<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 Section 240.14a-11(c) or Section 240.14a-12
Sylvan Learning Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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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
May 20, 1999
To the Stockholders of Sylvan Learning Systems, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders of Sylvan
Learning Systems, Inc. ("Sylvan" or the "Company") will be held at the Harbor
Inn Pier 5, 711 Eastern Avenue, Baltimore, Maryland 21202, on May 20, 1999 at
10:00 a.m. for the following purposes:
I. To elect two directors of the Company.
II. To ratify the selection of Ernst & Young LLP as the independent
auditors of Sylvan for the fiscal year ending December 31, 1999.
III. To transact such other business as may properly come before the
meeting.
Accompanying this notice is a Proxy Card, Proxy Statement and a copy of
Sylvan's Annual Report for the year ended December 31, 1998. 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. April 9, 1999 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 April 9, 1999
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
April 18, 1999
<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 (2) directors of the Company, 2) ratify the selection of
Ernst & Young LLP as independent auditors of the Company for the fiscal year
ending December 31, 1999 and 3) 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 April 19, 1999.
The record of stockholders entitled to notice of and to vote at the Annual
Meeting was taken as of the close of business on April 9, 1999 (the "Record
Date"). On the Record Date, there were outstanding and entitled to vote
51,694,314 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
two individuals receiving the highest number of votes "FOR" election to the
Board of Directors 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 is required for approval and/or
ratification 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 whether 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 Corporate
Investor Communications 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 Corporate Investor Communications, 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.
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 at the Annual Meeting. This right of
revocation is not limited or subject to
<PAGE>
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
proposal to approve and ratify the appointment of Ernst & Young LLP as
Sylvan's independent auditors for the fiscal year ending December 31, 1999,
stockholders may (i) vote "for", (ii) vote "against" or (iii) abstain from
voting as to 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 each of management's nominees
for director and to approve and ratify the appointment of Ernst & Young LLP as
Sylvan's 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.
I. ELECTION OF SYLVAN DIRECTORS
The Board of Directors is comprised of nine persons separated into three
classes, with each class serving a three year term. Three directors currently
serve in Class II and two of these directors have been nominated for re-
election to a three year term beginning at the 1999 Annual Meeting. Nancy A.
Cole, the third Class II director, has elected to return to observer status
with the Board of Directors as provided in the contract between Educational
Testing Services, Inc. and Sylvan. The Board has decided to leave this
position vacant for the time being. Three directors serve in Class III and are
subject to re-election for a three year term beginning at the 2000 Annual
Meeting. Three directors serve in Class I and are subject to re-election for a
three year term beginning at the 2001 Annual Meeting. As of the date of this
proxy statement there is a vacancy in Class I, which has existed since 1997.
Two Class II directors are to be elected at the Annual Meeting to serve
until the 2002 Annual Meeting 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 2000 Annual Meeting, at which
time the stockholders will be asked to vote on the election of each
individual. The Board of Directors has nominated the two persons named below
to serve as Class II directors for the term indicated. Each nominee is
currently a member of the Board and 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 2002 Annual Meeting 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 nominees
(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 amending the By-laws of the Company
to provide for a lesser number of directors.
The two individuals receiving the highest number of votes "FOR" election to
the Board of Directors will be considered duly elected.
The Board of Directors unanimously recommends that stockholders vote "FOR"
its two nominees for Directors.
2
<PAGE>
Information Concerning Nominees
The following table presents information concerning persons nominated by the
Board of Directors for election at the Annual Meeting as Class II 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 9, 1999, appear on page 12 of this Proxy Statement.
<TABLE>
<CAPTION>
Nominated For Principal Occupation, Directorships with
Name and Age Director Since Term Expiring Public Companies and other Information
------------ -------------- ------------- ----------------------------------------
<S> <C> <C> <C>
R. Christopher Hoehn- December 1986 2002 Mr. Hoehn-Saric has served as
Saric Annual Chairman and Co-Chief Executive
(36) Meeting Officer since April 1993 and was
President of Sylvan from 1988
until 1993. He has been a
Director of Sylvan since December
1986. He is a principal in
Sterling Capital, Ltd.
("Sterling") the investment
partnership that led the 1986
acquisition of KEE Incorporated
(the predecessor of Sylvan). He
is also 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. Mr.
Hoehn-Saric also serves as a
director of Caliber Learning
Network, Inc.
Donald V. Berlanti February 1987 2002 Mr. Berlanti has been a Director
(61) Annual of Sylvan since February 1987.
Meeting Since 1975, Mr. 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
Information Concerning Remaining Directors
<CAPTION>
Principal Occupation, Directorships with
Name and Age Director Since Term Expires Public Companies and other Information
------------ -------------- ------------- ----------------------------------------
<S> <C> <C> <C>
Douglas L. Becker December 1986 2001 Mr. Becker has been President and
(33) Annual Co-Chief Executive Officer of
Meeting Sylvan since April 1993. From
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 December 1986. Mr.
Becker was a co-founder of Health
Management Corporation and is a
co-founder of Sterling. From
January 1987 to February 1991,
Mr. Becker directed KEE's
marketing and sales. Mr. Becker
also serves as a director of
Caliber Learning Network, Inc.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation, Directorships with
Name and Age Director Since Term Expires Public Companies and other Information
------------ -------------- ------------ ----------------------------------------
<S> <C> <C> <C>
James H. McGuire December 1995 2001 Mr. McGuire has been a Director
(55) Annual of the Company since December
Meeting 1995. Mr. 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.
Rick Inatome June 1997 2001 Mr. Inatome has been a Director
(45) Annual of the Company since June 1997.
Meeting Mr. Inatome is the Chairman of
the Board of Inacom Corp. Mr.
Inatome also serves as a director
of Atlantic Premium Brands.
R. William Pollock December 1995 2000 Mr. Pollock has been a Director
(70) Annual of the Company since December
Meeting 1995. Mr. Pollock serves as the
Chairman of the Board of Drake
Holdings Limited, a company which
owns interests in various
businesses throughout the world.
He is also one of the prior
owners of Drake Prometric, L.P.,
now owned by the Company.
J. Phillip Samper March 1993 2000 Mr. Samper has been a Director of
(64) Annual Sylvan since March 1993. Mr.
Meeting Samper currently serves as
Chairman of Placeware, Inc. and
the founder of Gabriel Venture
Partners. From 1997 to 1998, Mr.
Samper was CEO and President of
Avistar Systems Corp. From 1996
to 1997, Mr. Samper was President
and CEO of Quadlux, Inc. and from
1995 to 1996, Mr. Samper was
Chairman and CEO of Cray
Research, Inc. Mr. Samper served
as President of Sun Microsystems,
Inc. from 1994 to 1995, 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
the Interpublic Group of
Companies and Ingram Micro Corp.
</TABLE>
Information Regarding the Sylvan Board, Committees and Remuneration
During calendar year 1998, there were three 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 R. William Pollock and Nancy Cole, who each attended one of the
three meetings. The Sylvan Board has an Audit Committee and a Compensation
Committee.
4
<PAGE>
The Audit Committee meets with Sylvan's independent accountants to review
whether satisfactory accounting procedures are being followed by Sylvan,
whether its internal accounting controls are adequate and 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 1998, non-
employee directors James H. McGuire, Donald V. Berlanti and J. Phillip Samper
were the members of the Audit Committee. There were two meetings of the Audit
Committee during fiscal year 1998.
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 1998, non-employee directors Donald V. Berlanti, James H. McGuire and
J. Phillip Samper 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 (the "SEC"), is included in this
Proxy Statement.
Directors who are not employees of Sylvan receive compensation of $15,000
per year for service on the Sylvan Board or any committee thereof, and are
reimbursed for their out-of-pocket expenses in connection with attending
meetings. Under the 1998 Stock Incentive Plan, each non-employee director,
upon appointment, election or re-election to the Sylvan Board, and
continuation of service on the Sylvan Board as of the anniversary of election
or appointment will, upon election/appointment and on each anniversary
thereof, is granted an option to purchase 5,000 shares of Sylvan Common Stock
at an exercise price equal to the fair market value of the stock on the date
of the grant.
Section 16(a) Beneficial Ownership Reporting Compliance
All officers have made timely filings of all changes in beneficial ownership
required by the SEC during the year ended December 31, 1998, except Messers.
Becker, Hoehn-Saric, Cohen and Berlanti, each of whom had one late filing.
Certain Relationships and Related Transactions
In January 1998, the Company completed the acquisition of all of the assets
of Block Testing Services, L.P., which included all of the common stock of
National Assessment Institute, Inc. by issuing 642,901 shares of Sylvan Common
Stock valued at $24.6 million. Among the partners of Block Testing Services,
L.P. was Eric Becker, Douglas L. Becker's brother. Douglas L. Becker had no
pecuniary interest in the transaction.
Relationships with Caliber Learning Networks, Inc. Douglas L. Becker and R.
Christopher Hoehn-Saric, Co-Chief Executive Officers and directors
concurrently serve as directors of Caliber. Sylvan owns 1,227,393 shares of
Caliber Common Stock and 5,167,328 shares of 6% Non-Voting Convertible
Preferred Stock convertible into Common Stock on a share-for-share basis
beginning in May 2000. Messrs. Becker and Hoehn-Saric collectively own
3,436,702 shares of Caliber Common Stock through Sterling Caliber Investment,
LLC.
Under an Intercompany Management and Facility Use Agreement between Sylvan
and Caliber, Sylvan provides Caliber with the use of certain facilities for
Caliber's corporate offices in Baltimore, Maryland, and certain administrative
support and executive management services, including financial management; tax
and accounting services; legal services; management information services; and
human resources support. During 1998, Sylvan collected from Caliber $2.0
million for these facilities and services. This Agreement is scheduled to
expire at the end of 1999.
Under a Testing Center Management and CBT Services Agreement between Caliber
and Sylvan, Caliber has assumed management and responsibility for all
obligations and operations of certain Sylvan Testing Centers ("STCs") and to
deliver computer-based testing services on behalf of Sylvan at those STCs
through December 31, 2000. These facilities may be converted into classrooms
capable of receiving Caliber programs. The Company pays Caliber a fixed amount
per month to manage these STCs and an additional fee per test delivered above
a specified number of tests. During 1998, the Company paid approximately $2.1
million in fees and other compensation under this Agreement. Separately,
Caliber receives 50% of earnings to the Company from the Company's digital
fingerprint joint venture with Indentix Corporation.
5
<PAGE>
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
None of the directors serving on the Compensation Committee are or have been
officers or employees of Sylvan, and neither the Co-Chief Executive Officers
nor any of the other named Executive Officers have served on the Compensation
Committee. No director or executive officer of Sylvan is a director, executive
officer or member of the compensation or similar board committee of any other
corporation that has a director or executive officer who is also a director or
Compensation Committee member of Sylvan.
Compensation of Executive Officers and Directors
Compensation of Executive Officers. The following table shows for the years
ended December 31, 1998, 1997 and 1996, 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, 1998 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------- ------------
Shares All
Name and Salary Bonus Other Annual Underlying Other
Principal Position Year $ $ $ Compensation(1) Options(#) Compensation(2)
------------------ ---- ------- ------- ----------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
R. Christopher Hoehn-
Saric,................. 1998 300,000 (3) 6,600 782,328 $1,852,787
Chairman of the Board
and 1997 254,167 125,000 6,600 -- 6,958,618
Co-Chief Executive
Officer............... 1996 225,000 112,500 6,600 -- --
Douglas L. Becker,...... 1998 300,000 (3) 6,600 782,328 $1,852,787
President, Co-Chief
Executive 1997 254,167 125,000 6,600 -- 6,958,509
Officer and Director... 1996 225,000 112,500 6,600 -- --
B. Lee McGee,........... 1998 200,000 (3) 6,600 396,134 $1,160,049
Senior Vice President
and 1997 154,167 75,000 6,600 -- 1,008,272
Chief Financial Officer 1996 150,000 75,000 6,600 -- --
Steven Hoffman,......... 1998 230,416 63,000 6,600 -- $ 18,085
President-- 1997 219,738 58,000 6,600 -- 132,193
Sylvan Prometric
Division(2) 1996 57,211 58,000 15,058 168,750 --
Peter Cohen,............ 1998 210,000 67,200 6,600 -- $ 140,750
President-- 1997 210,000 28,000 6,600 -- 55,515
Learning Services
Division(2) 1996 64,211 28,000 6,540 168,750 --
Paula Singer,........... 1998 172,083 56,000 6,600 -- $1,101,585
President--Contract 1997 140,000 -- 6,600 56,250 454,740
Educational Services
Division 1996 115,209 40,350 6,600 28,125 --
</TABLE>
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(1) The amounts in this column represent automobile allowances for all of the
officers and non-compensated moving expense reimbursement for Messrs.
Hoffman and Cohen in 1996.
(2) The amounts in this column represent stock option exercises by Messrs.
Hoehn-Saric, Becker, McGee, Cohen and Ms. Singer, relocation compensation
for Messrs. Hoffman and Cohen and interest forgiven in 1997 and 1998 on a
loan to Mr. Hoffman.
(3) See "Compensation Committee Report--Annual Incentive Cash Bonus."
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 1998.
Individual Grants
<TABLE>
<CAPTION>
Percent Potential Realizable Value at
Number of of Total Assumed Annual Rates of Stock
Securities Options Price Appreciation for Option
Underlying 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.................. 630,000 22% $24.33 1/27/08 $ 9,646,310 $ 24,449,493(2)
52,328(1) 2% 28.67 2/24/08 944,149 2,393,035(3)
100,000 4% 31.25 5/21/08 1,966,657 4,984,679(4)
Douglas L. Becker....... 630,000 22% $24.33 1/27/08 $ 9,646,310 $ 24,449,493(2)
52,328(1) 2% 28.67 2/24/08 944,149 2,393,035(3)
100,000 4% 31.25 5/21/08 1,966,657 4,984,679(4)
B. Lee McGee............ 311,250 11% $24.33 1/27/08 $ 4,765,736 $ 12,079,214(2)
34,884(1) 1% 28.67 2/24/08 629,408 1,595,296(3)
50,000 2% 31.25 5/21/08 983,328 2,492,340(4)
Steven Hoffman.......... -- -- -- -- -- --
Peter Cohen............. -- -- -- -- -- --
Paula Singer............ -- -- -- -- -- --
</TABLE>
- --------
(1) Options issued in lieu of bonus as described in the Compensation Committee
Report--Annual Incentive Cash Bonus.
(2) The assumed rate of appreciaiton of 5% and 10% would result in a stock
price of $39.63 and $63.11, respectively
(3) The assumed rate of appreciation of 5% and 10% would result in a stock
price of $46.70 and $74.36, respectively
(4) The assumed rate of appreciation of 5% and 10% would result in a stock
price of $50.90 and $81.05, respectively
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 SEC
and do not represent Sylvan's prediction of future stock performance.
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 1998 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, 1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Shares Acquired Value Options at Year- Options
Name Upon Exercise Realized End(1) at Year-End(1)
---- --------------- ---------- -------------------- --------------------
<S> <C> <C> <C> <C>
R. Christopher Hoehn-
Saric.................. 67,500 $1,852,787 1,185,828(E) $21,855,848(E)
804,750(U) 6,849,113(U)
Douglas L. Becker....... 67,500 $1,852,787 1,185,828(E) $21,855,848(E)
804,750(U) 6,849,113(U)
B. Lee McGee............ 46,650 $1,160,049 173,759(E) $ 1,740,200(E)
396,750(U) 3,369,638(U)
Steven Hoffman.......... -- -- 67,500(E) $ 941,625(E)
101,250(U) 1,412,438(U)
Peter Cohen............. 10,000 140,750 57,500(E) $ 833,750(E)
101,250(U) 1,468,125(U)
Paula Singer............ 38,625 1,101,585 39,375(E) $ 645,863(E)
61,875(U) 372,881(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 Compensation 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.
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 Messrs. Hoehn-Saric and Becker, the Co-
Chief Executive Officers, should have a significant portion of their
compensation contingent upon increases in the market price of Sylvan Common
Stock. Aided by the review of a 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 a management
consulting firm. Based on the management consulting firm's analysis of
executive compensation, the salary of each Co-CEO was set at $300,000 in 1998,
compared to $254,167 in 1996 and 1997.
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.
As a result of the recommendations of a management consulting firm, the
Company's executive officers are offered the alternative of receiving stock
options in lieu of the cash bonus earned. The formula for senior officers is
to divide the cash bonus earned by the share price of Sylvan Common Stock and
to multiply the result by a factor of five. These options are fully vested on
grant.
Long-term Incentive Stock Options. Options are granted to executive officers
and other key employees whom the Compensation Committee determines to be
important 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 and 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 and 1997 Messrs. Hoehn-Saric, Becker and McGee
received grants from the stockholder-approved 1996 Senior Management Stock
Option Plan. In 1998, Messrs. Hoehn-Saric, Becker and McGee received grants
from the stockholder-approved 1998 stock incentive plan as well as grants in
lieu of cash bonuses.
8
<PAGE>
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 the executive officers to establish an international
distribution network of adult professional education services. The Board
considered many options for how to best structure the entity to pursue this
opportunity. Aided by the review of the consulting firm of the Co-CEOs'
compensation, it was concluded that the Co-CEOs should be entitled to purchase
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. ("Caliber") 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 of directors or as a result of their executive positions in
Caliber. In May 1998 Caliber completed the initial public offering of its
Common Stock.
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 have employment agreements with the Company,
with terms ending December 31, 2000.
Messrs. Hoehn-Saric and Becker, the Co-CEOs, 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 Compensation
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 March 1998, the Compensation Committee recommended, and the Board of
Directors approved, cash bonuses for Messrs. Hoehn-Saric and Becker of
$300,000 each. These bonuses were based on financial performance and
accomplishment of specific objectives in 1997 as described above. Both of
Messrs. Hoehn-Saric and Becker as well as Mr. McGee elected to receive their
bonuses in stock options rather than cash, in accordance with the formula
described above.
Mr. Donald V. Berlanti--Chairman
Mr. James H. McGuire
Mr. J. Phillip Samper
9
<PAGE>
Stock Performance Graph
Under the SEC's rules, 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 graph compares the cumulative total stockholder return on the
Sylvan Common Stock during the period beginning January 1, 1994 and ending
December 31, 1998, 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 peer group index are Strayer
Education, Inc. (STRA), Apollo Group, Inc. (APOL), Devry, Inc. (DVRV) and
Berlitz Intl. (BTZ). The comparison assumes $100 was invested on January 1,
1994 in the Sylvan Common Stock and in each of the foregoing indices. It also
assumes reinvestment of dividends.
In previous proxy statements, the Sylvan constructed peer group index
included National Education Corporation, Berlitz International, and Education
Alternatives, Inc. These two companies no longer trade as public companies and
have been replaced with Strayer Education and Apollo Group.
Sylvan does not make, nor does it endorse, any predictions as to future
stock performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
AMONG SYLVAN LEARNING SYSTEMS, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX AND A PEER GROUP
[GRAPH APPEARS HERE]
- --------
* $100 INVESTED ON 01/01/94 IN STOCK OR INDEX--INCLUDING REINVESTMENT OF
DIVIDENDS.
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.................. 36 Co-Chief Executive Officer and Chairman of the Sylvan Board
Douglas L. Becker....... 33 Co-Chief Executive Officer, President; Secretary; Director
B. Lee McGee............ 43 Executive Vice President and Chief Financial Officer; Treasurer
Steven Hoffman.......... 46 President--Sylvan Prometric Division
Peter Cohen............. 44 President--Learning Center Division
Paula Singer............ 44 President--Contract Educational Services Division
Donald V.
Berlanti(1)(2)......... 61 Director, Chairman of the Compensation Committee
J. Phillip
Samper(1)(2)........... 64 Director
James H. McGuire(1)(2).. 55 Director, Chairman of the Audit Committee
R. William Pollock...... 70 Director
Rick Inatome............ 45 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. In December 1997, Mr. McGee was also
named Executive Vice President of the Company.
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 of American
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 time, he held various positions for
International Business Machines, Corp.
Peter Cohen. Mr. Cohen has been the President of the Learning Center
Division since September 1996. Prior to joining Sylvan, he was the Chief
Executive Officer 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 April 8, 1999 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).................................. 55,625 *
Douglas L. Becker(2)(3)................................ 2,001,506 3.45
R. Christopher Hoehn-Saric(2)(3)....................... 2,030,903 3.50
R. William Pollock..................................... 2,555,211 4.41
J. Phillip Samper(4)................................... 55,625 *
James H. McGuire....................................... -- *
Rick Inatome(5)........................................ 5,000 *
B. Lee McGee(2)(6)..................................... 413,007 *
Steven Hoffman(2)(7)................................... 79,862 *
Paula Singer(2)(8)..................................... 57,500 *
Peter Cohen(2)(9)...................................... 39,375 *
Nevis Capital Management, Inc. ........................ 2,529,392 4.36
Investor AB............................................ 2,433,000 4.20
T. Rowe Price Associates, Inc.(10)..................... 4,265,373 7.35
U.S. Trust Corporation/NY(11).......................... 2,609,099 4.50
Citigroup, Inc.(11)(12)................................ 10,754,944 18.54
All directors and Executive Officers as a group (11
persons).............................................. 7,293,614 12.58
</TABLE>
- --------
* Represents beneficial ownership of not more than one percent of the
outstanding Sylvan Common Stock.
(1) Includes options to purchase 55,625 shares of Sylvan Common Stock.
(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 to purchase 1,990,576 shares of Sylvan Common Stock.
(4) Includes options to purchase 55,625 shares of Sylvan Common Stock.
(5) Includes options to purchase 5,000 shares of Sylvan Common Stock.
(6) Includes options to purchase 413,007 shares of Sylvan Common Stock.
(7) Includes options to purchase 67,500 shares of Sylvan Common Stock.
(8) Includes options to purchase 57,500 shares of Sylvan Common Stock.
(9) Includes options to purchase 39,375 shares of Sylvan Common Stock.
(10) 417,698 shares only with sole voting power.
(11) All shares have shared voting power.
(12) Held by four separate entities within the Citigroup Schedule 13G SEC
filing; Salomon Smith Barney Inc., Salomon Brothers Holding Company Inc.,
Salomon Smith Barney Holdings Inc. and Citigroup, Inc.
II. 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, 1999. Ernst & Young LLP has served as independent auditors of
Sylvan since 1991. A partner of the firm is expected to be present at the
Annual Meeting and available to respond to appropriate questions, and will
have an opportunity to make a statement if he or she desires to do so.
In 1998, Ernst & Young LLP performed various professional services for
Sylvan. These included completion of the examination of the 1997 financial
statements for Sylvan, other review work of required filings
12
<PAGE>
with the SEC, preliminary work on the examination of the 1998 financial
statements, consultation on corporate tax returns and other consultation with
Sylvan personnel on accounting, tax and related matters.
The affirmative vote of a majority of the shares of Sylvan Common Stock
present in person or represented by proxy at the Annual Meeting is required
for ratification of the selection of Ernst & Young LLP as Sylvan's independent
auditors.
The Board of Directors unanimously recommends that the stockholders vote
"FOR" the ratification of the selection of Ernst & Young LLP as Sylvan's
Independent Auditors.
III. 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 1999 Annual
Meeting must have been received by Sylvan's Secretary not later than December
21, 1998 for inclusion in this proxy statement and proxy. No such proposals
were received. Any stockholder proposals intended to be presented at the 2000
Annual Meeting must be received by Sylvan's Secretary no later than December
20, 1999, for inclusion in the proxy statement and proxy relating to the 2000
Annual Meeting.
MISCELLANEOUS
A copy of the Sylvan's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, 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
April 18, 1999
13
<PAGE>
SKU 1755-PS-99
<PAGE>
SYLVAN LEARNING SYSTEMS, INC.
1000 Lancaster Street, Baltimore, Maryland 21202
Proxy for Annual Meeting of Stockholders - May 20, 1999
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 April 9, 1999,
at the Annual Meeting of Stockholders to be held at the Harbor Inn Pier 5, 711
Eastern Avenue, Baltimore, Maryland 21202, on Thursday, May 20, 1999 at 10:00
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) appears(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?
____________________________________ ___________________________________
____________________________________ ___________________________________
____________________________________ ___________________________________
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------- 1. Proposal to elect the following persons as directors for the
SYLVAN LEARNING SYSTEMS, INC. class indicated, and until their successors are duly elected
- -------------------------------------- and qualified.
For All With- For All
Nominees hold Except
<S> <C> <C> <C> <C>
The undersigned hereby acknowledges receipt Class II - 3 years
of a copy of the accompanying Notice of
Annual Meeting of Stockholders, the Proxy R. Christopher Hoehn-Saric [_] [_] [_]
Statement with respect thereto and the Donald V. Berlanti
Company's 1998 Annual Report, and hereby
revokes any proxy or proxies heretofore
given. This proxy may be revoked at any time
before it is exercised.
If you wish to withhold your shares for any individual nominee, mark the
"For All Except" box and strike a line through the name of the nominee.
Your shares will be voted for the remaining nominee.
CONTROL NUMBER:
RECORD DATE SHARES:
For Against Abstain
2. Proposal to ratify the selection of [_] [_] [_]
Ernst & Young LLP as the independent
auditors of the Company for the
fiscal year ending December 31, 1999.
--------
Please be sure to sign and date Date
this Proxy. Mark box at right if an address change or comment has been noted [_]
- -------------------------------------------- on the reverse side of this card.
- - Stockholder sign here- Co-owner sign here-
DETACH CARD DETACH CARD
</TABLE>
SYLVAN LEARNING SYSTEMS, INC.
Dear Stockholder,
Please take note of the important information 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. They 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 the 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, May 20, 1999.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Douglas L. Becker
Secretary
