as may properly come before the meeting.
Accompanying this notice is a Proxy Card and Proxy Statement and a copy of
Sylvan's Annual Report for the year ended December 31, 1996. WHETHER OR NOT
YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE SIGN AND DATE THE PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE PROVIDED FOR THAT PURPOSE PRIOR TO
THE DATE OF THE ANNUAL MEETING. The Proxy may be revoked at any time prior to
the time that it is voted at the Annual Meeting. June 2, 1997, was fixed by
the Board of Directors as the record date for determination of stockholders
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof. Only stockholders of record at the close of business on June 2, 1997
will be entitled to vote at the Annual Meeting.
You are cordially invited to attend the Annual Meeting, and you may vote in
person even though you have returned your Proxy Card.
BY ORDER OF THE BOARD OF DIRECTORS
Douglas L. Becker
Secretary
Baltimore, Maryland
June 7, 1997
<PAGE>
SYLVAN LEARNING SYSTEMS, INC.
1000 LANCASTER STREET
BALTIMORE, MARYLAND 21202
(410) 843-8000
PROXY STATEMENT
INTRODUCTION
This Proxy Statement and the accompanying proxy are furnished to
stockholders of Sylvan Learning Systems, Inc. ("Sylvan") in connection with
the solicitation of proxies by Sylvan's Board of Directors to be used at the
Annual Meeting of Stockholders described in the accompanying notice and at any
adjournments thereof (the "Annual Meeting"). The purpose of the Annual Meeting
is to: 1) elect two directors of the Company, 2) approve and ratify amendments
to the 1993 Employee Stock Option Plan which increase the number of shares
authorized for award thereunder from 2,625,000 to 3,200,000 shares (the "1993
Plan Amendments"), 3) approve and ratify the adoption of the Sylvan Learning
Systems, Inc. Employee Stock Purchase Plan, 4) ratify the selection of Ernst &
Young LLP as independent auditors of the Company for the fiscal year ending
December 31, 1997 and 5) transact such other business as may properly come
before the Annual Meeting. This Proxy Statement and the accompanying proxy are
first being sent to stockholders on or about June 7, 1997.
The record of stockholders entitled to notice of and to vote at the Annual
Meeting was taken as of the close of business on June 2, 1997 (the "Record
Date"). On the Record Date, there were outstanding and entitled to vote
25,990,169 shares of Common Stock, par value $.01 per share (the "Sylvan
Common Stock").
The presence, in person or by proxy, of the holders of a majority of the
shares of Sylvan Common Stock issued and outstanding and entitled to vote at
the Annual Meeting is necessary to constitute a quorum at the meeting. In the
election of directors, each share of Sylvan Common Stock may be voted for as
many individuals as there are directors to be elected. Votes may only be cast
"FOR" the election of a director; cumulative voting is not permitted. Those
individuals receiving the two highest number of votes "for" election to the
Board of Director shall be considered duly elected. For all matters except the
election of directors, each share is entitled to one vote. The affirmative
vote of a majority of the shares of Sylvan Common Stock present in person or
represented by proxy at the Annual Meeting and entitled to vote there at is
required for approval of all matters (other than the election of directors)
being submitted to the stockholders for their consideration. An automated
system administered by Sylvan's transfer agent will be used to tabulate the
votes. Abstentions, votes against or withholding approval and broker non-votes
will be counted to determine wether a quorum is present. Abstentions and votes
against or withholding approval will be counted as votes against any given
proposal, whereas broker non-votes will not be counted in determining whether
a particular proposal has been approved by the stockholders.
The cost of soliciting proxies and preparing the proxy materials will be
borne by Sylvan. In order to ensure that sufficient shares of Sylvan Common
Stock are represented at the meeting to permit approval of the proposals
outlined in the Proxy Statement, Sylvan has retained the services of D.F. King
& Company, Inc. to assist in soliciting proxies for a fee of approximately
$1,500.00 plus reimbursement for out-of-pocket expenses. In addition, Sylvan
will require securities brokers, custodians, nominees and fiduciaries to
forward solicitation material to the beneficial owners of stock held of record
and will reimburse them for their reasonable out-of-pocket expenses in
forwarding such solicitation material. In addition to solicitation of proxies
by D.F. King & Company, Inc., proxies may be solicited personally or by
telephone or telegram by directors, officers and employees of Sylvan or its
subsidiaries without additional compensation to them.
<PAGE>
VOTING BY PROXY
The Board of Directors has selected R. Christopher Hoehn-Saric and Douglas
L. Becker, and each of them, to act as proxies with full power of
substitution. Any stockholder executing a proxy has the power to revoke the
proxy at any time before it is voted. This right of revocation is not limited
or subject to compliance with any formal procedure. Any stockholder may attend
the meeting and vote in person, whether or not he has previously given a
proxy.
With respect to the proposal regarding election of directors, stockholders
may (a) vote in favor of all nominees, (b) withhold their votes as to all
nominees, or (c) withhold their votes as to specific nominees by so indicating
in the appropriate space on the enclosed proxy card. With respect to the
proposals to approve and ratify the 1993 Plan Amendments, the adoption of the
Employee Stock Purchase Plan, and the appointment of Ernst & Young LLP as
Sylvan's independent auditors for the fiscal year ending December 31, 1997,
stockholders may (i) vote "for", (ii) vote "against" or (iii) abstain from
voting as to each such matter. All properly executed proxy cards delivered by
stockholders and not revoked will be voted at the Annual Meeting in accordance
with the directions given. IF NO SPECIFIC INSTRUCTIONS ARE GIVEN WITH REGARD
TO THE MATTERS TO BE VOTED UPON, THE SHARES REPRESENTED BY A PROPERLY EXECUTED
PROXY CARD WILL BE VOTED "FOR" THE ELECTION OF ALL DIRECTORS AND TO APPROVE
AND RATIFY THE 1993 PLAN AMENDMENTS, THE ADOPTION OF THE EMPLOYEE STOCK
PURCHASE PLAN, AND THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS. Management knows of no other matters that may come before the Annual
Meeting for consideration by the stockholders. However, if any other matter
properly comes before the Annual Meeting, the persons named in the enclosed
proxy card as proxies will vote upon such matters in accordance with their
judgment
Stockholders who do not expect to attend the Annual Meeting in person are
urged to execute and return the enclosed proxy card promptly. Any stockholder
delivering a proxy has the power to revoke it at any time before it is voted
by giving written notice of revocation to the Secretary of the Company, by
executing and delivering to the Secretary a proxy card bearing a later date,
or by voting in person at the Annual Meeting. Any stockholder also may be
represented by another person at the Annual Meeting by executing a form of
proxy designating such person to act on the stockholder's behalf at the Annual
Meeting.
2
<PAGE>
I. ELECTION OF SYLVAN DIRECTORS
The Board of Directors is comprised of nine (9) persons separated into three
(3) classes, with each class serving a three year term. Three (3) directors
serve in Class I and are subject to re-election for a three year term
beginning at the Annual Meeting. Three (3) directors serve in Class II and are
subject to re-election for a three year term beginning at the 1998 Annual
Meeting. Three (3) directors serve in Class III and are subject to re-election
for a three year term beginning at the 1999 Annual Meeting. There is currently
one vacancy in Class I, resulting from the resignation of Patrick Hopf
effective March 24, 1997, whose term would have expired at the Annual Meeting.
Mr. Hopf had served on the Board since March 1993, when Mr. Hopf's principal,
St. Paul Fire and Marine Insurance Company, invested in the Company. By early
1997, St. Paul had sold the substantial part of its interest in the Company,
and in keeping with St. Paul's policy, Mr. Hopf resigned from the Board. There
is also one vacancy in Class II, resulting from the resignation of G. Cook
Jordan, Jr. effective October 10, 1996, whose term would have expired at the
1998 Annual Meeting. Mr. Jordan had served on the Board since August 1993,
representing the interests of Allstate Insurance Company, a shareholder in the
Company. In late 1996, Mr. Jordan resigned his position with Allstate and left
the Board.
Two (2) Class I directors are to be elected at the Annual Meeting to serve
until the 2000 Annual Meeting of Stockholders, or until their successors are
duly elected and qualified. The Board of Directors intends to fill the
vacancies in Class I and Class II with suitable candidates prior to the 1998
Annual Meeting, at which time, the stockholders will be asked to vote on the
election of each such individual. The Board of Directors has nominated the two
persons named below to serve as Class I directors for the term indicated. Both
nominees are currently members of the Board. All current directors were
elected to the Board by the stockholders. Each of the nominees has consented
to serve on the Board of Directors through the 2000 Annual Meeting of
Stockholders or until his successor is duly elected and qualified. If either
of the nominees should be unable to serve for any reason (which Management has
no reason to anticipate at this time), the Board of Directors may designate a
substitute nominee or nominee (in which case the persons named as proxies in
the enclosed proxy card will vote all valid proxy cards for the election of
such substitute nominee or nominees), allow the vacancy or vacancies to remain
open until a suitable candidate or candidates are located, or by resolution
amending the By-laws of the Company, provide for a lesser member of directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR ITS NOMINEES FOR
DIRECTORS.
INFORMATION CONCERNING NOMINEES
The following table presents information concerning persons nominated by the
Board of Directors for election at the Annual Meeting as Class I directors of
the Company. Data with respect to the number of shares of the Sylvan Common
Stock beneficially owned by each of the nominees, directly or indirectly, as
of April 11, 1997, appear on page 12 of this Proxy Statement.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION,
NOMINATED FOR DIRECTORSHIPS WITH
NAME AND AGE DIRECTOR SINCE TERM EXPIRING PUBLIC COMPANIES AND OTHER INFORMATION
- ------------ -------------- ------------- ---------------------------------------
<S> <C> <C> <C>
J. Phillip Samper (62) March 2000 Mr. Samper has been a Director of
1993 Annual Sylvan since 1993. Mr. Samper
Meeting currently serves as Chief Executive
Officer and Chairman of the Board of
Cray Research, Inc. Mr. Samper
served as President of Sun
Microsystems, Inc. from 1994 to
1995, and as President and Chief
Executive Officer of Kinder-Care
Learning Centers, Inc. during 1990
and as Vice Chairman of Eastman
Kodak Company from 1986 to 1989. Mr.
Samper is also a director of
Armstrong World Industries, Inc. and
the Interpublic Group of Companies.
</TABLE>
3
<PAGE>
INFORMATION CONCERNING REMAINING DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, DIRECTORSHIPS WITH
NAME AND AGE DIRECTOR SINCE TERM EXPIRES PUBLIC COMPANIES AND OTHER INFORMATION
- ------------ -------------- ------------ -----------------------------------------
<S> <C> <C> <C>
R. William Pollock (68) December 2000 Mr. Pollock has been a Director of
1995 Annual the Company since December 1995. Mr.
Meeting Pollock serves as the Chairman of
the Board of Drake Holdings Limited,
a company which owns interests in
various businesses throughout the
world and also serves as a director
of Medox Limited.
Douglas L. Becker (31) December 1998 Mr. Becker has been President of
1986 Annual Sylvan since April 1993. From
Meeting February 1991 until April 1993, Mr.
Becker was the Chief Executive
Officer of the Sylvan Learning
Center Division of Sylvan. He has
been a Director of Sylvan since
1986. Mr. Becker was a co-founder of
Health Management Corporation and is
a co-founder of Sterling Capital,
Ltd. ("Sterling"), the investment
partnership that led the acquisition
of KEE Incorporated (the Predecessor
of Sylvan) in December 1986. From
January 1987 to February 1991, Mr.
Becker directed KEE's marketing and
sales.
James H. McGuire (53) December 1998 Mr. McGuire has been a Director of
1995 Annual the Company since December 1995. Mr.
Meeting McGuire serves as President of NJK
Holding Company, which controls the
interests of Nasser J. Kazeminy (one
of the prior owners of Drake
Prometric, L.P., now owned by the
Company) in various businesses
throughout the country. Mr. McGuire
also serves as a director of Green
Isle Environmental Services, Inc.
R. Christopher Hoehn- December 1999 Mr. Hoehn-Saric has served as Chief
Saric (34) 1986 Annual Executive Officer since April 1993
Meeting and was President of Sylvan from
1988 until 1993. He has been a
Director of Sylvan since 1986. He is
a principal in Sterling and was a
co-founder of Health Management
Corporation, a health services
company. Before becoming Sylvan's
President, Mr. Hoehn-Saric was
involved in Sterling's acquisition
of several distribution,
broadcasting and photography
businesses.
Nancy A. Cole (54) May 1999 Ms. Cole has been employed by
1996 Annual Educational Testing Service ("ETS")
Meeting since 1989, serving as President
since 1994 and previously as
Executive Vice President overseeing
the program administration process
for ETS. Ms. Cole currently is on
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION,
DIRECTORSHIPS WITH
NAME AND AGE DIRECTOR SINCE TERM EXPIRES PUBLIC COMPANIES AND OTHER INFORMATION
- ------------ -------------- ------------ ---------------------------------------
<S> <C> <C> <C>
the ETS Board of Trustees. Prior to
joining ETS, Ms. Cole served for
four years as Dean of Education and
Professor at the University of
Illinois at Urbana-Champaign. Ms.
Cole's background includes
previously serving as a member of
the Graduate Record Examination
Board and as a member of the College
Board's SAT committee.
Donald V. Berlanti (59) February 1999 Mr. Berlanti has been a Director of
1987 Annual Sylvan since 1987. Since 1975, Mr.
Meeting Berlanti has been involved in the
ownership and management of several
businesses, including radio
stations, a chain of convenience and
greeting card stores and real estate
development companies. Mr. Berlanti
is the sole general partner of
Quince Associates Limited
Partnership, a stockholder of
Sylvan.
</TABLE>
INFORMATION REGARDING THE SYLVAN BOARD, COMMITTEES AND REMUNERATION
During calendar year 1996, there were seven meetings of the Board of
Directors of Sylvan. Each director attended at least 80% of the combined total
number of meetings of the Board and Board committees of which he was a member
except for Patrick Hopf who attended four of the seven meetings, G. Cook
Jordan, Jr. who attended three of the six meetings held prior to his
resignation, and Nancy Cole who attended two of the four meetings held
following her election to the Board in May, 1996. The Sylvan Board has an
Audit Committee and a Compensation Committee.
The Audit Committee meets with Sylvan's independent accountants to review
whether satisfactory accounting procedures are being followed by Sylvan and
whether its internal accounting controls are adequate, to monitor non-audit
services performed by the independent accountants and review fees charged by
the independent accountants. The Audit Committee also recommends to the Board
of Directors the selection of independent accountants. During 1996, non-
employee directors, Richard P. Campbell, Jr., G. Cook Jordan, Jr. and Patrick
A. Hopf, were the members of the Audit Committee. Messrs. Samper and McGuire
replaced Messrs. Campbell and Jordan upon their resignations from the Sylvan
Board during 1996. There were three meetings of the Committee during fiscal
year 1996.
The Compensation Committee establishes the compensation for executive
officers of Sylvan and generally reviews benefits and compensation for all
officers and employees. It also administers Sylvan's stock option plans.
During 1996, non-employee directors, Richard P. Campbell, Jr., J. Phillip
Samper, and Donald V. Berlanti, were the members of the Compensation
Committee, which met on two occasions. The report of the Compensation
Committee required by the rules of the Securities and Exchange Commission
(SEC) is included in this Joint Proxy Statement/Prospectus.
Directors who are not employees of Sylvan receive options to purchase common
stock of the Company under the 1993 Director Stock Option Plan. Otherwise,
directors do not receive compensation for service on the Sylvan Board or any
committee thereof, but are reimbursed for their out-of-pocket expenses in
connection with attending meetings. Under the 1993 Director Stock Option Plan,
each non-employee director, upon appointment, election, or re-election to the
Sylvan Board, and who continues to serve on the Sylvan Board as of the date of
an annual meeting at which directors are elected or re-elected, is granted an
option to purchase 11,250 shares of Sylvan Common Stock at an exercise price
equal to the fair market value of the stock on the date of the grant. In
5
<PAGE>
1996, no options were granted under this plan, and no options are available
for grant. No director shall receive an option to purchase more than 11,250
shares in any calendar year, and no director shall be granted options to
purchase more than 33,750 shares in total under the plan.
All officers have made timely filings of all change in beneficial ownership
declarations required by the SEC during the year ended December 31, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
None of the directors serving on the Compensation Committee are employees of
Sylvan, and neither the Chief Executive Officer nor any of the named Executive
Officers have served on the Compensation Committee. No director or executive
officer of Sylvan is a director or executive officer of any other corporation
that has a director or executive officer who is also a director or board
committee member of Sylvan.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Compensation of Executive Officers. The following table shows for the years
ended December 31, 1996, 1995 and 1994, compensation paid by Sylvan, including
salary, bonuses, stock options, and certain other compensation, to its Co-
Chief Executive Officers and each of its four other most highly compensated
executive officers at December 31, 1996 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM ALL
COMPENSATION OTHER
ANNUAL COMPENSATION AWARDS COMPENSATION
-------------------------------------- ------------ ------------
NAME AND YEAR SALARY BONUS OTHER ANNUAL
PRINCIPAL POSITION $ $ $ $ COMPENSATION(1) OPTIONS(#)
------------------ ---- ------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
R. Christopher Hoehn-
Saric,................. 1996 225,000 112,500 6,600 -- --
Chairman of the Board
and 1995 200,000 112,500 6,600 465,000(3) --
Co-Chief Executive
Officer 1994 200,000 90,400 5,500 70,500 --
Douglas L. Becker,...... 1996 225,000 112,500 6,600 -- --
President, Co-Chief
Executive 1995 200,000 112,500 6,600 465,000(3) --
Officer and Director 1994 200,000 90,400 5,500 70,500 --
B. Lee McGee, .......... 1996 150,000 75,000 6,600 -- --
Senior Vice President
and 1995 120,000 75,000 6,600 105,000(3) --
Chief Financial Officer 1994 120,000 62,640 6,600 22,500 --
Steven Hoffman,......... 1996 57,211 58,000 15,058 112,500 --
President-- 1995 -- -- -- -- --
Sylvan Prometric
Division(2) 1994 -- -- -- -- --
Peter Cohen, ........... 1996 64,211 28,000 6,540 112,500 --
President-- 1995 -- -- -- -- --
Learning Services
Division(2) 1994 -- -- -- -- --
Paula Singer,........... 1996 115,209 40,350 6,600 18,750 --
President--Contract 1995 96,875 5,704 6,600 -- --
Educational Services
Division 1994 92,000 6,900 6,600 -- --
</TABLE>
- --------
(1) The amounts in this column represent automobile allowances and moving
expense reimbursement for Messrs. Hoffman and Cohen.
(2) Mr. Hoffman was hired on September 16, 1996. Mr. Cohen was hired on August
22, 1996.
(3) These options were granted in early 1996 as part of the Named Executive
Officer's 1995 compensation package.
6
<PAGE>
Option Grants in Last Fiscal Year. The following table sets forth certain
information relating to options granted to the Named Executive Officers to
purchase shares of Sylvan Common Stock during 1996.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE AT
PERCENT OF ASSUMED ANNUAL RATES OF STOCK
TOTAL OPTIONS PRICE APPRECIATION FOR OPTION
GRANTED TO EXERCISE OR TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ------- ------------- ----------- ------------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
R. Christopher Hoehn-
Saric.................. 465,000 25% $20.33 March 29, 2006 $ 5,947,350(1) $15,066,000(1)
Douglas L. Becker....... 465,000 25% $20.33 March 29, 2006 $ 5,947,350(1) $15,066,000(1)
B. Lee McGee............ 105,000 6% $20.33 March 29, 2006 $ 1,342,950(1) $ 3,402,000(1)
Steven Hoffman.......... 112,500 6% $24.00 September 16, 2002 $ 918,000(2) $ 2,083,500(2)
Peter Cohen............. 112,500 6% $24.00 August 22, 2002 $ 918,000(2) $ 2,083,500(2)
Paula Singer............ 18,750 1% $25.13 December 18, 2002 $ 160,313(3) $ 363,563(3)
</TABLE>
- --------
(1) The assumed annual rates of appreciation of five and ten percent would
result in the price of Sylvan's stock increasing to $33.12 and $52.73,
respectively. The options expire ten years from date of grant.
(2) The assumed annual rates of appreciation of five and ten percent would
result in the price of Sylvan's stock increasing to $32.16 and $42.52,
respectively. The options expire six years from date of grant.
(3) The assumed annual rates of appreciation of five and ten percent would
result in the price of Sylvan's stock increasing to $33.68 and $44.52,
respectively. The options expire six years from date of grant.
Over the last two years, the market price of Sylvan's stock has increased at
a compounded annual rate of 48.54%.
The 5% and 10% assumed annual rates of stock price appreciation used to
calculate potential gains to optionees are mandated by the rules of the
Securities and Exchange Commission.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values. The following table sets forth certain information concerning the
exercise of stock options, the number of unexercised options and the value of
unexercised options at the end of 1996, for the Named Executive Officers.
Value is considered to be, in the case of exercised options, the difference
between exercise price and market price on the date of exercise, and, in the
case of unexercised options and exercisable options, the difference between
exercise price and market price at December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES ACQUIRED VALUE EXERCISABLE/UNEXERCISABLE IN-THE-MONEY OPTIONS
NAME UPON EXERCISE REALIZED OPTIONS AT YEAR-END(1) AT YEAR-END(1)
---- --------------- -------- ------------------------- --------------------
<S> <C> <C> <C> <C>
R. Christopher Hoehn-
Saric.................. 0 -- 504,095(E) $10,229,288(E)
570,000(U) $ 7,186,800(U)
Douglas L. Becker....... 0 -- 504,095(E) $10,229,288(E)
570,000(U) $ 7,186,800(U)
B. Lee McGee............ 0 -- 69,450(E) $ 1,254,471(E)
112,500(U) $ 1,259,100(U)
Steven Hoffman.......... 0 -- -- (E) -- (E)
112,500(U) $ 412,875(U)
Peter Cohen............. 0 -- -- (E) -- (E)
112,500(U) $ 506,250(U)
Paula Singer............ 0 -- 28,500(E) $ 663,480(E)
41,250(U) $ 586,988(U)
</TABLE>
- --------
(1) (E) = Exercisable; (U) = Unexercisable.
7
<PAGE>
COMPENSATION COMMITTEE REPORT
Introduction. The Compensation Committee consists of three outside
directors, none of whom has ever been an officer or employee of the Company.
The function of the Compensation Committee is to recommend to the Board of
Directors policies regarding the Company's compensation of, and to recommend
specific compensation for, the Company's executive officers. The Compensation
Committee's responsibilities also include administering the Company's stock
option plans and making decisions regarding option grants to officers and
other key employees. The Committee also periodically reviews the Company's
employee benefit plans that are intended to qualify under Section 401 of the
Internal Revenue Code to determine whether any changes to those plans may be
appropriate. The Compensation Committee meets at least once a year to review
management performance and compensation and to recommend to the Board bonuses
and option grants for current personnel. The Compensation Committee also meets
on an as-needed basis to recommend compensation for newly created or expanded
executive positions.
In February 1996, the Committee engaged an independent management consulting
firm to review the compensation of the Company's Co-CEOs and to advise the
Committee as to the appropriate level of base salary, short term and long term
incentive compensation, based on comparable public companies' plans and the
consultants' experience in assisting public companies to establish management
compensation plans.
Compensation Philosophy and Approach. The principal elements of the
Company's Executive Compensation Program consist of both annual and long-term
compensation, including base salary and annual incentive cash bonuses and, at
appropriate times, long-term incentive compensation in the form of stock
options. The Committee has put primary emphasis on long-term incentive stock
options based upon their belief that the Co-CEOs should have a significant
portion of their compensation contingent upon increases in the market price of
the Company's Common Stock. Aided by the review by the management consulting
firm, the Compensation Committee continues to believe that this approach and
philosophy is appropriate.
Base Salaries. The Company's executive officer base salary levels are
submitted for approval by the Board based on the Compensation Committee
recommendations. In establishing compensation for the Company's executive
officers, the Compensation Committee utilized recommendations of the
management consulting firm. Based on the management consulting firm's analysis
of executive compensation the salaries of the Co-CEOs was $250,000 in 1996.
Annual Incentive Cash Bonus. In addition to base salaries, executive
officers of the Company are eligible to receive annual cash bonuses, at the
discretion of the Board of Directors. Cash bonuses are determined on the basis
of (a) the overall financial performance of the Company, and (b) annual
personal performance objectives for each officer, established by the
Compensation Committee at the beginning of the year.
Long-term Incentive Stock Options. Options are granted to executive officers
and other key employees whom the Compensation Committee determines to be
essential to the future growth and profitability of the Company. Based upon
performance criteria similar to those applicable to the cash bonus payment,
the Compensation Committee determines the employees to whom options will be
granted, the number of shares covered by each grant, the exercise price and
vesting period for each grant. The Compensation Committee typically grants
stock options with relatively long vesting periods, creating strong incentives
for recipients of stock option grants to remain in the employ of the Company.
Messrs. Hoehn-Saric and Becker, the Co-Chief Executive Officers and Mr.
McGee, the Chief Financial Officer, had been entitled to annual stock option
grants under the Company's 1993 Management Stock Option Plan based on the
Company's performance as compared to profitability targets established by the
Compensation Committee. In 1996, the 1993 Management Stock Option Plan was
discontinued, and in 1996 Messrs. Hoehn-Saric, Becker and McGee received
grants from the stockholder-approved 1996 Senior Management Stock Option Plan.
No additional options have been granted from this plan to date.
Equity Position in Caliber Learning Network, Inc. In July of 1996 the Board
of Directors approved the formation of an entity to pursue an opportunity
identified by Senior Management for establishing an international
8
<PAGE>
distribution network of adult professional education services. The Board
considered many options for how to best structure the entity needed to pursue
this opportunity. Aided by the review of the independent management consulting
firm of the Co-CEOs' compensation it was concluded that the Co-CEOs receive an
equity ownership of 35% (17.5% each) of the entity as part of their overall
compensation package. Subsequently, the Board and Co-CEOs concluded that
securing a strategic partner for pursuing this opportunity was critical. In
October 1996, Caliber Learning Network, Inc. was established with MCI as the
strategic partner and investor. The Co-CEOs' equity ownership was diluted
based on MCI's investment to 28% (14% each) in October 1996. Messrs. Becker
and Hoehn-Saric receive no additional compensation as members of Caliber's
board or for their executive position in Caliber.
Co-CEOs' and President's Compensation. Mr. Hoehn-Saric has served as Chief
Executive Officer and Chairman of the Board since April 1993, and served as
President from 1988 to 1993. Mr. Becker has served as President of the Company
since April 1993, and served as CEO of the Sylvan Learning Center division of
the Company from February 1991 to April 1993. In December 1995, Mr. Becker was
named Co-Chief Executive Officer of the Company and continues to serve as
President of the Company.
Messrs. Becker and Hoehn-Saric executed employment agreements in 1996 with
initial terms ending December 31, 1998.
Messrs. Hoehn-Saric and Becker, the Co-Chief Executive Officers, may earn
incentive cash bonuses based on the Company's actual annual financial
performance as compared to the annual operating budget and the accomplishment
of specific objectives established at the beginning of the year by the
Compensation Committee. Financial performance accounts for 80% of the
potential bonus and the remaining 20% is based on the subjective determination
by the Committee as to accomplishment of the specific objectives. A financial
performance bonus may be paid if at least 80% of the financial performance
objectives are achieved but is reduced from the target bonus amount by a
formula based on the percentage of the financial performance objectives that
are actually achieved. A bonus of up to 150% of the target bonus amount can be
earned if actual financial performance results were 200% of the objectives.
In April 1997, the Compensation Committee recommended, and the Board of
Directors approved, cash bonuses for Messrs. Hoehn-Saric and Becker of
$112,500 each. These bonuses were based on financial performance and
accomplishment of specific objectives in 1996 as described above.
Mr. J. Phillip Samper
Mr. Donald V. Berlanti--Chairman
9
<PAGE>
STOCK PERFORMANCE TABLE
Sylvan is required to provide a five-year comparison of the cumulative total
stockholder return on the Sylvan Common Stock, with that of a broad equity
market index and either a published industry index, or a Sylvan-constructed
peer group index.
The following chart compares the cumulative total stockholder return on the
Sylvan Common Stock during the period beginning December 9, 1993, (the date of
Sylvan's initial public offering) and ending December 31, 1996, with the
cumulative total return on the CRSP Total Return Index for the NASDAQ Stock
Market (US Companies), and a Sylvan constructed peer group index. The issuers
included in this index are Education Alternatives Inc. (EAIN), National
Education Corporation (NEC), Berlitz International (BTZ), and Devry, Inc.
(DVRV). The comparison assumes $100 was invested on December 9, 1993, in the
Sylvan Common Stock and in each of the foregoing indices. It also assumes any
reinvestment of any dividends.
Sylvan does not make, nor does it endorse, any predictions as to future
stock performance.
COMPARISON OF 36 MONTH CUMULATIVE TOTAL RETURN*
AMONG SYLVAN LEARNING SYSTEMS, INC., THE NASDAQ STOCK MARKET-US INDEX
AND A PEER GROUP
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Sylvan
Measurement Period Learning Peer NASDAQ
(Fiscal Year Covered) Systems, Inc. Group Market-US
- --------------------- --------------- --------- ---------
<S> <C> <C> <C>
Measurement Pt-12/08/1993 $100.00 $100.00 $100.00
FYE 12/1993 $117.00 $ 99.00 $102.00
FYE 12/1994 $168.00 $ 78.00 $100.00
FYE 12/1995 $253.00 $113.00 $141.00
FYE 12/1996 $364.00 $187.00 $173.00
</TABLE>
* $100 INVESTED ON 12/08/93 IN STOCK OR INDEX - INCLUDING INVESTMENT OF
DIVIDENDS.
FISCAL YEAR SHOWS DECEMBER 31.
10
<PAGE>
SYLVAN MANAGEMENT
Executive Officers and Directors. The executive officers and directors of
Sylvan are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
R. Christopher Hoehn-
Saric.................. 34 Co-Chief Executive Officer and Chairman of the Sylvan Board
Douglas L. Becker....... 31 Co-Chief Executive Officer, President; Secretary; Director
B. Lee McGee............ 41 Vice President and Chief Financial Officer; Treasurer
Steve Hoffman........... 44 President--Sylvan Prometric Division
Peter Cohen............. 42 President--Learning Services Division
Paula Singer............ 42 President--Contract Educational Services Division
Donald V.
Berlanti(1)(2)......... 59 Director
Nancy A. Cole........... 54 Director
J. Phillip Samper(2).... 62 Director
James H. McGuire(1)..... 53 Director
R. William Pollock...... 68 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Information relating to Sylvan's executive officers (other than Messrs.
Hoehn-Saric and Becker) is set forth below. See "Information Concerning
Nominees" and "Information Concerning Remaining Directors" above for
information relating to Messrs. Hoehn-Saric and Becker and the other Sylvan
directors.
B. Lee McGee. Mr. McGee has been Chief Financial Officer of Sylvan or its
predecessor entities since 1987. Prior to that time, he held various positions
with Kinder-Care Learning Centers, Inc.
Paula Singer. Ms. Singer has been the President of the Contract Educational
Services Division since November 1996. Previously she served as Vice President
of the Division since 1993. Prior to joining Sylvan, Ms. Singer held positions
as General Manager of American Learning, Inc. and Vice President Learning
Corporation.
Steven Hoffman. Mr. Hoffman has been the President of Sylvan Prometric since
September 1996. Prior to joining Sylvan, Mr. Hoffman was the Vice President of
Operations for the Computer Task Group, a consulting and outsourcing firm
serving the IT industry. Prior to that he held various positions for
International Business Machines, Corp.
Peter Cohen. Mr. Cohen has been the President of the Learning Services
Division since September, 1996. Prior to joining Sylvan, he was the CEO of The
Pet Practice, an 85 hospital veterinary business. He also served as Vice
President of Sales for National Media Corporation and Senior Vice President of
Corporate Operations for Nutri system Weight Loss Centers.
There are no family relationships among any of the executive officers or
Directors of Sylvan. Executive officers of Sylvan are elected by the Sylvan
Board on an annual basis and serve at the discretion of the Sylvan Board.
11
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of Sylvan Common Stock as of June 2, 1997 by (i) each person who
owns beneficially more than 5% of Sylvan Common Stock, (ii) each of the
director nominees and directors of Sylvan, (iii) the Co-Chief Executive
Officers and each of the Named Executive Officers, and (iv) 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>
BENEFICIALLY OWNED
---------------------
NAME NUMBER PERCENT
- ---- ----------- ---------
<S> <C> <C>
Donald V. Berlanti(1).................................... 1,435,319 5.5%
Douglas L. Becker(2)(3)(4)............................... 1,885,060 7.0%
R. Christopher Hoehn-Saric(2)(3)(4)...................... 1,892,437 7.0%
R. William Pollock(5).................................... 3,485,715 13.4%
Nasser J. Kazeminy(6).................................... 2,223,776 8.6%
J. Phillip Samper........................................ 41,536 *
Nancy A. Cole(7)......................................... -- *
James H. McGuire......................................... -- *
B. Lee McGee(2).......................................... 181,950 *
Steven Hoffman(2)........................................ 120,700 *
Paula Singer(2).......................................... 69,750 *
Peter Cohen(2)........................................... 112,500 *
T. Rowe Price(8)......................................... 1,365,751 5.3%
Denver Investment Partners(9)............................ 1,738,949 6.7%
All directors and executive officers as a group (11
persons)................................................ 8,398,596 29.2%
</TABLE>
- --------
* Represents beneficial ownership of not more than one percent of the
outstanding Sylvan Common Stock.
(1) The address of this holder is 145 Barranca Road, Santa Fe, New Mexico
87501. Includes shares held by Quince Associates Limited Partnership, of
which Mr. Berlanti is sole general partner, and shares held by trusts for
the benefit of Mr. Berlanti's children for which Mr. Berlanti serves as
trustee. Includes options and warrants to purchase 189,542 shares. Also
included are shares held by trusts for the benefit of Richard and Don
Berlanti's children for which Richard Berlanti, Don Berlanti's brother, is
trustee.
(2) The address of Ms. Singer and Messrs. Becker, Hoehn-Saric, McGee, Hoffman
and Cohen is 1000 Lancaster Street, Baltimore, Maryland 21202.
(3) Includes options and warrants to purchase 1,024,095 shares.
(4) Includes the 511,457 shares issued to Messrs. Kazeminy and Pollock in
connection with Sylvan's acquisition of Drake Prometric, L.P. in December
1995 and subject to a Voting Trust Agreement pursuant to which Messrs.
Becker and Hoehn-Saric are voting trustees.
(5) Includes 314,914 of the shares subject to the Voting Trust Agreement (see
note 4 above).
(6) Includes 196,543 of the shares subject to the Voting Trust Agreement (see
note 4 above).
(7) Ms. Cole is the President of ETS and serves on its Board of Trustees. ETS
owns 425,810 shares of stock in the Company, as to which Ms. Cole
disclaims beneficial ownership.
(8) T. Rowe Price exercises sole voting and investment power over 198,901 of
the 1,365,751 shares held. The address of this holder is 100 E. Pratt
Street, Baltimore, MD 21202.
(9) Denver Investment Advisers LLC exercises sole voting and investment power
over 1,098,250 of the 1,738,949 shares held. The address of this holder is
1225 17th Street, 26th Floor, Denver, Colorado, 80202
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Ms. Nancy Cole, director, is the President of Educational Testing Service
and serves on its Board of Trustees. Educational Testing Service owns 425,810
shares of stock in Sylvan Learning Systems, Inc. In the ordinary course of its
business, the Company entered into both a domestic and international contract
with Educational Testing Service for the delivery of testing domestically and
delivery and development of a testing network internationally. The Company
generated $19.6 million, $17.3 million and $10.3 million revenues in calendar
year 1996, 1995, and 1994 respectively, from these ETS contracts.
12
<PAGE>
In July, 1996 the Board of Directors approved the formation of an entity to
pursue an opportunity identified by Senior Management for establishing an
international distribution network of adult professional education services.
The Board considered many options for how best to structure the entity needed
to pursue this opportunity. Aided by the review of the Co-Chief Executive
Officers' compensation by an independent management consulting firm, it was
concluded that the Co-Chief Executive Officers should receive an equity
ownership of 35% (17.5% each) of the entity as part of their overall
compensation package. Subsequently, the Board and Co-Chief Executive Officers
concluded that securing a strategic partner for pursuing this opportunity was
critical. In October 1996, Caliber Learning Network, Inc. was established with
MCI as the strategic partner and investor. The Co-Chief Executive Officers'
equity ownership was diluted based on MCI's investment to 28% (14% each) in
October 1996. Messrs. Becker and Hoehn-Saric receive no additional
compensation as members of Caliber's Board of Directors or for their executive
positions in Caliber.
II. 1993 PLAN AMENDMENTS
After the 1996 Annual Meeting, the Sylvan Board of Directors, pursuant to
the recommendation of its Compensation Committee, amended the 1993 Employee
Stock Option Plan (the "1993 Plan") on June 13, 1996 September 27, 1996, and
March 6, 1997 to increase the number of shares of Common Stock available for
award thereunder by 150,000, 225,000, and 200,000 shares, respectively
(collectively, the "1993 Plan Amendments"). Before these three amendments, the
total number of shares for award thereunder authorized under the 1993 Plan was
2,625,000 shares and, upon approval of the 1993 Plan Amendments, will be
3,200,000 shares. As of the Sylvan Record Date, options to purchase 3,115,270
shares were outstanding under the 1993 Plan at a weighted average exercise
price of $15.59 per share. The Compensation Committee recommended the
increases for the primary purpose of rewarding key employees for past
performance and giving key employees, including those joining Sylvan as new
hires as a result of acquisitions, or otherwise, incentive to perform at a
high standard in the future.
All full-time employees, including executive officers, of Sylvan are
eligible to participate in the 1993 Plan. The Compensation Committee
determines which of the eligible employees should receive options and, in the
Committee's discretion associated stock appreciation rights, under the 1993
Plan based on certain performance criteria determined by the Compensation
Committee. In addition, the Compensation Committee determines the type of
option (incentive or non-qualified, or both) to be granted, the number of
shares subject to each option, the rate of option exercisability and, subject
to certain provisions, the option price and duration of the option. The per
share exercise price for options granted under the 1993 Plan must be equal to
at least 100% of the per share fair market value of the Common Stock
underlying the options on the date of grant. The options granted under the
1993 Plan can be exercised through payment of cash, or by a cashless exercise
or a combination of both. On the Sylvan Record Date, the aggregate market
value of the 3,115,270 shares of Common Stock underlying outstanding options
on that date under the 1993 Plan was $112,150,000.
On the Sylvan Record Date, employees who were not executive officers of
Sylvan held 1,871,670 of the 3,115,270 options outstanding at that date under
the 1993 Plan, with executive officers holding the remaining options
outstanding on that date.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE APPROVAL AND RATIFICATION OF THE 1993 PLAN AMENDMENT
III. APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors adopted the Sylvan Learning Systems, Inc. Employee
Stock Purchase Plan (the "Purchase Plan") on December 18, 1996. The Purchase
Plan became effective March 1, 1997, subject to the approval of the Company's
stockholders. The Purchase Plan is an employee benefit plan that offers
eligible employees the opportunity to purchase shares of Common Stock through
regular payroll deduction. The Purchase Plan is intended to encourage all
Company employees to acquire an equity interest in the Company in order to
share in the Company's future growth and continued success. Funds received
under the Purchase Plan may be
13
<PAGE>
used for any general corporate purpose. The following summary description of
the Purchase Plan is a fair and complete summary of the Purchase Plan;
however, it is qualified in its entirety by referenmce to the full text of the
Purchase Plan, which is attached to this Proxy Statement as Exhibit A.
GENERAL
Eligibility; Available Shares; Administrattion; Amendment and
Termination. All employees who have been employed by the Company for at least
six months on the first day of the offering period are eligible to participate
in the Purchase Plan except employees who are owners of more than 5% of the
total combined voting power of all classes of stock of the Company. As of the
Record Date, there were approximately 2,200 employees eligible to participate
in the Purchase Plan. The Purchase Plan authorizes the issuance of up to
50,000 shares of Common Stock. However, the number of shares issuable under
the Purchase Plan will be adjusted for stock dividends, stock splits,
reclassifications and other changes affecting the Company's Common Stock. On
the Record Date, the market value of a share of Common Stock was $36.00. The
Purchase Plan operates pursuant to procedures and guidelines set forth in the
Purchase Plan itself. The Purchase Plan is administered by the Board of
Directors or a committee appointed by the Board. The Board of Directors may,
at its discretion, terminate the Purchase Plan or amend it in any respect,
except that (a) no amendment may cause the Purchase Plan to fail to comply
with Code section 423; and (b) if stockholder approval of any such amendment
is required by Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code"), the amendment will become effective only upon obtaining such
approval.
STOCK PURCHASES UNDER THE PURCHASE PLAN
Payroll Deduction. At least 14 days prior to the beginning of an offering
period, each eligible employee may elect to purchase shares of Common Stock by
completing a payroll deduction authorization form. Beginning on the offering
commencement date, deductions shall be made from the pay of each eligible
employee who has completed a payroll deduction authorization form in the
amount specified on such employee's form and that amount shall be allocated to
each such participating employee's account. On the last day of each offering
period, the aggregate amount allocated to each such employee's account shall
be used to purchase shares of Common Stock from the Company. The price for
each share of Common Stock purchased under the Plan will be the lesser of 85%
of the closing price of the Common Stock on the (i) first trading day or (ii)
last trading day of the offering period.
Offering Periods. The offering period begins on the first trading date of
March every year and ends on the last trading date of February in the
following year. However, there is a special offering period for employees who
first become eligible to participate in the Purchase Plan after the March
offering period commencement date but prior to the first trading date in
September of that year. The special offering period begins on the first
trading date of September of that year and ends on the last trading date of
August of the following year.
Limitation on Amount of Shares Purchased. No employee may purchase in one
calendar year shares of Common Stock having an aggregate fair market value in
excess of $25,000.
Termination of Employment. If an employee terminates employment for any
reason, retires, or dies during an offering period, no payroll deduction will
be taken from any pay due and owing to the employee and the balance in the
employee's payroll deduction account will be paid to the employee, or in the
event of the employee's death, to the employee's properly designated
beneficiary. In the absence of a designated beneficiary, the employee's
payroll deduction account will be paid to the executor or administrator of the
employee's estate, or to such other person(s) as may be designated by the
Company in accordance with the terms of the Purchase Plan.
FEDERAL INCOME TAX CONSEQUENCES
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under the provisions of Sections 421 and 423 of the Code. Under these
provisions, a participant may become liable for federal income tax upon
disposition of the shares acquired. The character of any gain or loss upon
disposition will depend upon how long the shares have been held by the
participant.
14
<PAGE>
There are no federal income tax consequences to the Company by reason of the
issuance of the shares pursuant to the Purchase Plan. The Company is not
entitled to a deduction for amounts taxed as ordinary income to a participant,
except to the extent that ordinary income must be reported by a participant
upon disposition of shares before the expiration of a two-year holding period.
Participants are required to notify the Company of any disposition of shares
acquired under the Purchase Plan within two years from the date of
acquisition.
The foregoing discussion is not a complete description of the federal income
tax aspects of participation in the Purchase Plan. Furthermore, no information
is given with respect to state or local taxes or foreign laws that may be
applicable. Participants in the Purchase Plan should review applicable tax
rules and regulations or consult a tax advisor.
STOCKHOLDER APPROVAL
Approval of the Purchase Plan will require the affirmative vote of the
holders of a majority of the shares of the Company's Common Stock present in
person or by proxy at the Annual Meeting. If the stockholders fail to approve
the Purchase Plan, the Purchase Plan will terminate and any rights to purchase
shares granted under the Purchase Plan will be void and all contributed funds
will be refunded to participating employees.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF
THE PURCHASE PLAN
IV. AUDITOR CONFIRMATION
The Sylvan Board of Directors, pursuant to the recommendation of its Audit
Committee, has selected Ernst & Young LLP, independent auditors, to examine
and audit the financial statements of Sylvan for the fiscal year ending
December 31, 1997. Ernst & Young LLP has served as independent auditors of
Sylvan since 1991. A partner of the firm will be present at the Annual Meeting
and available to respond to appropriate questions, and will have an
opportunity to make a statement if he desires to do so.
In 1996, Ernst & Young LLP performed various professional services for
Sylvan. They included completion of the examination of 1995 financial
statements for Sylvan, other review work of required filings with the SEC,
preliminary work on the examination of fiscal year 1996 financial statements,
preparation of corporate tax returns and other consultation with Sylvan
personnel on accounting and related matters.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS SYLVAN'S INDEPENDENT
AUDITORS.
V. OTHER MATTERS
The Board of Directors knows of no other matters to be presented for action
at the meeting other than those mentioned above; however, if any other matters
properly come before the meeting, it is intended that the persons named in the
accompanying proxy will vote on such matters in accordance with their judgment
as to the best interests of Sylvan.
STOCKHOLDER PROPOSALS
Any stockholder proposals intended to be presented at Sylvan's 1998 Annual
Meeting of Stockholders must have been received by Sylvan for inclusion in the
proxy statement and form of proxy relating to the meeting not later than
December 5, 1997.
15
<PAGE>
MISCELLANEOUS
A copy of the Sylvan's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, as filed with the Securities and Exchange Commission,
excluding certain exhibits thereto, may be obtained without charge, by writing
Investor Relations, Sylvan Learning Systems, Inc., 1000 Lancaster Street,
Baltimore, Maryland 21202 or by telephoning (410) 843-8000.
BY ORDER OF THE BOARD OF DIRECTORS
Douglas L. Becker
Secretary
Baltimore, Maryland
June 7, 1997
16
<PAGE>
EXHIBIT A
SYLVAN LEARNING SYSTEMS, INC.
EMPLOYEE STOCK PURCHASE PLAN
EFFECTIVE MARCH 1, 1997
The purpose of this Plan is to provide eligible employees of Sylvan Learning
Systems, Inc. (the "Company") and certain of its subsidiaries with
opportunities to purchase shares of the Company's Common Stock, $0.01 par
value (the "Common Stock"). Fifty thousand (50,000) shares of Common Stock in
the aggregate have been approved for this purpose.
1. Administration. The Plan will be administered by the Company's Board of
Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto will be final and conclusive.
2. Eligibility. Participation in the Plan will neither be permitted nor
denied contrary to the requirements of Section 423 of the Internal Revenue
Code of 1986, as amended (the "Code"), and regulations promulgated thereunder.
All employees of the Company, including directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of
the Code) designated by the Board or the Committee from time to time (a
"Designated Subsidiary"), are eligible to participate in any offering of
Options (as defined below) to purchase Common Stock under the Plan, provided
that:
(a) they have been employed by the Company or a Designated Subsidiary for
six months; and
(b) they are employees of the Company or a Designated Subsidiary on the
first day of the applicable Offering Period (as defined below).
No employee may be granted an Option hereunder if such employee, immediately
after the option is granted, owns 5% or more of the total combined voting
power or value of the stock of the Company or any subsidiary. For purposes of
the preceding sentence, the attribution rules of Code section 424(d) will
apply in determining the stock ownership of an employee, and all stock which
the employee has a contractual right to purchase will be treated as stock
owned by the employee.
3. Offerings.
(a) Offering Period. Options granted pursuant to the Plan ("Offerings") may
be exercised during an offering period which will begin on the first day on
which national stock exchanges or the National Association of Securities
Dealers Automated Quotation ("Nasdaq") system are open for trading ("Trading
Day") on or after March 1 of each year (the "Offering Commencement Date") and
will terminate on the last Trading Day of February in the following year (each
such period referred to herein as an "Offering Period").
(b) Special Offering Period. Notwithstanding the provisions of paragraph
(a), with respect to employees who first become eligible to participate in the
Plan after the Offering Commencement Date but prior to the first Trading Day
on or after September 1 of each year (the "Special Offering Commencement
Date"), there shall be an offering period which will begin on the first
Trading Day on or after September 1 of that year and will terminate on the
last Trading Day of August of the following year (a "Special Offering
Period"). With respect to any Special Offering Period, the term "Offering
Commencement Date" shall mean the Special Offering Commencement Date and the
term "Offering Period" shall mean the Special Offering Period.
(c) The Board will have the power to change the duration of the Offering
Period (including the commencement and termination date thereof) with respect
to future Offerings without shareholder approval if such change is announced
at least 15 days prior to the scheduled beginning of the first Offering Period
to be affected thereafter.
A-1
<PAGE>
4. Participation. An employee eligible on the Offering Commencement Date of
any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the Benefits Specialist of the Company
at least 14 days prior to the applicable Offering Period Commencement Date.
The form will authorize a regular payroll deduction from the Compensation
received by the employee during the Offering Period. Unless an employee files
a new form or withdraws from the Plan, the employee's deductions and purchases
will continue at the same rate for future Offering Periods under the Plan as
long as the Plan remains in effect.
The term "Compensation" means an employee's total salary, pay or earned
income from the Company, as reflected on Form W-2, which is subject to
withholding under Code section 3401(a) when earned, plus salary reduction
contributions under Code sections 125 and 401(k). Only amounts earned while
the employee is eligible to participate will be considered "Compensation."
5. Deductions.
(a) The Company will maintain payroll deduction accounts for all
participating employees. With respect to any Offering Period under this Plan,
an eligible employee may authorize a payroll deduction in any whole number
percentage up to a maximum of 10% of the Compensation he or she receives
during the Offering Period or such shorter period during which deductions from
payroll are made.
(b) No employee may be granted an Option which permits his or her rights to
purchase Common Stock under this Plan and any other stock purchase plan of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock (determined at the Offering
Commencement Date of the Offering Period) for each calendar year in which the
Option is outstanding at any time, as required by Code section 423.
6. Deduction Changes. An employee may decrease or discontinue his or her
payroll deduction once during any Offering Period by filing a new payroll
deduction authorization form. However, an employee may not increase his or her
payroll deduction during an Offering Period. If an employee elects to
discontinue payroll deductions during an Offering Period, but does not elect
to withdraw funds pursuant to Section 8 hereof, funds deducted prior to the
election to discontinue will be applied to the purchase of Common Stock on the
Exercise Date (as defined below).
7. Interest. Interest will not be paid on any employee payroll deduction
accounts, except to the extent that the Board or the Committee, in its sole
discretion, elects to credit such accounts with interest at such per annum
rate as it may from time to time determine.
8. Withdrawal of Funds. An employee may, on any one occasion during an
Offering Period and for any reason, withdraw all or part of the balance
accumulated in the employee's payroll deduction account. Any such withdrawal
must be effected prior to the close of business on the last day of the
Offering Period. If the employee withdraws all of such balance, the employee
will thereby withdraw from participation in the Offering and may not begin
participation again during the remainder of the Offering Period. Any employee
withdrawing all or part of such balance may participate in any subsequent
Offering Period in accordance with terms and conditions established by the
Board or the Committee.
9. Purchase of Shares.
(a) On the Offering Commencement Date of each Offering Period, the Company
will grant to each eligible employee who is then eligible to participate in
the Plan an option (an "Option") to purchase during the Offering Period such
number of shares of Common Stock of the Company reserved for the purposes of
the Plan as does not exceed the number of shares determined by dividing (i)
$25,000 by (ii) the closing price (as defined in the next paragraph) of Common
Stock on the Offering Commencement Date of such Offering Period. The Option
may be exercised, at the election of the Participant, for any or all of the
shares subject to the unexercised portion of the Option on the last Trading
Day of any Offering Period (each an "Exercise Date"), subject to the
limitations set forth in this Plan.
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(b) The Option Price for each share purchased pursuant to an Option during
an Offering Period will be 85% of the closing price of the Common Stock on (i)
the Offering Commencement Date of such Offering Period or (ii) the applicable
Exercise Date, whichever closing price will be less. Such closing price will
be (A) the closing price of the Common Stock on any national securities
exchange on which the Common Stock is listed, or (B) the closing price of the
Common Stock on the Nasdaq National Market ("Nasdaq") or (C) the average of
the closing bid and asked prices in the over-the-counter market, whichever is
applicable, as published in The Wall Street Journal. If no sales of Common
Stock were made on such a day, the price of the Common Stock for purposes of
clauses (A) and (B) above will be the reported price for the next preceding
day on which sales were made.
(c) Each employee who continues to be a participant in the Plan on an
Exercise Date will be deemed to have exercised his or her Option at the Option
Price on such date and will be deemed to have purchased from the Company the
number of shares of Common Stock reserved for the purpose of the Plan that his
or her accumulated payroll deductions on such date will pay for pursuant to
the formula set forth above (but not in excess of the maximum number of shares
for which the Option was granted and has not previously been exercised,
determined in the manner set forth above).
10. Issuance of Certificates. As soon as practicable following the end of
each Offering Period, certificates representing shares of Common Stock
purchased under the Plan on the Exercise Date for such Offering Period shall
be issued only in the name of the employee, in the name of the employee and
another person of legal age as joint tenants with rights of survivorship, or
(in the Company's sole discretion) in the street name of a brokerage firm,
bank or other nominee holder designated by the employee.
11. Rights on Retirement, Death or Termination of Employment. In the event
of a participating employee's termination of employment prior to the last
business day of an Offering Period (whether as a result of the employee's
voluntary or involuntary termination, retirement, death or otherwise), no
payroll deduction will be taken from any pay due and owing to the employee and
the balance in the employee's payroll deduction account will be paid to the
employee or, in the event of the employee's death, (a) to a beneficiary
previously designated in a revocable notice signed by the employee (with any
spousal consent required under state law) or (b) in the absence of such a
designated beneficiary, to the executor or administrator of the employee's
estate or (c) if no such executor or administrator has been appointed to the
knowledge of the Company, to such other person(s) as the Company may, in its
discretion, designate. If, prior to the last business day of an Offering
Period, the Designated Subsidiary by which an employee is employed will cease
to be a subsidiary of the Company, or if the employee is transferred to a
subsidiary of the Company that is not a Designated Subsidiary, the employee
will be deemed to have terminated employment for the purposes of this Plan.
12. Optionees Not Stockholders. Neither the granting of an Option to an
employee nor the deductions from pay will constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to such employee.
13. Rights Not Transferable. Rights under this Plan are not transferable by
a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. Adjustment in Case of Changes Affecting Common Stock. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, and the
share limitation set forth in Section 9, will be increased proportionately,
and such other adjustment will be made as may be deemed equitable by the Board
or the Committee. In the event of any other change affecting the Common Stock,
such adjustment will be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
15. Merger.
(a) If the Company at any time merges or consolidates with another
corporation and the holders of the capital stock of the Company immediately
prior to such merger or consolidation continue to hold at least 80%
A-3
<PAGE>
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option will be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger, and the Board or the Committee will take such
steps in connection with such merger as the Board or the Committee deem
necessary to assure that the provisions of this Section 15 will thereafter be
applicable, as nearly as reasonably may be, in relation to the said securities
or property as to which such holder of such Option might thereafter be
entitled to receive thereunder.
(b) In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or a sale of
all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, (i) subject to the provisions of
clauses (ii) and (iii), after the effective date of such transaction, each
holder of an outstanding Option will be entitled, upon exercise of such
Option, to receive in lieu of shares of Common Stock, shares of such stock or
other securities as the holders of shares of Common Stock received pursuant to
the terms of such transaction; or (ii) all outstanding Options may be canceled
by the Board or the Committee as of a date prior to the effective date of any
such transaction and all payroll deductions will be paid out to the
participating employees; or (iii) all outstanding Options may be canceled by
the Board or the Committee as of the effective date of any such transaction,
provided that notice of such cancellation will be given to each holder of an
Option, and each holder of an Option will have the right to exercise such
Option in full based on payroll deductions then credited to his account as of
a date determined by the Board or the Committee, which date will not be less
than 10 days preceding the effective date of such transaction.
16. Amendment of the Plan. The Board may at any time, and from time to time,
amend this Plan in any respect, except that (a) if the approval of any such
amendment by the stockholders of the Company is required by Code section 423,
such amendment will not be effected without such approval, and (b) in no event
may any amendment be made which would cause the Plan to fail to comply with
Code section 423.
17. Insufficient Shares. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus
the number of shares purchased under previous Offerings under this Plan
exceeds the maximum number of shares issuable under this Plan, the Board or
the Committee will allot the shares then available on a pro rata basis.
18. Effective Date, Term and Termination of the Plan. This Plan shall be
effective March 1, 1997, subject to approval of the Plan by a majority of the
votes present and entitled to vote at a duly held meeting of the shareholders
of the Company at which a quorum representing a majority of all outstanding
voting stock is present, either in person or by proxy; provided however, that
upon approval of the Plan by the shareholders of the Company as set forth
above, all rights to purchase shares granted under the Plan on or after the
effective date shall be fully effective as if the shareholders of the Company
had approved the Plan on the effective date. If the shareholders fail to
approve the Plan on or before one year after the effective date, the Plan
shall terminate, any rights to purchase shares granted hereunder shall be null
and void and of no effect, and all contributed funds shall be refunded to
participating employees. The Board may terminate the Plan at any time and for
any reason or for no reason, provided that such termination shall not impair
any rights of participating employees that have vested at the time of
termination.
19. Governmental Regulations.
(a) The Company's obligation to sell and deliver Common Stock under this
Plan is subject to listing on a national stock exchange or quotation on Nasdaq
and the approval of all governmental authorities required in connection with
the authorization, issuance or sale of such stock.
(b) The Plan will be governed by the laws of the State of Maryland except to
the extent that such law is preempted by federal law.
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<PAGE>
(c) The Plan is intended to comply with the provisions of Rule 16b-3(c)
promulgated under the Exchange Act as a "tax conditioned stock purchase plan."
Any provision inconsistent with such Rule will to that extent be inoperative
and will not affect the validity of the Plan.
20. Issuance of Shares. Shares may be issued upon exercise of an Option from
authorized but unissued Common Stock, from shares held in the treasury of the
Company, or from any other proper source.
21. Notification upon Sale of Shares. Each employee agrees, by entering the
Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased
or one year after the transfer of such share to the employee, so that the
Company may take appropriate income tax deductions with respect to such
transfer and otherwise comply with applicable federal, state and local income
tax laws.
22. Costs of Plan. The Company will pay all costs of administering the Plan,
including the costs of brokerage fees, commissions and expenses, if any, for
acquiring shares to be purchased under the Plan. All costs related to the
employee's sale of shares acquired under the Plan will be borne by the
employee.
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<PAGE>
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
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SYLVAN LEARNING SYSTEMS, INC.
- --------------------------------------------------------------------------------
The undersigned hereby acknowledges receipt of a copy of the accompanying Notice
of Annual Meeting of Stockholders, the Proxy Statement with respect thereto and
the Company's 1996 Annual Report, and hereby revokes any proxy or proxies
heretofore given. This proxy may be revoked at any time before it is
exercised.
RECORD DATE SHARES:
1. Proposal to elect the following persons as directors for the class
indicated, and until their successors are duly elected and qualified:
CLASS 1-3 YEARS
R. WILLIAM POLLOCK AND J. PHILLIP SAMPER
For All
For Withhold Except
[_] [_] [_]
If you wish to withhold your shares for any individual nominee, mark the
"For All Except" box and strike a line through the nominee's name.
For Withhold Abstain
2. Proposal to approve and ratify amendments
to the 1993 Employee Stock Option which [_] [_] [_]
increase the number of shares authorized
for award thereunder from 2,625,000
shares to 3,200,000 shares.
3. Proposal to approve and ratify the [_] [_] [_]
adoption of the Sylvan Learning System,
Inc. Employee Stock Purchase Plan.
4. Proposal to ratify the selection of [_] [_] [_]
Ernst & Young as the independent
auditors of the Company for the fiscal
year ending December 31, 1997.
Please be sure to sign and date this Proxy. Date
- --------------------------------------------------------------------------------
Stockholder sign here Co-owner sign here
- --------------------------------------------------------------------------------
Mark box at right if an address change [_]
or comment has been noted on the
reverse side of this card.
- --------------------------------------------------------------------------------
DETACH CARD DETACH CARD
SYLVAN LEARNING SYSTEMS, INC.
Dear Stockholder,
Please take note of the important enclosed with this Proxy Ballot. There are a
number of issues related to the management and operation of your Company that
require your immediate attention and approval. These are discussed in detail in
the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders, June 30,
1997.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Douglas L. Becker
Secretary
<PAGE>
SYLVAN LEARNING SYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - JUNE 30, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints R. Christopher Hoehn-Saric and
Douglas L. Becker, and each of them, as Proxies of the undersigned, with full
power to appoint their substitutes, and authorizes each of them to represent and
to vote all shares of Common Stock of Sylvan Learning Systems, Inc. (the
"Company") held by the undersigned as of the close of business on June 2, 1997,
at the Annual Meeting of Stockholders to be held at the offices of the Company
at 1000 Lancaster Street, Baltimore, Maryland 21202, on Monday, June 30, 1997 at
9:30 a.m., local time, and at any adjournments or postponements thereof.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN
THE ENCLOSED ENVELOPE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign exactly as your name(s) appear(s) on the books of the Company. Joint
owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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