<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 9, 1996
REGISTRATION NO. 333-11401
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
COMPUTER LEARNING CENTERS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8222 36-3501869
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
------------------------------
11350 RANDOM HILLS ROAD, SUITE 240, FAIRFAX, VIRGINIA 22030
(703) 359-9333
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
CHARLES L. COSGROVE
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
COMPUTER LEARNING CENTERS, INC.
11350 RANDOM HILLS ROAD, SUITE 240, FAIRFAX, VIRGINIA 22030
(703) 359-9333
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID SYLVESTER KENNETH L. GUERNSEY
WILLIAM F. WINSLOW MARTIN J. LOBDELL
HALE AND DORR COOLEY GODWARD LLP
1455 Pennsylvania Avenue, N.W. One Maritime Plaza, 20th Floor
Washington, D.C. 20004 San Francisco, CA 94111
(202) 942-8400 (415) 693-2000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE HEREOF.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 9, 1996
[LEARNING CENTER LOGO]
1,134,784 SHARES
COMMON STOCK
Of the 1,134,784 shares of Common Stock offered hereby, 434,783 shares are
being sold by Computer Learning Centers, Inc. (the "Company") and 700,001 shares
are being sold by the Selling Stockholders. The Company will not receive any of
the proceeds from the sale of shares by the Selling Stockholders. See "Principal
and Selling Stockholders." On September 6, 1996, the last sale price for the
Common Stock, as reported on the Nasdaq National Market, was $28.50 per share.
See "Price Range of Common Stock." The Common Stock is traded under the Nasdaq
symbol "CLCX."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY SUCH STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total (2)..................... $ $ $ $
</TABLE>
(1) Before deducting expenses payable by the Company, estimated at $600,000.
(2) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to an additional 170,216 shares of Common Stock
solely to cover over-allotments, if any. See "Underwriting." If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholders will
be $ , $ , $ and $ , respectively.
------------------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), San Francisco, California, on or about October , 1996.
ROBERTSON, STEPHENS & COMPANY PIPER JAFFRAY INC.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER , 1996.
<PAGE>
The following is a narrative description of graphic and image material
contained on the inside front cover of the printed version of this Prospectus,
which material has been omitted from the version filed electronically.
1. The heading "Students and Graduates of Computer Learning Centers".
2. Pictures depicting (i) a young adult male student/former student, (ii) a
young adult female student/former student and (iii) a training lab at a
Computer Learning Center facility with students and instructors. The
following language accompanies the foregoing pictures:
"Focused on providing computer-related education and training to
more than 7,000 career-oriented adults annually".
[ GRAPHIC ]
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS, IF ANY, MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
Price Range of Common Stock............................................... 13
Capitalization............................................................ 14
Selected Consolidated Financial Data...................................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 26
Financial Aid and Regulation.............................................. 35
Management................................................................ 42
Certain Transactions...................................................... 47
Principal and Selling Stockholders........................................ 48
Description of Capital Stock.............................................. 50
Underwriting.............................................................. 52
Legal Matters............................................................. 54
Experts................................................................... 54
Additional Information.................................................... 54
Index to Consolidated Financial Statements................................ F-1
</TABLE>
------------------------
Computer Learning Centers-TM-, CLC-TM-, the CLC logo and Advantec-TM- are
trademarks or service marks of the Company. All other trademarks, service marks
or trade names referred to in this Prospectus are the property of their
respective owners.
Computer Learning Centers, Inc. was incorporated in Delaware in March 1987.
The Company's principal executive offices are located at 11350 Random Hills
Road, Suite 240, Fairfax, Virginia 22030, and its telephone number is (703)
359-9333.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Computer Learning Centers, Inc. ("CLC" or the "Company") provides
information technology and computer-related education and training. The Company
designs programs and courses to meet current information technology education
needs, offering instruction in rapidly growing technologies such as
client/server, databases, networking and object-oriented programming. Through
its accredited career programs, the Company offers Associate Degrees and
non-degree diplomas in five primary areas of study to adults seeking entry-level
jobs in information technology: business applications; electronics, systems and
hardware; programming; networking; and business applications with networking. In
addition to its traditional career and Associate Degree programs, the Company
offers its Advantec Institute ("AI") courses in intensive two- to six-week
formats for the continuing education and training of information technology
professionals. The Company enrolls over 7,000 students annually at its 11
locations in California, Illinois, Pennsylvania, Texas and Virginia.
According to the United States Department of Labor, the percentage of the
American workforce using computers on the job increased from 25% in 1984 to 47%
in 1993, and the Department of Labor estimates that by 2005 over 5.9 million
additional job openings will be created in occupations requiring information
technology skills. As business and government organizations become increasingly
dependent on information technology and the integration of technology into the
work place, the Company believes the demand for information technology education
and training will increase significantly. According to International Data
Corporation, the United States market for instructor-led information technology
education and training was approximately $4.9 billion in 1993 and is expected to
increase to $7.8 billion in 1997.
The Company believes it is well positioned to take advantage of the
increasing demand for information technology education and training. CLC's
programs are developed with input from employers and students and are taught by
experienced professionals. Each Learning Center is equipped with up-to-date
computer hardware and software, and each program requires students to spend at
least 50% of their in-school time gaining hands-on experience. CLC offers
year-round scheduling flexibility to students through new program start dates
each month, as well as morning, afternoon and evening classes that allow
students to maintain part-time jobs and to enter the workforce on a full-time
basis in as little as eight months. The Company provides efficient access to
government-supported financing sources, as well as various forms of private
financing. In addition, CLC offers extensive placement services to students and
graduates on an ongoing basis.
The Company's objective is to strengthen and expand its position as one of
the leading providers of information technology education and training and to
meet the needs of career-minded adults. The Company's strategy is to establish
new Learning Centers throughout the United States, broaden the availability of
its existing Associate Degree programs at its Learning Centers and open
additional Advantec Institutes. In addition, the Company plans to develop new
programs and courses in response to the increasing demand for information
technology education and training and to focus on improving student graduation
and placement rates.
Based on information provided by graduates and employers, approximately 85%
of CLC's placeable graduates (i.e., graduates who actively pursued employment
and were not prevented from employment due to pregnancy or health-related
situations, continuation of education or military service) for the 12 months
ended June 30, 1995 obtained employment related to their field of study.
Employers of CLC graduates include small technology-oriented companies as well
as major corporations and agencies and their affiliates, including America
Online, Inc., Aetna Life and Casualty Company, Bell Atlantic Corporation,
Electronic Data Systems, Inc., International Business Machines Corporation,
McDonnell Douglas Corporation, Sears, Roebuck and Co. and the University of
Pennsylvania.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.................. 434,783 shares
Common Stock Offered by the Selling Stockholders..... 700,001 shares
Common Stock Outstanding after the Offering.......... 5,077,134 shares(1)
Use of Proceeds...................................... For working capital and general
corporate purposes, including
opening new facilities and expansion
of the Company's programs.
Nasdaq National Market symbol........................ CLCX
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JANUARY 31, ENDED JULY 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 34,981 $ 39,297 $ 46,081 $ 21,544 $ 28,983
Income before interest...................................... 4,068 3,266 5,093 1,937 3,998
Interest expense (income), net.............................. 1,356 948 96 256 (214)
Income before income taxes, discontinued operations,
extraordinary item and cumulative effect of accounting
change..................................................... 2,712 2,318 4,997 1,681 4,212
Income from continuing operations before discontinued
operations, extraordinary item and cumulative effect of
accounting change.......................................... $ 1,588 $ 1,187 $ 2,919 $ 909 $ 2,464
Income per share from continuing operations(2).............. $ 0.43 $ 0.77 $ 0.28 $ 0.54
Weighted average number of shares outstanding(2)............ 2,737 3,798 3,248 4,581
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1996
-------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(3)
--------- --------------
BALANCE SHEET DATA:
Cash and cash equivalents............................................................... $ 11,294 $ 25,038
Working capital......................................................................... 8,975 23,331
Total assets............................................................................ 48,001 61,745
Long-term liabilities................................................................... 1,698 1,698
Total stockholders' equity.............................................................. 20,247 34,603
</TABLE>
- --------------------------
(1) Based on shares outstanding at August 31, 1996. Excludes 402,690 shares of
Common Stock issuable upon exercise of options outstanding as of August 31,
1996 and 725,982 additional shares of Common Stock reserved at that date for
issuance in the future under the Company's stock plans. See "Management --
Stock Plans."
(2) Pro forma for all periods except six months ended July 31, 1996. See Note 2
to "Selected Consolidated Financial Data."
(3) Adjusted to give effect to (i) the sale of 434,783 shares of Common Stock
offered by the Company hereby at an assumed public offering price of $28.50
per share, after deduction of underwriting discounts and commissions and
estimated expenses payable by the Company, (ii) the exercise by certain of
the Selling Stockholders of options to purchase 203,784 shares of Common
Stock to be sold by them in this offering and the income tax benefit to the
Company resulting therefrom and (iii) the payment by certain of the Selling
Stockholders of subscription notes in the aggregate principal amount of
$579,000.
EXCEPT IN THE CONSOLIDATED FINANCIAL STATEMENTS OR AS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION AND GIVES EFFECT TO THE EXERCISE BY CERTAIN OF THE SELLING
STOCKHOLDERS IMMEDIATELY PRIOR TO THE COMPLETION OF THIS OFFERING OF OPTIONS TO
PURCHASE AN AGGREGATE OF 203,784 SHARES OF COMMON STOCK, ALL OF WHICH SHARES ARE
BEING SOLD IN THIS OFFERING.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
POTENTIAL ADVERSE EFFECTS OF REGULATION
As educational institutions that participate in various federal and state
financial aid programs, the Company and the Learning Centers are subject to
extensive governmental regulation. In particular, the Higher Education Act of
1965, as amended (the "HEA"), and the regulations promulgated thereunder,
subject the Company, the Learning Centers and all other higher education
institutions eligible to participate in the various federal student financial
aid programs under Title IV of the HEA (the "Title IV Programs") to significant
regulatory scrutiny. For the fiscal year ended January 31, 1996, the Company
derived approximately 72% of its revenues from the Title IV Programs. The
termination or material limitation of the ability of the Company or any of the
Learning Centers to participate in the Title IV Programs would have a material
adverse effect on the Company. In addition, each institution must be authorized
to offer its programs of instruction by the relevant agency of the state in
which it is located and, to participate in Title IV Programs, be accredited by
an accrediting agency recognized by the United States Department of Education
(the "Department of Education"). The states and accrediting agency with
jurisdiction over the Learning Centers have promulgated standards, which vary
substantially, relating to institutional programs, locations, financial
responsibility and other operational matters.
The failure by any of the Learning Centers to comply with applicable
federal, state or accrediting agency requirements could result in the imposition
of an administrative fine or the limitation, suspension or termination of that
Center's ability to participate in the Title IV Programs or the loss of state
licensure or accreditation. Violations of the Title IV Program requirements
could also subject the Company to sanctions under the United States False Claims
Act as well as other civil and criminal penalties. Any such event could have a
material adverse effect on the Company. There are no proceedings for any such
purposes pending, and the Company has no reason to believe that any such
proceeding is contemplated. Furthermore, current regulations or regulatory
standards that become effective in the future may be applied or interpreted by
the government in ways that will delay or change the Company's expansion plans
or otherwise adversely affect the operation of the Learning Centers and their
participation in the Title IV Programs. In addition, all government-provided
student financial aid programs, including the Title IV Programs, are subject to
the effects of federal and state budgetary processes and the possible
elimination or consolidation of the Department of Education, and there can be no
assurance that government funding for the financial aid programs in which the
Company's students participate will continue to be available or be maintained at
current levels. The loss of funding or a reduction in funding levels for the
Title IV Programs would have a material adverse effect on the Company. See
"Financial Aid and Regulation."
Certain significant regulatory factors that could adversely affect the
Company and the Learning Centers are discussed below:
STUDENT LOAN DEFAULTS. Under the HEA, an institution could lose its
eligibility to participate in some or all of the Title IV Programs if the
defaults of its current or former students on their federal student loans exceed
specified rates for specified periods of time. An institution's annual cohort
default rate ("cohort default rate") is calculated as the rate at which
borrowers scheduled to begin repayment on their loans in one federal fiscal year
ending September 30 ("FY") default on those loans by the end of the following
federal fiscal year. Under the Federal Family Education Loan (the "FFEL,"
formerly the Guaranteed Student Loan) program, any institution that has FFEL
cohort default rates of 25% or greater for three consecutive federal fiscal
years will no longer be eligible to participate in
6
<PAGE>
the FFEL program or the William D. Ford Federal Direct Loan Program for the
remainder of the federal fiscal year in which the determination of ineligibility
is made and for the two subsequent federal fiscal years. An institution whose
FFEL cohort default rate for any federal fiscal year exceeds 40% may have its
eligibility to participate in all Title IV Programs limited, suspended or
terminated.
The Chicago Learning Center's FY 1993 cohort default rate as published is
36.5% which, if accurate, would result in three consecutive years of default
rates that exceed the 25% threshold. Management believes the published rates are
likely to contain errors which, if a sufficient number are agreed to and thereby
corrected by the Department of Education, could reduce at least one or more of
those final cohort default rates below 25%. Pursuant to the Department of
Education's procedures, the Company has submitted appeals of the Chicago
Learning Center's FY 1991, FY 1992 and FY 1993 rates setting forth evidence of
such errors. The Department of Education has decided the appeal of the Chicago
Learning Center's FY 1992 cohort default rate, which remains above 25%, but the
FY 1991 and FY 1993 appeals remain pending.
The Chicago Learning Center will remain eligible to participate in all Title
IV Programs pending the resolution of such cohort default rate appeals.
Depending on the ultimate resolution of those appeals, the Chicago Learning
Center's eligibility to participate in the FFEL programs could be subject to
termination, and, under a recently enacted statute, that Learning Center's
students could lose access to Federal Pell Grant funds until July 1997. The
Company cannot predict when the Department of Education might decide the Chicago
Learning Center's FY 1991 or FY 1993 appeals or the outcome of such appeals. The
Chicago Learning Center accounted for approximately 11.0% of the Company's
revenues for fiscal 1996. If the Chicago Learning Center loses its eligibility
to participate in some or all of the Title IV Programs, such loss would have a
material adverse effect on the Company.
In July 1996, the Company received the FY 1994 preliminary cohort default
rates for the Chicago and Philadelphia Learning Centers of 20.1% and 27.6%,
respectively. The Department of Education issues preliminary default rates to
allow institutions the opportunity to review and, if necessary, challenge the
student loan default data to ensure its accuracy before the final rates are
published. The Company has challenged certain data contained in the Philadelphia
Learning Center's preliminary FY 1994 default rate and is currently awaiting the
resolution of that challenge. If the Philadelphia Learning Center's final FY
1994 cohort default rate is published at 25% or higher, it would result in three
consecutive years of default rates that exceed the 25% threshold. The Company
has appealed or plans to appeal the accuracy of all three relevant cohort
default rates. Depending on the ultimate resolution of all of those appeals, the
Philadelphia Learning Center's eligibility to participate in the FFEL programs
could be subject to termination, and the Philadelphia Learning Center's students
could lose access to Federal Pell Grant funds until July 1997. The Department of
Education has decided the appeal of the Philadelphia Learning Center's FY 1992
cohort default rate, which remains above 25%. The Company cannot predict when
the Department of Education might publish the final FY 1994 cohort default rates
or determine the Philadelphia Learning Center's FY 1993 appeal. The Philadelphia
Learning Center accounted for approximately 16.7% of the Company's revenues for
fiscal 1996. If the Philadelphia Learning Center loses its eligibility to
participate in some or all of the Title IV Programs, such loss would have a
material adverse effect on the Company. See "Financial Aid and Regulation --
Regulation of Federal Financial Aid Programs -- Student Loan Defaults."
Under the Department of Education's regulations, an FFEL cohort default rate
equal to or exceeding 25% in any one of the three most recent federal fiscal
years can be a basis for the Department of Education to place that institution
on provisional certification for up to four years for lack of administrative
capability. Provisional certification generally allows an institution to
continue to participate in the Title IV Programs subject to conditions imposed
by the Department of Education and, in the event of any material violation of
such conditions, subjects the institution to a loss of eligibility. The Learning
Centers in Chicago and Philadelphia could be subject to provisional
certification or continued provisional certification, respectively, on the basis
of their cohort default rates. The
7
<PAGE>
Chicago Learning Center has recently been notified that it must submit a
recertification application to the Department of Education by September 30, 1996
as part of a cyclical recertification of all institutions participating in the
Title IV Programs.
In the course of a 1994 recertification review, the Philadelphia Learning
Center was granted provisional certification to participate in the Title IV
Programs through September 1997, based upon the fact that its published FY 1992
cohort default rate exceeded the applicable standard. The terms of its
provisional certification provide that during this period, if, after resolution
of any appeals, the Philadelphia Learning Center's cohort default rate is
determined to exceed 32.9% for any single federal fiscal year, the Department of
Education may immediately seek to terminate the Philadelphia Learning Center's
eligibility to participate in the Title IV Programs. The Philadelphia Learning
Center's published FY 1993 cohort default rate, which the Company has appealed,
is 37.7%. However, the Company has learned that the Department of Education has
modified its policy, consistent with applicable regulations, so as to eliminate
the year-by-year comparison that is currently called for in the Philadelphia
Learning Center's provisional certification. Instead, the Department of
Education must allow an institution to maintain its provisional certification if
there is no other indication besides its cohort default rates that the
institution lacks administrative capability. See "Financial Aid and Regulation
- -- Regulation of Federal Financial Aid Programs -- Student Loan Defaults."
The Department of Education's regulations further provide that an
institution may be considered to lack administrative capability, and therefore
may be placed on provisional certification, if its default rate on Federal
Perkins ("Perkins") loans exceeds 15% for any federal award year (i.e., July 1 -
June 30). The Company administers its Perkins loan funds on a Company-wide
basis, and in the past, all of the Learning Centers have shared one Perkins loan
default rate. The Company had a default rate for Perkins loans of 18.2% for the
1995-96 federal award year. The Perkins program accounted for approximately 1.9%
of the Company's revenues in fiscal 1996.
OTHER REGULATIONS. In addition to the regulations discussed above, the
Company must comply with other regulatory requirements. These requirements
include limitations on change of ownership resulting in a change of control of
the Company, which, if exceeded, may result in the loss of eligibility of the
Learning Centers to participate in the Title IV Programs; compliance with the
"85/15 Rule," which prohibits an institution from participating in the Title IV
Programs if the institution derives more than 85% of its applicable revenues
from the applicable Title IV Programs; financial responsibility standards; and
restrictions on adding new locations and programs. In addition, the Company is
prohibited from offering its employees incentive compensation or other payments
or gifts that might constitute inducements to secure enrollments. See "Financial
Aid and Regulation -- Regulation of Federal Financial Aid Programs."
CONTROL BY GENERAL ATLANTIC ENTITIES; POTENTIAL ADVERSE REGULATORY EFFECTS OF
CHANGE OF CONTROL
After the completion of this offering, General Atlantic Corporation ("GAC"),
General Atlantic Partners II, L.P. ("GAP") and GAP-CLC Partners, L.P.
("GAP-CLC") (collectively, the "General Atlantic Entities") will beneficially
own approximately 24.6% of the outstanding shares of Common Stock (approximately
22.9% if the Underwriters' over-allotment option is exercised in full).
Consequently, the General Atlantic Entities, and GAC in particular, will
continue to have significant influence over the policies and affairs of the
Company and may be in a position to determine the outcome of corporate actions
requiring stockholder approval, including the election of directors, the
adoption of amendments to the Company's Certificate of Incorporation and the
approval of mergers and sales of the Company's assets.
Because of the control position of the General Atlantic Entities, any
disposition of Common Stock by the General Atlantic Entities or issuance of
stock by the Company that results in a loss of control by the General Atlantic
Entities may have material adverse consequences for the Company under applicable
federal and state regulations and accrediting agency requirements, including
potential loss of eligibility to participate in the Title IV Programs. Upon a
change of ownership resulting in a change of control of the Company, as defined
in the HEA and the Department of Education's regulations, each
8
<PAGE>
Learning Center would lose its eligibility to participate in the Title IV
Programs for an indeterminate period of time while it applies to regain
eligibility, with the likely loss of a portion of its Title IV funding during
the reapproval period. A change of control also would have significant
regulatory consequences for the Company at the state level and could affect the
accreditation of the Learning Centers.
The HEA and the Department of Education's regulations include the sale of a
controlling interest of common stock of an institution or its parent corporation
in the definition of a change of control. For a publicly traded corporation such
as the Company, Department of Education regulations specify that a change of
control arises at the same time that a report on Form 8-K is required to be
filed with the Securities and Exchange Commission reporting a change of control.
Most states and accrediting agencies have similar requirements, but they do not
uniformly define a change of control. A change of control of the Company that
exceeds the threshold set by the Department of Education would have a material
adverse effect on the Company. If this offering were determined to involve a
change of ownership resulting in a change of control, the Company would be
required to reaffirm the accreditation and state authorization of each Learning
Center, each of which is a prerequisite for each Learning Center to apply to
regain eligibility to participate in the Title IV Programs. A significant delay
in reobtaining or the failure to reobtain state authorization, accreditation or
Title IV Program certification for any or all of the Learning Centers could have
a material adverse effect on the Company.
The potential adverse implications of a change of ownership resulting in a
change of control could influence future decisions by the Company and its
stockholders regarding the sale, purchase, transfer, issuance or redemption of
the Company's capital stock. Although the General Atlantic Entities have advised
the Company they have no immediate plans to dispose of the Common Stock to be
held by them after this offering, the Company does not believe that the General
Atlantic Entities have made any decision regarding their future plans for their
ownership interests in the Company. There can be no assurance that the General
Atlantic Entities will maintain their ownership interests in the Company or as
to the manner or timing of any disposition of Common Stock by the General
Atlantic Entities. The General Atlantic Entities are entitled to certain
registration rights with respect to such shares, which rights would facilitate
the disposition of Common Stock by the General Atlantic Entities. See "Financial
Aid and Regulation--Regulation of Federal Financial Aid Programs -- Change of
Control."
COMPETITION
The postsecondary adult education and training market is highly fragmented,
with no single institution or company holding a dominant market share. The
Company competes for students with vocational and technical training schools,
degree-granting colleges and universities, continuing education programs and
commercial training programs. Certain public and private colleges may offer
programs similar to those of the Learning Centers at a lower tuition cost due in
part to government subsidies, foundation grants, tax-deductible contributions or
other financial resources not available to proprietary institutions. See
"Business -- Competition."
DEPENDENCE ON NEW PROGRAMS AND LOCATIONS; RISKS ASSOCIATED WITH CHANGES IN
TECHNOLOGY AND GROWTH
The market for the Company's programs and services is characterized by
rapidly changing requirements and characteristics, and the Company's ability to
develop and offer new programs and services and to open new locations is subject
to extensive state and federal regulation and accrediting agency requirements.
If the Company is unable, for financial, regulatory or other reasons, to develop
and offer new programs and services in a timely manner in response to changes in
the industry, or if programs and services offered by the Company fail to gain or
maintain widespread commercial acceptance, the Company's business may be
materially and adversely affected. See "Financial Aid and Regulation --
Regulation of Federal Financial Aid Programs -- Restrictions on Adding Locations
and Educational Programs."
The Company offers training programs and services for rapidly changing
information technology. The introduction of information products embodying new
technologies and the emergence of new information system standards or services
may adversely affect the Company's ability to market its
9
<PAGE>
programs and services. This may require the Company to make substantial
expenditures to develop new programs and services and to acquire new faculty,
equipment and facilities. If the Company is unable, for financial, regulatory or
other reasons, to make those expenditures or acquisitions, the Company's
business may be materially and adversely affected.
The Company's ability to meet its future operating and financial goals will
depend upon the Company's ability to implement successfully its growth strategy,
which will include the introduction of new locations as well as the potential
acquisition of assets and programs complementary to the Company's operations.
The Company's success in this area will depend on its ability to integrate
successfully such new locations, assets and businesses. There can be no
assurance that the Company will be able to implement or manage expansion
effectively, and any failure to manage growth effectively or any delays in
expansion would have a material adverse effect on the Company's business and
results of operations. See "Business -- Business Strategy."
DEPENDENCE UPON KEY EMPLOYEES
The Company's success depends to a significant extent upon the continued
service of its executive officers and other key personnel. None of the Company's
executive officers or key employees, other than Reid R. Bechtle, is subject to
an employment or non-competition agreement. The loss of the services of any of
its executive officers or other key employees could have a material adverse
effect on the Company. The Company's future success will depend in part upon its
continuing ability to attract and retain highly qualified personnel. There can
be no assurance that the Company will be successful in attracting and retaining
such personnel. See "Business -- Faculty" and "Management."
DISCRETIONARY USE OF PROCEEDS
The net proceeds of the offering, estimated at approximately $11.1 million,
will be used for the opening of additional facilities and expansion of the
Company's programs and program offerings, both internally and through possible
future strategic acquisitions, and for general corporate purposes, including
working capital. Accordingly, the Company will have broad discretion as to the
application of such proceeds. See "Use of Proceeds" and "Business -- Business
Strategy."
ANTITAKEOVER EFFECT OF CERTAIN CHARTER, BY-LAW AND OTHER PROVISIONS; POSSIBLE
ISSUANCE OF PREFERRED STOCK
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation ("Certificate") and Amended and Restated Bylaws ("Bylaws") may be
deemed to have anti-takeover effects and may discourage, delay or prevent a
takeover attempt that might be considered to be in the best interests of the
stockholders of the Company. These provisions, among other things, (i) classify
the Company's Board of Directors into three classes, each of which serves for
different three-year periods, (ii) provide that only the Board of Directors,
chairman or president may call special meetings of the stockholders, (iii)
establish certain advance notice procedures for nominations of candidates for
election as directors and for stockholder proposals to be considered at
stockholders' meetings, (iv) provide that directors may be removed by the
stockholders only for cause and (v) require a vote of the holders of more than
two-thirds of the shares entitled to vote in order to amend the foregoing and
certain other provisions of the Certificate and Bylaws. In addition, the Board
of Directors, without further action of the stockholders, is permitted to issue
and fix the terms of preferred stock which may have rights senior to those of
the Common Stock. The Company is subject to the "business combination"
provisions of the Delaware General Corporation Law which may be deemed to have
anti-takeover effects and may discourage, delay or prevent a takeover attempt
that might be considered in the best interests of the stockholders of the
Company. The business combination provisions of the Delaware General Corporation
Law will, subject to certain exceptions, prohibit the Company from engaging in
certain "business combinations" with an "interested stockholder," unless the
business combination is approved in a prescribed manner. The commercial bank
line of credit being negotiated by the Company may also contain provisions that
may discourage proposals or bids to acquire the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Description of Capital Stock."
10
<PAGE>
VOLATILITY OF MARKET PRICE
From time to time after this offering, there may be significant volatility
in the market price of the Common Stock. The Company believes that the current
market price of the Common Stock reflects expectations that the Company will be
able to continue to operate its programs profitably and to develop additional
and new programs at a significant rate and operate them profitably. If the
Company is unable to operate its programs profitably or develop programs at a
pace that reflects the expectations of the market, investors could sell shares
of Common Stock at or after the time that it becomes apparent that such
expectations may not be realized, resulting in a decrease in the market price of
the Common Stock. In addition to the operating results of the Company, changes
in earnings estimated by analysts, changes in general conditions in the economy
or the financial markets or other developments affecting the Company or the
educational services industry could cause the market price of the Common Stock
to fluctuate substantially. In recent years, the stock market has experienced
extreme price and volume fluctuations. This volatility has had a significant
effect on the market prices of securities issued by many companies for reason
unrelated to their operating performance. See "Price Range of Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of such shares for future sale will
have on the market price of the Common Stock prevailing from time to time. Sales
of substantial amounts of Common Stock or the perception that such sales may
occur could adversely affect prevailing market prices for the Common Stock. An
aggregate of 4,438,567 shares of Common Stock are currently outstanding,
excluding 606,464 shares subject to outstanding stock options (of which 203,784
shares are being sold by certain of the Selling Stockholders in this offering).
Upon the completion of this offering, approximately 3,641,370 shares of Common
Stock will be freely transferable and approximately 1,426,550 additional shares
will be transferable subject to Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"), and, with respect to certain holders, the
expiration of certain lock-up agreements. In addition, approximately 442,961
shares of Common Stock are subject to outstanding options exercisable within 60
days after the date of this Prospectus. Of such shares, 203,784 shares are being
sold by certain of the Selling Stockholders in this offering, an additional
33,947 shares will be freely transferable upon issuance and 197,380 shares will
be transferable subject to Rule 144 and, with respect to certain holders, the
expiration of certain lock-up agreements. The Company, the directors and
executive officers of the Company and the Selling Stockholders have agreed not
to sell any shares of Common Stock for 90 days after the date of this Prospectus
(with certain limited exceptions) without the prior written consent of
Robertson, Stephens & Company. Following this offering, beneficial owners of an
aggregate of 1,480,653 shares of Common Stock will have contractual rights with
respect to the registration of such shares. See "Description of Capital Stock --
Registration Rights" and "Underwriting."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 434,783 shares of
Common Stock offered by the Company hereby, based on an assumed public offering
price of $28.50 per share and after deduction of underwriting discounts and
commissions and estimated offering expenses payable by the Company, are
estimated to be approximately $11.1 million ($12.8 million if the Underwriters'
over-allotment option is exercised in full). The Company will not receive any of
the proceeds from the sale of shares by the Selling Stockholders.
The Company expects to use the net proceeds to the Company for working
capital, to open additional Learning Centers and Advantec Institutes and to
expand the Company's programs. The Company may also use a portion of such
proceeds to acquire complementary businesses and related assets, products or
curricula. The Company engages from time to time in discussions regarding
possible acquisitions; however, the Company presently has no agreements,
arrangements or commitments with respect to any such acquisition. Pending such
uses, the net proceeds will be invested in short-term, investment-grade,
interest-bearing securities. See "Risk Factors -- Discretionary Use of
Proceeds."
DIVIDEND POLICY
To date, the Company has not paid any cash dividends on its Common Stock.
The Company currently anticipates that it will retain any available funds for
use in the operation of its business and does not anticipate paying any cash
dividends in the foreseeable future.
12
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "CLCX." Public trading of the Common Stock commenced on May 31, 1995.
Prior to that time, there was no public market for the Company's Common Stock.
The following table sets forth the high and low sales prices for the Common
Stock reported by Nasdaq for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year 1996:
Second Quarter (beginning May 31, 1995).................................................... $ 9.50 $ 7.50
Third Quarter.............................................................................. 11.75 7.50
Fourth Quarter............................................................................. 11.00 7.00
Fiscal Year 1997:
First Quarter.............................................................................. $ 11.50 $ 8.25
Second Quarter............................................................................. 25.25 10.75
Third Quarter (through September 6, 1996).................................................. 29.00 22.00
</TABLE>
On September 6, 1996, the last reported sale price of the Common Stock on
the Nasdaq National Market was $28.50 per share. As of such date, there were
approximately 25 holders of record of the Common Stock.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of July
31, 1996 on an actual basis and as adjusted to give effect to the sale of the
434,783 shares of Common Stock offered by the Company hereby, based on an
assumed public offering price of $28.50 per share and after deduction of
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
<TABLE>
<CAPTION>
JULY 31, 1996
-------------------------
<S> <C> <C>
ACTUAL(1) AS ADJUSTED(2)
--------- --------------
(in thousands)
Long-term debt......................................................................... -- --
Stockholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares authorized, no shares issued or
outstanding......................................................................... -- --
Common Stock, $.01 par value; 10,000,000 shares authorized; 4,438,567 shares issued
and outstanding, actual; 5,077,134 shares issued and outstanding, as adjusted....... $ 44 $ 51
Additional paid-in capital........................................................... 16,351 30,121
Less: subscription notes receivable.................................................. (666) (87)
Net unrealized gain on securities available for sale................................. 235 235
Retained earnings.................................................................... 4,283 4,283
--------- --------------
Total stockholders' equity......................................................... 20,247 34,603
--------- --------------
Total capitalization............................................................. $ 20,247 $ 34,603
--------- --------------
--------- --------------
</TABLE>
- ------------------------
(1) Does not reflect the issuance of 203,784 shares of Common Stock to be issued
upon exercise of options by certain of the Selling Stockholders, all of
which shares are being sold in this offering.
(2) Gives effect to (i) the issuance of 203,784 shares of Common Stock upon
exercise of options by certain of the Selling Stockholders and the income
tax benefit to the Company resulting therefrom and (ii) the payment of
subscription notes receivable in the aggregate amount of $579,000.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company are
qualified by reference to and should be read in conjunction with the
Consolidated Financial Statements and notes thereto and other financial data
included elsewhere in this Prospectus. The statement of operations data set
forth below for each of the three years in the period ended January 31, 1996 and
the balance sheet data as of January 31, 1995 and 1996 are derived from the
Company's Consolidated Financial Statements for those years which have been
audited by Price Waterhouse LLP, independent accountants, whose report thereon
is included elsewhere in this Prospectus. The statement of operations data for
each of the two years in the period ended January 31, 1993 and the balance sheet
data as of January 31, 1992, 1993 and 1994 are derived from audited financial
statements of the Company not included in this Prospectus. The statement of
operations data for the six months ended July 31, 1995 and 1996 and the balance
sheet data as of July 31, 1996 are derived from unaudited financial statements
of the Company included elsewhere in this Prospectus and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such financial data when read
in conjunction with the Consolidated Financial Statements and notes thereto
included elsewhere in this Prospectus. These historical results are not
necessarily indicative of the results to be expected in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JANUARY 31, ENDED JULY 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ 30,914 $ 31,231 $ 34,981 $ 39,297 $ 46,081 $ 21,544 $ 28,983
--------- --------- --------- --------- --------- --------- ---------
Costs and expenses:
Costs of instruction and services.................. 18,811 18,061 19,406 22,227 26,076 12,497 15,786
Selling and promotional............................ 5,640 5,464 6,259 6,371 7,884 3,835 5,059
General and administrative......................... 4,244 2,765 2,844 3,727 4,052 1,776 2,675
Provision for doubtful accounts.................... 2,849 1,375 1,996 3,313 2,613 1,318 1,284
Amortization of intangibles........................ 523 427 408 393 363 181 181
--------- --------- --------- --------- --------- --------- ---------
32,067 28,092 30,913 36,031 40,988 19,607 24,985
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before interest........................ (1,153) 3,139 4,068 3,266 5,093 1,937 3,998
Interest expense (income), net....................... 2,935 2,049 1,356 948 96 256 (214)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes, discontinued
operations, extraordinary item and cumulative effect
of accounting change................................ (4,088) 1,090 2,712 2,318 4,997 1,681 4,212
Provision for income taxes........................... -- 321 1,124 1,131 2,078 772 1,748
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing operations before
discontinued operations, extraordinary item and
cumulative effect of accounting change.............. $ (4,088) $ 769 $ 1,588 $ 1,187 $ 2,919 $ 909 $ 2,464
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Income per share from continuing operations(1)(2).... $ 0.43 $ 0.77 $ 0.28 $ 0.54
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of shares
outstanding(1)(2)................................... 2,737 3,798 3,248 4,581
Fully diluted income per share from continuing
operations(3)....................................... $ 0.52
---------
---------
Fully diluted weighted average number of shares
outstanding(3)...................................... 4,738
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
----------------------------------------------------- JULY 31,
1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 2,728 $ 2,266 $ 4,388 $ 4,753 $ 8,260 $ 11,294
Total current assets.............................. 15,855 14,681 21,210 29,968 29,635 35,031
Total assets...................................... 39,530 32,964 36,011 39,922 39,808 48,001
Total current liabilities......................... 18,811 19,823 16,286 18,460 21,093 26,056
Long-term liabilities............................. 18,795 10,834 13,764 12,342 1,559 1,698
Total stockholders' equity........................ 1,925 2,307 5,961 9,120 17,156 20,247
</TABLE>
- ------------------------------
(1) Pro forma for all periods except six months ended July 31, 1996.
(2) For six months ended July 31, 1996, income per share from continuing
operations is equal to income from continuing operations divided by the
weighted average number of shares outstanding. For years ended January 31,
1995 and 1996 and six months ended
15
<PAGE>
July 31, 1995, the pro forma income per share is equal to income from
continuing operations divided by the unaudited pro forma weighted average
number of shares outstanding. The unaudited pro forma weighted average
number of shares outstanding is based upon the number of common shares and
common share equivalents from stock options outstanding using the treasury
stock method.
(3) Fully diluted income per share from continuing operations for six months
ended July 31, 1996 is equal to income from continuing operations divided by
the fully diluted weighted average number of shares outstanding. The fully
diluted weighted average number of shares outstanding is based upon the
number of common shares and dilutive common share equivalents from stock
options outstanding using the treasury stock method.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company provides information technology education and training to over
7,000 students annually. The Company designs programs and courses to meet
current information technology education needs, offering instruction in rapidly
growing technologies such as client/server, databases, networking and
object-oriented programming through its 11 Learning Centers in California,
Illinois, Pennsylvania, Texas and Virginia. The Company's Learning Centers in
Garland and Houston, Texas commenced operations in January 1996, and its
Learning Center in Plymouth Meeting, Pennsylvania commenced operations in
February 1996.
The Company derives approximately 94% of its revenues from tuition, with the
remaining revenues derived from sales of books and fees charged directly to
students. The Company enrolls students on a monthly basis and delivers its
curricula over an 8- to 16-month period for full-time students and over a 16- to
32-month period for part-time students. The Company's revenues in any period are
directly related to the number of enrolled students (or student population), the
number of new enrollments and the student retention rate.
The majority of the Company's students qualify for financial assistance
under various government-supported student financial aid programs, especially
the Title IV Programs, and the Company is highly dependent on the continued
availability of government-supported student financial aid. Because students in
the Company's Advantec Institute ("AI") courses are not eligible to participate
in the Title IV Programs, revenues from the AI courses are received from
companies, government agencies and individuals that participate or sponsor
employees enrolled in these training programs.
An institution's eligibility to participate in the Title IV Programs is
subject to compliance with numerous regulations, including regulations
concerning default rates on federally guaranteed student loans made to the
institution's students. Because certain student loan default rates at the
Chicago and Philadelphia Learning Centers have in the past exceeded applicable
regulatory thresholds, the future eligibility of those Learning Centers, which
accounted for approximately 11.0% and 16.7%, respectively, of the Company's
revenues for fiscal 1996, to participate in some or all of the Title IV Programs
is uncertain. The Company has appealed the calculation of certain of these
Learning Centers' default rates and believes the Learning Centers will remain
eligible to participate in the Title IV Programs pending the resolution of the
appeals. However, if the eligibility of either the Chicago or Philadelphia
Learning Center to participate in some or all of the Title IV Programs were to
be interrupted for any reason, the interruption of eligibility would thereafter
have a material adverse effect on the Company. See "Financial Aid and Regulation
- -- Regulation of Federal Financial Aid Programs -- Student Loan Defaults."
To help control cohort default rates with respect to federally guaranteed
student loans, each Learning Center employs a professional management staff to
assist and educate student borrowers in understanding their rights and
responsibilities as borrowers under these student loan programs. Each Learning
Center contracts with a professional loan management company to provide further
assistance to the former student upon the student's graduation or withdrawal,
including making required contacts with the borrower. Tuition and other amounts
owed by students no longer enrolled are subject to varying collection risks. Of
these, the highest individual amounts are owed by students who
17
<PAGE>
withdraw early in the program, and the Company maintains a high level of
allowances for uncollectible receivables for accounts in this category. Students
who withdraw prior to reaching the midpoint of their academic programs will have
higher than normal account balances because they have not attended long enough
to receive the full amount of the financial aid available to them. Because such
students have not completed enough of their academic programs to find jobs
related to their computer education and training, many of them are not able to
pay the balances on their accounts. The Company maintains allowance for doubtful
accounts that it believes are adequate to absorb expected future losses on such
balances, and the levels of these allowance are analyzed not less frequently
than quarterly. To analyze the adequacy of the allowance, the Company classifies
student accounts receivable balances into several categories which include
withdrawn students, graduates and balances owed by third-party sponsors. Based
upon historical collection performance, the Company estimates its ability to
collect current student accounts receivable balances for each category when
determining the allowance for doubtful accounts. The allowance for doubtful
accounts so determined is compared to the previously recorded allowance, and any
resulting adjustment is made to the provision for doubtful accounts.
The Company manages the collection risks associated with student accounts
receivable for withdrawn students by utilizing personnel whose primary
responsibility is the collection effort. The collection effort includes
reviewing management reports detailing student accounts receivable balances,
following up on student delinquencies via telephone and/or letter and other
activities related to collection of student accounts receivable. In addition,
Company personnel help students overcome financial obstacles to completing their
educational programs by assisting students in finding part-time employment when
their own resources and financial aid are not adequate to meet their financial
needs. To assist in managing these collection risks, the Company is in the
process of centralizing the credit and collection function. See "Business --
Student Admissions and Retention."
Costs of instruction and services consist primarily of costs related to the
delivery and administration of the Company's programs, including faculty
compensation, salaries for administrative personnel who provide services
directly to students, the costs of educational materials sold, facility leases
and related occupancy costs, equipment rental and depreciation and amortization
of educational property and equipment. Selling and promotional costs consist
primarily of advertising, admission representative salaries and benefits and
other costs related to the selling and promotional functions. These costs are
expensed as incurred. General and administrative costs consist primarily of
salaries for administrative personnel, occupancy costs, depreciation and
amortization of property and equipment, legal expenses and other related costs
for functions such as executive management, corporate accounting, human
resources, regulatory compliance, product strategy and curricula development,
new business development and other functions that do not provide direct services
to the Company's students. Provision for doubtful accounts represents the
Company's provision for doubtful student accounts receivable. Amortization of
intangibles consists primarily of amortization of intangible assets resulting
from the Company's original acquisition of six Learning Centers.
RECAPITALIZATION
In addition to providing information technology education and training, the
Company, through its subsidiaries Blessing/White Inc. ("Blessing/White"),
Comprehensive Learning Concepts (UK) Limited ("UK Ltd") and Mohr Development
("Mohr"), also previously provided professional management and development
training services to corporations. In May 1995, the Company transferred $500,000
cash and its shares of UK Ltd and Mohr to Blessing/White, cancelled a related
note receivable from Blessing/White, distributed pro rata the outstanding common
stock of Blessing/White to the holders of common stock of the Company and
distributed pro rata the outstanding preferred stock of Blessing/White to the
holders of preferred stock of the Company (collectively, the
"Recapitalization").
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's consolidated
statements of operations as a percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JANUARY 31, JULY 31,
---------------------------------- ----------------------
1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Costs and expenses:
Costs of instruction and services............ 55.5 56.6 56.6 58.0 54.5
Selling and promotional...................... 17.9 16.2 17.1 17.8 17.5
General and administrative................... 8.1 9.5 8.8 8.3 9.2
Provision for doubtful accounts.............. 5.7 8.4 5.7 6.1 4.4
Amortization of intangibles.................. 1.2 1.0 0.8 0.8 0.6
----- ----- ----- ----- -----
88.4 91.7 89.0 91.0 86.2
----- ----- ----- ----- -----
Interest expense (income), net................. 3.9 2.4 0.2 1.2 (0.7)
----- ----- ----- ----- -----
Income from continuing operations before
income taxes.................................. 7.7% 5.9% 10.8% 7.8% 14.5%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
SIX MONTHS ENDED JULY 31, 1996 COMPARED WITH SIX MONTHS ENDED JULY 31, 1995
Revenues increased 34.9% to $29.0 million for the six months ended July 31,
1996 from $21.5 million for the comparable period of the prior year due
primarily to an increase in enrollments at the Company's existing Learning
Centers, the opening of three new Learning Centers during the period and the
growing popularity of the Company's longer programs, including Associate Degree
programs. Revenues from AI increased 82.0% to $961,000 for the six months ended
July 31, 1996 from $528,000 for the comparable period of the prior year due
primarily to an increase in the number of students trained and students
attending higher tuition programs.
Student enrollment for the six months ended July 31, 1996 was 4,094, a 31.4%
increase from the comparable period of the prior year. Student enrollment at
all of the Company's Learning Centers open for more than one year increased
18.6%, yielding an increase in same Center student population of 14.4%.
Costs of instruction and services increased 26.4% to $15.8 million for the
six months ended July 31, 1996 from $12.5 million for the comparable period of
the prior year due primarily to the direct costs necessary to support the
increase in the student population and the opening of three new Learning
Centers. These direct costs consist primarily of faculty and staff compensation
and related benefits and facilities costs, including rent and depreciation.
Costs of instruction and services as a percentage of revenues decreased to 54.5%
for the six months ended July 31, 1996 from 58.0% for the comparable period of
the prior year due to greater revenues being spread over the fixed costs related
to instructional services.
Selling and promotional expenses increased 34.2% to $5.1 million for the six
months ended July 31, 1996 from $3.8 million for the comparable period of the
prior year due primarily to increased marketing and advertising to support the
growth in enrollments and as a result of having three new Learning Centers
operating in the first six months of fiscal 1997 versus one new Learning Center
opened during the comparable period in the prior year. These three new Learning
Centers accounted for $738,000, or 56.7%, of the increase in selling and
promotional expenses. For the six months ended July 31, 1995, the Company
completed production of additional television commercials and related marketing
activities, which totalled $298,000. The Company anticipates incurring a similar
level of these expenses in the second half of fiscal 1997. Selling and
promotional expenses as a percentage of revenues decreased to 17.5% for the six
months ended July 31, 1996 from 17.8% for the comparable period of the prior
year.
19
<PAGE>
General and administrative expenses increased 50.0% to $2.7 million for the
six months ended July 31, 1996 from $1.8 million for the comparable period of
the prior year, due primarily to an increased number of personnel and increases
in salaries and related benefits associated with supporting the growth of the
business, as well as performance-based incentive compensation expense. General
and administrative expense as a percentage of revenues equalled 9.2% for the six
months ended July 31, 1996 compared to 8.3% for the comparable period of the
prior year.
Provision for doubtful accounts decreased 2.5% to $1,284,000 for the six
months ended July 31, 1996 from $1,318,000 for the comparable period of the
prior year. Provision for doubtful accounts as a percentage of revenues equalled
4.4% for the six months ended July 31, 1996 compared to 6.1% for the comparable
period of the prior year. This was primarily the result of improved financial
aid processing and improved credit and collection activities. During the six
months ended July 31, 1996, the Company also received approval to participate in
the Title IV Programs in the three new Learning Centers.
Amortization of intangibles equalled $181,000 for the six months ended July
31, 1996 and for the comparable period of the prior year as there has been no
change in the gross amount of the Company's only remaining intangible asset. The
asset consists of the Department of Education certifications, which have a
remaining life of approximately nine years.
The Company realized net interest income of $214,000 for the six months
ended July 31, 1996, compared to net interest expense of $256,000 for the
comparable period of the prior year primarily as a result of the 1996 interest
generated by invested cash balances and the 1995 repayment of debt from the
proceeds of the Company's initial public offering.
FISCAL 1996 COMPARED WITH FISCAL 1995
Revenues increased 17.3% to $46.1 million for fiscal 1996 from $39.3 million
for fiscal 1995 primarily due to the increased number of students attending
Learning Center programs, the addition of one Learning Center open for the full
fiscal year and the growth in AI enrollments. The number of students attending
Learning Center programs increased 15.4% to 4,884 in fiscal 1996 from 4,233 in
fiscal 1995, which was the result of student enrollment growth of 11.5% and
student population growth of 3.9% attributable to a greater percentage of
students enrolling in the longer programs such as Associate Degree programs. The
Lombard, Illinois center, the only new Learning Center which was operational for
the full fiscal year, contributed 3.8% of the enrollment growth and 3.3% of the
student population growth. Price increases for the year averaged approximately
2.0%.
Costs of instruction and services increased 17.6% to $26.1 million for
fiscal 1996 from $22.2 million for fiscal 1995 due primarily to the direct costs
necessary to support the increase in student population. These direct costs
consist primarily of faculty compensation, related benefits and depreciation.
The Company also had one new Learning Center that was operational for the first
year. Costs of instruction and services as a percentage of revenues remained the
same for fiscal 1996 as for fiscal 1995.
Selling and promotional expenses increased 23.4% to $7.9 million in fiscal
1996 from $6.4 million in fiscal 1995 due primarily to increased marketing and
advertising to support the growth in student enrollments and the addition of one
new Learning Center. Selling and promotional salaries and benefits increased by
$760,000 primarily as a result of the Lombard Learning Center being open for the
full year and additional admission personnel required to support the enrollment
growth. Advertising expenditures increased $721,000 due primarily to increased
television and radio advertising and direct mail activities. The Company also
completed the production of additional television commercials and marketing
activities during the year. These production and marketing services, for which
comparable expenditures were not made in fiscal 1995, totalled $306,000 in
fiscal 1996. The Company, however, expects to incur comparable production and
marketing expenses in future years. Excluding expenses for the new television
commercials, marketing activities and related advertising at the Lombard
Learning Center, selling and promotional expenses as a percentage of revenues
equaled 15.8% in fiscal 1996 compared to 16.2% in fiscal 1995.
20
<PAGE>
General and administrative expenses increased 10.8% to $4.1 million for
fiscal 1996 from $3.7 million for fiscal 1995, primarily as a result of the
increased costs of operating as a public company, including costs of investor
relations activities, regulatory compliance and credit and treasury
administration. These expenses were partially offset by a decrease in corporate
charges for management support and treasury management allocated from a former
subsidiary that was divested in May 1995. General and administration expenses as
a percentage of revenues decreased to 8.8% in fiscal 1996 from 9.5% in fiscal
1995.
Provision for doubtful accounts decreased 21.2% to $2.6 million in fiscal
1996 from $3.3 million in fiscal 1995. The primary reason for the decrease
relates to a July 1, 1994 change in federal refund policy and its effect on
accounts receivable due from withdrawn students. Under a regulation that became
effective July 1, 1994, the Learning Centers were unable to retain any Title IV
Program funds awarded to a student withdrawing prior to reaching the midpoint of
his or her program or of the first academic year of his or her program and such
student was individually responsible for the cost of training owed to the
institution after application of the relevant refund calculation. This change in
Department of Education refund requirements significantly increased the accounts
receivable from withdrawn students and, in turn, the risk of collection and
provision for doubtful accounts.
The Department of Education issued guidance effective April 1, 1995
modifying implementation of the July 1, 1994 regulation enabling the Company to
retain portions of the federal financial aid of students who withdraw prior to
the program or academic year midpoint. This modification, as well as improved
student financial aid processing and improved student receivable collection
activities, resulted in the decrease in the provision for doubtful accounts.
Provision for doubtful accounts as a percentage of revenues decreased to 5.7%
for fiscal 1996 from 8.4% for fiscal 1995.
Amortization of intangibles decreased to $363,000 in fiscal 1996 from
$393,000 in fiscal 1995 primarily due to a portion of the intangible assets
becoming fully amortized.
Net interest expense decreased 90% to $96,000 in fiscal 1996 from $948,000
in fiscal 1995 primarily as a result of the repayment of debt with proceeds from
the initial public offering and the interest income generated by invested cash
balances.
The income tax rate for fiscal 1996 decreased to 41.6% due primarily to a
reduction in state income taxes attributable to the reduction of interest income
on amounts owed from a subsidiary.
FISCAL 1995 COMPARED WITH FISCAL 1994
Revenues increased 12.3% to $39.3 million for fiscal 1995 from $35.0 million
for fiscal 1994 primarily due to an increase in the number of students attending
Learning Center programs and the introduction of several new programs. The
programs introduced continued the Company's migration to client/server
technology and associate degree programs. Revenues from these programs and the
AI courses represented 20.8% of revenues for fiscal 1995 and 7.9% of revenues
for fiscal 1994. Revenues from the operations diploma program, which was
eliminated in September 1993, represented 9.7% and less than 1.0% of revenues
for fiscal 1994 and fiscal 1995, respectively. In the same period, the number of
students attending Learning Center programs increased 3.8% and price increases
for Learning Center programs averaged approximately 2.4%. Excluding revenues
derived from the eliminated operations diploma program, revenues grew 23.5% from
fiscal 1994 to fiscal 1995.
Costs of instruction and services increased 14.4% to $22.2 million for
fiscal 1995 from $19.4 million for fiscal 1994 principally due to increases in
direct costs necessary to support the increase in the number of students
attending Learning Centers and the addition of new programs. These costs
included increased faculty salaries and benefits, depreciation expense and AI
start-up expenses. The depreciation expense increase was related to computer lab
additions for new programs, computer lab upgrades and accelerated depreciation
of computer software previously utilized to teach the eliminated operations
diploma program. The expense associated with accelerating the amortization of
the
21
<PAGE>
software due to technological change equaled approximately $318,000. Excluding
this accelerated depreciation, the costs of instruction and services would have
increased by 12.9% from fiscal 1994 to fiscal 1995.
Selling and promotional expenses increased 1.6% to $6.4 million for fiscal
1995 from $6.3 million for fiscal 1994 principally as a result of increases in
the selling and promotional costs of expanding AI courses.
General and administrative expenses increased 32.0% to $3.7 million for
fiscal 1995 from $2.8 million for fiscal 1994. This increase was principally
attributable to additional corporate expenses necessary to support the growth of
the business. These included increases in corporate salaries and employee
benefits, professional expenses pertaining to maintaining compliance with
government regulation and expenses to support the development of AI.
Provision for doubtful accounts increased 65.0% to $3.3 million for fiscal
1995 from $2.0 million for fiscal 1994. From fiscal 1994 to fiscal 1995, the
Company experienced a $1.5 million increase in accounts receivable from students
who had withdrawn. Because of the increased collection risk inherent in balances
owed by withdrawn students, the Company increased its allowance for doubtful
accounts for this category by $1.0 million. The primary reason for the increase
in the allowance and provision for doubtful accounts relates to the
above-described change in federal refund policy and its resultant effect on
accounts receivable due from withdrawn students. Prior to July 1, 1994, the
Company was allowed to retain a portion of any financial aid processed on behalf
of such a student based on the application of the relevant refund policy,
thereby reducing the student's indebtedness to the Company. This change in the
Department of Education refund requirements significantly increased the accounts
receivable from withdrawn students, which also increased the risk of collection
and resulted in increases in the allowance for doubtful accounts and the related
provision. The Department issued guidance modifying the July 1, 1994 regulation
so the Company again can retain portions of federal financial aid of students
who withdraw prior to the program or academic year midpoint.
Amortization of intangibles decreased 3.7% in fiscal 1995 from fiscal 1994
due to several intangible assets reaching full amortization.
Interest expense decreased 32.3% to $948,000 for fiscal 1995 from $1.4
million for fiscal 1994 principally as a result of the Company maintaining lower
levels of average outstanding debt during fiscal 1995.
The income tax rate for fiscal 1995 was 48.8% which exceeds historical
levels principally due to the fact that the Company fully utilized all state net
operating loss carry forwards in fiscal 1994. Prior to May 1995, state taxable
income included interest income on amounts owed from a subsidiary, which caused
disproportionately higher state income tax rates. Upon completion of the
Recapitalization, such interest income was eliminated.
22
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth unaudited quarterly financial data from
continuing operations for each of the six quarters in the period ended July 31,
1996 and such data expressed as a percentage of the Company's revenues for the
respective quarters. The Company believes that this information includes all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of such quarterly information when read in conjunction with
the Consolidated Financial Statements and notes thereto included elsewhere in
this Prospectus. The operating results for any quarter are not necessarily
indicative of the results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------
APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31,
1995 1995 1995 1996 1996 1996
---------- ---------- ---------- ---------- ---------- ----------
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues............................................ $ 10,885 $ 10,659 $ 12,363 $ 12,174 $ 14,006 $ 14,977
---------- ---------- ---------- ---------- ---------- ----------
Costs and expenses:
Costs of instruction and services................. 6,301 6,196 6,654 6,925 7,539 8,247
Selling and promotional........................... 1,885 1,950 2,148 1,901 2,485 2,574
General and administrative........................ 933 843 1,019 1,257 1,185 1,490
Provision for doubtful accounts................... 796 522 790 505 748 536
Amortization of intangibles....................... 90 91 91 91 90 91
---------- ---------- ---------- ---------- ---------- ----------
10,005 9,602 10,702 10,679 12,047 12,938
---------- ---------- ---------- ---------- ---------- ----------
Income before interest.............................. 880 1,057 1,661 1,495 1,959 2,039
Interest expense (income), net...................... 189 67 (71) (89) (104) (110)
---------- ---------- ---------- ---------- ---------- ----------
Income from continuing operations before
income taxes....................................... 691 990 1,732 1,584 2,063 2,149
Provision for income taxes.......................... 337 435 729 577 856 892
---------- ---------- ---------- ---------- ---------- ----------
Income from continuing operations................... $ 354 $ 555 $ 1,003 $ 1,007 $ 1,207 $ 1,257
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
AS A PERCENTAGE OF REVENUES:
Revenues............................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
---------- ---------- ---------- ---------- ---------- ----------
Costs and expenses:
Costs of instruction and services................. 57.9 58.1 53.8 56.9 53.8 55.1
Selling and promotional........................... 17.3 18.3 17.4 15.6 17.7 17.2
General and administrative........................ 8.6 7.9 8.2 10.3 8.5 9.9
Provision for doubtful accounts................... 7.3 4.9 6.4 4.2 5.3 3.6
Amortization of intangibles....................... 0.8 0.9 0.8 0.7 0.7 0.6
---------- ---------- ---------- ---------- ---------- ----------
91.9 90.1 86.6 87.7 86.0 86.4
---------- ---------- ---------- ---------- ---------- ----------
Income before interest.............................. 8.1 9.9 13.4 12.3 14.0 13.6
Interest expense (income), net...................... 1.7 0.6 (0.6) (0.7) (0.7) (0.7)
---------- ---------- ---------- ---------- ---------- ----------
Income from continuing operations before
income taxes....................................... 6.4 9.3 14.0 13.0 14.7 14.3
Provision for income taxes.......................... 3.1 4.1 5.9 4.7 6.1 5.9
---------- ---------- ---------- ---------- ---------- ----------
Income from continuing operations................... 3.3% 5.2% 8.1% 8.3% 8.6% 8.4%
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
23
<PAGE>
The Company's quarterly revenues have fluctuated in the past and may
fluctuate significantly in the future as a result of a number of factors,
including fluctuations in the number of new students enrolling in the Company's
programs, changes in the Company's retention of students, the termination of
programs, the offering of new programs, the upgrading or lengthening of
programs, changes in tuition rates (including changes in response to pricing
actions by competitors), variations in collection experience on student accounts
receivable, changes in government-supported financial aid programs, modification
of applicable government regulations or interpretations, regulatory audits or
other actions by regulatory authorities and write-offs of assets due to program
changes, technological obsolescence and other factors.
Revenues and income from continuing operations for each quarter of fiscal
1996 and fiscal 1997 exceeded those of the comparable quarter of the prior
fiscal year. In four of the last six fiscal quarters, revenues increased over
the previous quarter due to growth in the Company's business as discussed under
"Overview" and "Results of Operations." For the quarter ended July 31, 1995, the
Company experienced a decline in revenues from the previous quarter, principally
as the result of the number of students attending Learning Centers programs
decreasing by 1%. For the quarter ended January 31, 1996, the decline in
revenues was principally due to a decision to delay starting certain classes in
several Learning Centers to provide more efficient scheduling.
SEASONALITY
New enrollments in Learning Center programs tend to be higher in the third
and fourth fiscal quarters than in the first and second fiscal quarters because
the third and fourth quarters include the times of year traditionally associated
with the beginning of school semesters. The Company believes it is less affected
by this seasonal pattern than many other educational institutions because it
permits students to enroll in and begin Learning Center programs in any month of
the year. In addition, the impact of seasonality in new enrollments on results
of operations has been moderated to some extent by growth in the number of
students attending Learning Center programs and the varying lengths of such
programs.
LIQUIDITY AND CAPITAL RESOURCES
During the last two fiscal years, the Company has financed its operating and
capital expenditure requirements principally through cash provided by operating
activities, including cash provided by discontinued operations. Cash provided by
operating activities for fiscal 1995, fiscal 1996 and the six months ended July
31, 1996 was $3.7 million, $7.0 million and $5.7 million, respectively.
Excluding cash flow provided by discontinued operations, cash provided by
continuing operations for fiscal 1995, fiscal 1996 and the six months ended July
31, 1996, was $1.3 million, $6.9 million and $5.7 million, respectively.
The Company's principal sources of funds at July 31, 1996 were cash and cash
equivalents of $11.3 million and net accounts receivable of $21.0 million.
In June 1995, the bank credit facility then in existence was retired with a
portion of the net proceeds from the Company's initial public offering. The
Company subsequently obtained a $5.0 million secured line of credit with a bank
to be used for working capital purposes. The interest rate on this line of
credit was the bank's prime rate plus 1.0% with a 0.25% annual fee paid on the
unused portion of the line. The line of credit expired in July 1996. The Company
is currently negotiating to renew the line of credit facility.
Historically, the Company's investment activity has primarily consisted of
capital asset purchases. Capital expenditures, including expenditures for
furniture, computer software and hardware and tenant improvements related to new
Learning Centers, were $2.1 million, $2.0 million and $3.0 million,
respectively, for fiscal 1995, fiscal 1996 and the six months ended July 31,
1996, respectively. To date, cash generated from operations has been sufficient
to fund capital expenditures. As of
24
<PAGE>
July 31, 1996, the Company had purchase orders for $291,000 of capital
expenditures. The Company leases substantially all of its facilities under
operating lease agreements. Existing future commitments will be paid from cash
provided by operating activities.
The Company plans to continue to expand current facilities, upgrade
equipment and open new Learning Centers. The Company expects fiscal 1997 capital
expenditures to be approximately $6.0 million. The capital expenditures for a
typical new Learning Center are estimated to be approximately $500,000 to
$1,000,000. The Company anticipates that its planned capital expenditures can be
funded through cash generated from operations.
A majority of the Company's revenues are derived from the Title IV Programs.
Disbursement of Title IV Program funds is dictated by federal regulations. For
students enrolled in programs of one academic year or less in length,
disbursements generally are made in two equal increments, one in the first 30
days following the student's enrollment in a program and the second when the
student reaches the midpoint of the program. For students enrolled in programs
greater than one academic year in length, disbursements also are made at the
beginning and midpoint of the subsequent academic year. Although the timing of
loan disbursements to the Company is subject to a student's directions to the
lender and to existing regulatory requirements regarding such disbursements, the
Company typically receives student loan funds upon their disbursement by the
lender. During fiscal 1996 and the six months ended July 31, 1996, the Company
collected approximately $44.0 million and $29.0 million, respectively, of
accounts receivable, which was utilized for operating activities, capital
expenditures and long-term debt repayments.
The Company believes the net proceeds to the Company from this offering, its
available cash on hand and cash provided by operating activities will be
sufficient to meet the Company's cash requirements for at least the next 12
months. Thereafter, the Company will continue to evaluate all sources of capital
available to it, including bank financing and additional equity or debt
offerings, to satisfy ongoing working capital and capital expenditure
requirements.
25
<PAGE>
BUSINESS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
Computer Learning Centers, Inc. ("CLC" or the "Company") provides
information technology and computer-related education and training. The Company
designs programs and courses to meet current information technology education
needs, offering instruction in rapidly growing technologies such as
client/server, databases, networking and object-oriented programming. Through
its accredited career programs, the Company offers Associate Degrees and
non-degree diplomas in five primary areas of study to adults seeking entry-level
jobs in information technology: business applications; electronics, systems and
hardware; programming; networking; and business applications with networking. In
addition to its traditional career and Associate Degree programs, the Company
offers its Advantec Institute ("AI") courses in intensive two- to six-week
formats for the continuing education and training of information technology
professionals. The Company enrolls over 7,000 students annually at its 11
locations in California, Illinois, Pennsylvania, Texas and Virginia. The
Company's Learning Centers in Garland and Houston, Texas commenced operations in
January 1996, and its Learning Center in Plymouth Meeting, Pennsylvania
commenced operations in February 1996.
THE INFORMATION TECHNOLOGY EDUCATION AND TRAINING MARKET
The rapidly growing role of information technology in business and
government organizations is creating a significant and increasing demand for
information technology education and training. The factors driving this growth
in demand include the following:
- The increasing use of computers in the work place requires employees to
acquire and apply information technology skills. According to the United
States Department of Labor, the percentage of the American workforce using
computers on the job increased from 25% in 1984 to 47% in 1993. The
Department of Labor estimates that by 2005 over 5.9 million additional job
openings will be created in occupations requiring information technology
skills.
- Information technology is evolving rapidly, often requiring those already
skilled in the field to learn new technologies or broaden their
understanding of existing applications. Examples include the widespread
migration by businesses from legacy mainframe computer systems to
client/server architectures and from conventional software technologies to
more contemporary approaches, such as relational databases, groupware and
object-oriented programming.
- As corporate and governmental restructuring continues and employers seek
to improve productivity, an increasing number of functions are being
automated. As a result, corporate and government organizations need to
educate and train existing employees and displaced workers in a broader
range of software applications and other information technology skills.
- According to the Department of Education, the number of students
graduating from high school is expected to increase by approximately 20%
from 1994 to 2000, reversing a 13-year downward trend. This growth will
enlarge the pool of candidates for career-oriented education and training,
including education and training in information technology skills.
Providers of information technology education and training include
vocational and technical training schools, degree-granting colleges and
universities, continuing education programs and commercial training programs.
Vocational and technical training schools range from relatively small local
schools focused on teaching a single or limited number of skills to larger
institutions that offer information technology training as a subset of a more
diversified curriculum. Colleges and universities are structured primarily to
serve the needs of the full-time 18- to 24-year old student through four-year
programs that are lecture-based and focused on a theoretical presentation of the
subject matter rather than on teaching specific career-oriented skills.
Continuing education programs tend to cover a broad range of technical and
non-technical topics, and such programs generally do not focus on
26
<PAGE>
providing career placement for their students. Commercial training providers
generally offer fast-paced, one- to five-day courses that are based on the
assumption that individuals have a basic familiarity with information technology
concepts.
THE CLC APPROACH
The Company has designed a series of programs it believes are uniquely
suited to meet the information technology education and training needs of adults
pursuing information technology-related careers. In addition to its traditional
career programs aimed at equipping students for entry-level jobs, the Company
offers advanced, intensive skill-building courses through its AI course
offerings targeted to information technology professionals. The Company intends
to leverage its relationships with past graduates and employers, its career
program facilities and its resources and market responsiveness to expand its
presence in the professional education and training market.
The Company's traditional career programs are designed to meet the needs of
adult students in a number of ways. The focused nature of each program of study
enables full-time students to complete their education and training and enter
the work force in as little as 8 to 16 months, while maintaining eligibility for
financial aid programs. CLC's program schedules are designed to accommodate its
students' need for flexibility through programs offered in modular formats with
new program start dates each month and convenient morning, afternoon and evening
hours. Each Learning Center is equipped with up-to-date computer hardware and
software for students' in-class use, and each program requires students to spend
at least 50% of their in-school time working directly on a computer. Learning
Center faculty members generally have direct experience working in the
information technology industry, enabling them to provide students with useful
career-related insights and guidance in connection with education and training.
CLC designs and operates its programs to provide students with efficient access
to various forms of government-supported financial assistance as well as private
financing sources. Finally, CLC provides its students with job placement
assistance, including assistance with resume writing, interview preparation and
employment searches for recent graduates and alumni.
The Company's AI programs are marketed directly to individuals, commercial
organizations and government employees. AI programs provide ongoing technology
training to information technology professionals through intensive two- to
six-week programs that focus on current and emerging technologies. AI programs
provide immediate skills training in technologies such as networking,
client/server, programming, databases and the Internet. Programs are offered at
AI training facilities in Tysons Corner, Virginia and Laurel, Maryland and at
client sites.
BUSINESS STRATEGY
The Company's objective is to strengthen and expand its position as one of
the leading providers of information technology education and training programs
for adults. To achieve this objective, the Company employs the following key
strategies:
ESTABLISH NEW LEARNING CENTERS. The Company has opened three new Learning
Centers since January 1996 and plans to increase the number of its Learning
Centers throughout the United States. The expansion will include opening new
Learning Centers in areas of the country that the Company currently serves, as
well as establishing Learning Centers in new geographical areas. The Company
plans to open its Learning Center in Laurel, Maryland (where the Company
currently operates an AI facility) in the third quarter of fiscal 1997 and is
currently completing lease negotiations for a Learning Center in Detroit,
Michigan and an additional Learning Center in Dallas, Texas.
BROADEN AVAILABILITY OF ASSOCIATE DEGREE PROGRAMS. The Company is focused
on increasing the availability of its existing Associate Degree programs at each
of the Learning Centers. The Company currently offers Associate Degree programs
at seven Learning Centers. The Company believes that expanding its current
degree-granting programs at existing Learning Centers and increasing scheduling
flexibility will enhance CLC's appeal to a larger population of students.
27
<PAGE>
DEVELOP NEW PROGRAMS/ENHANCE EXISTING PROGRAMS. The Company will continue
to capitalize on new market opportunities by monitoring changes in the
information technology industry and developing new education and training
programs or enhancing current offerings in response to those changes. The
Company is currently evaluating programs or program enhancements in Windows NT,
client/server programming applications, the Internet and communications. The
Company maintains relationships with a wide network of employers who provide the
Company with data on trends related to computer and information technology
skills.
EXPAND ADVANTEC INSTITUTE. The Company plans to increase the number of AI
course offerings and to expand its AI programs to new locations. The Company
intends to continue leveraging its existing relationships with past graduates
and employers and its resources and market responsiveness to meet the
information technology education and training requirements within companies and
government agencies.
IMPROVE STUDENT OUTCOMES. The Company continually seeks to improve the
graduation and placement rates at its Learning Centers by providing extensive
academic services and placement assistance. The Company offers tutoring,
academic counseling and other services to its students to help them complete
their programs of study. In addition, the Company helps students prepare
resumes, conduct employment searches and sharpen interviewing skills through its
Graduate Placement Services Resource Center.
COMPANY PROGRAMS
CLC has designed a series of programs to meet the information technology
education and training needs of career-minded adults. In addition to its
traditional career programs aimed at preparing students for entry-level jobs,
the Company offers its AI courses for the continuing education and training of
information technology professionals.
CAREER PROGRAMS
The Learning Centers offer comprehensive career programs of study in five
areas of information technology: business applications; electronics, systems and
hardware; programming; networking; and business applications with networking.
Each career program is designed to teach the comprehensive information
technology skills required to obtain an entry-level job in the targeted
information technology field. The Company offers career programs that allow
students to receive either a diploma or a degree. Each diploma program generally
follows a standard format ranging in length from 8 months for full-time students
to 16 months for part-time students. Seven Learning Centers offer Associate
Degree programs in electronics, systems, and hardware; business applications;
and programming. These Associate Degree programs combine the curricula from a
diploma program with state-mandated general education requirements and
additional advanced material to create 16-month (full-time) or 32-month
(part-time) programs. Program curricula are generally uniform across all
Learning Centers and are offered in morning, afternoon and evening sessions
depending on market demand. Over the next 12 months, the Company intends to
migrate its programming curriculum for both the career and degree-granting
programs to a client/server curriculum based on C++ object-oriented programming
applications.
28
<PAGE>
The following chart shows career programs offered by location as of July 31,
1996.
<TABLE>
<CAPTION>
ELECTRONICS, SYSTEMS
BUSINESS APPLICATIONS
LEARNING CENTER AND HARDWARE
ASSOCIATE ASSOCIATE
DIPLOMA DEGREE DIPLOMA DEGREE
<S> <C> <C> <C> <C>
Alexandria, VA - - - -
Anaheim, CA - -
Chicago, IL -
Garland, TX -
Houston, TX -
Los Angeles, CA - - - -
Philadelphia, PA - - - -
Plymouth Meeting, PA - -
San Francisco, CA - -
San Jose, CA - -
Schaumburg, IL -
<CAPTION>
BUSINESS
APPLICATIONS
LEARNING CENTER PROGRAMMING NETWORKING W/NETWORKING
ASSOCIATE
DIPLOMA DEGREE DIPLOMA DIPLOMA
<S> <C> <C> <C> <C>
Alexandria, VA - - - -
Anaheim, CA - - - -
Chicago, IL - - -
Garland, TX - -
Houston, TX - -
Los Angeles, CA - - - -
Philadelphia, PA - - - -
Plymouth Meeting, PA - - - -
San Francisco, CA - - - -
San Jose, CA - - - -
Schaumburg, IL - -
</TABLE>
Career programs are delivered year-round in a modular format that provides
monthly start dates and allows students to complete their education in less time
than the Company believes is possible at many other institutions. Each program
consists of 8 to 16 modules, with each module lasting approximately one month
for full-time students and consisting of a single course within an intensive and
focused format. Full-time students typically attend classes for four to five
hours per day, five days per week, with sessions available three evenings per
week for part-time students.
The Company believes several factors help to ensure that graduates of CLC
career programs are prepared to enter the work force. In CLC's career programs,
students spend at least 50% of their time in computer labs performing hands-on
workplace simulations and their remaining time in classrooms attending lectures
and participating in group discussions. Each module is delivered according to an
outline and instructor's guide that ties an appropriate textbook or books
together with visual aids and lab activities to achieve a specific set of
student performance outcomes and proficiencies. To foster a professional work
environment, the Company requires that students attend classes in business
attire. The Company designs and updates curricula to meet current information
technology industry standards, offering instruction in widely-used computer
applications and information technologies to provide students with marketable
skills. In addition, the Company regularly evaluates its curricula and
eliminates those elements relating to technologies that have become obsolete or
offer significantly fewer or less attractive job opportunities for graduates.
The primary focus of each career program is to prepare students for
employment in their fields of study upon graduation. Graduates of the business
applications program have obtained employment as PC specialists, help desk
administrators and executive, technical and accounting support personnel.
Graduates of the electronics, systems and hardware program have obtained
employment as technicians in computer support and network installation and as
specialists in the repair of commercial and industrial data processing
equipment. The Company's programming curriculum prepares graduates for
employment as computer programmers, database administrators and systems
analysts. The networking program is designed to prepare students to obtain
certification as Certified Novell Engineers and to obtain employment as network
administrators, engineers and systems analysts.
Tuition is fixed at the time of a student's initial enrollment. At July 31,
1996, tuition ranges were from $8,250 to $13,500 for diploma programs and from
$15,210 to $17,860 for Associate Degree programs.
29
<PAGE>
ADVANTEC INSTITUTE
The Company currently offers AI courses at its Tysons Corner, Virginia and
Laurel, Maryland sites, as well as at client locations. Through AI, the Company
delivers training in two- to six-week intensive programs designed to enhance the
skills of information technology professionals. The AI programs currently
offered include local area network engineering using Novell NetWare and
Microsoft NT network operating systems, application development using Oracle 7
and Microsoft (MCSE) development tools, UNIX system administration, C and C++
programming languages and Internet programming languages Java and Perl. Although
AI courses are aimed at a different market segment than the Company's
traditional career programs, the courses may utilize the same faculty and other
resources and are offered within existing Learning Centers as well as at client
locations.
As of July 31, 1996, tuition ranges for AI courses were from $3,500 to
$6,995. The Company has provided more than 3,200 days of AI training to
approximately 700 employees of numerous companies and government organizations,
including Bell Atlantic Corporation, GTE Corporation, Hughes Aircraft
Corporation, International Business Machines Corporation, PRC/Litton, Inc., TRW
Inc., the United States House of Representatives and the United States
Department of Defense.
CURRICULUM CRITERIA, REVIEW AND DEVELOPMENT
The Company has established specific criteria for its programs. Each career
program is designed to prepare students for information technology-related
entry-level jobs, while each AI course is designed for the retraining or ongoing
training of information technology professionals. Career and AI courses are
designed to (i) engage adult students by employing hands-on teaching methods;
(ii) train students in computer technology widely used in the work place; (iii)
respond to market requirements and train students to satisfy those requirements;
and (iv) optimize use of the Company's resources.
The Company uses several means to ensure that its programs meet these
criteria. The Company regularly solicits input directly from employers through a
system of Employer Advisory Groups in each of its geographic market areas. These
advisory groups meet regularly to discuss the skills required in the information
technology field as well as to identify industry trends. In addition, an
independent marketing research firm conducts monthly student surveys to help the
Company monitor faculty, course and school effectiveness and to gather student
input. Historically, student surveys have identified opportunities for
improvement and have provided a means of setting quantitative benchmarks. The
Company maintains an internal Strategic Product Planning Group that includes
senior managers, faculty and other employees. This group meets regularly to
analyze input from market research, the Employer Advisory Groups, students,
faculty consultants and management. The Strategic Product Planning Group uses
the input to guide the Company's strategic direction and to make recommendations
regarding the Company's curricula. Curriculum recommendations are referred to
faculty subject matter experts and academic managers for review prior to formal
development by curriculum project leaders.
STUDENT CHARACTERISTICS
The Company's programs are targeted at adults seeking to expand their career
opportunities through the acquisition of technical skills and knowledge. At
January 31, 1996, approximately 55.6% of CLC's students were college graduates
or had some college experience, including 10.9% who had four-year college
degrees or higher levels of educational attainment and 7.2% who had two-year
degrees. At that time, 39.7% of CLC's students were between 18 and 24 years of
age, 35.5% were between 25 and 34, and 24.8% were over 35. Approximately 56.2%
of the student population was male and 43.8% was female.
AI students typically are employed by companies and government agencies in
positions that require periodic training in current information technology.
Generally, these students are relatively sophisticated and knowledgeable users
of computers and related technology.
30
<PAGE>
STUDENT RECRUITMENT
The Company engages in a broad range of activities to make prospective
students aware of the programs of study available at the Learning Centers. These
activities include television, radio and newspaper advertising, direct mail
campaigns and listings in the yellow pages. Currently, all advertising is
directed at local markets where Learning Centers are located. The Company
monitors the effectiveness of its various marketing efforts by measuring the
number of resulting student enrollments. The Company estimates that for fiscal
1996, approximately 47% of its enrollments resulted from television advertising
and approximately 24% of its enrollments resulted from referrals by current
students and graduates.
The television advertising for each Learning Center is developed and
coordinated by CLC's senior management. All advertising includes a local
telephone number for direct responses and information about the Learning Center.
These responses are received by the admissions department of each Learning
Center, where the direct responses are recorded and tracked and then forwarded
to an admissions representative who responds to student inquiries. All
prospective student inquiries are handled at the local level, where an
admissions representative is assigned to each student from initial contact to
graduation.
The Company markets its AI courses to information technology professionals,
companies and government agencies through print advertising, direct mailings,
telemarketing, radio, trade shows and conferences. The Company employs a sales
staff that pursues potential customer contacts resulting from these marketing
efforts.
STUDENT ADMISSIONS AND RETENTION
The Company maintains admissions standards that require each career program
student to have proof of a high school diploma or a recognized equivalent such
as a General Education Development (GED) certificate. In addition, all career
program students must achieve a qualifying score on a scholastic level aptitude
exam recognized and approved by the Department of Education. The Company
believes admission requirements are important in ensuring that incoming career
program students have the necessary academic background and abilities to
complete their selected program of study.
Each Learning Center employs one director of admissions who oversees a staff
of admissions representatives. Admissions policies and procedures are
established centrally and are monitored both centrally and locally. Admissions
representatives are responsible for scheduling an initial appointment with an
interested candidate, interviewing the candidate to determine whether he or she
meets admissions qualifications and has the necessary motivation and ability to
complete the Learning Center's intensive programs of study, testing the
candidate to determine his or her aptitude for different programs and counseling
qualified candidates about available career paths. The Company's internal
compliance department reviews the admissions processes and practices of the
individual admissions representatives to monitor compliance with the Company's
policies and applicable state and federal requirements.
The Company focuses significant staff resources on assisting students to
overcome the academic, financial and personal obstacles that can interfere with
a student's ability to complete his or her career program. Each Learning Center
employs a student services manager/counselor who is available to counsel
students encountering problems that interfere with their education. To help
students overcome financial obstacles, the Company assists students in finding
part-time employment when their resources in combination with available
financial aid are not adequate to meet their financial needs. Learning Centers'
management, faculty and staff performance is measured in part by their ability
to ensure that students complete their programs of study. Curricula are designed
to include frequent progress reviews and performance measurements of both
students and faculty. Tutoring is available and encouraged for students who need
additional academic assistance. Student withdrawals
31
<PAGE>
prior to program completion have a negative regulatory, financial and marketing
effect on an educational institution. The average withdrawal rates as calculated
under federal regulation then in effect for Learning Centers for the eight-month
periods ended June 30, 1994 and 1995 were 26.4% and 21.9%, respectively.
GRADUATE PLACEMENT SERVICES
The Graduate Placement Services Resource Center is a vital component of each
Learning Center's programs. It maintains job postings, coordinates employers'
recruiting efforts, provides on-line job search capabilities and maintains a
library of career and job search related publications. All career program
students are required to attend a 20-hour career development course, which is a
series of seminars related to resume writing, interview preparation and
employment searches.
The Company seeks to obtain data on the number of its students employed
following graduation. The reliability of this data is largely dependent on
information that students and employers provide to the Company. The Company
believes that for the 12-month periods ended June 30, 1994 and 1995,
approximately 82% and 85%, respectively, of its placeable graduates obtained
employment in a field related to their program of study. Placeable graduates
excludes graduates who did not actively pursue employment, were not seeking
employment due to pregnancy or health-related situations, continued their
education or entered military service.
Based on information from students and employers who have responded to
inquiries from the Company, the Company estimates the average annual starting
salaries reported for fiscal 1996 graduates of certain programs offered by CLC
who obtained employment in fields related to their education were as follows:
<TABLE>
<CAPTION>
AVERAGE
LEARNING CENTER ANNUAL
GRADUATES STARTING
PROGRAM PLACED SALARY
<S> <C> <C>
Business Applications
(Associate Degree and Diploma) 1,259 $ 19,162
Programming
(Associate Degree and Diploma) 1,166 $ 24,568
Electronics, Systems and Hardware
(Associate Degree and Diploma) 511 $ 22,426
Networking
(Diploma) 244 $ 34,000
Business Applications with Networking
(Diploma) 43 $ 21,319
</TABLE>
Average annual starting salaries for Learning Center graduates vary among
Learning Centers depending on local employment conditions and other factors.
Employers of CLC graduates include small technology-oriented companies as well
as major corporations and agencies and their affiliates, including America
Online, Inc., Aetna Life and Casualty Company, Bell Atlantic Corporation,
Electronic Data Systems, Inc., International Business Machines Corporation,
McDonnell Douglas Corporation, Sears, Roebuck and Co. and the University of
Pennsylvania.
FACULTY
The Company employs both full-time and part-time faculty who are hired in
accordance with criteria established by the Company, Accrediting Council for
Independent Colleges and Schools ("ACICS") and applicable state licensing
authorities. Faculty members are carefully selected on the basis of their
knowledge and experience in the information technology field and their ability
to develop each student's potential. Faculty members generally have both
significant industry experience and educational and technical backgrounds.
Faculty members participate in a regular and systematic
32
<PAGE>
program of in-house training to improve instruction and curricula. Faculty
members participate in educational associations, professional organizations and
continuing education in their respective fields.
After completing each module, students evaluate faculty using a confidential
survey prepared and distributed directly to students by an independent marketing
research firm. The survey asks students to rate the faculty on effectiveness,
fairness, delivery and course content. The Company believes that survey results
are an effective quantitative means of providing clear benchmarks for continuous
quality improvement in the delivery and content of its programs.
ADMINISTRATION AND EMPLOYEES
Each Learning Center is managed by a local administrative team headed by a
director who is accountable for the profitability, regulatory compliance,
maintenance of educational quality and placement success of the Learning Center.
Each director may report to an area manager who oversees the activities of
several Learning Centers grouped by geographic region. Learning Center directors
work closely with the area managers to implement marketing plans and curricula,
expand capacity and maintain facilities. The Company encourages Learning Center
directors to act autonomously in responding to local market conditions. Learning
Center directors report either directly or through an area manager to the
Company's Chief Operating Officer.
Each local administrative team also includes a director of admissions, a
financial aid administrator, a business office manager, a director of education
and a director of placement. As of July 31, 1996, the Company employed
approximately 501 full-time and 201 part-time employees. In addition, the
Company employed 102 CLC students under the Federal Work-Study Program. None of
the Company's employees is represented by a labor union or is subject to a
collective bargaining agreement. The Company has never experienced a work
stoppage and believes that its employee relations are satisfactory.
FACILITIES
All CLC facilities are leased by the Company. The table below sets forth
certain information regarding these facilities as of July 31, 1996.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
LOCATION FOOTAGE
- ---------------------------------------------------------------------- ------------
<S> <C>
Alexandria, VA........................................................ 51,000
Anaheim, CA........................................................... 22,000
Chicago, IL........................................................... 22,000
Fairfax, VA(1)........................................................ 6,800
Garland, TX........................................................... 13,800
Houston, TX........................................................... 14,000
Laurel, MD(2)......................................................... 18,400
Lombard, IL(3)........................................................ 6,000
Los Angeles, CA....................................................... 36,000
Philadelphia, PA...................................................... 29,000
Plymouth Meeting, PA.................................................. 3,400
San Francisco, CA..................................................... 16,000
San Jose, CA.......................................................... 20,000
Schaumburg, IL(3)..................................................... 15,000
Tysons Corner, VA(4).................................................. 5,600
------------
Total............................................................... 279,000
------------
------------
</TABLE>
- ------------------------
(1) Corporate headquarters.
(2) Advantec Institute site and proposed Laurel Learning Center site.
(3) Lombard Center relocated to Schaumburg in June 1996.
(4) Advantec Institute site.
33
<PAGE>
Learning Center site selection is based upon a number of factors, including
population density, incomes, occupations, education levels, projected demand for
CLC's programs, concentration of technology-oriented employers and applicable
state and accrediting agency requirements. The Company believes its facilities
are in all material respects suitable, adequate and well-utilized.
COMPETITION
The postsecondary adult education and training market is highly fragmented,
with no single institution or company holding a dominant market share. The
Company competes for students with vocational and technical training schools,
degree-granting colleges and universities, continuing education programs and
commercial training programs. Certain public and private colleges may offer
programs similar to those of the Learning Centers at a lower tuition cost due in
part to government subsidies, foundation grants, tax deductible contributions or
other financial resources not available to proprietary institutions.
The Company believes that the Learning Centers' fast paced and intensively
focused programs in information technology education and training help the
Company to attract students. Students may choose CLC over its competitors
because of the Company's broad course offerings, relatively short programs,
placement services, reputation and starting salaries after graduation. Students
may choose CLC instead of a four-year college because they want to enter the
work force in a shorter period of time or because a four-year institution does
not provide students with the type of focused, comprehensive program that CLC
offers. In addition, flexible afternoon and evening courses allow students to
maintain their current jobs while attending the Company's programs.
34
<PAGE>
FINANCIAL AID AND REGULATION
FINANCING STUDENT EDUCATION
The majority of Learning Center students participate in one or a combination
of several of the federally supported student financial aid programs. The
majority of the Company's revenues (approximately 72% in fiscal 1996) are
derived from the federal student financial aid programs under Title IV (the
"Title IV Programs") of the Higher Education Act of 1965, as amended (the
"HEA").
CLC's financial aid programs are designed to provide financial assistance to
students who are enrolled or accepted for enrollment but whose financial
resources are inadequate to meet the full cost of their education. Eligibility
is determined on the basis of financial need, defined as the difference between
the cost of a program of study and the amount a student can reasonably be
expected to contribute to education expenses. The Company uses the national
standard need analysis system established in the HEA to determine a student's
need for Title IV Program funds. All recipients of financial aid must maintain a
satisfactory grade point average and progress toward completion of a career
program in order to participate in the financial aid programs.
Any shortfall between available federal student financial aid awards and a
student's need may be fulfilled by a Learning Center's own financing options. In
addition, certain of the federally-supported programs require the Company to
participate financially in the funding of these programs through legislatively
mandated formulas.
TITLE IV PROGRAMS
Students at the Learning Centers receive grants and loans to fund the cost
of their education under the following Title IV Programs: (i) the Federal Pell
Grant ("Pell") program, which accounted in aggregate for approximately 13.9% of
the Company's revenues in fiscal 1996; (ii) the Federal Supplemental Educational
Opportunity Grant ("SEOG") program, which accounted in aggregate for
approximately 1.5% of the Company's revenues in fiscal 1996; (iii) the Federal
Family Education Loan ("FFEL," formerly the Guaranteed Student Loan) program,
which accounted in aggregate for approximately 53.7% of the Company's revenues
in fiscal 1996 and includes the subsidized and unsubsidized Federal Stafford
Loan program (the latter of which replaced Federal Supplemental Loans for
Students ("SLS") loans in 1994) and PLUS (parental) loans; (iv) the Federal
Perkins loan ("Perkins") program, which accounted in aggregate for approximately
1.9% of the Company's revenues in fiscal 1996; (v) the Federal Work-Study
("Work-Study") program, under which federal funds are made available to provide
part-time employment to eligible students based on financial need and pursuant
to which the Learning Centers employed approximately 423 students and paid
$555,000 in total wages to these students in fiscal 1996; and (vi) the William
D. Ford Federal Direct Loan Program ("FDLP"), which accounted in aggregate for
approximately 1.0% of the Company's revenues in fiscal 1996 and which includes
the Federal Direct Stafford loans and the Federal Direct Student PLUS loans. The
SEOG, Perkins and Work-Study programs each require the institutions to make
matching contributions in the amount of 25% of all federal funds the institution
makes available under each program. In fiscal 1996, the 25% matching
contribution made by the Company amounted to $196,000 for the SEOG program,
$82,000 for the Perkins program and $139,000 for the Work-Study program.
AVAILABILITY OF LENDERS
For a variety of reasons, the number of lenders willing to make federally
guaranteed student loans to students at certain proprietary institutions has
declined in recent years. To date, however, this decline has not affected the
ability of Learning Center students to obtain federally guaranteed loans. One
lending institution currently provides approximately 46% of all loans obtained
by Learning Center students under the FFEL program. The Company believes that
other lenders would be willing to make such loans to its students if such loans
were no longer available from any of its current lenders. In addition, if an
eligible institution is unable to identify any lenders willing to make FFEL
program loans to the institution's students, the HEA requires that each state
secure the availability of a "lender of last resort" to make such loans. Lenders
of last resort are not required to provide PLUS loans, which accounted for
approximately 5.0% of the Company's revenues in fiscal 1996.
35
<PAGE>
One student loan guaranty agency currently guarantees nearly 47% of all FFEL
loans made to Learning Center students. The Company believes that other guaranty
agencies would be willing to guarantee loans to Learning Center students if any
of its existing guaranty agencies ceased guaranteeing such loans or reduced the
volume of loans guaranteed.
REGULATION OF FEDERAL FINANCIAL AID PROGRAMS
To obtain and maintain the participation of the Learning Centers in the
Title IV Programs, the Company must comply with specific standards set forth in
the HEA and the regulations promulgated thereunder by the Department of
Education. To participate in the Title IV Programs, an institution must obtain
certification by the Department of Education as an "eligible institution," which
requires, among other things, that the institution be authorized by the state
within which it operates to offer its educational programs and be accredited by
an accrediting agency recognized by the Department of Education as a reliable
authority as to the quality of the institution's educational programs.
The substantial amount of federal funds disbursed through Title IV Programs,
coupled with the large numbers of students and institutions participating in
them, have led to instances of fraud, waste and abuse. As a result, the United
States Congress has required the Department of Education to increase its level
of regulatory oversight of schools to ensure that public funds are properly
used. Each institution must annually submit to the Department of Education an
audit by an independent accounting firm of that institution's compliance with
Title IV Program requirements, as well as audited financial statements. The
Department of Education conducts compliance reviews, which include on-site
evaluations, of several hundred institutions each year and directs student loan
guaranty agencies to conduct additional reviews relating to student loan
programs. The Office of the Inspector General of the Department of Education
also conducts audits and investigations in certain circumstances. Under the HEA,
accrediting agencies also have responsibilities for overseeing institutions'
compliance with Title IV Program requirements. As a result, each participating
institution, including each of the Learning Centers, is subject to frequent and
detailed oversight and must comply with a complex framework of laws and
regulations or risk being required to repay funds or becoming ineligible to
participate in the Title IV Programs.
Certain elements of the regulatory scheme applicable to the Company and the
Learning Centers are described below. Except as otherwise noted below, the
Company must comply with applicable regulatory standards separately with respect
to each Learning Center. For the purposes of these standards, an institution is
defined as a main campus and any additional locations of that campus. Of the 11
Learning Centers, seven are considered to be main campuses and four are
additional locations of a main campus. All 11 Learning Centers currently
participate in the Title IV Programs.
STUDENT LOAN DEFAULTS
Under the HEA, an educational institution may lose its eligibility to
participate in some or all of the Title IV Programs if defaults on the repayment
of federally guaranteed student loans exceed certain rates. These rates are
based on the repayment history of current and former students on loans provided
under certain FFEL programs, primarily the Stafford loan program and the former
SLS program. A rate of student defaults (known as a "cohort default rate") is
calculated for each institution annually by determining the rate at which that
institution's students entering repayment in one federal fiscal year ending
September 30 ("FY") default by the end of the following federal fiscal year.
With respect to the cohort default rates for FY 1993 (which were published
in February 1996), any institution that is determined to have had cohort default
rates equal to or exceeding 25% for three consecutive federal fiscal years is
subject to immediate loss of eligibility to participate in the FFEL and FDLP
programs for the remainder of the federal fiscal year in which the Department of
Education makes such determination and the two subsequent federal fiscal years.
Furthermore, an institution where the FFEL cohort default rate for any federal
fiscal year exceeds 40% may have its eligibility to participate in all of the
Title IV Programs limited, suspended or terminated. All Learning Centers,
regardless of their default rates, have adopted default management plans. An
institution has the right to appeal the accuracy of the Department of
Education's calculations of its cohort default rates. Such appeals are intended
to correct any errors made by the applicable guaranty agencies in compiling the
36
<PAGE>
student repayment data and to identify any material errors made in the
third-party servicing and collection of individual loans. Institutions remain
eligible to participate in the FFEL programs during the pendency of any such
appeal.
The published cohort default rates for the seven Learning Centers
participating in the Title IV Programs during FY 1993 averaged 23.4% and ranged
from a high of 37.7% to a low of 10.6% for that period. The average rate for all
proprietary institutions in the United States for the same period was 23.9%. For
FY 1993, excluding the Chicago and Philadelphia Learning Centers, the other five
Learning Centers which existed at the time had published cohort default rates
averaging 17.3%.
The Chicago Learning Center's FY 1993 cohort default rate as published is
36.5% which, if accurate, would result in three consecutive years of default
rates that exceed the 25% threshold. Management believes the published rates are
likely to contain errors which, if a sufficient number are agreed to and thereby
corrected by the Department of Education, could reduce one or more of those
final cohort default rates below 25%. Pursuant to the Department of Education's
procedures, the Company has submitted appeals of the Chicago Learning Center's
FY 1991, FY 1992 and FY 1993 rates setting forth evidence of such errors. The
Department of Education has decided the appeal for the Chicago Learning Center's
FY 1992 cohort default rate, which remains above 25%, but the FY 1991 and FY
1993 appeals remain pending.
The Chicago Learning Center will remain eligible to participate in all Title
IV Programs pending the resolution of such cohort default rate appeals.
Depending on the ultimate resolution of those appeals, the Chicago Learning
Center's eligibility to participate in the FFEL program could be subject to
termination, and, under a recently enacted statute, that Learning Center's
students could lose access to Federal Pell Grant funds until July 1997. The
Company cannot predict when the Department of Education might decide the Chicago
Learning Center's appeals for FY 1991 or FY 1993 or the outcome of such appeals.
The Chicago Learning Center accounted for approximately 11.0% of the Company's
revenues for fiscal 1996. If the Chicago Learning Center loses its eligibility
to participate in some or all of the Title IV Programs, such loss would have a
material adverse effect on the Company.
In July 1996, the Company received the FY 1994 preliminary cohort default
rates for all of the Company's Learning Centers. The preliminary rates for the
Chicago and Philadelphia Learning Centers were 20.1% and 27.6%, respectively.
The Department of Education issues preliminary default rates to allow
institutions the opportunity to review and, if necessary, challenge the student
loan default data to ensure its accuracy before the rates are published. Because
the governing statute requires that FFEL eligibility be based on the three most
recent years for which cohort default rate data are available, the Company
believes that the preliminary FY 1994 default rate for the Chicago Learning
Center, which has not been challenged by the Company, should be deemed the most
recent cohort default rate and therefore sufficient to allow the Chicago
Learning Center to retain its eligibility regardless of the outcome of its prior
year appeals. Although in a communication unrelated to the Company the
Department of Education has stated a contrary position, the Company is prepared
to assert its position and pursue all appropriate remedies if necessary. The
Company cannot predict when the Department of Education might publish the FY
1994 cohort default rates or determine the Chicago Learning Center's FY 1991 or
FY 1993 cohort default rate appeals.
Under the Department of Education's regulations, an FFEL cohort default rate
equal to or exceeding 25% in any one of the three most recent federal fiscal
years can be a basis for the Department of Education to place that the
institution on provisional certification for up to four years for lack of
administrative capability. Provisional certification generally allows an
institution to continue to participate in the Title IV Programs subject to
conditions imposed by the Department of Education and, in the event of any
material violation of such conditions, subjects the institution to a loss of
eligibility. The Learning Centers in Chicago and Philadelphia could be subject
to provisional certification or continued provisional certification,
respectively, on the basis of their cohort default rates. The Chicago Learning
Center has recently been notified that it must submit a recertification
application to the Department of Education by September 30, 1996 as part of the
cyclical recertification of all institutions participating in the Title IV
Programs.
37
<PAGE>
In the course of a 1994 review, the Philadelphia Learning Center was granted
provisional certification through September 1997, based upon the fact that its
published FY 1992 cohort default rate exceeded the applicable standard. The
terms of its provisional certification provide that, during this period, if,
after resolution of any appeals, the Philadelphia Learning Center's cohort
default rate is determined to exceed 32.9% for any single federal fiscal year,
the Department of Education may seek immediately to terminate the Philadelphia
Learning Center's eligibility to participate in the Title IV Programs. However,
the Company has learned that the Department of Education has modified its
policy, consistent with applicable regulations, so as to eliminate the
year-by-year comparison that is currently called for in the Philadelphia
Learning Center's provisional certification. Instead, the Department of
Education allows an institution to maintain its provisional eligibility if there
is no other indication that the institution lacks administrative capability. The
Department of Education has decided the Philadelphia Learning Center's appeal
for FY 1992 and, while certain adjustments were made to the cohort default rate
for such year, it remains above 25%.
The Philadelphia Learning Center's published FY 1993 cohort default rate was
37.7%. The Company has appealed the FY 1993 cohort default rate on several
grounds. The Company believes that its FY 1993 cohort default rate exceeded the
32.9% threshold in its provisional certification due primarily to a retroactive
change in the Department of Education's methodology for determining when certain
loans are considered to enter repayment. Specifically, beginning with the FY
1993 cohort default rates, the Department of Education changed its methodology
for determining when an SLS student loan enters repayment and, consequently, the
particular fiscal year cohort default rate in which an SLS loan is counted, by
"linking" the repayment date for the SLS loan with the repayment date for the
same student's Stafford loan. Although the Department of Education's SLS linking
policy was not announced to institutions until the preliminary FY 1993 cohort
default rates were released in June 1995, it has been applied retroactively to
the FY 1993 cohort period, which closed on September 30, 1994.
The Department of Education's authority to implement its SLS linking policy
has been challenged in a lawsuit filed in the Northern District of New York in
March 1996. The Company cannot predict the timing or the outcome of such
lawsuit. Nevertheless, such lawsuit may be relevant because, if the Philadelphia
Learning Center's FY 1994 cohort default rate is published above 25%, as its FY
1994 rate has been calculated on a preliminary basis, it would result in three
consecutive annual default rates that exceed the 25% threshold. In addition,
based on its internal records, the Company believes that the FY 1994 cohort
default rate for the Philadelphia Learning Center would be less than 25% if such
rate were calculated without linking. The Company has challenged certain data
contained in the Philadelphia Learning Center's preliminary FY 1994 default rate
and plans to appeal the accuracy of the FY 1994 cohort default rate when
published, and the Philadelphia Learning Center will remain eligible pending the
resolution of the appeals for FY 1993 and FY 1994. The Company cannot predict
when the Department of Education might publish the FY 1994 cohort default rates
or decide the Philadelphia Learning Center's appeals or the eventual outcome of
the aforementioned litigation.
The Philadelphia Learning Center accounted for approximately 16.7% of the
Company's revenues for fiscal 1996. If the Department of Education should deny
the Philadelphia Learning Center continued eligibility to participate in the
Title IV Programs for any reason, such denial would have a material adverse
effect on the Company.
The Department of Education's regulations also provide that an institution
may be found to lack administrative capability if its default rate for Perkins
loans exceeds 15% for any federal award year (i.e., July 1 through June 30). The
Company administers its Perkins loan funds on a Company-wide basis, and in the
past all of the Learning Centers have shared one Perkins loan default rate. The
Company had a default rate for Perkins loans of 18.2% for the 1995-96 federal
award year. The Perkins program accounted for approximately 1.9% of the
Company's revenues in fiscal 1996. It is not yet clear what effect this Perkins
default rate will have, in practice, on the Department of Education's assessment
of the Learning Centers' administrative capability.
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<PAGE>
FINANCIAL RESPONSIBILITY
The HEA and the Department of Education's regulations prescribe specific
standards of financial responsibility that institutions such as the Learning
Centers must satisfy to participate in the Title IV Programs. Because the
Learning Centers are operating divisions of the Company, the Department of
Education has evaluated the financial condition of the Learning Centers on a
consolidated basis; however, the Department of Education could also consider
individual Learning Center financial statements. Pursuant to the three principal
standards, known as the "numeric standards," an institution must have: (i) a
positive tangible net worth at the end of the institution's most recent fiscal
year; (ii) an "acid test" ratio (defined as the ratio of cash, cash equivalents
and current accounts receivable to current liabilities) of at least 1-to-1 at
the end of the institution's most recent fiscal year; and (iii) net operating
results for the institution's two most recent fiscal years that do not result in
an aggregate loss in excess of 10% of the institution's tangible net worth at
the beginning of the two-year period. Although the Company believes it meets all
such standards of financial responsibility, the financial schedules reflecting
the operations of two of the Learning Centers for fiscal 1996 do not demonstrate
that those Centers, taken individually, meet certain of the numeric indicators
of financial responsibility. The Company believes, however, that because the
Learning Centers are unincorporated operating divisions of the Company and the
Company, taken as a whole, meets all of such indicators, all of its Learning
Centers are similarly in compliance.
If, based upon the above measures, the Department of Education determined
that the Company or any Learning Center is not financially responsible, the HEA
would require the Department of Education to afford the Company an opportunity
to demonstrate financial responsibility through alternative means, most commonly
by demanding that the Company post an irrevocable letter of credit in favor of
the Secretary of Education in an amount equal to not less than one-half the
Title IV Program funds received by the affected Learning Center or Centers
during the last complete award year.
INCENTIVE COMPENSATION
An additional requirement of the Title IV Programs prohibits an institution
from providing any commission, bonus or other incentive payment based directly
or indirectly on success in securing enrollments or financial aid to any person
or entity engaged in any student recruitment, admission or financial aid
awarding activity. The Company has implemented several compensation plans for
admissions representatives and other personnel involved in the operations of the
Learning Centers. The Company believes that its current compensation plans
comply with the requirements of the HEA, but the regulations do not establish
clear standards for compliance. Although there can be no assurance that the
Department of Education will not find deficiencies in the present or former
compensation plans, the Company has received a letter from the Department of
Education concluding that its former compensation plan, as established in March
1993, was valid. If the Department of Education determines that a compensation
plan does not comply with the HEA requirements and the applicable implementing
regulations, the Company may be required to modify prospectively such plans,
repay certain previously disbursed Title IV Program funds or be subject to a
limitation, suspension, termination or fine action.
THE 85/15 RULE
Another requirement of the HEA, commonly referred to as the "85/15 Rule,"
applies only to proprietary (i.e., for-profit) institutions, such as the
Learning Centers. Under the 85/15 Rule, a proprietary institution will lose its
eligibility to participate in the Title IV Programs for at least one fiscal year
if, under a modified cash basis of accounting, more than 85% of the
institution's applicable revenues for the prior fiscal year is derived from
applicable Title IV Programs. The Department of Education has indicated that it
will enforce the 85/15 Rule on an institution-by-institution basis.
To reduce the risk that any Learning Center could lose its eligibility to
participate in the Title IV Programs under the 85/15 Rule, the Company closely
monitors the applicable revenues for each
39
<PAGE>
Learning Center on an ongoing basis and is pursuing alternative sources of
revenue and student financial assistance. If any Learning Center were to lose
its eligibility to participate in the Title IV Programs under the 85/15 Rule,
such loss would have a material adverse effect on the Company.
RESTRICTIONS ON ADDING LOCATIONS AND EDUCATIONAL PROGRAMS
The HEA requires proprietary educational institutions to be in full
operation for two years before such institutions can qualify to participate in
the Title IV Programs. However, the HEA and applicable regulations permit an
institution that is already qualified to participate in the Title IV Programs to
establish an additional location that may immediately qualify to participate in
the Title IV Programs without satisfying the two-year requirement so long as
such location satisfies all other applicable requirements for institutional
eligibility, including approval of the additional location by the institution's
accrediting agency and the relevant state authorizing agency. The Company's
expansion plans assume its continued ability to establish new Learning Centers
as additional locations of existing Learning Center main campuses without
incurring the two-year delay in participation in the Title IV Programs that is
applied to new institutions.
Although state requirements and accrediting agency standards may in certain
instances limit the ability of the Company to establish additional locations in
certain areas and certain situations, the Company does not believe, based on its
current understanding of how these standards will be applied, that these
standards will have a material adverse effect on the Company or its expansion
plans.
POTENTIAL EFFECT OF REGULATORY VIOLATIONS
The violation of regulatory standards governing the Title IV Programs by the
Company or any of the Learning Centers could be the basis for a proceeding by
the Department of Education to impose a fine or to limit, suspend or terminate
the participation of the Company or the particular Learning Center in these
programs. Although there are no such proceedings pending, and the Company does
not believe any such proceeding is contemplated, if such a proceeding were
initiated against the Company or one or more individual Learning Centers and
resulted in a substantial curtailment of the Company's participation in the
Title IV Programs, the Company would be materially and adversely affected.
In the event of a determination that one of the Company's Learning Centers
has improperly disbursed Title IV Program funds, the affected Learning Center
could be required to repay those funds. The Department of Education could
transfer that Learning Center from the "advance" system of payment of Title IV
Program funds, under which an institution requests and receives funding from the
Department of Education in advance based on anticipated need, to the
"reimbursement" system of payment, under which an institution must disburse
funds to students and document their eligibility for Title IV Programs funds
before receiving funds from the Department of Education.
If a Learning Center lost its eligibility to participate in certain of the
Title IV Programs, or if the amount of available federal student financial aid
was reduced, the Company would seek to arrange or provide alternative sources of
revenue or financial aid for that Learning Center's students. There are a number
of private organizations that provide loans to students. Although the Company
believes that one or more private organizations would be willing to provide
financial assistance to students attending a Learning Center, there is no
assurance that this would be the case, and the interest rate and other terms of
such student financial aid might not be as favorable as for Title IV Program
funds. Accordingly, the loss of eligibility of a Learning Center or Centers to
participate in the Title IV Programs would be expected to have a material
adverse effect on the Company even if the Company could arrange or provide
alternative sources of revenue or student financial aid. If a Learning Center
lost its eligibility to participate in the Title IV Programs, and the Company
could not arrange for alternative sources of revenue or financial aid for the
Learning Center's students, the Company would have to close that Learning
Center.
40
<PAGE>
STATE AUTHORIZATION AND ACCREDITATION
The Company is dependent on the authorization of the applicable agency or
agencies of each state within which a Learning Center is located to allow it to
operate and to grant degrees or diplomas to students. State authorization is
also required in order for an institution to become and remain eligible to
participate in the Title IV Programs. The Company is subject to extensive and
varying regulation in each of the five states in which the Learning Centers
currently operate. State laws and regulations affect the Company's operations
and may limit the ability of the Company to introduce degree programs or to
obtain authorization to operate in certain additional states. State regulatory
requirements may overlap or exceed federal requirements. The loss of state
authorization by an existing Learning Center or the failure of a new Learning
Center to obtain authorization would render the affected Learning Center
ineligible to participate in the Title IV Programs, could affect its
accreditation and would have a material adverse effect on the Company.
Accreditation by an accrediting agency recognized by the Department of
Education is required in order for an institution to become and remain eligible
to participate in the Title IV Programs. In addition, most states require
institutions operating therein to become and continue to be accredited as a
condition of continuing state authorization, particularly with regard to the
issuance of degrees. The Company's Learning Centers are accredited by the
Accrediting Council for Independent Colleges and Schools ("ACICS"), which is an
accrediting agency duly recognized by the Department of Education. ACICS
recently had its recognition as an accrediting agency renewed by the Department
for a period of four years. Seven of the 11 Learning Centers are due for renewal
of accreditation during fiscal 1997. The loss of accreditation by an existing
Learning Center or the failure of a new Learning Center to obtain accreditation
would render the affected Learning Center ineligible to participate in the Title
IV Programs, could affect its state authorization and would have a material
adverse effect on the Company.
CHANGE OF CONTROL
Upon a change of ownership resulting in a change of control of the Company,
as defined in the HEA and the Department of Education's regulations, each
Learning Center would lose its eligibility to participate in the Title IV
Programs for an indeterminate period of time while it applies to regain
eligibility, with the likely loss of a portion of its Title IV Program funding
during the re-approval period. A change of control also would require the
Company to reaffirm the accreditation and state authorization of each Learning
Center, each of which is a prerequisite for each Learning Center to apply to
regain eligibility to participate in the Title IV Programs. A significant delay
in reobtaining or the failure to reobtain state authorization, accreditation or
Title IV Program certification for any or all of the Learning Centers could have
a material adverse effect on the Company. Any change of control may also delay
the ability of the Company to establish new institutions and may have other
adverse regulatory effects. For a publicly traded corporation such as the
Company, Department of Education regulations specify that a change of control
arises from the same circumstances that would require the Company to file with
the Securities and Exchange Commission a report on Form 8-K disclosing a change
in control. Most states and accrediting agencies have similar requirements, but
they do not uniformly define a change of control. A change of control of the
Company could have a material adverse effect on the Company. Based upon its
review of the HEA, applicable federal regulations and applicable state and
accrediting agency standards, the Company does not believe that this offering
will constitute a change of ownership resulting in a change of control for
purposes of the HEA or a change of ownership and control for state authorization
or accreditation purposes, except with respect to the State of Illinois. As a
result, the Learning Centers in Chicago and Schaumburg, Illinois will be subject
to review by the Illinois State Board of Education, which has advised the
Company by letter that each of these Learning Centers will remain authorized to
provide its educational programs during the review process.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company as of July 31, 1996 are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- -------------------------------------------------------
<S> <C> <C>
Reid R. Bechtle 43 President, Chief Executive Officer and Director
Charles L. Cosgrove 41 Vice President and Chief Financial Officer
Susan L. Luster 45 Vice President and Chief Operating Officer
Harry H. Gaines 58 Chairman of the Board of Directors
Ralph W. Clark(1) 55 Director
Ira D. Cohen(2) 44 Director
John L. Corse(2) 54 Director
Stephen P. Reynolds(1) 44 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee.
Mr. Bechtle joined the Company in 1991 as President of what was then its
Computer Learning Center division and has been President, Chief Executive
Officer and a director of the Company since October 1994. From 1982 to 1991, he
served as President of Multi-List, Inc., a software services subsidiary of
PRC/Litton, Inc. ("PRC").
Mr. Cosgrove joined the Company in 1992 as Vice President and Chief
Financial Officer of what was then its Computer Learning Center division and has
been Vice President and Chief Financial Officer of the Company since October
1994. From March 1990 to 1992, he served as Vice President, Controller of the
government operations division of PRC.
Ms. Luster joined the Company in November 1995 as Vice President and Chief
Operating Officer. From April 1994 to November 1995, she was a partner of Tower
Technologies, Inc., an information technology consulting company. From January
1992 to April 1994, she was Senior Vice President of Infodata Systems, Inc., a
document management software company, and from May 1986 to January 1992, she
served as Senior Vice President of Operations with AGS Information Services, a
systems development company.
Mr. Gaines has been Chairman of the Board of Directors since October 1994
and has served as a director since 1987. From 1987 to October 1994 and from 1988
to October 1994, he served as President and Chief Executive Officer of the
Company and of Mohr, respectively. From 1989 through September 1995, Mr. Gaines
served as President of Blessing/White.
Mr. Clark has served as a director of the Company since October 1994. He is
currently Chairman of Frontec AMT Inc., a software company. From 1988 to 1994,
Mr. Clark was a Vice President of International Business Machines Corporation
("IBM"), where he served as Assistant General Manager of the Application
Software Group, President of the General and Public Sector Division (a software
division) and, most recently, President of Skill Dynamics, IBM's education
division.
Mr. Cohen has served as a director of the Company since 1987. Since 1988, he
has been a Managing Director of The Updata Group, Inc., an investment banking
firm that specializes in mergers and acquisitions for the information technology
industry. From 1984 to 1986, he served as Chief Financial Officer for CGA
Computer, Inc., and from 1986 to 1988 he served as Chief Financial Officer of
Updata Software, Inc. Mr. Cohen is a director of Datastream, Inc., a software
company. Mr. Cohen is a Certified Public Accountant.
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<PAGE>
Mr. Corse has served as a director of the Company since October 1994. Since
February 1995, he has served as President of Hughes Advanced Systems, a
subsidiary of Hughes Aircraft Corporation and a provider of information systems
and services to businesses. From 1993 to 1995, Mr. Corse was a self-employed
business consultant. From 1992 to 1993, he served as President and Chief
Executive Officer of Security Software America, Inc., a software publisher
serving government contractors and government agencies. From 1990 to 1992, Mr.
Corse was a self-employed business consultant. From 1986 to 1990, Mr. Corse
served as President of PRC's business information systems group. Mr. Corse is
also a director of Medic Computer Systems, Inc.
Mr. Reynolds has served as a director of the Company since August 1996. Mr.
Reynolds is a managing member of General Atlantic Partners, LLC ("GAP LLC") and
has been with GAP LLC or its predecessor entities since April 1980. Mr. Reynolds
is also a general partner and limited partner of GAP-CLC. Mr. Reynolds, a
certified public accountant, is on the board of Solo Serve Corporation, a
publicly traded off-price soft goods retail company.
The Board of Directors is divided into three classes, with each member
serving for a staggered three-year term. The Board is comprised of two Class I
Directors (Messrs. Bechtle and Gaines), two Class II Directors (Messrs. Cohen
and Reynolds) and two Class III Directors (Messrs. Corse and Clark). At each
annual meeting of stockholders, a class of directors will be elected for a
three-year term to succeed the directors or director of the same class whose
terms are then expiring. The terms of the Class I Directors, Class II Directors
and Class III Directors will expire upon the election and qualification of
successor directors at the annual meeting of stockholders held following the end
of fiscal years 1997, 1998 and 1999, respectively.
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors or executive officers of the
Company.
BOARD COMMITTEES
The Company's Board of Directors has a Compensation Committee and Audit
Committee, each of which is comprised of at least two non-employee directors.
The Compensation Committee, currently comprised of Messrs. Corse and Cohen,
makes recommendations concerning salaries and other compensation for employees
of and consultants to the Company and administers the Company's stock option and
incentive plans. The Audit Committee, currently comprised of Messrs. Clark and
Reynolds, reviews the results and scope of the audit and other services provided
by the Company's independent public accountants.
DIRECTOR COMPENSATION
As compensation for serving on the Board of Directors, each director who is
not also an employee of the Company is entitled to receive a fee of $1,000 for
attendance at each meeting of the full Board and $500 for each committee
meeting. Directors also are entitled to reasonable expenses incurred by them in
connection with their attendance at Board or committee meetings. Insurance
policies in the name of the Company provide for the indemnification of the
Company's Directors and officers, as well as for the reimbursement to the
Company for amounts paid by the Company above certain limits in indemnifying its
Directors and officers. See "-- Stock Plans" below for information concerning
the Company's 1995 Non-Employee Directors Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Board of Directors
are Messrs. Corse and Cohen, neither of whom is an executive officer or employee
of the Company. See "Certain Transactions -- The Recapitalization."
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid or accrued during fiscal 1996 for the Company's Chief Executive Officer and
each of the Company's other executive officers (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------- OTHER ANNUAL ------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(1) COMPENSATION(2) OPTIONS COMPENSATION(3)
- --------------------------------- ----------- -------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Reid R. Bechtle.................. $ 200,000 $ 215,000 $ 10,598 -- $ 3,000
President and Chief Executive
Officer
Charles L. Cosgrove.............. 123,333 90,000 -- 25,000 1,838
Vice President and Chief
Financial Officer
Susan L. Luster(4)............... 27,308 -- -- -- --
Vice President and Chief
Operating Officer
</TABLE>
- ------------------------
(1) Includes bonuses to Mr. Bechtle and Mr. Cosgrove of $40,000 and $15,000,
respectively, in connection with the successful completion of the Company's
initial public offering.
(2) Represents automobile allowance.
(3) Represents contributions to the Company's 401(k) Plan.
(4) Ms. Luster joined the Company in November 1995.
OPTION GRANTS
The following table sets forth certain information regarding options granted
during fiscal 1996 to each Named Executive Officer:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(3)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------
NAME GRANTED(1) FISCAL YEAR SHARE(2) DATE 5% 10%
- ------------------------------------ ----------- ------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Reid R. Bechtle..................... -- -- -- -- -- --
Charles L. Cosgrove................. 25,000 34.5% $ 8.00 5/31/05 $ 125,779 $ 318,748
Susan L. Luster..................... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Numbers shown represent options granted under the Stock Incentive Plan to
purchase Common Stock.
(2) Nonstatutory stock options granted at 100% of fair market value of Common
Stock on the date of grant. The options become exercisable in increments of
20% of the aggregate number of shares included in the grant on May 31st of
each of the years 1996, 1997, 1998, 1999 and 2000.
(3) The amounts shown are the result of calculations at the 5% and 10% rates set
by the Securities and Exchange Commission and, therefore, are not intended
to forecast possible future appreciation, if any, of the Company's stock
price. The Company did not use an alternative formula for a grant date
valuation, as the Company is not aware of any formula which will determine
with reasonable accuracy a present value based on future unknown or volatile
factors. At the end of the term of the options granted May 31, 1995, the
projected price per share of the Company's Common Stock, at the assumed
annual appreciation rates of 5% and 10%, would be $13.03 and $20.75,
respectively, both of which are significantly less than the most recent sale
price of the Common Stock as reported by Nasdaq.
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<PAGE>
In March 1996, Ms. Luster was granted an option under the Stock Incentive
Plan to purchase 40,000 shares of Common Stock at an exercise price of $9.00 per
share. In July 1996, Mr. Cosgrove was granted an option under the Stock
Incentive Plan to purchase 17,500 shares of Common Stock at an exercise price of
$19.50 per share.
OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth certain information regarding stock options
held as of January 31, 1996 by each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Reid R. Bechtle................. 20,000 $ 65,000 205,400 54,407 $ 667,550 $ 176,823
Charles L. Cosgrove............. -- -- 16,017 22,755 3,750 15,000
Susan L. Luster................. -- -- -- -- -- --
</TABLE>
- ------------------------
(1) The closing price for the Company's Common Stock on the Nasdaq National
Market on January 31, 1996 was $8.75. Value is calculated on the basis of
the difference between the option exercise price and $8.75, multiplied by
the number of "in-the-money" shares of Common Stock underlying the option.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Reid R. Bechtle, President and
Chief Executive Officer of the Company, pursuant to which Mr. Bechtle is
entitled to 12 months' salary and benefits, a pro rata portion of his bonus, if
earned, and damages for any breach of such agreement in the event that (i) such
agreement is terminated by the Company at the end of its initial one-year term,
(ii) Mr. Bechtle is terminated other than for "cause" or (iii) such agreement is
terminated by Mr. Bechtle in the event of a change in control of the Company, a
reduction in his base salary or responsibilities without consent or a geographic
relocation of his place of employment without consent. The agreement also
provides that Mr. Bechtle is to receive an annual salary of $230,000 for his
services as President and Chief Executive Officer of the Company.
The Company has an employment agreement with Harry H. Gaines with a term
extending through January 31, 1997, pursuant to which Mr. Gaines provides such
assistance to the Company as may be specified by the President of the Company.
Pursuant to the employment agreement, Mr. Gaines receives a salary of $30,000
per year.
STOCK PLANS
The Company has a Long-Term Incentive Plan that provides for award of
incentive and nonstatutory stock options and stock appreciation rights to
certain directors, officers and key employees. The plan is administered by the
Compensation Committee of the Board of Directors. The Company has reserved
775,458 shares of Common Stock for issuance under the plan. As of August 31,
1996, options to purchase 439,054 shares of Common Stock were outstanding under
the Long-Term Incentive Plan. The Company has provided that no further grants
may be made under the Long-Term Incentive Plan.
In March 1995, the Board adopted the 1995 Stock Incentive Plan (the "Stock
Incentive Plan"). The Stock Incentive Plan provides that a variety of awards,
including stock options, stock appreciation rights and restricted and
unrestricted stock grants, may be made to the Company's employees, officers,
consultants and advisors who are expected to contribute to the Company's future
growth and success. The Compensation Committee administers the Stock Incentive
Plan and determines the price and other terms upon which awards shall be made.
Stock options may be granted either in the
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<PAGE>
form of incentive stock options or non-statutory stock options. The option
exercise price of incentive stock options may not be less than the fair market
value of the Common Stock on the date of grant. While the Company currently
anticipates that most grants under this Plan will consist of stock options, the
Company may grant stock appreciation rights, which represent rights to receive
any excess in value of shares of Common Stock over the exercise price;
restricted stock awards, which entitle recipients to acquire shares of Common
Stock, subject to the right of the Company to repurchase all or part of such
shares at their purchase price in the event that the conditions specified in the
award are not satisfied; or unrestricted stock awards, which represent grants of
shares to participants free of any restrictions under the Plan. Options or other
awards that are granted under the Plan but expire unexercised are available for
future grants. The Company has reserved 486,820 shares for issuance under the
Stock Incentive Plan. As of August 31, 1996 options to purchase 142,500 shares
of Common Stock were outstanding under the Stock Incentive Plan.
In March 1995, the Board of Directors adopted the 1995 Non-Employee
Directors Stock Option Plan (the "Directors Plan"). The Directors Plan provides
for the grant to each of the current non-employee directors, effective May 31,
1995, of an option exercisable for 4,680 shares of Common Stock with an exercise
price equal to the initial public offering price. Each new director who is not
also an employee of the Company received or will receive upon his or her initial
election to the Board an option to purchase 4,680 shares of Common Stock. In
addition, on the day after each annual meeting of stockholders, each
non-employee director then serving will receive an option to purchase 1,550
shares of Common Stock. All options granted under the Directors Plan vest
immediately and will have an exercise price equal to the fair market value of
the Common Stock on the date of grant. The Company has reserved 70,178 shares
for issuance under the Directors Plan. In July 1996, the Company in accordance
with the Directors Plan granted options to purchase 1,550 shares of Common Stock
to Messrs. Corse, Cohen and Clark at an exercise price of $21.13 per share. In
August 1996, the Company in accordance with the Directors Plan granted Mr.
Reynolds an option to purchase 4,680 shares of Common Stock at an exercise price
of $24.00 per share. As of August 31, 1996, the Company had granted options to
purchase 24,920 shares of Common Stock at exercise prices ranging from $8.00 to
$24.00 per share under the Directors Plan.
INCENTIVE BONUS PROGRAM
The Company has a discretionary bonus program for certain designated key
employees of the Company, including all executive officers, pursuant to which
such employees are paid cash bonuses based upon the attainment of certain
specified corporate goals for the year established by the Board of Directors.
The amount of the bonus to which each such employee is entitled is determined by
the Board of Directors.
401(K) PLAN
In 1988, the Board of Directors adopted the Computer Learning Centers, Inc.
401(k) Retirement Savings Plan, as amended and restated in December 1990 (the
"401(k) Plan"), which is intended to qualify under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"). All employees who have
been employed by the Company for at least six consecutive months are eligible to
participate in the 401(k) Plan. Each eligible employee may contribute to the
401(k) Plan, through payroll deductions, up to 15% of his or her salary, subject
to statutory limitations. The 401(k) Plan permits, but does not require,
additional contributions to the 401(k) Plan by the Company. For fiscal 1995, the
Company contributed $0.25 for each $1.00 invested by an employee up to the first
6% of such employee's salary. Under Section 401(k) of the Code, contributions by
employees or by the Company to the 401(k) Plan, and income earned on plan
contributions, are not taxable to employees until withdrawn from the 401(k)
Plan, and contributions by the Company, if any, will be deductible by the
Company when made.
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<PAGE>
CERTAIN TRANSACTIONS
THE RECAPITALIZATION
In connection with the Company's initial public offering, the Company (i)
transferred all of its shares of Comprehensive Learning Concepts (U.K.) Limited
and Mohr Development Incorporated to Blessing/White, (ii) cancelled the
promissory note payable to the Company dated February 1, 1990, which promissory
note had an outstanding balance of approximately $7.5 million (after netting the
receivable from the Company against the note on or about the date of its
cancellation), bore interest at the rate of prime plus 2% per annum and was
issued by Blessing/White to the Company to evidence the indebtedness of
Blessing/White to the Company for declared but unpaid dividends, (iii)
transferred 67,500 shares of Common Stock of Blessing/White to the holders of
Common Stock of the Company, (iv) transferred $500,000 of cash to Blessing/White
and (v) transferred all of the issued and outstanding shares of Preferred Stock
of Blessing/White to the holders of Preferred Stock of the Company. These
transactions are referred to collectively as the "Recapitalization."
As a result of the Recapitalization, GAP, GAP-CLC and General Atlantic
Corporation received 4,970,913 shares of Preferred Stock of Blessing/White with
a cost basis of $5,950,083; Mr. Gaines, the Chairman of the Company's Board of
Directors, received 100,000 shares of Preferred Stock of Blessing/White with a
cost basis of $50,568 and Mr. Cohen, a Director of the Company, received 41,500
shares of Preferred Stock of Blessing/White with a cost basis of $20,986. Mr.
Reynolds, a director of the Company, is a Vice President of GAP and a limited
partner of GAP-CLC.
TAX SHARING AGREEMENT
The Company and Blessing/White are parties to a tax sharing and
indemnification agreement providing for, among other matters, (i) the payment of
tax liabilities and entitlement to tax refunds, (ii) the allocation of
responsibility and the providing of cooperation in the filing of tax returns,
(iii) the indemnification of Blessing/White by the Company from certain tax and
other liabilities related to the operation of the Company prior to the
Recapitalization and (iv) the indemnification of the Company by Blessing/White
from certain tax and other liabilities related to the operation of
Blessing/White prior to the Recapitalization.
OTHER RELATED PARTY TRANSACTIONS
The Company has adopted a policy that all transactions between the Company
and its officers, directors and other affiliates must be (i) approved by a
majority of the members of the Company's Board of Directors and by a majority of
the disinterested members of the Company's Board of Directors and (ii) on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties. In addition, this policy requires that any loans by the Company to its
officers, directors or other affiliates be for bona fide business purposes only.
47
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of August 31, 1996 the number of shares
of Company's Common Stock owned by (i) any person (including any group) known by
management to beneficially own more than 5% of Company's Common Stock, (ii) each
of the Company's directors and executive officers, (iii) each of the Selling
Stockholders and (iv) all directors and executive officers as a group. Unless
otherwise indicated in a footnote, each individual or group possesses sole
voting and investment power with respect to the shares indicated as beneficially
owned.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED PRIOR TO THE SHARES TO BENEFICIALLY OWNED AFTER
OFFERING(1) BE SOLD IN THE OFFERING(2)
------------------------ THE ------------------------
BENEFICIAL OWNER NUMBER PERCENT OFFERING(2) NUMBER PERCENT
- --------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
General Atlantic Corporation(3) 1,684,906 38.0% 434,783 1,250,123 24.6%
118 East 57th Street
New York, NY 10022
Gartmore Investment Limited(4) 310,000 7.0 -- 310,000 6.1
Gartmore House
16-18 Monument Street
London, EC3R 8AJ
U.S. Bancorp/United States(5) 231,200 5.2 -- 231,200 4.5
National Bank of Oregon
111 S. W. Fifth Avenue
Portland, OR 97204
Harry H. Gaines(6) 241,896 5.4 68,260 173,636 3.4
35 Maher Lane
Newtown, PA 18940
S. Tod White(7) 102,048 2.3 88,737 13,311 *
Nicholas Ward(8) 35,324 * 30,717 4,607 *
Herbert Cohen(9) 35,324 * 30,717 4,607 *
Ira D. Cohen(10) 15,080 * -- 15,080 *
Stephen P. Reynolds(11) 1,689,586 38.1 434,783 1,254,803 24.7
John L. Corse(12) 14,230 * -- 14,230 *
Ralph W. Clark(13) 6,230 * -- 6,230 *
Reid R. Bechtle(14) 196,490 4.2 46,787 149,703 2.9
Charles L. Cosgrove(15) 12,518 * -- 12,518 *
Susan L. Luster -- -- -- -- --
All directors and executive officers
as a group (8 persons)(16) 2,176,030 45.9 549,830 1,626,200 30.9
</TABLE>
- ------------------------
* Less than 1%
(1) Each stockholder possesses sole voting and investment power with respect to
the shares listed, except as otherwise noted. Shares of Common Stock subject
to options that are exercisable within 60 days after August 31, 1996 are
deemed beneficially owned by the person holding such options for the purpose
of computing the percentage of ownership of such person but are not treated
as outstanding for the purpose of computing the percentage of any other
person.
(2) If the Underwriters exercise their over-allotment option to purchase up to
an additional 170,216 shares of Common Stock, the Company and each of the
Selling Stockholders will sell a number of such shares in proportion to the
number of the 1,134,784 shares offered hereby being sold by each of such
persons.
48
<PAGE>
(3) Includes 1,067,586 shares held by General Atlantic Corporation ("GAC");
602,021 shares held by General Atlantic Partners II, L.P. ("GAP"); and
15,299 shares held by GAP-CLC Partners, L.P. ("GAP-CLC") (collectively, "the
General Atlantic Entities"). If the Underwriters' over-allotment option is
exercised in full, the percentage of outstanding shares owned by the General
Atlantic Entities will be 22.9%. GAC is a Delaware corporation whose
principal business is holding and managing investments for its own account.
The shares directly owned by GAC are deemed to be beneficially owned by
GAC's direct and indirect controlling stockholders. GAC is, through a number
of intermediary holding companies, a wholly-owned subsidiary of General
Atlantic Group Limited, a Bermuda corporation, whose principal business is
holding and managing investments for its own account. The address of General
Atlantic Group Limited is Washington Mall II, Church Street, Hamilton 5,
Bermuda. General Atlantic Group Limited is, through an intermediate holding
company, a wholly-owned subsidiary of The Atlantic Foundation, a Bermuda
grant-making, charitable corporation. The address of The Atlantic Foundation
is P.O. Box HM 666, Clarendon House, Church Street, Hamilton HM CX, Bermuda.
No natural person beneficially owns the securities owned by The Atlantic
Foundation. The general partner of GAP is General Atlantic Partners, LLC, a
Delaware limited liability company, and the sole limited partner is an
indirect wholly-owned subsidiary of General Atlantic Group Limited. The
managing members of General Atlantic Partners, Inc. are Steven A. Denning,
David C. Hodgson, Stephen P. Reynolds, J. Michael Cline, William O. Grabe
and William E. Ford. The general partner of GAP-CLC is Stephen P. Reynolds.
General Atlantic Service Corporation, an affiliate of General Atlantic
Partners, Inc., advises GAC as to its investment in the Company. Stephen P.
Reynolds, a director of the Company, is the general partner and a limited
partner in GAP-CLC. Mr. Reynolds disclaims beneficial ownership of shares
owned by GAC, GAP, and GAP-CLC except to the extent of his pecuniary
interest therein. The address for GAC is 118 East 57th Street, New York, New
York 10022. The address for GAP and GAP-CLC is c/o General Atlantic Service
Corporation, Three Pickwick Plaza, Greenwich, CT 06830.
(4) This information based on Schedule 13G filed with the Securities and
Exchange Commission on June 12, 1996.
(5) This information based on Schedule 13G filed with the Securities and
Exchange Commission on February 15, 1996.
(6) Includes 78,499 shares issuable pursuant to the exercise of options within
60 days after August 31, 1996, 68,260 of which are being sold in this
offering.
(7) Includes 102,048 shares issuable pursuant to the exercise of options within
60 days after August 31, 1996, 88,737 of which are being sold in this
offering.
(8) Includes 35,324 shares deliverable to Mr. Ward upon payment under a
subscription note, 30,717 of which are being sold in this offering.
(9) Includes 35,324 shares deliverable to Mr. Cohen upon payment under a
subscription note, 30,717 of which are being sold in this offering.
(10) Includes 1,550 shares issuable pursuant to the exercise of options within
60 days after August 31, 1996.
(11) Includes 4,680 shares issuable pursuant to the exercise of options within
60 days after August 31, 1996. Also includes all of the shares referenced in
note (3) above. Mr. Reynolds, a director of the Company, is a managing
member of GAP LLC, the general partner of GAP, and is the general partner
and a limited partner of GAP-CLC. Mr. Reynolds disclaims beneficial
ownership of the shares owned by the General Atlantic Entities.
(12) Includes 6,230 shares issuable pursuant to the exercise of options within
60 days after August 31, 1996.
(13) Includes 6,230 shares issuable pursuant to the exercise of options within
60 days after August 31, 1996.
(14) Includes 196,490 shares issuable pursuant to the exercise of options within
60 days after August 31, 1996, 46,787 of which are being sold in this
offering.
(15) Includes 12,518 shares issuable pursuant to the exercise of options within
60 days after August 31, 1996.
(16) Includes 306,197 shares issuable pursuant to the exercise of options within
60 days after August 31, 1996, 115,047 of which are being sold in this
offering. See notes (6), (7) and (10) through (15).
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
any outstanding Preferred Stock. Upon the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive ratably the
net assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
Based upon the number of shares outstanding as of August 31, 1996 and giving
effect to the issuance of (i) 434,783 shares of Common Stock and (ii) an
additional 203,784 shares of Common Stock upon the exercise of options by the
Selling Stockholders in connection with this offering, there will be 5,077,134
shares of Common Stock outstanding upon the completion of this offering.
PREFERRED STOCK
The Board of Directors is authorized, without further action of the
stockholders of the Company, to issue up to an aggregate of 1,000,000 shares of
Preferred Stock in one or more series and to fix or alter the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such series thereof, including the dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption (including sinking
fund provisions), redemption price or prices, liquidation preferences and the
number of shares constituting any series or the designations of such series.
The Board of Directors, without stockholder approval, can issue Preferred
Stock with voting and conversion rights that could adversely affect the voting
power of holders of Common Stock. The future issuance of Preferred Stock could
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plans to issue any shares of Preferred
Stock.
DELAWARE LAW AND CERTAIN CHARTER, BYLAW AND OTHER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"). Section 203 of the DGCL prohibits a
publicly-held corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within the previous three years has owned, 15% or more of
the corporation's voting stock.
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") and Amended and Restated Bylaws (the "Bylaws") provide that the
directors of the Company shall be classified into three classes as nearly equal
in size as possible, with staggered three-year terms. The Certificate further
provides that the vacancies on the Board of Directors may only be filled by a
majority of the Board of Directors then in office. Furthermore, any director
elected by the stockholders or by the Board of Directors to fill a vacancy, may
be removed only by a vote of two-thirds of the combined voting power of the
shares of Common Stock entitled to vote for the election of directors.
50
<PAGE>
The classified nature of the Board of Directors could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third party
from acquiring or making a bid to acquire, control of the Company.
The Certificate contains certain provisions permitted under the DGCL
relating to the liability of directors. The provisions eliminate a director's
liability for monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions that involve intentional misconduct or a knowing
violation of law. The Certificate also contains provisions requiring the Company
to indemnify its directors and officers to the fullest extent permitted by the
DGCL. The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as directors.
The Certificate and Bylaws provide that any action required or permitted to
be taken by the stockholders of the Company may be taken only at a duly called
annual or special meeting of the stockholders, and not by written consent. In
addition, special meetings of the stockholders may be called only by the
Chairman of the Board of Directors or the President of the Company, and the only
business that may be brought before such a meeting is limited to that described
in the notice prepared by such officers. These provisions could have the effect
of delaying until the next annual stockholders meeting actions which are favored
by the holders of a majority of the outstanding voting securities of the
Company. These provisions also may discourage another person or entity from
making a tender offer for the Company's Common Stock, because such person or
entity, even if it acquired a majority of the outstanding voting securities of
the Company, would be able to take action as a stockholder (such as electing new
directors or approving a merger) only at a duly called stockholders meeting, and
not by written consent.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage. The
Company's Certificate and Bylaws each require the affirmative vote of the
holders of at least two-thirds of the outstanding voting stock of the Company to
amend or repeal any of the provisions described above. Such two-thirds
stockholder vote would be in addition to any separate class vote that might in
the future be required by the Board of Directors pursuant to the terms of any
Preferred Stock that might be outstanding at the time any such changes are
submitted to stockholders.
REGISTRATION RIGHTS
In the event the Company proposes to register any of its securities under
the Securities Act for its own account or otherwise at any time or times, the
holders of approximately 1,457,103 shares of Common Stock and options to
purchase approximately 23,550 shares of Common Stock after this offering (the
"Registrable Shares") or certain of their permitted transferees (the "Holders")
are entitled to notice of such registration and may be entitled to include such
Registrable Shares therein, subject to certain conditions and limitations. In
addition, certain holders of Registrable Shares may require the Company, whether
or not the Company proposes to register its Common Stock for sale, to register
all or part of the Registrable Shares held by such holders, subject to certain
conditions and limitations. The Company generally is required to bear the
expenses of all such registrations (except underwriting discounts and
commissions), and is required to use its best efforts to effect such
registrations, subject to certain conditions and limitations.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer & Trust Company.
51
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC and Piper Jaffray Inc. (the
"Representatives"), have severally agreed with the Company and the Selling
Stockholders, subject to the terms and conditions of the Underwriting Agreement,
to purchase the number of shares of Common Stock set forth opposite their
respective names below. The Underwriters are committed to purchase and pay for
all of such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- -----------
<S> <C>
Robertson, Stephens & Company LLC................................................
Piper Jaffray Inc................................................................
-----------
Total...................................................................... 1,134,784
-----------
-----------
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession of not more than $ per
share, of which $ may be reallowed to other dealers. After the public
offering, the public offering price, concession and reallowance to dealers may
be reduced by the Representatives. No such reduction shall change the amount of
proceeds to be received by the Company as set forth on the cover page of this
Prospectus.
The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable during the 30-day period after the date of this Prospectus,
to purchase up to 170,216 additional shares of Common Stock at the same price
per share as the Company receives for the 1,134,784 shares that the Underwriters
have agreed to purchase. If the Underwriters purchase any of such additional
shares pursuant to this option, each Underwriter will be committed to purchase
such additional shares in approximately the same proportion as set forth in the
table above. The Underwriters may exercise the option only for the purpose of
covering over-allotments, if any, made in connection with the distribution of
the Common Stock offered hereby.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
Underwriting Agreement.
Each of the Selling Stockholders and each of the Company's executive
officers and directors, beneficially owning an aggregate of approximately
1,646,757 shares of Common Stock after this offering, have agreed with the
Representatives, for a period of 90 days after the date of this Prospectus (the
"Lock-Up Period"), subject to certain exceptions, not to offer to sell, contract
to sell or otherwise sell, dispose of or grant any rights with respect to any
shares of Common Stock, any options or warrants to purchase any shares of Common
Stock, or any securities convertible into or exchangeable for shares of Common
Stock owned as of the date of this Prospectus or thereafter acquired directly by
such holders or with respect to which they have or hereafter acquire the power
of disposition, without the prior written consent of Robertson, Stephens &
Company LLC. However, Robertson, Stephens & Company LLC may, in its sole
discretion and at any time with or without notice, release all or any portion of
the securities subject to lock-up agreements. There are no agreements between
the Representatives and any of the Company's stockholders providing for consent
by the Representatives to the sale of shares prior to the expiration of the
Lock-Up Period. In addition, the Company has agreed that, during the Lock-Up
Period, the Company will not, subject to certain exceptions, without the prior
written consent of Robertson, Stephens & Company LLC issue, sell, contract to
sell or otherwise
52
<PAGE>
dispose of any shares of Common Stock, any options or warrants to purchase any
shares of Common Stock or any securities convertible into exercisable for or
exchangeable for shares of Common Stock, other than the Company's sale of shares
in this offering and the Company's issuance of options and shares under existing
stock option and stock purchase plans.
Certain of the Underwriters and selling group members (if any) that
currently act as market makers for the Common Stock may engage in "passive
market making" in the Common Stock on Nasdaq in accordance with Rule 10b-6A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Rule
10b-6A permits, upon the satisfaction of certain conditions, underwriters and
selling group members participating in a distribution that are also Nasdaq
market makers in the security being distributed to engage in limited market
making transactions during the period when Rule 10b-6 under the Exchange Act
would otherwise prohibit such activity. Rule 10b-6A prohibits underwriters and
selling group members engaged in passive market making generally from entering a
bid or effecting a purchase at a price that exceeds the highest bid for those
securities displayed on Nasdaq by a market maker that is not participating in
the distribution. Under Rule 10b-6A, each underwriter or selling group member
engaged in passive market making is subject to a daily net purchase limitation
equal to 30% of such entity's average daily trading volume during the two full
consecutive calendar months immediately preceding the date of the filing of the
registration statement under the Securities Act pertaining to the security to be
distributed. Passive market making may stabilize the market price of the Common
Stock at a level above that which might otherwise prevail and, if commenced, may
be discontinued at any time.
53
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Hale and Dorr, Washington, D.C. Certain legal matters
with respect to this offering are being passed upon for the Underwriters by
Cooley Godward LLP, San Francisco, California.
EXPERTS
The consolidated financial statements as of January 31, 1995 and 1996 and
for each of the three years in the period ended January 31, 1996 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form S-1 under
the Securities Act of 1933, as amended, with respect to the shares of Common
Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, to which Registration Statement
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto may be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission also makes electronic filings publicly
available on the Internet within 24 hours of acceptance. The Commission's
Internet address is http://www.sec.gov. The Commission's Web site also contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
54
<PAGE>
COMPUTER LEARNING CENTERS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets at January 31, 1995 and 1996 and July 31, 1996 (unaudited)..................... F-3
Consolidated Statements of Operations for the Years Ended January 31, 1994, 1995 and 1996, and the six
months ended July 31, 1995 and 1996 (unaudited)........................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended January 31, 1994, 1995 and 1996 and the six
months ended July 31, 1995 and 1996 (unaudited)........................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Computer Learning Centers, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of Computer Learning Centers, Inc. at
January 31, 1996 and 1995 and the results of their operations and their cash
flows for each of the three years in the period ended January 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 3 to the consolidated financial statements, in February
1993 the Company changed its method of accounting for income taxes to conform
with Statement of Financial Accounting Standards No. 109.
PRICE WATERHOUSE LLP
New York, New York
March 15, 1996
F-2
<PAGE>
COMPUTER LEARNING CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31 ,
--------------------
1995 1996
--------- --------- JULY 31,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................................................. $ 4,753 $ 8,260 $ 11,294
Restricted cash............................................................ 700 -- --
Accounts receivable, net of allowance for doubtful accounts of $1,507,
$1,737 and $1,642......................................................... 17,047 19,095 21,037
Net assets of discontinued operations...................................... 5,201 -- --
Prepaid expenses and other current assets.................................. 2,267 2,280 2,700
--------- --------- -----------
Total current assets................................................... 29,968 29,635 35,031
--------- --------- -----------
Fixed assets, net............................................................ 3,818 4,434 6,499
Intangible assets, net of amortization....................................... 3,773 3,410 3,229
Other long-term assets....................................................... 2,363 2,329 3,242
--------- --------- -----------
Total assets........................................................... $ 39,922 $ 39,808 $ 48,001
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.......................................... $ 2,089 $ -- $ --
Trade accounts payable..................................................... 207 958 1,957
Accrued employee expenses.................................................. 921 1,333 1,916
Accrued other expenses..................................................... 1,860 1,968 1,940
Deferred revenues.......................................................... 13,383 16,834 20,243
--------- --------- -----------
Total current liabilities.............................................. $ 18,460 $ 21,093 $ 26,056
--------- --------- -----------
Long-term debt............................................................... 10,928 -- --
Other long-term liabilities.................................................. 1,414 1,559 1,698
--------- --------- -----------
Total liabilities...................................................... $ 30,802 $ 22,652 $ 27,754
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
COMPUTER LEARNING CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31 ,
--------------------
1995 1996
--------- --------- JULY 31,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Stockholders' equity :
Preferred stock, $.01 par value, 1,000,000 authorized shares, no issued or
outstanding shares -- 1996 and July 31, 1996.............................. -- --
Convertible Preferred stock, no par value, 7,000,000 authorized shares,
5,942,038 issued shares and 5,811,538 outstanding shares (aggregate
liquidation preference $17,264), 4,970,913 shares held by parent company
-- 1995................................................................... $ 19,018
Less -- subscription note receivable, 225,000 preferred shares at $5.20 per
share -- 1995; no shares -- 1996.......................................... (1,169) -- --
Common stock, $.01 par value, 10,000,000 authorized shares, 21,195 issued
and outstanding shares -- 1995; 4,329,515 issued and outstanding shares --
1996; 4,438,567 issued and outstanding shares -- July 31, 1996............ 1 $ 43 $ 44
Common stock warrants...................................................... 24 -- --
Additional paid-in capital................................................. 80 15,749 16,351
Less -- subscription note receivable for no shares -- 1995; 70,649 common
shares at $9.43 per share -- 1996 and July 31, 1996 ...................... -- (666) (666)
Net unrealized gain on securities available for sale....................... -- 211 235
Retained earnings (accumulated deficit).................................... (8,249) 1,819 4,283
--------- --------- -----------
9,705 17,156 20,247
Less -- treasury stock, at cost, 112,500 preferred shares -- 1995; no
shares -- 1996 and July 31, 1996.......................................... (585) -- --
--------- --------- -----------
Total stockholders' equity............................................... 9,120 17,156 20,247
--------- --------- -----------
Commitments and contingencies (Note 11)
Total liabilities and stockholders' equity............................... $ 39,922 $ 39,808 $ 48,001
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
COMPUTER LEARNING CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED JANUARY 31, ENDED JULY 31,
--------------------------------- -----------------------
1994 1995 1996 1995 1996
--------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................................. $ 34,981 $ 39,297 $ 46,081 $ 21,544 $ 28,983
--------- ---------- ---------- ----------- ----------
Costs and expenses:
Costs of instruction and services.................. 19,406 22,227 26,076 12,497 15,786
Selling and promotional............................ 6,259 6,371 7,884 3,835 5,059
General and administrative......................... 2,844 3,727 4,052 1,776 2,675
Provision for doubtful accounts.................... 1,996 3,313 2,613 1,318 1,284
Amortization of intangibles........................ 408 393 363 181 181
--------- ---------- ---------- ----------- ----------
30,913 36,031 40,988 19,607 24,985
--------- ---------- ---------- ----------- ----------
Income before interest............................... 4,068 3,266 5,093 1,937 3,998
Interest expense (income), net....................... 1,356 948 96 256 (214)
--------- ---------- ---------- ----------- ----------
Income before income taxes, discontinued operations,
extraordinary item and cumulative effect of
accounting change................................... 2,712 2,318 4,997 1,681 4,212
Provision for income taxes........................... 1,124 1,131 2,078 772 1,748
--------- ---------- ---------- ----------- ----------
Income from continuing operations before discontinued
operations, extraordinary item and cumulative effect
of accounting change................................ 1,588 1,187 2,919 909 2,464
--------- ---------- ---------- ----------- ----------
Discontinued operations, net of applicable income
taxes (Notes 2 and 5):
Income (loss) from discontinued operations......... 2,009 1,901 (1,065) (1,065) --
Loss on disposal of Mohr Development, including $238
of operating income during phase-out period......... (83) -- -- -- --
--------- ---------- ---------- ----------- ----------
1,926 1,901 (1,065) (1,065) 2,464
--------- ---------- ---------- ----------- ----------
Income (loss) before extraordinary item and
cumulative effect of accounting change.............. 3,514 3,088 1,854 (156) 2,464
Extraordinary item, net of applicable income taxes:
Loss on early extinguishment of debt............... (193) -- -- -- --
Cumulative effect of accounting change............... 333 -- -- -- --
--------- ---------- ---------- ----------- ----------
Net income (loss).................................... $ 3,654 $ 3,088 $ 1,854 $ (156) $ 2,464
--------- ---------- ---------- ----------- ----------
--------- ---------- ---------- ----------- ----------
Unaudited earnings per share (Note 3):
Income per share from continuing operations, pro
forma -- 1995, 1996 and July 31, 1995; actual --
July 31, 1996..................................... $ 0.43 $ 0.77 $ 0.28 $ 0.54
Income (loss) per share from discontinued
operations, pro forma............................. 0.69 (0.28) (0.33) --
---------- ---------- ----------- ----------
Net income per share, pro forma -- 1995, 1996 and
July 31, 1995; actual -- July 31, 1996............ $ 1.12 $ 0.49 $ (0.05) $ 0.54
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Weighted average number of shares outstanding, pro
forma -- 1995, 1996 and July 31, 1995; actual --
July 31, 1996..................................... 2,737,007 3,797,808 3,247,765 4,581,202
Fully diluted income per share from continuing
operations........................................ $ 0.52
----------
----------
Fully diluted weighted average number of shares
outstanding....................................... 4,738,218
Supplemental pro forma income per share from
continuing operations............................. $ 0.71
----------
----------
Supplemental pro forma weighted average number of
shares outstanding................................ 4,302,975
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
COMPUTER LEARNING CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED JANUARY 31, ENDED JULY 31,
---------------------------------- ----------------------
1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ 3,654 $ 3,088 $ 1,854 $ (156) $ 2,464
Adjustments to reconcile net income to cash provided by
operating activities:
Provision for doubtful accounts........................ 1,996 3,313 2,613 1,318 1,284
Depreciation........................................... 788 1,507 1,367 644 892
Amortization of intangibles and other assets........... 408 393 363 181 181
Deferred tax provision (benefit)....................... 93 (294) 47 -- --
Changes in net assets and liabilities:
Accounts receivable.................................. (6,360) (5,186) (4,661) (830) (2,933)
Net assets of discontinued operations................ 4,861 461 1,197 1,155 --
Prepaid expenses and other current assets............ 18 (325) 337 122 (359)
Other long-term assets............................... (774) (503) (365) 172 (913)
Trade accounts payable............................... 515 (770) 796 204 999
Accrued employee expenses............................ 83 (114) 412 25 583
Accrued other expenses............................... (64) 768 (562) (748) (28)
Deferred revenues.................................... 2,590 648 3,451 616 3,409
Other long-term liabilities.......................... 415 716 196 57 139
---------- ---------- ---------- ---------- ----------
Cash provided by operating activities................ 8,223 3,702 7,045 2,760 5,718
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures..................................... (1,943) (2,147) (1,983) (701) (2,957)
(Increase) decrease in restricted cash................... -- (700) 700 700 --
Product development...................................... -- -- (75) -- (37)
Perkins matching contributions........................... (12) (64) (82) (82) --
---------- ---------- ---------- ---------- ----------
Cash used for investing activities................... (1,955) (2,911) (1,440) (83) (2,994)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Decrease in convertible subordinated note................ (913) -- -- -- --
Proceeds from issuance of common stock................... -- -- 14,847 14,847 --
Exercise of stock options................................ -- 71 183 -- 310
Borrowings from long-term debt........................... 18,475 23,790 9,694 9,694 --
Repayments of long-term debt............................. (21,708) (24,287) (26,822) (26,560) --
---------- ---------- ---------- ---------- ----------
Cash (used for) provided by financing activities..... (4,146) (426) (2,098) (2,019) 310
---------- ---------- ---------- ---------- ----------
Net increase in cash and cash equivalents.................. 2,122 365 3,507 658 3,034
Cash and cash equivalents, beginning of year............... 2,266 4,388 4,753 4,753 8,260
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents, end of year..................... $ 4,388 $ 4,753 $ 8,260 $ 5,411 $ 11,294
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
Capital lease obligations in the amount of $100 were entered into during
fiscal 1994.
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1994, 1995 AND 1996 AND
JULY 31, 1996 (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 1 -- NATURE OF THE BUSINESS:
Computer Learning Centers, Inc. (the "Company"), formerly Comprehensive
Learning Concepts, Inc., and formerly a subsidiary of General Atlantic
Corporation Incorporated, is currently a public company traded on the Nasdaq
National Market exchange upon completing an initial public offering on July 6,
1995 (See Note 2). In March 1987, the Company purchased six training schools
from Airco Education Services, ("Airco") a division of the BOC Group, Inc., that
had been operated by Airco or its predecessors since 1957. As of January 31,
1996, the Company had ten Learning Centers operating and is headquartered in
Fairfax, Virginia. One additional Learning Center in Plymouth Meeting,
Pennsylvania commenced operations in February 1996, bringing the total number of
Learning Centers opened to eleven.
In May 1989, the Company acquired substantially all of the assets of
Blessing/White Inc. ("Blessing/White"). In fiscal 1990, the Company began
operations in the U.K. with the formation of Comprehensive Learning Concepts
(U.K.) Limited ("UK Ltd"). In September 1988, the Company acquired substantially
all of the assets of Mohr Development Incorporated ("Mohr") (see Notes 2 and 5).
On January 31, 1994, the Company sold 80.1% of the common stock of Mohr to a
third party (see Note 5).
As used herein, the fiscal years ended January 31, 1994, 1995, and 1996 are
referred to as fiscal "1994", "1995" and "1996", respectively.
NOTE 2 -- INITIAL PUBLIC OFFERING:
THE OFFERING
On July 6, 1995, the Company completed its initial public offering, (with an
effective date of May 31, 1995), filing a registration statement on Form S-1
with the Securities and Exchange Commission for the sale of 2,290,000 shares of
its common stock. The net proceeds of this offering of $14.8 million were used
to repay the revolving term loan and convertible subordinated note discussed in
Note 7, to repay a portion of the subordinated notes payable to stockholders
resulting from the Repurchase Transactions discussed below and for working
capital and general corporate purposes.
REPURCHASE TRANSACTIONS
In connection with the offering, certain of the shares of Class B preferred
stock and all shares of Class C preferred stock were repurchased at their book
value of $3,125. The Company negotiated to repurchase the common stock warrants
for an aggregate price of $986, or approximately $5.24 per share purchasable
thereunder. The amount of the repurchase price in excess of the book value of
these warrants ($962) was charged to stockholders' equity. The Company issued
subordinated notes aggregating $4,111 in consideration of these repurchases,
which were repaid from the proceeds of the offering.
RECAPITALIZATION
In connection with the offering, a series of transactions (collectively, the
"Recapitalization") were executed. The Company canceled the remaining note
receivable from Blessing/White (approximately $7.5 million) and contributed to
Blessing/White its 19.9% interest in Mohr, the remaining note receivable from
the sale of Mohr, and its investment in UK Ltd. These assets were generally
operating assets represented by accounts receivable considered to be fully
collectible, accounts payable and other productive assets. The assets were
contributed at net book value, which the Company believes equals net realizable
value. Prior to the spinoff of Blessing/White and UK Ltd. (the discontinued
operations), the Company transferred $500 to the discontinued operations to
provide initial working
F-7
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1994, 1995 AND 1996 AND
JULY 31, 1996 (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 2 -- INITIAL PUBLIC OFFERING: (CONTINUED)
capital. The Company then distributed all of the outstanding shares of common
and preferred stock of Blessing/White to shareholders of the Company on a pro
rata basis for common stockholders and for preferred stockholders, based upon
the ratio of relative fair values of these companies to the total fair value of
the Company. The net assets and results of operations of Blessing/White and UK
Ltd have been reflected as discontinued operations in the accompanying
consolidated financial statements through May 31, 1995. Operating results for
these discontinued operations, after allocation of expenses for administration
of benefit and insurance programs and certain tax and treasury functions, were
as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JANUARY 31, FOR THE FOUR
-------------------- MONTHS ENDED
1994 1995 MAY 31, 1995
--------- --------- -------------
<S> <C> <C> <C>
Revenues............................................... $ 23,250 $ 23,938 $ 4,115
--------- --------- -------------
Income (loss) before income taxes...................... 3,051 3,098 (1,568)
(Provision) benefit for income taxes................... (852) (1,197) 503
--------- --------- -------------
Net income (loss)...................................... $ 2,199 $ 1,901 $ (1,065)
--------- --------- -------------
--------- --------- -------------
</TABLE>
For the year ended January 31, 1994 discontinued operations includes the
results of Mohr (see Note 5).
Net assets of these discontinued operations as reported in the consolidated
balance sheet were comprised of the following:
<TABLE>
<CAPTION>
JANUARY 31,
1995
-----------
<S> <C>
Current assets................................................................... $ 7,612
Fixed assets, net................................................................ 813
Other assets..................................................................... 5,162
-----------
Total assets................................................................... 13,587
-----------
Current liabilities.............................................................. 7,499
Other liabilities................................................................ 887
-----------
Total liabilities.............................................................. 8,386
-----------
Net assets of discontinued operations............................................ $ 5,201
-----------
-----------
</TABLE>
Total net assets of discontinued operations reflects the settlement of
intercompany balances.
REVERSE STOCK SPLIT
The Company effected an approximately .314-for-1 reverse stock split of its
outstanding common stock (the "Reverse Stock Split"), which reduced the number
of shares outstanding from 67,500 to 21,195. In conjunction with the Reverse
Stock Split, the Company reduced the rate at which the preferred stock was
convertible into common stock to reflect the split. This reduced the total
number of shares of common stock issuable upon conversion of the preferred stock
from 5,816,017 to 1,826,205 shares. The consolidated financial statements have
been retroactively restated to reflect these events.
F-8
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1994, 1995 AND 1996 AND
JULY 31, 1996 (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 2 -- INITIAL PUBLIC OFFERING: (CONTINUED)
PREFERRED STOCK CONVERSION
Subsequent to the Recapitalization discussed above, and immediately prior to
the completion of the offering, Class A (including the shares applicable to the
subscription note receivable), certain Class B and Class D preferred
stockholders converted their preferred stock into .314, .369 and .408 shares of
common stock, respectively, in accordance with the applicable preferred stock's
conversion rates.
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The Company's consolidated financial information included herein is not
necessarily indicative of the financial position, results of operations and cash
flows of the Company in the future or indicative of the results that would have
been reported if the Company had operated as an unaffiliated enterprise prior to
May 31, 1995. Management believes the consolidated statements of operations
include a reasonable allocation of costs to continuing and discontinued
operations. Such expenses include administration of benefit and insurance
programs, which were allocated based upon costs directly attributable to a
subsidiary, and certain tax and treasury functions, which were allocated based
upon the percentages of time spent on subsidiary matters or as a percentage of
revenues. Total costs allocated to continuing operations were $782, $1,094 and
$116 for fiscal 1994, 1995 and 1996 (through May 31, 1995), respectively.
The consolidated financial statements include the Company and its
wholly-owned subsidiaries, Blessing/White, Mohr and Comprehensive Learning
Concepts (UK) Limited, which are reflected as discontinued operations through
May 31, 1995 (see Notes 2 and 5). All significant intercompany balances and
transactions have been eliminated.
The accompanying balance sheet at July 31, 1996 and the consolidated
statements of operations and cash flows for the six months ended July 1995 and
1996, are unaudited. In the opinion of management, these statements have been
prepared on the same basis as the audited financial statements and include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial position at such date and the operating
results and cash flows for those periods. These historical results are not
necessarily indicative of the results to be expected in the future.
INCOME PER SHARE FROM CONTINUING OPERATIONS INFORMATION (UNAUDITED)
The unaudited pro forma income per share from continuing operations for the
years ended January 31, 1995 and 1996 is equal to historical income from
continuing operations divided by the unaudited pro forma weighted average number
of shares outstanding. The unaudited pro forma weighted average number of shares
outstanding is based on the number of common shares and common share
equivalents, 2,737,007 and 3,797,808 shares at January 31, 1995 and 1996,
respectively, using the treasury stock method. The common stock equivalents
include 277,515 and 241,501 shares representing the conversion of stock options,
616,654 and 218,626 shares representing the amount of common shares required to
be sold at the initial public offering price to repay subordinated notes payable
to stockholders, and 1,826,205 and 1,755,697 shares representing the conversion
of all classes of preferred stock at their respective common share conversion
rates after giving effect to the
F-9
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1994, 1995 AND 1996 AND
JULY 31, 1996 (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Repurchase Transactions and the Recapitalization at January 31, 1995 and 1996,
respectively, discussed in Note 2. The weighted average of actual common stock
outstanding includes those shares issued during fiscal 1996 in connection with
the initial public offering.
The unaudited supplemental pro forma income per share from continuing
operations for the year ended January 31, 1995 is equal to unaudited
supplemental pro forma income from continuing operations divided by the
unaudited supplemental pro forma weighted average number of shares outstanding.
Unaudited supplemental pro forma income from continuing operations is derived by
adjusting historical income from continuing operations to reflect the reduction
of interest expense ($425 net of applicable taxes for fiscal 1996) relating to
the repayment as of February 1, 1994 of long-term indebtedness totaling $9.5
million. The unaudited supplemental pro forma weighted average number of shares
outstanding (4,302,975 shares at January 31, 1996) is based upon the unaudited
pro forma weighted average number of shares outstanding increased by the
weighted average estimated amount of additional shares required to be sold at
the initial public offering price to repay long-term indebtedness (505,167
shares for fiscal 1996).
The unaudited income per share from continuing operations for the six months
ended July 31, 1996 is equal to historical income from continuing operations
divided by the unaudited weighted average number of shares outstanding. The
unaudited weighted average number of shares outstanding is based upon the number
of common shares and common share equivalents from stock options outstanding of
4,581,202 at July 31, 1996, using the treasury stock method, assuming that the
options are exercised at the average market price for the six months ended July
31, 1996.
The unaudited fully diluted income per share from continuing operations for
the six months ended July 31, 1996 is equal to historical income from continuing
operations divided by the unaudited fully diluted weighted average number of
shares outstanding. The unaudited fully diluted weighted average number of
shares outstanding is based upon the number of common shares and dilutive common
share equivalents from stock options outstanding of 4,738,218 at July 31, 1996,
using the treasury stock method, assuming that the options are exercised at the
closing market price on July 31, 1996.
The Company's historical capital structure is not indicative of its
prospective structure due to the conversion of all shares of preferred stock
into common stock concurrent with the closing of the Company's initial public
offering. Accordingly, historical net income per common share is not considered
meaningful and has not been presented herein.
REVENUE RECOGNITION
Revenues of the Company are derived principally from tuition income. The
Company records accounts receivable and related deferred revenues when students
are billed tuition for the programs they are attending. The deferred revenues
are then recognized as income on a pro rata basis over the term of instruction,
which varies from concentrated (two- to twenty-nine day) courses to eight to
thirty-two-month programs. On an individual basis, when a student withdraws,
tuition paid in excess of earned revenues is refunded based on the applicable
refund policy and revenue earned in excess of tuition paid is recorded as an
account receivable. When reporting accounts receivable and deferred revenues,
the Company provides for estimated future student withdrawals as reductions to
deferred revenues and related accounts receivable balances, thus stating the
appropriate deferred revenues and accounts receivable balances at an estimated
net realizable value. Such provisions aggregated $5,455, $5,800 and $6,300 at
January 31, 1995 and 1996 and July 31, 1996, respectively.
F-10
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1994, 1995 AND 1996 AND
JULY 31, 1996 (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
LEARNING CENTER START-UP COSTS
Learning Center start-up costs consist of all direct costs incurred at a new
Learning Center (excluding advertising costs) from the date a lease for a
facility is entered into until the start of the first class. Such capitalized
costs are amortized on a straight-line basis over a one-year period commencing
with the date of the start of the first class. Deferred start up costs included
in prepaid expenses and other current assets in the consolidated balance sheets
were as follows:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Deferred start-up costs................. $ 53 $ 254
Less: Accumulated amortization.......... 18 --
--- ---------
$ 35 $ 254
--- ---------
--- ---------
</TABLE>
ADVERTISING COSTS
The Company defers advertising costs related to production of commercials
and expenses such costs at the time the commercials are first aired. There was
no deferred advertising for the years ended January 31, 1995 and 1996. The
Company expenses all other advertising costs as incurred. Total advertising
expense was $2,438, $2,601 and $3,322 for fiscal 1994, 1995 and 1996.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, the Company considers investments
having an original maturity of three months or less to be cash equivalents.
Interest paid for fiscal 1994, 1995 and 1996 aggregated $2,410, $940 and $315,
respectively. Income taxes paid for fiscal 1994, 1995 and 1996 aggregated
$1,056, $1,518 and $1,933, respectively.
RESTRICTED CASH
Pursuant to July 1994 U.S. Department of Education ("Department")
regulations, during fiscal 1995 the Company maintained restricted cash balances
of $700, which equaled 25% of refunds paid in fiscal 1994. Restricted cash
balances for fiscal 1996, based on fiscal 1995 refunds, were maintained at
$1,100 through July 1, 1995, at which time restrictions on cash were no longer
required.
INVENTORIES
Inventories consisting principally of program materials, books and supplies
are stated at the lower of cost, determined on a first-in, first-out basis, or
market. Total inventories, included in prepaid and other current assets in the
consolidated balance sheets, were $185 and $259 at January 31, 1995 and 1996,
respectively.
FIXED ASSETS
Furniture, equipment and leasehold improvements are recorded at cost.
Furniture and equipment are depreciated using the straight-line method over the
estimated useful lives of the assets for financial reporting purposes (three
years for computer software and five years for all other fixed assets) and
accelerated methods over statutory lives for income tax purposes. Leasehold
improvements are amortized using the straight-line method over the term of the
lease for financial reporting purposes and over the statutory lives for income
tax purposes.
F-11
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1994, 1995 AND 1996 AND
JULY 31, 1996 (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PERKINS MATCHING FUNDS
The Company participates in the Perkins loan program in order to provide
continuing long-term, low interest loans to qualifying students in need of
financial assistance. Perkins loans are available on the basis of student
financial need and are subject to the availability of Perkins loan funds at the
institution. There is a 25% institutional matching requirement for Perkins
loans, pursuant to which the Company contributed $64 and $82 in fiscal 1995 and
1996, respectively.
INTANGIBLE ASSETS
Identifiable intangible assets were valued based on independent appraisals
in connection with the acquisition in March 1987. An estimated useful life of
eighteen years was assigned to the Company's Department of Education
certifications of Title IV Program eligibility, based upon a review of the
historical useful life of certifications held by other institutions accredited
by the Accrediting Council for Independent Colleges and Schools. As of January
31, 1995 and 1996, acquisition intangibles consisted only of Department of
Education certifications, which are being amortized through fiscal 2007, using a
straight-line method. Accumulated amortization for Department of Education
certification aggregated $2,746 and $3,109 at January 31, 1995 and 1996,
respectively.
The Company has evaluated the recoverability of intangible assets at January
31, 1996 based upon undiscounted net cash flows from operations and has
determined that no impairment to these assets existed as of this date.
OTHER ASSETS
The Company recorded as an extraordinary item, the write-off of $193 (net of
applicable income taxes of $137) of capitalized debt issuance costs associated
with bank debt retired during fiscal 1994.
SECURITIES AVAILABLE FOR SALE
In November 1995, the Company's health insurance carrier, pursuant to a
demutualization, issued to the Company 13,649 shares of common stock
representing the Company's pro rata share of the carrier's policy holder surplus
at the demutualization date. This stock is classified as available for sale,
with unrealized gains (representing the market value of stock as Company has no
basis in the investment), net of tax, excluded from income and reported as a
separate component of stockholders' equity. At January 31, 1996, the market
value of this investment was $363 which is included in prepaid expenses and
other current assets in the consolidated balance sheet.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 - "Accounting for Income Taxes" ("SFAS
109") which requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the book
and tax bases of assets and liabilities. In fiscal 1994, the Company changed its
method of accounting for income taxes by prospectively adopting SFAS 109. The
cumulative effect of this change, $333, was recorded as a credit to income in
fiscal 1994, and prior years' results were not restated.
Prior to May 31, 1995, discontinued operations (discussed in Notes 2 and 5)
were included in the consolidated tax return of the Company. Under that
arrangement, income taxes were allocated to members of the Consolidated group
based on amounts they would pay or receive if they had filed a
F-12
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1994, 1995 AND 1996 AND
JULY 31, 1996 (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 3 -- SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
separate income tax return (the "separate company basis"). Pursuant to the
Recapitalization described in Note 2, the Company files separate income tax
returns and has entered into a Tax Sharing and Indemnification Agreement with
Blessing/White which provides for, among other matters:
(i) The designation of the Company as the agent for required actions and
filings of all consolidated or unitary federal or state income tax
returns.
(ii) The payment by the Company to Blessing/White or the repayment by
Blessing/White of income taxes plus interest previously computed under
the separate company basis, as a result of any amended return or an
audit by, or refund from, the Internal Revenue Service or any state.
RECLASSIFICATION
Certain fiscal 1994 and 1995 consolidated financial statement amounts have
been reclassified to conform to fiscal 1996 presentation.
NEW ACCOUNTING STANDARDS
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed of", was released by the
Financial Accounting Standards Board (FASB). This standard requires the Company
to review long-lived assets and certain identifiable intangibles to be held and
used or to be disposed of for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The pronouncement is effective for fiscal years beginning after
December 15, 1995. The Company anticipates that adoption of this new accounting
standard will not have a significant effect on financial condition or results of
operations.
In October 1995, FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation," ("SFAS 123") which is effective for the Company beginning
February 1, 1996. SFAS 123 provides an alternative method of accounting for
stock-based compensation arrangements, based on fair value of the stock-based
compensation utilizing various assumptions regarding the underlying attributes
of the options and stock, rather than the existing method of accounting for
stock-based compensation which is provided in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25). FASB
encourages entities to adopt the fair-value based method but does not require
adoption of this method. The Company has decided to continue its current
accounting policy, but will be required to make pro-forma disclosures of net
income and, if presented, earnings per share, as if the fair value based method
of accounting defined in SFAS 123 had applied. Management will apply APB 25, and
as such, does not anticipate that the adoption will have a significant effect on
financial condition or results of operations.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of estimates by management that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period, primarily in the areas of provisions for estimated
collections, useful lives of intangible assets, and deferred income taxes.
Actual results could differ from these estimates.
F-13
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1994, 1995 AND 1996 AND
JULY 31, 1996 (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 4 -- FINANCIAL AID PROGRAMS
Note 13 contains an update of Financial Aid Program matters subsequent to
March 15, 1996. The Company is subject to extensive regulation as a participant
in various federal and state government supported financial aid programs. For
fiscal 1996, approximately 72% of the Company's revenues were derived from
various federal student financial aid programs. These regulations require, among
other things, that the Company and its Learning Centers comply with certain
financial responsibility and administrative capability requirements. Failure to
comply with these requirements could result in restriction or loss by the
Company or its Learning Centers of its ability to participate in federal or
other financial aid programs or to provide educational and training services.
Such restrictions could have a severe impact on the Company's business,
financial condition and results of operations.
The Chicago Learning Center's published federal fiscal year ("FY") 1993
student loan cohort default rate ("cohort default rate") exceeds 25% which, if
accurate, would result in three consecutive years of default rates that exceed
the Department's 25% threshold. Management believes the published rates are
likely to contain errors. The Company has submitted an appeal of the FY 1991,
1992, 1993 rates pursuant to the Department's procedures.
Depending on the ultimate resolution of those appeals, the Chicago Learning
Center's eligibility to participate in the Federal Family Education Loan
programs ("FFEL") could be subject to termination. The Chicago Learning Center
will remain eligible to participate in all Title IV Programs pending the
resolution of such cohort default rate appeals. The Company cannot predict when
the Department might decide the Chicago Learning Center's appeals or the outcome
of any such appeals.
The Department has announced that preliminary cohort default rates for FY
1994 will by issued on or about May 1, 1996. Institutions may seek to identify
errors in their preliminary rates to be corrected before the final rates are
published, with such publication expected in the fall of 1996. Although there
can be no assurance in this regard, based upon its internal records and
preliminary and unofficial records from its guaranty agencies, the Company
believes that the FY 1994 cohort default rate for the Chicago Learning Center
will be below 25%. If the preliminary FY 1994 rate for the Chicago Learning
Center is less than 25%, based upon recent Department decisions as well as
certain litigation, the Company believes that the FY 1994 rate will be
considered the most recent fiscal year and therefore such rate would be
sufficient for the Chicago Learning Center to retain its FFEL eligibility
regardless of the outcome of its prior year appeals.
In the course of a 1994 recertification review occasioned by its application
to be recognized for Title IV Program purposes as a degree-granting institution,
the Philadelphia Learning Center was granted only provisional eligibility
through September 1997, based upon the fact that its published FY 1992 cohort
default rate (which the Company is appealing) exceeded the applicable standard.
The terms of its provisional approval provide that during this provisional
period, if, after resolution of any appeals, the Philadelphia Learning Center's
cohort default rate is determined to exceed 32.9% for any single federal fiscal
year, the Department may seek immediately to terminate the Philadelphia Learning
Center's eligibility to participate in the Title IV Programs. The Philadelphia
Learning Center's FY 93 cohort default rate which the Company intends to appeal
exceeded the 32.9% threshold established by its provisional eligibility
certificate.
The Company has learned that the Department has modified its policy,
consistent with applicable regulations, regarding the use of cohort default
rates as a basis for provisional certification, so as to
F-14
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1994, 1995 AND 1996 AND
JULY 31, 1996 (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 4 -- FINANCIAL AID PROGRAMS (CONTINUED)
eliminate the year-by-year comparison that is currently called for in the
Philadelphia Learning Center's provisional certification, and instead to allow
an institution to maintain its provisional eligibility if there is no other
indication that the institution lacks administrative capability.
Beginning with the FY 1993 cohort default rates, the Department has changed
its methodology for determining when an Supplemental Loans for Students ("SLS")
student loan enters repayment. The Department's authority to implement this
change in methodology has been challenged on several grounds in a lawsuit in
which the plaintiff, a coalition of New York proprietary institutions, has asked
the court to order the Department to calculate their FY 1993 and future cohort
default rates under the previous methodology. The Company cannot predict the
timing or the outcome of such lawsuit. Based on its internal records, the
Company believes that the FY 1994 cohort default rate for the Philadelphia
Learning Center would be less than 25% if such rate were calculated without the
change in methodology. Under the Department's current policy, and based on the
same internal records, the Company expects the FY 1994 cohort default rate for
the Philadelphia Learning Center to exceed 25%, which would be the third
consecutive year in which the Learning Center's cohort default rate would exceed
that threshold and therefore would subject the Philadelphia Learning Center to
the loss of FFEL eligibility. The Company has appealed or plans to appeal the
accuracy of all three relevant cohort default rates and the Philadelphia
Learning Center will remain eligible pending the resolution of all such appeals.
The Company cannot predict when the Department might decide the Philadelphia
Learning Center's appeals or the outcome of any such appeals.
Revenues from the Chicago and Philadelphia Learning Centers for fiscal 1996
were 11.0% and 16.7% of total Learning Center revenues, respectively. The
Department's termination of either Learning Center's continued eligibility to
participate in the Title IV Programs could have a severe impact on the Company's
financial condition and results of operations. The total assets of these
Learning Centers as of January 31, 1996 are $2,946 and $4,542, respectively.
Carrying values of intangible assets relating to valuation of Department
certification for these two Learning Centers are $43 and $38, respectively.
Management does not believe that these assets are impaired as a result of the
potential noncompliance issues referenced above.
NOTE 5 -- DISCONTINUED OPERATIONS:
In November 1993, the Company approved divesting of its Mohr operations. The
divestiture was completed on January 31, 1994 with the sale of 80.1% of Mohr's
common stock to a third party for a note receivable of $680. The Company used an
imputed interest rate of 7% to value this receivable, payable over six years,
resulting in a value to the Company of $526 at January 31, 1994.
Mohr is included in the results from the discontinued operations for the
year ended January 31, 1994, the date of sale. After the sale of Mohr, the
amount receivable within one year is included in the consolidated balance sheet
as other current assets, and the amount receivable in excess of one year and the
investment in Mohr are included as other long-term assets. In fiscal 1996, the
remaining receivable from Mohr, $414, and the related 19.1% Mohr investment of
$125 was contributed to Blessing/White (see Note 2).
F-15
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1994, 1995 AND 1996 AND
JULY 31, 1996 (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 5 -- DISCONTINUED OPERATIONS: (CONTINUED)
Operating results for this discontinued operation were as follows:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
JANUARY 31,
1994
-----------
<S> <C>
Revenues............................................................... $ 2,632
-----------
Loss before income taxes............................................... (648)
Income tax benefit..................................................... 458
-----------
Net loss............................................................... $ (190)
-----------
-----------
</TABLE>
NOTE 6 -- FIXED ASSETS:
Fixed assets consisted of the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Furniture and equipment................................................ $ 8,772 $ 9,814
Leasehold improvements................................................. 796 683
--------- ---------
9,568 10,497
Less: Accumulated depreciation and amortization........................ (5,750) (6,063)
--------- ---------
$ 3,818 $ 4,434
--------- ---------
--------- ---------
</TABLE>
Depreciation expense for fiscal 1994, 1995, and 1996 was $788, $1,507, and
$1,367, respectively.
Fixed assets include the following assets held under capital leases:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Computer software............................................................ $ 657 --
Office equipment............................................................. 100 $ 100
--------- ---------
757 100
Less: Accumulated depreciation............................................... (700) (63)
--------- ---------
$ 57 $ 37
--------- ---------
--------- ---------
</TABLE>
Depreciation expense on these assets for fiscal 1994, 1995 and 1996 was
$155, $469 and $20, respectively.
During fiscal 1995, the Company accelerated depreciation on the computer
software due to technological changes, which resulted in additional depreciation
expense of $318. As of January 31, 1995, the computer software was fully
depreciated.
F-16
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1994, 1995 AND 1996 AND
JULY 31, 1996 (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 7 -- LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JANUARY 31,
1995
-----------
<S> <C>
Revolving term loan, interest at 2.0% above prime rate, maturing June 1998, secured by
assets of the Company and subsidiaries and stock of subsidiaries.......................... $ 8,650
Convertible subordinated note, interest at 9.13%, maturing May 1996........................ 4,000
Capitalized lease obligations, interest at 12.56%, maturing June 1997, secured by computer
software.................................................................................. 367
-----------
13,017
Less: Current portion...................................................................... (2,089)
-----------
$ 10,928
-----------
-----------
</TABLE>
During fiscal 1995 through June 7, 1995, the Company maintained a debt
agreement with a bank which provided for $10,700 revolving credit facility and
$2,000 of stand-by letters of credit. Pursuant to the Company's initial public
offering and the spin-off of discontinued operations, this agreement was
terminated and all outstanding amounts repaid as of June 7, 1995 using proceeds
from the initial public offering. Termination penalties paid in connection with
this transaction were $87.
On July 24, 1995, the Company executed a new debt agreement with the bank to
replace the previous revolving term loan. The terms of the agreement provide for
a $5,000 revolving credit facility which expires May 15, 1996. At January 31,
1996, there was no outstanding balance. The interest on the facility is based on
the bank's prime rate plus 1% (9.5% at January 31, 1996) payable monthly on the
outstanding balance. The Company pays a commitment fee of 1/4% based on the
unused portion of the lines. The Company has granted the bank a security
interest in substantially all of its assets. The agreement requires maintenance
of certain financial ratios (current leverage and debt coverage ratios) and
contains other restrictive covenants, including restrictions on fixed asset
purchases and on payment of dividends. At January 31, 1996, the Company was in
compliance with all financial ratio requirements and all covenants.
The Company had a $1,600 irrevocable letter of credit issued to the
Department as of January 31, 1995, pursuant to the Department's prior request.
During fiscal 1996, the Department no longer required and released the letter of
credit. In addition, the Company had letters of credit in the aggregate for $104
and $190 outstanding at January 31, 1995 and 1996, respectively, primarily with
a landlord securing tenant improvements to a facility and with an insurance
company for surety bonds required by various states in which the Company
operates.
The Company had a $4,000 convertible subordinated note outstanding at
January 31, 1995. The note was repaid during 1996 with proceeds from the initial
public offering. At January 31, 1995, the Company had capital leases related to
certain computer and office equipment that was included in the "furniture and
equipment" caption in Note 6. All debt related to capital leases was repaid in
1996.
F-17
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996, 1995 AND 1994 AND JULY 31, 1996
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 8 -- INCOME TAXES:
The components of the provisions for income taxes for fiscal 1994, 1995 and
1996 are summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JANUARY 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal...................................................... $ 634 $ 984 $ 1,433
State........................................................ 397 441 598
Deferred....................................................... 93 (294) 47
--------- --------- ---------
1,124 1,131 2,078
Loss on early extinguishment of debt........................... (137) -- --
--------- --------- ---------
Provision for income tax....................................... $ 987 $ 1,131 $ 2,078
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred tax assets (liabilities) arise due to the recognition of income and
expense items for tax purposes in periods which differ from those used for
financial statement purposes. At January 31, 1995 and 1996, the net deferred tax
asset was comprised of the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Allowance for doubtful accounts.......................................... $ 744 $ 669
Depreciation and amortization............................................ 90 75
Deferred rent accrual.................................................... 276 304
Vacation pay accrual..................................................... 87 143
Accrued bonuses.......................................................... -- 122
Other accruals........................................................... 135 77
--------- ---------
Total deferred tax asset................................................. 1,332 1,390
--------- ---------
Deferred start-up costs.................................................. -- (104)
Other deferred tax liabilities........................................... (137) (138)
--------- ---------
Total deferred tax liabilities........................................... (137) (242)
--------- ---------
Net deferred tax asset................................................... $ 1,195 $ 1,148
--------- ---------
--------- ---------
</TABLE>
Management believes, based on the Company's history of earnings, that income
from continuing operations will more likely than not be sufficient to fully
recognize this net deferred tax asset. The components of the net deferred tax
asset include a current and long-term portion, which is included in prepaid
expenses and other current assets and other long-term assets in the consolidated
balance sheets, respectively.
F-18
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996, 1995 AND 1994 AND JULY 31, 1996
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 8 -- INCOME TAXES: (CONTINUED)
Differences between effective income tax rates and the statutory U.S.
federal income tax rates are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JANUARY 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory U.S. federal income tax rate................................. 34.0% 34.0% 35.0%
State income taxes, net of federal benefit............................. 9.7 12.6 7.8
Permanent differences and other........................................ (2.3) 2.2 (1.2)
--- --- ---
Effective income tax rates............................................. 41.4% 48.8% 41.6%
--- --- ---
--- --- ---
</TABLE>
For the years ended January 31, 1994, 1995 and 1996, state taxable income
includes interest income on amounts owed from Blessing/White causing
disproportionately higher state income tax rates. In addition, the Company
utilized all state net operating losses during the year ended January 31, 1994.
F-19
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996, 1995 AND 1994 AND JULY 31, 1996
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 9 -- STOCKHOLDERS' EQUITY:
An analysis of the changes in stockholder's equity for the years ended
January 31, 1994, 1995 and 1996 and for the six months ended July 31, 1996 is
summarized below:
<TABLE>
<CAPTION>
(ACCUMULATED
COMMON DEFICIT)
PREFERRED COMMON TREASURY SUBSCRIPTION PAID-IN STOCK RETAINED
STOCK STOCK STOCK NOTES CAPITAL WARRANTS EARNINGS
--------- ----------- ----------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance February 1, 1993..... $ 19,018 -- $ (585) $ (1,169) $ 10 $ 24 $ (14,991)
Fiscal 1994 net income....... -- -- -- -- -- -- 3,654
--------- --- ----------- ------------ --------- --- ------------
Balance at January 31,
1994........................ 19,018 -- (585) (1,169) 10 24 (11,337)
--------- --- ----------- ------------ --------- --- ------------
Exercise of stock options.... -- $ 1 -- -- 70 -- --
Fiscal 1995 net income -- -- -- -- -- -- 3,088
--------- --- ----------- ------------ --------- --- ------------
Balance at January 31, 1995 19,018 1 (585) (1,169) 80 24 (8,249)
--------- --- ----------- ------------ --------- --- ------------
Retirement of treasury
stock....................... (585) -- 585 -- -- -- --
Repurchase transactions...... (3,125) -- -- -- -- (24) (986)
Recapitalization............. (6,582) -- -- 503 (8,045) -- 9,200
Conversion of preferred stock
to common................... (8,726) 17 -- -- 8,709 -- --
Stock issuance/initial public
offering.................... -- 23 -- -- 14,824 -- --
Exercise of stock options.... -- 2 -- -- 181 -- --
Fiscal 1996 net income....... -- -- -- -- -- -- 1,854
--------- --- ----------- ------------ --------- --- ------------
Balance at January 31,
1996........................ -- 43 -- (666) 15,749 -- 1,819
--------- --- ----------- ------------ --------- --- ------------
Exercise of stock options.... -- 1 -- -- 602 -- --
Net income for the six months
ended July 31, 1996......... -- -- -- -- -- -- 2,464
--------- --- ----------- ------------ --------- --- ------------
Balance at July 31, 1996
(unaudited)................. -- $ 44 -- $ (666) $ 16,351 -- $ 4,283
--------- --- ----------- ------------ --------- --- ------------
--------- --- ----------- ------------ --------- --- ------------
</TABLE>
The Company's Certificate of Incorporation provides for common stock and
preferred stock.
F-20
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996, 1995 AND 1994 AND JULY 31, 1996
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 9 -- STOCKHOLDERS' EQUITY: (CONTINUED)
The Company's capital stock consisted of the following at January 31, 1995
and 1996 and at July 31, 1996:
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
-------------------- -----------
1995 1996 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Preferred stock, no shares authorized or issued -- 1995; $.01 par value,
1,000,000 shares authorized, no shares issued -- 1996....................... -- -- --
Convertible preferred stock, no par value: -- -- --
Class D-1,000,000 shares authorized; 961,538 shares issued and outstanding;
liquidation preference $5,000 -- 1995; no shares -- 1996.................. $ 5,000 -- --
Class B-1,000,000 shares authorized; 675,206 shares issued and outstanding;
liquidation preference $5,402 -- 1995; no shares -- 1996.................. 5,402 -- --
Class C-1,000,000 shares authorized; 324,794 shares issued and outstanding;
liquidation preference $2,598 -- 1995; no shares -- 1996.................. 2,598 -- --
Class A-4,000,000 shares authorized; 3,962,500 shares issued and 3,850,000
outstanding; liquidation preference $4,264 -- 1995; no shares -- 1996..... 6,018 -- --
Less: subscription notes receivable 70,649 common shares at $9.43 per share
-- 1996; 225,000 Class A preferred stock shares at $5.20 per share --
1995...................................................................... (1,169) $ (666) $ (666)
Common stock, $.01 par value -- 10,000,000 shares authorized; 21,195 issued
and outstanding shares -- 1995; 4,329,515 issued and outstanding shares --
1996; 4,438,567 issued and outstanding shares -- July 31, 1996............ 1 43 44
Common stock warrants...................................................... 24 -- --
Additional paid-in capital................................................. 80 15,749 16,351
Less: treasury stock, at cost, 112,500 shares of preferred stock, Class
A......................................................................... (585) -- --
--------- --------- -----------
$ 17,369 $ 15,126 $ 15,729
--------- --------- -----------
--------- --------- -----------
</TABLE>
During fiscal 1993, 112,500 of the shares were received in exchange for a
non-interest bearing promissory note aggregating $585. In March 1995, the
Company's Board of Directors approved the retirement of the 112,500 shares of
Class A preferred stock held in the treasury.
NOTE 10 -- SAVINGS PLAN:
The Company maintains a 401(k) plan covering substantially all employees.
Under the terms of the plan, the Company will match 25% of employee
contributions up to a maximum of 6% of annual employee compensation. Company
contributions under the plan aggregated $53, $54 and $52 for fiscal 1994, 1995
and 1996, respectively.
F-21
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996, 1995 AND 1994 AND JULY 31, 1996
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 11 -- COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company leases substantially all of its facilities under operating lease
agreements. A majority of the operating leases contain renewal options that can
be exercised after the initial lease term. Renewal options are generally for
periods of one to five years. All operating leases will expire over the next ten
years, and management expects that leases will be renewed or replaced by other
leases in the normal course of business. There are no material restrictions
imposed by the lease agreements. The Company has not entered into any
significant guarantees related to the leases.
The Company is required to make additional payments under certain operating
lease terms for taxes, insurance and other operating expenses incurred during
the operating lease period.
Future minimum rental payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year as of
January 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.............................................. $ 3,714
1998.............................................. 3,561
1999.............................................. 3,301
2000.............................................. 2,607
2001.............................................. 1,742
Thereafter........................................ 4,537
---------
$ 19,462
---------
---------
</TABLE>
Rent expense under these lease agreements aggregated $3,160, $3,540 and
$3,689 for fiscal 1994, 1995 and 1996, respectively.
LITIGATION
The Company is not a party to any material litigation. The Company may from
time to time be involved in routine litigation incident to its business.
NOTE 12 -- STOCK INCENTIVE PLANS
The Company has a Long-Term Incentive Plan that provides for award of
incentive and nonqualified common stock options and common stock appreciation
rights to certain directors, officers and key employees. The plan is
administered by an administration committee of the Board of Directors. The
Company has reserved 775,458 shares of common stock for grant under the plan. As
of January 31, 1996, options to purchase 539,926 shares of common stock were
outstanding under this plan. The Company has provided that no further grants may
be made under the Long-Term Incentive Plan.
In addition, the Board of Directors adopted the 1995 Stock Incentive Plan
which provides that a variety of awards, including stock options, stock
appreciation rights and restricted and unrestricted stock grants, may be made to
the Company's employees, officers, consultants and advisors. Stock options may
be granted either in the form of incentive stock options or non-qualified stock
options. The option exercise price of incentive stock options may not be less
than the fair market value of the common stock on the date of grant. The Company
has reserved 86,820 shares for issuance under this plan. The Company has granted
72,500 options under this plan as of January 31, 1996.
In March 1995, the Company's Board of Directors adopted the 1995
Non-Employee Directors Stock Option Plan, which provides for the grant to each
of the current non-employee directors of an option exercisable for shares of
common stock. All options granted under the plan will have an
F-22
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996, 1995 AND 1994 AND JULY 31, 1996
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 12 -- STOCK INCENTIVE PLANS (CONTINUED)
exercise price equal to the fair market value of the common stock on the date of
grant. The Company has reserved 70,178 shares of issuance under this plan. As of
January 31, 1996, the Company has granted 18,720 options under this plan.
Incentive and nonqualified options are exercisable at a price not less than
100% and 50%, respectively, of the fair market value of the common stock at the
date of grant, as determined by the administration committee. Stock appreciation
rights provide for payments equal to the base amount of the right, as determined
by the administration committee. No such appreciation rights are outstanding.
Options may be granted in tandem with appreciation rights; however, holders of
such tandem awards are subject to restrictions on the matter of exercise as
defined in the plan. Generally, stock options and rights vest ratably over five
years. All options and rights must be exercised within ten years from date of
grant.
In connection with the Recapitalization described in Note 2, holders of
incentive stock options received stock options in their respective companies
(either CLC or Blessing/White). The following share activity relates only to CLC
stock options and has been adjusted to reflect the Reverse Stock Split (see Note
2):
<TABLE>
<CAPTION>
INCENTIVE NON QUALIFIED
STOCK OPTIONS STOCK OPTIONS
------------- -------------
<S> <C> <C>
Outstanding at January 31, 1993................................. 452,819 117,748
------------- -------------
Options granted at $8.30 per share............................ 22,172
Options cancelled............................................. (50,238)
------------- -------------
Outstanding at January 31, 1994................................. 424,753 117,748
------------- -------------
Options granted at $5.50 per share............................ 296,348
Options exercised at $12.74 per share......................... (5,495)
Options cancelled............................................. (97,149)
------------- -------------
Outstanding at January 31, 1995................................. 618,457 117,748
------------- -------------
Options granted at $8.00 per share............................ 91,220
Options exercised at prices from $.39 to $5.50 per share...... (191,872)
Options cancelled............................................. (4,407)
------------- -------------
Outstanding at January 31, 1996................................. 513,398 117,748
------------- -------------
------------- -------------
Total exercisable at January 31, 1996........................... 332,956 117,748
------------- -------------
------------- -------------
</TABLE>
NOTE 13 -- SUBSEQUENT EVENTS -- (UNAUDITED)
FINANCIAL AID PROGRAMS
The Department of Education has decided the appeals for the Chicago and
Philadelphia Learning Centers' FY 1992 cohort default rates, which remain above
25%, but the FY 1991 appeal for Chicago and the FY 1993 appeals for the Chicago
and Philadelphia Learning Centers remain pending.
The Company received the FY 1994 preliminary default rates; the Chicago and
Philadelphia preliminary figures were 20.1% and 27.6%, respectively. Because the
governing statute requires that FFEL eligibility be based on the three most
recent years for which cohort default rate data are available, the Company
believes that the preliminary FY 1994 default rate for the Chicago Learning
F-23
<PAGE>
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996, 1995 AND 1994 AND JULY 31, 1996
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 13 -- SUBSEQUENT EVENTS -- (UNAUDITED) (CONTINUED)
Center, which has not been challenged by the Company, should be deemed the most
recent cohort default rate and therefore sufficient to allow the Chicago
Learning Center to retain its eligibility regardless of the outcome of its prior
year appeals. Although in a communication unrelated to the Company the
Department of Education has stated a contrary position, the Company is prepared
to assert its position and pursue all appropriate remedies if necessary. The
Company has challenged certain data contained in the Philadelphia Learning
Center's preliminary 1994 rate and is awaiting the resolution of that challenge.
If the Philadelphia Learning Center's FY 1994 rate is published at 25% or
higher, it would result in three consecutive years of default rates that exceed
the 25% threshold.
The Company has appealed or plans to appeal, the accuracy of all relevant
cohort default rates in excess of the 25% threshold. The Chicago and
Philadelphia Learning Centers will remain eligible to participate in all Title
IV programs pending the resolution of cohort default rate appeals. Revenues from
the Chicago and Philadelphia Learning Centers for the six months ended July 31,
1996 were 11% and 17%, respectively.
LONG-TERM DEBT
The Company's $5,000 revolving credit facility was extended to July 15, 1996
at which point it expired. The Company is currently in negotiation to renew the
credit facility.
STOCK INCENTIVE PLANS
The Company has reserved 775,458 shares of Common Stock for grant under the
Long-Term Incentive Plan. As of July 31, 1996, options to purchase 439,054
shares of Common Stock were outstanding under this plan. The Company has
reserved 486,820 shares of Common Stock for issuance under the 1995 Stock
Incentive Plan. The Company has granted 142,500 under this plan as of July 31,
1996. The Company has reserved 70,178 shares of Common Stock for issuance under
the 1995 Non-Employee Directors Stock Option Plan. As of July 31, 1996, the
Company has granted Options under this plan.
The option activity for the six months ended July 31, 1996 is as follows:
<TABLE>
<CAPTION>
INCENTIVE NON QUALIFIED
STOCK OPTIONS STOCK OPTIONS
------------- -------------
<S> <C> <C>
Outstanding at January 31, 1996..................................................... 513,398 117,748
------------- -------------
Options granted at prices from $9.00 to $21.13 per share.......................... 79,700 --
Options exercised at prices from $0.39 per share to $8.30......................... (101,202) (7,850)
------------- -------------
Outstanding at July 31, 1996........................................................ 491,896 109,898
------------- -------------
------------- -------------
Total exercisable at July 31, 1996.................................................. 226,528 109,898
------------- -------------
------------- -------------
</TABLE>
F-24
<PAGE>
The following is a narrative description of graphic and image material
contained on the inside back cover of the printed version of this Prospectus,
which material has been omitted from the version filed electronically.
1. Graphic of the map of the United States (exclusive of Alaska and Hawaii)
illustrating with the placements of dots the location of the Company's 11
Learning Centers. The following language accompanies the foregoing
graphic:
"11 Learning Centers in major information technology centers".
2. Picture depicting (i) a male employer, (ii) a female employer, (iii) a
male employer and (iv) a training lab at a Computer Learning Center
facility with students and instructors. The following language
accompanies the pictures of the employers:
"Employers of Computer Learning Centers' Graduates".
3. A listing of the addresses and phone numbers of the 11 Learning Centers.
The following language accompanies the list of addresses and phone
numbers:
"Learning Center Locations".
[ GRAPHIC ]
<PAGE>
[ LOGO ]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an estimate of the expenses expected to be
incurred in connection with the issuance and distribution of the securities
being registered, other than underwriting compensation:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission........... $ 12,600
Filing Fee -- National Association of Securities Dealers, Inc.... 4,154
Listing Fee -- Nasdaq National Market............................ 10,000
Transfer Agent and Registrar Fees and Expenses................... 5,000
Blue Sky Fees and Expenses....................................... 8,000
Legal Fees and Expenses.......................................... 250,000
Accounting Fees and Expenses..................................... 75,000
Printing and Engraving Expenses.................................. 200,000
Miscellaneous.................................................... 35,236
---------
Total........................................................ $ 600,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 ("Section 145") of the Delaware General Corporation Law, as
amended, provides a detailed statutory framework covering indemnification of
officers and directors against liabilities and expenses arising out of legal
proceedings brought against them by reason of their being or having been
directors or officers. Section 145 generally provides that a director or officer
of a corporation (i) shall be indemnified by the corporation for all expenses of
such legal proceedings when he is successful on the merits, (ii) may be
indemnified by the corporation for the expenses, judgments, fines and amounts
paid in settlement of such proceedings (other than a derivative suit), even if
he is not successful on the merits, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, and (iii) may be
indemnified by the corporation for the expenses of a derivative suit (a suit by
a stockholder alleging a breach by a director or officer of a duty owed to the
corporation), even if he is not successful on the merits, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation. No indemnification may be made under clause (iii)
above, however, if the director or officer is adjudged liable for negligence or
misconduct in the performance of his duties to the corporation, unless a
corporation determines that, despite such adjudication, but in view of all the
circumstances, he is entitled to indemnification. The indemnification described
in clauses (ii) and (iii) above may be made only upon a determination that
indemnification is proper because the applicable standard of conduct has been
met. Such a determination may be made by a majority of a quorum of disinterested
directors, independent legal counsel, the stockholders or a court of competent
jurisdiction.
The indemnification of directors and officers is provided for by Article
SEVENTH of the Registrant's Second Amended and Restated Certificate of
Incorporation, which provides in substance that, to the fullest extent permitted
by Delaware law as it now exists or as amended, each director and officer shall
be indemnified against reasonable costs and expenses, including attorney's fees,
and any liabilities which he may incur in connection with any action to which he
may be made a party by reason of his being or having been a director or officer
of the Registrant. The indemnification provided by the Registrant's Second
Amended and Restated Certificate of Incorporation is not deemed exclusive of or
intended in any way to limit any other rights to which any person seeking
indemnification may be entitled.
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits a corporation to provide in its Certificate of Incorporation that a
director of the corporation shall not be personally liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
II-1
<PAGE>
director, except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
Article NINTH of the Registrant's Second Amended and Restated Certificate of
Incorporation provides for the elimination of personal liability of a director
for breach of fiduciary duty, as permitted by Section 102(b)(7) of the Delaware
General Corporation Law.
Section 9 of the Underwriting Agreement provides for indemnification by the
Underwriters under certain circumstances of directors, officers and controlling
persons of the Registrant against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act").
The Registrant maintains liability insurance in the amount of $5,000,000
insuring its officers and directors against liabilities that they may incur in
such capacities, including liabilities arising under the Federal securities laws
other than liabilities arising out of the filing of a registration statement
with the Securities and Exchange Commission.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The securities issued by the Registrant since January 1, 1993 which were not
registered under the Securities Act are listed below.
(a) Issuances of Capital Stock. On November 30, 1994, the Registrant
issued 5,312 shares of its Common Stock to an employee pursuant to an
exercise of stock options.
(b) Grants of Stock Options.
The Registrant's Long-Term Incentive Plan, as amended, was adopted by the
Board of Directors and approved by the Company's stockholders on October 26,
1988. As of August 31, 1996, options to purchase an aggregate of 439,054 shares
of Common Stock were outstanding under the Long-Term Incentive Plan. 21,603
shares of Common Stock have been issued upon the exercise of options granted
under such Plan. The Company has provided that no additional option grants may
be made under this Plan.
No underwriters were involved in connection with the sales of securities
referred to herein. The shares of capital stock issued in the above transactions
were offered and sold in reliance upon the exemption from registration under
Section 4(2) of the Securities Act, relative to sales by an issuer not involving
any public offering, Rule 506 under the Securities Act or Rule 701 under the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBITS NUMBERED PAGE
- ----------- -------------------------------------------------------------------------------------- ---------------
<C> <C> <S> <C>
*1.1 -- Form of Underwriting Agreement.
**3.1 -- Second Amended and Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.3 of the Registrant's Report on Form 10-Q
filed July 14, 1995 (the "1995 Form 10-Q")).
**3.3 -- Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit
3.4 of the Registrant's Form S-1 Registration Statement, as amended, filed March 29,
1995 (Registration No. 33-90716) (the "Form S-1")).
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <C> <S> <C>
**4.1 -- Specimen certificate for shares of the Registrant's Common Stock (incorporated by
reference to Exhibit 4.1 of the Form S-1).
*5.1 -- Opinion of Hale and Dorr.
**10.1 -- Long-Term Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 of the
Form S-1).
**10.2 -- 1995 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 of the Form S-1).
**10.3 -- 1995 Non-Employee Directors Stock Option Plan (incorporated by reference to Exhibit
10.3 of the Form S-1).
**10.4 -- Second Amended and Restated Shareholders' Agreement (incorporated by reference to
Exhibit 10.1 of the 1995 Form 10-Q).
**10.5 -- Employment Agreement, dated June 30, 1987, between Harry H. Gaines and the Registrant,
as amended on May 29, 1990 (incorporated by reference to Exhibit 10.5 of the Form
S-1).
**10.6 -- Assignment Agreement, dated as of February 27, 1995, by and among Blessing/White Inc.,
Harry H. Gaines and the Registrant (incorporated by reference to Exhibit 10.6 of the
Form S-1).
**10.7 -- Office Lease, dated October 16, 1986, by and between Collins Tuttle & Company, Inc.
and the Registrant, as amended (incorporated by reference to Exhibit 10.7 of the Form
S-1).
**10.8 -- Office Lease dated October 1994, by and between Nancy B. Rogers and Robert Bernheim
and the Registrant (incorporated by reference to Exhibit 10.8 of the Form S-1).
**10.9 -- Standard Business Complex Lease, dated June 18, 1993, by and between DAG Management,
Inc. and the Registrant (incorporated by reference to Exhibit 10.9 of the Form S-1).
**10.10 -- Office Space Lease, dated March 11, 1983, by and between Wilshire Commerce Building,
Ltd. and the Registrant, as amended (incorporated by reference to Exhibit 10.10 of the
Form S-1).
**10.11 -- Office Lease Agreement, dated September 27, 1991, by and between ITEC Associates and
the Registrant (incorporated by reference to Exhibit 10.11 of the Form S-1).
**10.12 -- Standard Office Lease, dated August 12, 1991, by and between Boccardo Properties and
the Registrant (incorporated by reference to Exhibit 10.12 of the Form S-1).
**10.13 -- Office Lease, dated July 8, 1994, by and between LaSalle National Bank, as Trustee,
and the Registrant, as amended (incorporated by reference to Exhibit 10.13 of the Form
S-1).
**10.14 -- Lease Agreement, dated April 14, 1994, by and between Lifeco Fair Oaks Office Building
Joint Venture and the Registrant, as amended (incorporated by reference to Exhibit
10.14 of the Form S-1).
**10.15 -- Lease Agreement dated December 19, 1991 by and between Plaza 500 Limited Partnership
and the Registrant, as amended (incorporated by reference to Exhibit 10.15 of the Form
S-1).
**10.16 -- Voting Agreement dated May 5, 1995 by and among General Atlantic Corporation, General
Atlantic Partners II, L.P. and GAP-CLC Partners, L.P. (incorporated by reference to
Exhibit 10.16 of the Form S-1).
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <C> <S> <C>
**10.17 -- Stock Repurchase Agreement, dated May 5, 1995, by and between Bankers Trust (Delaware)
and the Registrant (incorporated by reference to Exhibit 10.17 of the Form S-1).
**10.18 -- Stock Repurchase Agreement, dated May 5, 1995 by and between BancBoston Capital, Inc.
and the Registrant (incorporated by reference to Exhibit 10.18 of the Form S-1).
**10.19 -- Stock Repurchase Agreement, dated May 5, 1995 by and between Bankers Partners, L.P.
and the Registrant (incorporated by reference to Exhibit 10.19 of the Form S-1).
**10.20 -- Stock Repurchase Agreement, dated May 5, 1995 by and between General Atlantic Partners
II, L.P. and the Registrant (incorporated by reference to Exhibit 10.20 of the Form
S-1).
**10.21 -- Tax Sharing and Indemnification Agreement dated as of May 30, 1995 by and between the
Registrant and Blessing/White Inc. (incorporated by reference to Exhibit 10.26 of the
Registrant's Report on Form 10-K filed April 30, 1996 (the "Form 10-K")).
**10.22 -- Lease Agreement dated February 12, 1996 by and between Plum Grove Associates and the
Registrant (incorporated by reference to Exhibit 10.16 of the Form 10-K).
**10.23 -- Lease Agreement dated April 1, 1996 by and between Mack-R Company No. 1, Plymouth
Meeting, PA and the Registrant (incorporated by reference to Exhibit 10.17 of the Form
10-K).
**10.24 -- Lease Agreement dated January 17, 1996 by and between Phase One Equities, Inc. and
Litchfield Investments and the Registrant (incorporated by reference to Exhibit 10.18
of the Form 10-K).
**10.25 -- Lease Agreement dated August 1, 1995 by and between Eastgate Plaza Ltd. and the
Registrant (incorporated by reference to Exhibit 10.19 of the Form 10-K).
**10.26 -- Lease Agreement dated August 11, 1995 by and between Caroline Partners, Ltd. and the
Registrant (incorporated by reference to Exhibit 10.20 of the Form 10-K).
**10.27 -- Lease Agreement dated April 1, 1996 by and between 312 Marshall Avenue Limited
Partnership and the Registrant (incorporated by reference to Exhibit 10.1 of the
Registrant's Report on Form 10-Q dated September 4, 1996 (the "1996 Form 10-Q")).
**10.28 -- Employment Agreement, dated June 6, 1996, by and between Harry H. Gaines and the
Registrant (incorporated by reference to Exhibit 10.2 of the 1996 Form 10-Q).
**10.29 -- Agreement dated February 1, 1995 by and between the Registrant and Reid R. Bechtle
(incorporated by reference to Exhibit 10.29 of the Form 10-K).
**11.1 -- Computation of earnings per share.
*23.1 -- Consent of Hale and Dorr (contained in Exhibit 5.1).
*23.2 -- Consent of Price Waterhouse LLP.
**24 -- Power of Attorney (contained on page II-5).
</TABLE>
- ------------------------
* Filed herewith.
II-4
<PAGE>
** Previously filed.
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted as the information required is inapplicable
or the information is presented in the financial statements or the related
notes.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Fairfax,
Virginia, on the 9th day of September, 1996.
COMPUTER LEARNING CENTERS, INC.
By /s/ REID R. BECHTLE
------------------------------------------
Reid R. Bechtle,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------ -------------------
<C> <S> <C>
President, Chief Executive
/s/ REID R. BECHTLE Officer and Director
- ------------------------------ (Principal Executive September 9, 1996
Reid R. Bechtle Officer)
/s/ CHARLES L. COSGROVE Vice President and Chief
- ------------------------------ Financial Officer (Principal September 9, 1996
Charles L. Cosgrove Financial Officer)
/s/ MARK M. NASSER
- ------------------------------ Controller (Principal September 9, 1996
Mark M. Nasser Accounting Officer)
*
- ------------------------------ Director September 9, 1996
Harry H. Gaines
*
- ------------------------------ Director September 9, 1996
Ralph W. Clark
*
- ------------------------------ Director September 9, 1996
Ira D. Cohen
*
- ------------------------------ Director September 9, 1996
John L. Corse
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------ -------------------
<C> <S> <C>
*
- ------------------------------ Director September 9, 1996
Stephen P. Reynolds
*By: /s/ REID R.
BECHTLE
- ------------------------------ September 9, 1996
Reid R. Bechtle
Attorney-in-fact
</TABLE>
II-7
<PAGE>
SCHEDULE II
COMPUTER LEARNING CENTERS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER NET BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS WRITE-OFFS END OF YEAR
- ----------------------------------------------------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
January 31, 1993
Allowance for doubtful accounts.................... $ 1,331 $ 1,375 -- $ (2,045) $ 661
January 31, 1994
Allowance for doubtful accounts.................... 661 1,996 $ 22 (1,978) 701
January 31, 1995
Allowance for doubtful accounts.................... 701 3,313 9 (2,286) 1,737
January 31, 1996
Allowance for doubtful accounts.................... 1,737 2,613 19 (2,862) 1,507
July 31, 1996 (unaudited)
Allowance for doubtful accounts.................... 1,507 1,284 -- (1,149) 1,642
</TABLE>
<PAGE>
EXHIBIT 1.1
FORM OF UNDERWRITING AGREEMENT
1,134,784 SHARES(1)
COMPUTER LEARNING CENTERS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
September __, 1996
ROBERTSON, STEPHENS & COMPANY LLC
PIPER JAFFRAY INC.
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Computer Learning Centers, Inc., a Delaware corporation (the "Company"),
and certain stockholders of the Company named in Schedule B hereto (hereinafter
called the "Selling Stockholders"), address you as the Representatives of each
of the persons, firms and corporations listed in Schedule A hereto (herein
collectively called the "Underwriters") and hereby confirm their respective
agreements with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
434,783 shares of its authorized and unissued Common Stock, par value $0.01, to
the several Underwriters. The Selling Stockholders, acting severally and not
jointly, propose to sell an aggregate of 700,001 shares of the Company's
authorized and outstanding Common Stock, par value $0.01, to the several
Underwriters. The 434,783 shares of Common Stock, par value $0.01, of the
Company to be sold by the Company are hereinafter called the "Company Shares"
and the 700,001 shares of Common Stock, par value $0.01, to be sold by the
Selling Stockholders are hereinafter called the "Selling Stockholder Shares."
The Company Shares and the Selling Stockholder Shares are hereinafter
collectively referred to as the "Firm Shares." The Company and the Selling
Stockholders also propose to grant, severally and jointly, to the Underwriters
an option to purchase up to 170,216 additional shares of the Company's Common
Stock, par value $0.01 (the "Option Shares"), as provided in Section 8 hereof.
As used in this Agreement, the term "Shares" shall include the Firm Shares and
the Option Shares. All shares
_____________________
Plus an option to purchase up to 170,216 additional shares from the Company and
certain stockholders of the Company to cover over-allotments.
1.
<PAGE>
of Common Stock, par value $0.01, of the Company to be outstanding after giving
effect to the sales contemplated hereby, including the Shares, are hereinafter
referred to as "Common Stock."
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND CERTAIN
SELLING STOCKHOLDERS. The Company, General Atlantic, Reid R. Bechtle and
Harry H. Gaines represent and warrant to and agree with each Underwriter that:
(a) A registration statement on Form S-1 (File No. 333-_______) with
respect to the Shares, including a prospectus subject to completion, has been
prepared by the Company in conformity in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
applicable rules and regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") under the Act and has been filed with
the Commission; such amendments to such registration statement and such amended
prospectuses subject to completion as may have been required prior to the date
hereof have been similarly prepared and filed with the Commission; and the
Company will file such additional amendments to such registration statement and
such amended prospectuses subject to completion as may hereafter be required.
Copies of such registration statement and amendments and of each related
prospectus subject to completion (the "Preliminary Prospectuses") have been
delivered to you.
If the registration statement relating to the Shares has been declared
effective under the Act by the Commission, the Company will prepare and promptly
file with the Commission the information omitted from the registration statement
pursuant to Rule 430A(a) of the Rules and Regulations pursuant to
subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as part
of a post-effective amendment to the registration statement (including a final
form of prospectus). If the registration statement relating to the Shares has
not been declared effective under the Act by the Commission, the Company will
prepare and promptly file an amendment to the registration statement, including
a final form of prospectus. The term "Registration Statement" as used in this
Agreement shall mean such registration statement, including financial
statements, schedules and exhibits, in the form in which it became or becomes,
as the case may be, effective (including, if the Company omitted information
from the registration statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the registration statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations) and, in the event of any amendment thereto after the effective date
of such registration statement, shall also mean (from and after the
effectiveness of such amendment) such registration statement as so amended. The
term "Prospectus" as used in this Agreement shall mean the prospectus relating
to the Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 430A(b) of the Rules and Regulations), except that if
any revised prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering of the Shares that differs from the
prospectus on file with the Commission at the time the Registration Statement
became or becomes, as the case may be, effective (whether or not such revised
prospectus is required to be filed with the Commission pursuant to Rule
424(b)(3) of the Rules and Regulations), the
2.
<PAGE>
term "Prospectus" shall refer to such revised prospectus from and after the time
it is first provided to the Underwriters for such use.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or instituted proceedings for that
purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date (subject to such modification, if any, as may have been reflected in a
subsequent Preliminary Prospectus or the Prospectus), has not included any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date (hereinafter defined) and on
any later date on which Option Shares are to be purchased, (i) the Registration
Statement (including any amendments filed after the effective date and prior to
the Closing Date) and the Prospectus, and any amendments or supplements thereto,
contained and will contain all material information required to be included
therein by the Act and the Rules and Regulations and will in all material
respects conform to the requirements of the Act and the Rules and Regulations,
(ii) the Registration Statement, and any amendments or supplements thereto, did
not and will not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and (iii) the Prospectus, and any amendments or
supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that none of the representations and warranties
contained in this subparagraph (b) shall apply to information contained in or
omitted from the Registration Statement or Prospectus, or any amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof or for inclusion therein.
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation with full power and authority (corporate and other) to own, lease
and operate its properties and conduct its business as described in the
Prospectus; the Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company;
to the knowledge of the Company, no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; the Company is in possession
of and operating in compliance in all material respects with all authorizations,
licenses, certificates, consents, orders and permits from state, federal and
other regulatory authorities which are material to the conduct of its business,
all of which are valid and in full force and effect; the Company is not in
violation of its charter or bylaws or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any material bond, debenture, note or other
3.
<PAGE>
evidence of indebtedness, or in any material lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which the Company is a party or by which it or its properties may
be bound; and the Company is not in material violation of any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or over its properties of which it has knowledge. Except as disclosed
in the Registration Statement, the Company does not own or control, directly or
indirectly, any corporation, association or other entity.
(d) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any material bond, debenture, note or other evidence of indebtedness, or
under any lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company is a party
or by which it or its properties may be bound, (ii) the charter or bylaws of the
Company or (iii) any law, order, rule, regulation, writ, injunction, judgment or
decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or its properties. No consent,
approval, authorization or order of or qualification with any court, government
or governmental agency or body, domestic or foreign, having jurisdiction over
the Company or its properties is required for the execution and delivery of this
Agreement and the consummation by the Company of the transactions herein
contemplated, except such as may be required by the National Association of
Securities Dealers, Inc. (the "NASD"), may be necessary to make the Registration
Statement effective or may be required under state or other securities or Blue
Sky laws, all of which requirements have been satisfied in all material
respects.
(e) There is not any pending or, to the Company's knowledge,
threatened action, suit, claim or proceeding against the Company or any of its
officers or any of its properties, assets or rights before any court, government
or governmental agency or body, domestic or foreign, having jurisdiction over
the Company or any of its officers or properties or otherwise which (i) might
result in any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company or might
materially and adversely affect its properties, assets or rights, (ii) might
prevent consummation of the transactions contemplated hereby or (iii) is
required to be disclosed in the Registration Statement or Prospectus and is not
so disclosed; and there are no agreements, contracts, leases or documents of the
Company of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement by the Act or the Rules and Regulations which have not
been accurately described in all material
4.
<PAGE>
respects in the Registration Statement or Prospectus or filed as exhibits to the
Registration Statement.
(f) All outstanding shares of capital stock of the Company (including
the Selling Stockholder Shares) have been duly authorized and validly issued and
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or subject to
any preemptive rights or other rights of securityholders to subscribe for or
purchase securities, and the authorized and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption "Capitalization"
(including the prefatory assumptions set forth therein) and conforms in all
material respects to the statements relating thereto contained in the
Registration Statement and the Prospectus (and such statements correctly state
the substance of the instruments defining the capitalization of the Company);
the Firm Shares and the Option Shares to be issued pursuant to the terms of this
Agreement have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the Company against
payment therefor in accordance with the terms of this Agreement, will be duly
and validly issued and fully paid and nonassessable, and (assuming such shares
are purchased by the Underwriters in good faith without notice of any adverse
claims) will be sold free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest; and no preemptive right, co-sale
right, registration right, right of first refusal or other similar right of
stockholders exists with respect to any of the Firm Shares or Option Shares to
be issued pursuant to the terms of this Agreement or the issuance and sale
thereof other than those that have been expressly waived or satisfied prior to
the date hereof and those that will automatically expire upon the consummation
of the transactions contemplated on the Closing Date. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale or transfer of the Shares except as
may be required under the Act or under state or other securities or Blue Sky
laws. Except as disclosed in or contemplated by the Prospectus and the
financial statements of the Company, and the related notes thereto, included in
the Prospectus, the Company does not have outstanding any options to purchase,
or any preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents in all material respects the information required
to be shown with respect to such plans, arrangements, options and rights.
(g) Price Waterhouse LLP, which has examined the consolidated
financial statements of the Company, together with the related schedules and
notes, as of January 31, 1996 and 1995 and for each of the years in the three
(3) years ended January 31, 1996 filed with the Commission as a part of the
Registration Statement, which are included in the Prospectus, are independent
accountants within the meaning of the Act and the Rules and Regulations, as
indicated in their reports filed therewith; the audited consolidated financial
statements of the Company, together with the related schedules and notes
thereto, and the unaudited consolidated financial information, forming part of
the Registration Statement and Prospectus, fairly present in all material
respects the financial position and the results of operations of the Company at
the respective dates and for the respective periods to which they apply; and
all audited consolidated
5.
<PAGE>
financial statements of the Company, together with the related schedules and
notes, and the unaudited consolidated financial information, filed with the
Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated therein.
The selected and summary financial and statistical data included in the
Registration Statement under "Prospectus Summary -- Summary Consolidated
Financial Data" and "Selected Consolidated Financial Data" fairly present in
all material respects the information shown therein and have been compiled on a
basis consistent in all material respects with the audited financial statements
presented therein. All financial statements and schedules that are required to
be included in the Registration Statement have been included therein.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, except for the contemplated
transactions disclosed in "Certain Transactions," there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company, (ii) any transaction
that is material to the Company, except transactions entered into in the
ordinary course of business, (iii) any obligation, direct or contingent, that is
material to the Company, incurred by the Company, except obligations incurred in
the ordinary course of business, (iv) any change in the capital stock or
outstanding indebtedness of the Company that is material to the Company, (v) any
dividend or distribution of any kind declared, paid or made on the capital stock
of the Company or (vi) any loss or damage (whether or not insured) to the
property of the Company that has been sustained or will have been sustained that
has a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
(i) Except as set forth in the Registration Statement and Prospectus,
(i) the Company has good and valid title to all properties and assets described
in the Registration Statement and Prospectus as owned by it, free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable interest,
other than such as would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company, (ii) to the Company's knowledge, the agreements to which the
Company is a party described in the Registration Statement and Prospectus are
valid agreements, enforceable by the Company (as applicable), except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles and, to the
Company's knowledge, the other contracting party or parties thereto are not in
material breach or material default under any of such agreements and (iii) the
Company has valid and enforceable leases for all properties described in the
Registration Statement and Prospectus as leased by it, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles. Except as set forth in the
Registration Statement and Prospectus, the Company owns or leases all such
properties as are necessary to its operations as now conducted or as proposed to
be conducted.
(j) The Company has timely filed all necessary federal, state and
foreign income and franchise tax returns and, unless such taxes are being
contested in good faith, has
6.
<PAGE>
paid all taxes shown thereon as due, and there is no tax deficiency that has
been or, to the best of the Company's knowledge, might be asserted against the
Company that might have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company;
and all tax liabilities are adequately provided for on the books of the Company.
(k) The Company maintains insurance with insurers of recognized
financial responsibility of the types and in the amounts generally deemed
adequate for its business and consistent with insurance coverage maintained by
similar companies in similar businesses, including, but not limited to,
insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect;
the Company has not been refused any insurance coverage sought or applied for;
and the Company does not have any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company.
(l) To the Company's knowledge, no labor disturbance by the employees
of the Company exists or is imminent. No collective bargaining agreement exists
with any of the Company's employees and, to the Company's knowledge, no such
agreement is imminent.
(m) The Company owns or possesses adequate rights to use all patents,
patent rights, inventions, trade secrets, know-how, trademarks, service marks,
trade names and copyrights that are necessary to conduct its businesses as
described in the Registration Statement and Prospectus; the expiration of any
patents, patent rights, trade secrets, trademarks, service marks, trade names or
copyrights would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company; [except as set forth in that certain letter dated May 30, 1995
addressed to the Representatives, a copy of which has been provided to counsel
for the several Underwriters ("Underwriters' Counsel")], the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict by the Company with asserted
rights of others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company.
(n) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act and is listed on The Nasdaq National Market, and the Company has
taken no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from The Nasdaq National Market, nor
7.
<PAGE>
has the Company received any notification that the Commission or the NASD is
contemplating terminating such registration or listing.
(o) The Company has been advised concerning the Investment Company
Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not distribute prior to
the later of (i) the Closing Date, or any date on which Option Shares are to be
purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Act.
(q) To the Company's knowledge, the Company has not at any time
during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company and each Selling
Stockholder has agreed in writing that such person will not, for a period ending
90 days after the effective date of the Registration Statement (the "Lock-up
Period"), offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to (collectively, a "Disposition") any
shares of Common Stock, any options or warrants to purchase any shares of Common
Stock or any securities convertible into or exchangeable for shares of Common
Stock (collectively, "Securities") now owned or hereafter acquired directly by
such person or with respect to which such person has or hereafter acquires the
power of disposition, otherwise than (i) as a bona fide gift or gifts, provided
the donee or donees thereof agree in writing to be bound by this restriction,
(ii) as a distribution to limited partners or stockholders of such person,
provided that the distributees thereof agree in writing to be bound by the terms
of this restriction or (iii) with the prior written consent of Robertson,
Stephens & Company LLC. The foregoing restriction is expressly agreed to
preclude the holder of the Securities from engaging in any hedging or other
transaction that is designed to or reasonably expected to lead to or result in a
Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited hedging
or other transactions would include, without limitation, any short sale (whether
or not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person
8.
<PAGE>
has also agreed and consented to the entry of stop transfer instructions with
the Company's transfer agent against the transfer of the Securities held by such
person except in compliance with this restriction. The Company has provided to
counsel for the Underwriters true, accurate and complete copies of all of the
agreements pursuant to which its officers, directors and stockholders have
agreed to such or similar restrictions (the "Lock-up Agreements") presently in
effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or other stockholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of Robertson, Stephens & Company LLC.
(t) Except as set forth in the Registration Statement and Prospectus,
(i) the Company is in material compliance with all rules, laws and regulations
relating to the use, treatment, storage and disposal of toxic substances and
protection of health or the environment ("Environmental Laws") that are
applicable to its business, (ii) the Company has received no notice from any
governmental authority or third party of an asserted claim under Environmental
Laws, which claim is required to be disclosed in the Registration Statement and
the Prospectus, (iii) the Company will not be required to make future material
capital expenditures to comply with Environmental Laws and (iv) no property
which is owned, leased or occupied by the Company has been designated as a
Superfund site pursuant to the Comprehensive Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. Section 9601, ET SEQ.), or
otherwise designated as a contaminated site under applicable state or local law.
(u) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity in all material respects with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(v) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
(w) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or with
any person or affiliate located in Cuba.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE SELLING
STOCKHOLDERS. Each Selling Stockholder, severally and not jointly, represents
and warrants to and agrees with each Underwriter and the Company that:
(a) Such Selling Stockholder now has and on the Closing Date, and on
any later date on which Option Shares are purchased, will have valid marketable
title to the Shares
9.
<PAGE>
to be sold by such Selling Stockholder, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest other than pursuant
to this Agreement; and upon delivery of such Shares hereunder and payment of the
purchase price as herein contemplated, each of the Underwriters will obtain
valid marketable title to the Shares purchased by it from such Selling
Stockholder, free and clear of any pledge, lien, security interest pertaining to
such Selling Stockholder or such Selling Stockholder's property, encumbrance,
claim or equitable interest, including any liability for estate or inheritance
taxes, or any liability to or claims of any creditor, devisee, legatee or
beneficiary of such Selling Stockholder.
(b) Such Selling Stockholder has duly authorized (if applicable),
executed and delivered, in the form heretofore furnished to the Representatives,
an irrevocable Power of Attorney (the "Power of Attorney") appointing
___________ and ___________ as attorneys-in-fact (collectively, the "Attorneys"
and individually, an "Attorney") and a Letter of Transmittal and Custody
Agreement (the "Custody Agreement") with ______________________________, as
custodian (the "Custodian"); each of the Power of Attorney and the Custody
Agreement constitutes a valid and binding agreement on the part of such Selling
Stockholder, enforceable in accordance with its terms, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; and each of such Selling
Stockholder's Attorneys, acting alone, is authorized to execute and deliver this
Agreement and the certificate referred to in Section 7(h) hereof on behalf of
such Selling Stockholder, to determine the purchase price to be paid by the
several Underwriters to such Selling Stockholder as provided in Section 4
hereof, to authorize the delivery of the Selling Stockholder Shares and the
Option Shares to be sold by such Selling Stockholder under this Agreement and to
duly endorse (in blank or otherwise) the certificate or certificates
representing such Shares or a stock power or powers with respect thereto, to
accept payment therefor, and otherwise to act on behalf of such Selling
Stockholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders required for
the execution and delivery by such Selling Stockholder of the Power of Attorney
and the Custody Agreement, the execution and delivery by or on behalf of such
Selling Stockholder of this Agreement and the sale and delivery of the Selling
Stockholder Shares and the Option Shares to be sold by such Selling Stockholder
under this Agreement (other than, at the time of the execution hereof (if the
Registration Statement has not yet been declared effective by the Commission),
the issuance of the order of the Commission declaring the Registration Statement
effective and such consents, approvals, authorizations or orders as may be
necessary under state or other securities or Blue Sky laws) have been obtained
and are in full force and effect; such Selling Stockholder, if other than a
natural person, has been duly organized and is validly existing in good standing
under the laws of the jurisdiction of its organization as the type of entity
that it purports to be; and such Selling Stockholder has full legal right, power
and authority to enter into and perform its obligations under this Agreement and
such Power of Attorney and Custody Agreement, and to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder under this Agreement.
(d) Such Selling Stockholder will not, during the Lock-up Period,
effect the Disposition of any Securities now owned or hereafter acquired
directly by such Selling
10.
<PAGE>
Stockholder or with respect to which such Selling Stockholder has or hereafter
acquires the power of disposition, otherwise than (i) as a bona fide gift or
gifts, PROVIDED the donee or donees thereof agree in writing to be bound by this
restriction, (ii) as a distribution to partners or stockholders of such Selling
Stockholder, PROVIDED THAT the distributees thereof agree in writing to be bound
by the terms of this restriction, or (iii) with the prior written consent of
Robertson, Stephens & Company LLC. The foregoing restriction is expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than the Selling Stockholder.
Such prohibited hedging or other transactions would including, without
limitation, any short sale (whether or not against the box) or any purchase,
sale or grant of any right (including, without limitation, any put or call
option) with respect to any Securities or with respect to any security (other
than a broad-based market basket or index) that includes, relates to or derives
any significant part of its value from Securities. Such Selling Stockholder
also agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the securities held by such
Selling Stockholder except in compliance with this restriction.
(e) Certificates in negotiable form for all Shares to be sold by such
Selling Stockholder under this Agreement, together with a stock power or powers
duly endorsed in blank by such Selling Stockholder, have been placed in custody
with the Custodian for the purpose of effecting delivery hereunder.
(f) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by applicable law
and except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the terms and
provisions of or constitute a default under any bond, debenture, note or other
evidence of indebtedness, or under any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or instrument to
which such Selling Stockholder is a party or by which such Selling Stockholder,
or any Selling Stockholder Shares, or any Option Shares to be sold by such
Selling Stockholder hereunder, may be bound or, to the best of such Selling
Stockholders' knowledge, result in any violation of any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over such
Selling Stockholder or over the properties of such Selling Stockholder, or, if
such Selling Stockholder is other than a natural person, result in any violation
of any provisions of the charter, bylaws or other organizational documents of
such Selling Stockholder.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
11.
<PAGE>
(h) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder and the Selling Stockholder
Shares that is contained in the representations and warranties of such Selling
Stockholder in such Selling Stockholder's Power of Attorney or set forth in the
Registration Statement or the Prospectus is, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date, and on any later date on which
Option Shares are to be purchased, was or will be, true, correct and complete,
and does not, and at the time the Registration Statement became or becomes, as
the case may be, effective and at all times subsequent thereto up to and on the
Closing Date (hereinafter defined), and on any later date on which Option Shares
are to be purchased, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
such information not misleading.
(j) Such Selling Stockholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing Date, or
on any later date on which Option Shares are to be purchased, as the case may
be, and will advise one of its Attorneys and Robertson, Stephens & Company LLC
prior to the Closing Date, or on any later date on which Option Shares are to be
purchased, as the case may be, if any statement to be made on behalf of such
Selling Stockholder in the certificate contemplated by Section 7(h) would be
inaccurate if made as of the Closing Date, or on any later date on which Option
Shares are to be purchased, as the case may be.
(k) Such Selling Stockholder does not have, or has waived prior to
the date hereof, any preemptive right, co-sale right or right of first refusal
or other similar right to purchase any of the Shares that are to be sold by the
Company or any of the other Selling Stockholders to the Underwriters pursuant to
this Agreement; such Selling Stockholder does not have, or has waived prior to
the date hereof, any registration right or other similar right to participate in
the offering made by the Prospectus, other than such rights of participation as
have been satisfied by the participation of such Selling Stockholder in the
transactions to which this Agreement relates in accordance with the terms of
this Agreement; and such Selling Stockholder does not own any warrants, options
or similar rights to acquire, and does not have any right or arrangement to
acquire, any capital stock, rights, warrants, options or other securities from
the Company, other than those described in the Registration Statement and the
Prospectus.
(l) Such Selling Stockholder is not aware (without having conducted
any investigation or inquiry) that any of the representations and warranties of
the Company set forth in Section 2 above is untrue or inaccurate in any material
respect.
4. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to
12.
<PAGE>
purchase from the Company and the Selling Stockholders, respectively, at a
purchase price of $_____ per share, the respective number of Firm Shares as set
forth opposite the names of the Company and the Selling Stockholders in
Schedule B hereto. The obligation of each Underwriter to the Company and to
each Selling Stockholder shall be to purchase from the Company or such Selling
Stockholder that number of Company Shares or Selling Stockholder Shares, as the
case may be, which (as nearly as practicable, as determined by you) is in the
same proportion to the number of Company Shares or Selling Stockholder Shares,
as the case may be, set forth opposite the name of the Company or such Selling
Stockholder in Schedule B hereto as the number of Firm Shares which is set forth
opposite the name of such Underwriter in Schedule A hereto (subject to
adjustment as provided in Section 11) is to the total number of Firm Shares to
be purchased by all the Underwriters under this Agreement.
The certificates in negotiable form for the Selling Stockholder Shares have
been placed in custody (for delivery under this Agreement) under the Custody
Agreement. Each Selling Stockholder agrees that the certificates for the
Selling Stockholder Shares of such Selling Stockholder so held in custody are
subject to the interests of the Underwriters hereunder, that the arrangements
made by such Selling Stockholder for such custody, including the Power of
Attorney, is to that extent irrevocable and that the obligations of such Selling
Stockholder hereunder shall not be terminated by the act of such Selling
Stockholder or by operation of law, whether by the death or incapacity of such
Selling Stockholder or the occurrence of any other event, except as specifically
provided herein or in the Custody Agreement. If any Selling Stockholder should
die or be incapacitated, or if any other such event should occur, before the
delivery of the certificates for the Selling Stockholder Shares hereunder, the
Selling Stockholder Shares to be sold by such Selling Stockholder shall, except
as specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be purchased by
the Underwriters pursuant to this Section 4 shall be made against payment of the
purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Company with regard to the Shares being purchased from the Company, and to the
order of the Custodian for the respective accounts of the Selling Stockholders
with regard to the Shares being purchased from such Selling Stockholders (and
the Company and such Selling Stockholders agree not to deposit and to cause the
Custodian not to deposit any such check in the bank on which it is drawn, and
not to take any other action with the purpose or effect of receiving immediately
available funds, until the business day following the date of its delivery to
the Company or the Custodian, as the case may be, and, in the event of any
breach of the foregoing, the Company or the Selling Stockholders, as the case
may be, shall reimburse the Underwriters for the interest lost and any other
expenses borne by them by reason of such breach), at the offices of Hale and
Dorr, 1455 Pennsylvania Avenue, N.W., Suite 1000, Washington, D.C. 20004 (or at
such other place as may be agreed upon among the Representatives and the Company
and the Attorneys), at 7:00 a.m., San Francisco time (a) on the third (3rd) full
business day following the first day that Shares are traded, (b) if this
Agreement is executed and delivered after 1:30 P.M., San Francisco time, the
fourth (4th) full business day following the day that this Agreement is executed
and delivered or (c) at such other
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time and date not later than seven (7) full business days following the first
day that Shares are traded as the Representatives and the Company and the
Attorneys may determine (or at such time and date to which payment and delivery
shall have been postponed pursuant to Section 11 hereof), such time and date of
payment and delivery being herein called the "Closing Date;" PROVIDED, HOWEVER,
that if the Company has not made available to the Representatives copies of the
Prospectus within the time provided in Section 5(d) hereof, the Representatives
may, in their sole discretion, postpone the Closing Date until no later than two
(2) full business days following delivery of copies of the Prospectus to the
Representatives. The certificates for the Firm Shares to be so delivered will
be made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for checking
at least one (1) full business day prior to the Closing Date and will be in such
names and denominations as you may request, such request to be made at least two
(2) full business days prior to the Closing Date. If the Representatives so
elect, delivery of the Firm Shares may be made by credit through full fast
transfer to the accounts at The Depository Trust Company designated by the
Representatives.
It is understood that you, individually, and not as the Representatives of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make a public offering (as such term is described in
Section 12 hereof) of the Firm Shares at a public offering price of $_____ per
share. After the public offering, the several Underwriters may, in their
discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), on the inside front
cover concerning stabilization and over-allotment by the Underwriters, and under
the second paragraph under the caption "Underwriting" in any Preliminary
Prospectus and in the Prospectus constitutes the only information furnished by
the Underwriters to the Company for inclusion in any Preliminary Prospectus, the
Prospectus or the Registration Statement, and you, on behalf of the respective
Underwriters, represent and warrant to the Company and the Selling Stockholders
that the statements made therein do not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
5. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b)
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of the Rules and Regulations as may be required subsequent to the date the
Registration Statement is declared effective to become effective as promptly as
possible; the Company will notify you, promptly after it shall receive notice
thereof, of the time when the Registration Statement, any subsequent amendment
to the Registration Statement or any abbreviated registration statement has
become effective or any supplement to the Prospectus has been filed; if the
Company omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of
Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to such Registration Statement as originally declared effective which
is declared effective by the Commission; if the Company files a term sheet
pursuant to Rule 434 of the Rules and Regulations, the Company will provide
evidence satisfactory to you that the Prospectus and term sheet meeting the
requirements of Rule 434(b) or (c), as applicable, of the Rules and Regulations,
have been filed, within the time period prescribed, with the Commission pursuant
to subparagraph (7) of Rule 424(b) of the Rules and Regulations; if for any
reason the filing of the final form of Prospectus is required under
Rule 424(b)(3) of the Rules and Regulations, it will provide evidence
satisfactory to you that the Prospectus contains such information and has been
filed with the Commission within the time period prescribed; it will notify you
promptly of any request by the Commission for the amending or supplementing of
the Registration Statement or the Prospectus or for additional information;
promptly upon your request, it will prepare and file with the Commission any
amendments or supplements to the Registration Statement or Prospectus which, in
the opinion of counsel for the several Underwriters ("Underwriters' Counsel"),
may be necessary or advisable in connection with the distribution of the Shares
by the Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have occurred
as a result of which the Prospectus or any other prospectus relating to the
Shares as then in effect would include any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; in
case any Underwriter is required to deliver a prospectus nine (9) months or more
after the effective date of the Registration Statement in connection with the
sale of the Shares, it will prepare promptly upon request, but at the expense of
such Underwriter, such amendment or amendments to the Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act; and it will file no amendment
or supplement to the Registration Statement or Prospectus, which shall not
previously have been submitted to you a reasonable time prior to the proposed
filing thereof or to which you shall reasonably object in writing, subject,
however, to compliance with the Act and the Rules and Regulations, the Exchange
Act and the rules and regulations of the Commission thereunder and the
provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that
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purpose; and it will promptly use its best efforts to prevent the issuance of
any stop order or to obtain its withdrawal at the earliest possible moment if
such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and, in
the case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first (1st) full business day following the
first day that Shares are traded, copies of the Registration Statement (three of
which will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if Robertson, Stephens & Company LLC, on behalf
of the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in such
quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its securityholders
as soon as practicable, but in any event not later than the forty-fifth (45th)
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and covering a twelve (12) month
period beginning after the effective date of the Registration Statement.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters hereunder, upon request
(i) concurrently with furnishing such reports to its stockholders, statements of
operations of the Company for each of the first three (3) quarters in the form
furnished to the Company's stockholders; (ii) concurrently with furnishing to
its stockholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of stockholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all reports (financial or other)
mailed to stockholders, (iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the Commission, any
securities exchange or the NASD; (v) every material press
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release and every material news item or article in respect of the Company or its
affairs that was generally released to stockholders or prepared by the Company
or any of its subsidiaries; and (vi) any additional information of a public
nature concerning the Company or its business that you may reasonably request.
During such five (5) year period, if the Company shall have active subsidiaries,
the foregoing financial statements shall be on a consolidated basis to the
extent that the accounts of the Company and its subsidiaries are consolidated,
and shall be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it substantially in the manner set forth under the caption
"Use of Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company or any
Selling Stockholder to perform any agreement on their respective parts to be
performed hereunder or to fulfill any condition of the Underwriters' obligations
hereunder, or if the Company shall terminate this Agreement pursuant to
Section 12(a) hereof, or if the Underwriters shall terminate this Agreement
pursuant to Section 12(b)(i), the Company will reimburse the several
Underwriters for all reasonable out-of-pocket expenses (including reasonable
fees and disbursements of Underwriters' Counsel) incurred by the Underwriters in
investigating or preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the need, if any, to
disseminate a press release or other public statement responding to or
commenting on such rumor, publication or event. Any such press release shall be
reasonably satisfactory to you.
(k) During the Lock-up Period, the Company will not, without the
prior written consent of Robertson Stephens & Company LLC, effect the
Disposition of, directly or indirectly, any Securities other than the sale of
the Firm Shares and the Option Shares to be sold by the Company hereunder and
the Company's issuance of options or Common Stock under the Company's presently
authorized Long-Term Incentive Plan, 1995 Stock Incentive Plan and 1995
Non-Employee Directors Option Plan (collectively, the "Option Plans").
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6. EXPENSES.
(a) The Company and the Selling Stockholders agree with each
Underwriter that:
(i) The Company and the Selling Stockholders will pay and bear
all costs and expenses in connection with the preparation, printing and filing
of the Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto; the printing of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, the Preliminary Blue Sky Survey and
any Supplemental Blue Sky Survey, the Underwriters' Questionnaire and Power of
Attorney, and any instruments related to any of the foregoing; the issuance and
delivery of the Shares hereunder to the several Underwriters, including transfer
taxes, if any, the cost of all certificates representing the Shares and transfer
agents' and registrars' fees; the fees and disbursements of counsel for the
Company; all fees and other charges of the Company's independent certified
public accountants; the cost of furnishing to the several Underwriters copies of
the Registration Statement (including appropriate exhibits), Preliminary
Prospectus and the Prospectus, and any amendments or supplements to any of the
foregoing; NASD filing fees and the cost of qualifying the Shares under the laws
of such jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD filings and
Blue Sky qualifications); and all other expenses directly incurred by the
Company and the Selling Stockholders in connection with the performance of their
obligations hereunder. Any additional expenses incurred as a result of the sale
of the Shares by the Selling Stockholders will be borne collectively by the
Company and the Selling Stockholders. The provisions of this
Section 6(a)(i) are intended to relieve the Underwriters from the payment of the
expenses and costs which the Selling Stockholders and the Company hereby agree
to pay, but shall not affect any agreement which the Selling Stockholders and
the Company may make, or may have made, for the sharing of any of such expenses
and costs. Such agreements shall not impair the obligations of the Company and
the Selling Stockholders hereunder to the several Underwriters.
(ii) In addition to its other obligations under Section 9(a)
hereof, the Company agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding described in
Section 9(a) hereof, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) listed from time to
time in The Wall Street Journal which represents the base rate on corporate
loans posted by a substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments which are not made
to the Underwriters within thirty (30) days
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of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
(iii) In addition to their other obligations under Section 9(b)
hereof, each Selling Stockholder agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 9(b) hereof relating to such Selling Stockholder, it will
reimburse the Underwriters on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of such
Selling Stockholder's obligation to reimburse the Underwriters for such expenses
and the possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters shall
promptly return such payment to the Selling Stockholders, together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Underwriters within
thirty (30) days of a request for reimbursement shall bear interest at the Prime
Rate from the date of such request.
(b) In addition to their other obligations under Section 9(c) hereof,
the Underwriters severally and not jointly agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 9(c) hereof, they will reimburse the Company and
each Selling Stockholder on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company and each such Selling
Stockholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each such Selling Stockholder shall promptly return
such payment to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company and each such Selling Stockholder
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 6(a)(ii) and 6(b)
hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 6(a)(ii) and 6(b)
hereof and will not resolve the
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ultimate propriety or enforceability of the obligation to indemnify for expenses
which is created by the provisions of Sections 9(a) and 9(c) hereof or the
obligation to contribute to expenses which is created by the provisions of
Section 9(e) hereof.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholders
herein, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 2:00 P.M., San Francisco time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Stockholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with in all material respects to the satisfaction of
Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares, shall
have been reasonably satisfactory to Underwriters' Counsel, and such counsel
shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which is material and adverse and that makes it, in your sole
judgment, impracticable or inadvisable to proceed with the public offering of
the Shares as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later date
on which Option Shares are purchased, as the case may be, the following opinion
of counsel for the Company and the Selling Stockholders, dated the Closing Date
or such later date on which Option Shares are purchased addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for each
of the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation;
(ii) The Company has the corporate power and authority to own,
lease and operate its properties and to conduct its business as described
in the Prospectus;
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(iii) The Company is duly qualified to do business as a foreign
corporation and is in good standing in Virginia, Pennsylvania, New Jersey,
Illinois, California and Texas. To such counsel's knowledge, except as
disclosed in the Registration Statement, the Company does not own or
control, directly or indirectly, any corporation, association or other
entity;
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and outstanding
shares of capital stock of the Company have been duly and validly issued
and are fully paid and nonassessable, and, to such counsel's knowledge, not
have been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or other similar
right;
(v) The Firm Shares or the Option Shares, as the case may be, to
be issued by the Company pursuant to the terms of this Agreement have been
duly authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully
paid and nonassessable, and, to such counsel's knowledge, will not have
been issued in violation of or subject to any preemptive right, co-sale
right, registration right, right of first refusal or other similar right of
stockholders;
(vi) The Company has the corporate power and authority to enter
into this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder;
(vii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by the Company;
(viii) The Registration Statement has become effective under the
Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act;
(ix) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (in each case except as to (i) the
financial statements (including supporting schedules) and financial or
statistical data derived therefrom or contained therein and (ii) the
matters covered by the opinion specified in Section 7(e) below, neither of
which such counsel need express an opinion regarding), as of the effective
date of the Registration Statement, complied as to form in all material
respects with the requirements of the Act and the applicable Rules and
Regulations;
(x) The information in the Prospectus under the caption
"Description of Capital Stock," insofar as the statements contained therein
constitute a summary of documents referred to therein or matters of law,
are accurate summaries and fairly present in all material respects
information called for with respect to such documents and
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matters; and the form of certificate evidencing the Common Stock and filed
as an exhibit to the Registration Statement complies in all material
respects with Delaware law;
(xi) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes
relating to Delaware corporate law are accurate and fairly present in all
material respects the information required to be presented by the Act and
the applicable Rules and Regulations;
(xii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement which are not described or referred to therein or filed as
required;
(xiii) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification, contribution or reimbursement obligations hereunder,
concerning which no opinion need be expressed) will not (a) result in any
violation of the Company's charter or bylaws or (b) to such counsel's
knowledge, result in a material breach or violation of any of the terms and
provisions of, or constitute a default under, any agreement filed as an
exhibit to the Registration Statement, or any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any
order, writ or decree of any court, government or governmental agency or
body naming the Company or any of its properties;
(xiv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body
having jurisdiction over the Company or over any of its properties or
operations is necessary in connection with the consummation by the Company
of the transactions herein contemplated, except such as have been obtained
under the Act or such as may be required under state or other securities or
Blue Sky laws in connection with the purchase and the distribution of the
Shares by the Underwriters;
(xv) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company of a
character required to be disclosed in the Registration Statement or the
Prospectus by the Act or the Rules and Regulations, other than those
described therein;
(xvi) To such counsel's knowledge, the Company is not presently in
material violation of its charter or bylaws;
(xvii) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or other
securities of the Company have registration rights with respect to the
securities of the Company;
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(xviii) Each Selling Stockholder that is not a natural person has
full right, power and authority to enter into and to perform its
obligations under the Power of Attorney and Custody Agreement to be
executed and delivered by it in connection with the transactions
contemplated herein; the Power of Attorney and Custody Agreement of each
Selling Stockholder that is not a natural person has been duly authorized
by such Selling Stockholder; the Power of Attorney and Custody Agreement of
each Selling Stockholder has been duly executed and delivered by or on
behalf of such Selling Stockholder; and the Power of Attorney and Custody
Agreement of each Selling Stockholder constitutes the valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles;
(xix) Each of the Selling Stockholders has full right, power and
authority to enter into and to perform its obligations under this Agreement
and to sell, transfer, assign and deliver the Shares to be sold by such
Selling Stockholder hereunder;
(xx) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of each Selling Stockholder; and
(xxi) Upon the delivery of and payment for the Shares as
contemplated in this Agreement, each of the Underwriters will receive valid
marketable title to the Shares purchased by it from such Selling
Stockholder, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest. In rendering such opinion, such
counsel may assume that the Underwriters are without notice of any defect
in the title of the Shares being purchased from the Selling Stockholders.
In addition, such counsel shall state that, although such counsel has not
independently verified the statements made in the Registration Statement and
Prospectus, and such counsel cannot and does not assume responsibility for the
accuracy or completeness thereof, in connection with the preparation of the
Registration Statement and the Prospectus, such counsel has participated in
conferences with officers and representatives of the Company, Underwriters'
Counsel and the independent accountants of the Company, at which conferences
such counsel made inquiries of such persons and others and discussed the
contents of the Registration Statement and the Prospectus. Such counsel shall
further state that, on the basis of such participation, inquiries and
discussions, no facts have come to such counsel's attention which have caused
such counsel to believe that the Registration Statement, as of the Effective
Date (but after giving effect to changes incorporated pursuant to Rule 430A
under the Act), contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading (except that such counsel need express no such view with
respect to the financial statements, including the notes and schedules thereto,
or any other financial or accounting information, or information relating to the
Underwriters or the method of distribution of the Shares by the Underwriters
included therein or the sections of the Prospectus as to which other counsel has
provided to you a separate legal opinion), that the
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Prospectus, as of the date it was filed with the Commission pursuant to Rule
424(b)(4) under the Act, contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (except that such counsel need express no such view with respect to
the financial statements, including the notes and schedules thereto, or any
other financial or accounting information, or information relating to the
Underwriters or the method of distribution for the Shares by the Underwriters
included therein or the sections of the Prospectus as to which other counsel has
provided to you a separate legal opinion), and that the Registration Statement
and the Prospectus, as of the date hereof, contained any untrue statement of
material fact or omitted to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading (except that such counsel need express no such view with
respect to the financial statements, including the notes and schedules thereto,
or any other financial information, or information relating to the Underwriters
or the method of distribution of the Shares by the Underwriters included
therein).
Counsel rendering the foregoing opinion may rely as to questions of law not
involving the laws of the United States or the State of Virginia and the
corporate laws of the State of Delaware upon opinions of local counsel, and as
to questions of fact upon representations or certificates of officers of the
Company, the Selling Stockholders or officers of the Selling Stockholders (if
the Selling Stockholder is not a natural person) and of government officials, in
which case their opinion is to state that they are so relying and that they have
no knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, an opinion of
Dow, Lohnes & Albertson, special counsel for the Company, to the effect that the
statements in the Registration Statement and Prospectus under the captions "Risk
Factors -- Potential Adverse Effects of Regulation"; "--Control by General
Atlantic Entities; Potential Adverse Regulatory Effects of Change of Control";
and "Financial Aid and Regulation," insofar as such statements constitute
summaries of matters of United States federal laws and regulations applicable to
educational institutions, present the information required to make such
statements, in light of the circumstances in which they were made, accurate in
all material respects.
Such opinion may be limited to matters pertaining to the laws and
regulations promulgated under the Higher Education Act of 1965, as amended, and
the regulations of the United States Department of Education promulgated
thereunder, as well as the statutes and regulations of the states of California,
Virginia, Illinois, Pennsylvania and Texas solely as such statutes and
regulations pertain to the authorization of institutions to offer programs of
education in those states and to the effects of changes in ownership or control
of such institutions (collectively, "Education Law"). In rendering such
opinion, such counsel may rely, as to questions of fact, upon representations or
certificates of officers of the Company and of governmental officials, in which
case their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such representation
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or certificate. Copies of any representation or certificate so relied upon
shall be delivered to you, as Representatives of the Underwriters, and to
Underwriters' Counsel.
In addition, such counsel shall state that, although (i) such counsel has
not independently verified the statements made in the Registration Statement and
Prospectus and cannot and does not assume responsibility for the accuracy or
completeness thereof and (ii) such counsel's participation in the preparation of
the Registration Statement and the Prospectus (consisting of participation in
certain conferences with officers and representatives of the Company, counsel
for the Company, Underwriters' Counsel and the independent accountants of the
Company) has been limited solely to certain matters relating to Education Law,
no facts have come to such counsel's attention in the course of such
participation which have caused such counsel to believe that the particular
portions of the Registration Statement or the Prospectus, or any amendment or
supplement thereto, under the captions referred to and as specified above in
this section 7(e), contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading respecting such matters as they relate to Education Law (except
that such counsel need express no such view with respect to the financial
statements, including the notes and schedules thereto, or any financial,
statistical or accounting information).
(f) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, an opinion of
Cooley Godward LLP, in form and substance satisfactory to you, with respect to
the sufficiency of all such corporate proceedings and other legal matters
relating to this Agreement and the transactions contemplated hereby as you may
reasonably require, and the Company shall have furnished to such counsel such
documents as they may have requested for the purpose of enabling them to pass
upon such matters.
(g) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a letter from
Price Waterhouse LLP addressed to the Company and the Underwriters, dated the
Closing Date or such later date on which Option Shares are to be purchased, as
the case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a date
not more than five (5) business days prior to the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be,
(i) confirming, to the extent true, that the statements and conclusions set
forth in the Original Letter are accurate as of the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, and
(ii) setting forth any revisions and additions to the statements and conclusions
set forth in the Original Letter which are necessary to reflect any changes in
the facts described in the Original Letter since the date of such letter, or to
reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise from that set
forth in the Registration Statement or Prospectus, which, in your sole judgment,
is material and adverse and that makes it, in your sole judgment, impracticable
or inadvisable to proceed with
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the public offering of the Shares as contemplated by the Prospectus. The
Original Letter from Price Waterhouse LLP shall be addressed to or for the use
of the Underwriters in form and substance satisfactory to the Underwriters and
shall (i) represent, to the extent true, that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the applicable published Rules and Regulations, (ii) set forth their opinion
with respect to their examination of the consolidated balance sheet of the
Company as of January 31, 1996 and related consolidated statements of
operations, stockholders' equity, and cash flows for the twelve (12) months
ended January 31, 1996, (iii) address other matters agreed upon by Price
Waterhouse LLP and you. In addition, you shall have received from Price
Waterhouse LLP a letter addressed to the Company and made available to you for
the use of the Underwriters stating that their review of the Company's system of
internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's consolidated
financial statements as of January 31, 1996, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(h) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the Chief Executive Officer
and Chief Financial Officer of the Company, to the effect that, and you shall be
satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct in all material respects, as if made on and as of
the Closing Date or any later date on which Option Shares are to be purchased,
as the case may be, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to the Closing Date or any later date on which Option Shares are to be
purchased, as the case may be;
(ii) To the knowledge of such persons, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or threatened
under the Act;
(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained all material information required to be included therein by
the Act and the Rules and Regulations and in all material respects conformed to
the requirements of the Act and the Rules and Regulations, the Registration
Statement, and any amendment or supplement thereto, did not and does not include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, the Prospectus, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has not
been so set forth; and
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(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, except for the contemplated
transactions disclosed in "Certain Transactions," there has not been (a) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company, (b) any transaction
that is material to the Company, except transactions entered into in the
ordinary course of business, (c) any obligation, direct or contingent, that is
material to the Company, incurred by the Company, except obligations incurred in
the ordinary course of business, (d) any change in the capital stock or
outstanding indebtedness of the Company that is material to the Company, (e) any
dividend or distribution of any kind declared, paid or made on the capital stock
of the Company or (f) any loss or damage (whether or not insured) to the
property of the Company which has been sustained or will have been sustained
which has a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
(i) You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date or on any later date on which the Option
Shares are to be purchased, as the case may be, from the Attorneys for each
Selling Stockholder to the effect that, as of the Closing Date or on any later
date on which the Option Shares are to be purchased, as the case may be, they
have not been informed that:
(1) The representations and warranties made by such Selling
Stockholder herein are not true or correct in any material respect on the
Closing Date or on any later date on which the Option Shares are to be
purchased, as the case may be; or
(2) Such Selling Stockholder has not complied with any
obligation or satisfied any condition which is required to be performed or
satisfied on the part of such Selling Stockholder at or prior to the Closing
Date or on any later date on which the Option Shares are to be purchased, as the
case may be.
(j) The Company shall have obtained and delivered to you an agreement
from each officer and director of the Company and each Selling Stockholder in
writing prior to the date hereof that such person will not, during the Lock-up
Period, effect the Disposition of any Securities now owned or hereafter acquired
directly by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) as a bona fide gift or
gifts, provided the donee or donees thereof agree in writing to be bound by this
restriction, (ii) as a distribution to limited partners or stockholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, or (iii) with the prior written consent of
Robertson, Stephens & Company LLC. The foregoing restriction is expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than the such holder. Such
prohibited hedging or other transactions would including, without limitation,
any short sale (whether or not against the box) or any purchase, sale or grant
of any right (including, without limitation, any put or call option) with
respect to any Securities or with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Furthermore,
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such person will have also agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
Securities held by such person except in compliance with this restriction.
(k) The Company and the Selling Stockholders shall have furnished to
you such further certificates and documents as you shall reasonably request
(including certificates of officers of the Company, the Selling Stockholders or
officers of the Selling Stockholders (when the Selling Stockholder is not a
natural person) as to the accuracy of the representations and warranties of the
Company and the Selling Stockholders herein, as to the performance by the
Company and the Selling Stockholders of their respective obligations hereunder
and as to the other conditions concurrent and precedent to the obligations of
the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company and the Selling Stockholders will furnish
you with such number of conformed copies of such opinions, certificates, letters
and documents as you shall reasonably request.
8. OPTION SHARES.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company and each Selling Stockholder hereby grant to the several Underwriters,
for the purpose of covering over-allotments in connection with the distribution
and sale of the Firm Shares only, a nontransferable option to purchase up to an
aggregate of 170,216 Option Shares at the purchase price per share for the Firm
Shares set forth in Section 3 hereof. Such option may be exercised by the
Representatives on behalf of the several Underwriters on one (1) or more
occasions in whole or in part during the period of thirty (30) days after the
date on which the Firm Shares are initially offered to the public, by giving
written notice to the Company and the Selling Stockholders. The number of
Option Shares to be purchased by each Underwriter upon the exercise of such
option shall be the same proportion of the total number of Option Shares to be
purchased by the several Underwriters pursuant to the exercise of such option as
the number of Firm Shares purchased by such Underwriter (set forth on Schedule A
hereto) bears to the total number of Firm Shares purchased by the several
Underwriters (set forth on Schedule A hereto), adjusted by the Representatives
in such manner as to avoid fractional shares.
The number of Option Shares to be sold by the Company and each Selling
Stockholder upon exercise of such option shall be the same proportion of the
total number of Option Shares to be sold by the Company and the Selling
Stockholders pursuant to the exercise of such option as the number of Firm
Shares sold by the Company or such Selling Stockholder, as the case may be, (set
forth on Schedule B hereto) bears to the total number of the Firm Shares
purchased by the Company and the Selling Stockholders (set forth on Schedule B
hereto), adjusted by the Company in such a manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be purchased
by the several Underwriters pursuant to the exercise of the option granted by
this Section 8 shall be made against payment of the purchase price therefor by
the several Underwriters by certified or
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official bank check or checks drawn in next-day funds, payable to the order of
the Company and each Selling Stockholder (and the Company and each Selling
Stockholder agree not to deposit any such check in the bank on which it is
drawn, and not to take any other action with the purpose or effect of receiving
immediately available funds, until the business day following the date of its
delivery to the Company or the Selling Stockholder, as the case may be). In the
event of any breach of the foregoing, the Company or the Selling Stockholder, as
the case may be, shall reimburse the Underwriters for the interest lost and any
other expenses borne by them by reason of such breach. Such delivery and
payment shall take place at the offices of Hale and Dorr, 1455 Pennsylvania
Avenue, N.W., Suite 1000, Washington, D.C. 20004, or at such other place as may
be agreed upon among the Representatives and the Company or the Selling
Stockholder, as the case may be, (i) on the Closing Date, if written notice of
the exercise of such option is received by the Company or the Selling
Stockholder, as the case may be, at least two (2) full business days prior to
the Closing Date, or (ii) on a date which shall not be later than the third
(3rd) full business day following the date the Company or the Selling
Stockholder, as the case may be, receives written notice of the exercise of such
option, if such notice is received by the Company or the Selling Stockholder, as
the case may be, less than two (2) full business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the Representatives of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the date of payment and
delivery for the Option Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 8(a) hereof,
the obligations of the several Underwriters to purchase such Option Shares will
be subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company and the Selling Stockholders herein, to
the accuracy of the statements of the Company, the Selling Stockholders and
officers of the Company made pursuant to the provisions hereof, to the
performance by the Company and the Selling Stockholders of their respective
obligations hereunder, to the conditions set forth in Section 7 hereof, and to
the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may request in order to evidence the accuracy and completeness of any of the
representations,
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warranties or statements, the performance of any of the covenants or agreements
of the Company and the Selling Stockholders or the satisfaction of any of the
conditions herein contained.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of the Company herein contained, (ii) any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, PROVIDED FURTHER, that the indemnity agreement provided in this
Section 9(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 5(d) hereof.
The indemnity agreement in this Section 9(a) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if any,
who controls any Underwriter within the meaning of the Act or the Exchange Act.
This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Selling Stockholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject
(including, without limitation, in its
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capacity as an Underwriter or as a "qualified independent underwriter" within
the meaning of Schedule E or the Bylaws of the NASD) under the Act, the Exchange
Act or otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities (or actions in respect thereof) arising out of or based
upon (i) any breach of any representation, warranty, agreement or covenant of
such Selling Stockholder herein contained, (ii) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement or
any amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 9(b) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company or such
Underwriter by such Selling Stockholder, directly or through such Selling
Stockholder's representatives, specifically for use in the preparation thereof,
and agrees to reimburse each Underwriter for any legal or other expenses
reasonably incurred by it in connection with investigating or defending any such
loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the indemnity
agreement provided in this Section 9(b) with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any losses, claims, damages, liabilities or actions based upon
any untrue statement or alleged untrue statement of a material fact or omission
or alleged omission to state therein a material fact purchased Shares, if a copy
of the Prospectus in which such untrue statement or alleged untrue statement or
omission or alleged omission was corrected had not been sent or given to such
person within the time required by the Act and the Rules and Regulations, unless
such failure is the result of noncompliance by the Company with Section 4(d)
hereof.
The indemnity agreement in this Section 9(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if any,
who controls any Underwriter within the meaning of the Act or the Exchange Act.
This indemnity agreement shall be in addition to any liabilities which such
Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company and each Selling Stockholder against any losses,
claims, damages or liabilities, joint or several, to which the Company or such
Selling Stockholder may become subject under the Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they
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were made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 9(c) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof, and agrees to reimburse the Company and each such Selling Stockholder
for any legal or other expenses reasonably incurred by the Company and each such
Selling Stockholder in connection with investigating or defending any such loss,
claim, damage, liability or action.
The indemnity agreement in this Section 9(c) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer of the
Company who signed the Registration Statement and each director of the Company,
each Selling Stockholder and each person, if any, who controls the Company or
any Selling Stockholder within the meaning of the Act or the Exchange Act. This
indemnity agreement shall be in addition to any liabilities which each
Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 9, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 9. In case any such action is brought against
any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall elect by written notice delivered to
the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; PROVIDED, HOWEVER, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 9 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with appropriate
local counsel) approved by the indemnifying party representing all the
indemnified parties under Section 9(a) or 9(b) hereof who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. In no event shall any
indemnifying party be liable in respect of any amounts paid in settlement of any
action
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unless the indemnifying party shall have approved the terms of such settlement;
PROVIDED THAT such consent shall not be unreasonably withheld. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability on all
claims that are the subject matter of such proceeding.
(e) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 9
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 9 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that, except as set forth
in Section 9(f) hereof, the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the public offering price, and the Company and
the Selling Stockholders are responsible for the remaining portion, PROVIDED,
HOWEVER, that (i) no Underwriter shall be required to contribute any amount in
excess of the amount by which the underwriting discount applicable to the Shares
purchased by such Underwriter exceeds the amount of damages which such
Underwriter has otherwise required to pay and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The contribution agreement in this Section 9(c)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls any Underwriter, the Company or
any Selling Stockholder within the meaning of the Act or the Exchange Act and
each officer of the Company who signed the Registration Statement and each
director of the Company.
(f) The liability of each Selling Stockholder under the
representations, warranties and agreements contained herein and under the
indemnity agreements contained in the provisions of this Section 9 shall be
limited to an amount equal to the public offering price of the Selling
Stockholder Shares sold by such Selling Stockholder to the Underwriters minus
the amount of the underwriting discount paid thereon to the Underwriters by such
Selling Stockholder. The Company and such Selling Stockholders may agree, as
among themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 9, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 9 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
33.
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10. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company, the Selling Stockholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 9 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any Selling Stockholder, or
any of their officers, directors or controlling persons within the meaning of
the Act or the Exchange Act, and shall survive the delivery of the Shares to the
several Underwriters hereunder or termination of this Agreement.
11. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate number of
Firm Shares which such defaulting Underwriter or Underwriters agreed but failed
to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for twenty-
four (24) hours to allow the several Underwriters the privilege of substituting
within twenty-four (24) hours (including non-business hours) another underwriter
or underwriters (which may include any nondefaulting Underwriter) satisfactory
to the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid by such postponed Closing Date, the Closing Date may,
at the option of the Company, be postponed for a further twenty-four (24) hours,
if necessary, to allow the Company the privilege of finding another underwriter
or underwriters, satisfactory to you, to purchase the Firm Shares which the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 10, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven (7)
full business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement, supplements to the Prospectus or other
such documents which may thereby be made necessary, and (ii) the respective
number of Firm Shares to be purchased by the remaining Underwriters and
substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and
pay for all such Firm Shares so agreed to be purchased by the defaulting
Underwriter or Underwriters or
34.
<PAGE>
substitute another underwriter or underwriters as aforesaid and the Company
shall not find or shall not elect to seek another underwriter or underwriters
for such Firm Shares as aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the preceding
paragraph of this Section 11, neither the Company nor any Selling Stockholder
shall be liable to any Underwriter (except as provided in Sections 6 and 9
hereof) nor shall any Underwriter (other than an Underwriter who shall have
failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Stockholder (except to the
extent provided in Sections 6 and 9 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 11.
12. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., San Francisco time, on the first full business day following the effective
date of the Registration Statement, or (ii) the time of the public offering of
any of the Shares by the Underwriters after the Registration Statement becomes
effective. The time of the public offering shall mean the time of the release
by you, for publication, of the first newspaper advertisement relating to the
Shares, or the time at which the Shares are first generally offered by the
Underwriters to the public by letter, telephone, telegram or telecopy, whichever
shall first occur. By giving notice as set forth in Section 13 before the time
this Agreement becomes effective, you, as Representatives of the several
Underwriters, or the Company, may prevent this Agreement from becoming effective
without liability of any party to any other party, except as provided in
Sections 5(j), 6 and 9 hereof.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time on or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
or any Selling Stockholder shall have failed, refused or been unable to perform
any agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled,
including, without limitation, any change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse, or (ii) if additional material governmental restrictions, not in
force and effect on the date hereof, shall have been imposed upon trading in
securities generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock Exchange or
in the over the counter market by the NASD, or trading in securities generally
shall have been suspended on either such exchange or in the over the counter
market by the NASD, or if a banking moratorium shall have been declared by
federal, New York or California authorities, or (iii) if the Company shall have
35.
<PAGE>
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as to interfere materially with the conduct of the business
and operations of the Company regardless of whether or not such loss shall have
been insured, or (iv) if there shall have been a material adverse change in the
general political or economic conditions or financial markets as in your
reasonable judgment makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have been an
outbreak or escalation of hostilities or of any other insurrection or armed
conflict or the declaration by the United States of a national emergency which,
in the reasonable opinion of the Representatives, makes it impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. In the event of termination pursuant to subparagraph (i) above,
the Company shall remain obligated to pay costs and expenses pursuant to
Sections 5(j), 6 and 9 hereof. Any termination pursuant to any of subparagraphs
(ii) through (v) above shall be without liability of any party to any other
party except as provided in Sections 6 and 9 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 12, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
13. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to Computer Learning Centers, Inc., 11350
Random Hills Road, Suite 240, Fairfax, Virginia 22030, telecopier number (703)
359-8225, Attention: Reid R. Bechtle, Chief Executive Officer; if sent to one or
more of the Selling Stockholders, such notice shall be sent mailed, delivered,
telegraphed (and confirmed by letter) or telecopied (and confirmed by letter) to
________________________________________, as Attorney-in-Fact for the Selling
Stockholders, at Computer Learning Centers, Inc., 11350 Random Hills Road, Suite
240, Fairfax, Virginia 22030, telecopier number (703) 359-8225.
14. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and the Selling Stockholders and
their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 8 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of
36.
<PAGE>
the Shares from any Underwriter shall be construed a successor or assign by
reason merely of such purchase.
In all dealings with the Company and the Selling Stockholders under this
Agreement, you shall act on behalf of each of the several Underwriters, and the
Company and the Selling Stockholders shall be entitled to act and rely upon any
statement, request, notice or agreement made or given by you jointly or by
Robertson, Stephens & Company LLC on behalf of you.
15. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
16. COUNTERPARTS. This Agreement may be signed in several counterparts,
each of which will constitute an original.
37.
<PAGE>
If the foregoing correctly sets forth the understanding among the Company,
the Selling Stockholders and the several Underwriters, please so indicate in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement among the Company, the Selling Stockholders and the several
Underwriters.
Very truly yours,
COMPUTER LEARNING CENTERS, INC.
By: _________________________________________
Title: ______________________________________
SELLING STOCKHOLDERS
By: _________________________________________
Attorney-in-Fact for the Selling Stockholders
named in Schedule B hereto
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
PIPER JAFFRAY INC.
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
ROBERTSON, STEPHENS & COMPANY LLC
By: ROBERTSON, STEPHENS & COMPANY GROUP, L.L.C.
By: ___________________________________
Authorized Signatory
38.
<PAGE>
SCHEDULE A
Number of
Firm
Shares
To Be
Underwriters Purchased
- ------------------------------------------------------ -----------
Robertson, Stephens & Company LLC. . . . . . . . . . .
Piper Jaffray Inc. . . . . . . . . . . . . . . . . . .
---------
Total . . . . . . . . . . . . . . . . . . . 1,134,784
---------
<PAGE>
SCHEDULE B
NUMBER OF
COMPANY
SHARES TO
COMPANY BE SOLD
- ------------------------------------------------------- -------------
Computer Learning Centers, Inc. . . . . . . . . . . . 434,783
-------
Total . . . . . . . . . . . . . . . . . . . . . . . 434,783
-------
NUMBER OF
SELLING
STOCKHOLDER
SHARES TO
NAME OF SELLING STOCKHOLDER BE SOLD
- ------------------------------------------------------- -----------
General Atlantic Corporation . . . . . . . . . . . . 434,783
S. Tod White . . . . . . . . . . . . . . . . . . . . 88,737
Reid R. Bechtle . . . . . . . . . . . . . . . . . . 46,787
H. Gaines . . . . . . . . . . . . . . . . . . . . . 68,260
Nicholas Ward . . . . . . . . . . . . . . . . . . . 30,717
Herbert Cohen . . . . . . . . . . . . . . . . . . . 30,717
-------
Total . . . . . . . . . . . . . . . . . . 700,001
-------
<PAGE>
EXHIBIT 5.1
HALE AND DORR
COUNSELLORS AT LAW
1455 PENNSYLVANIA AVE., N.W.
WASHINGTON D.C. 20004
202-942-8400
September 9, 1996
Computer Learning Centers, Inc.
11350 Random Hills Road
Suite 240
Fairfax, Virginia 22030
Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-1 (Registration No. 333-11401), together with Amendment
No. 1 and Amendment No. 2 thereto (the "Registration Statement"), filed with
the Securities and Exchange Commission (the "Commission") under the
Securities and Exchange Act of 1933, as amended, for the registration of
1,305,000 shares of Common Stocks, $.01 par value per share (the "Shares"), of
Computer Learning Centers, Inc., a Delaware corporation (the "Company"),
including the Shares to be sold upon exercise of the over-allotment option.
The Shares are to be sold by the Company and by certain selling stockholders
of the Company (the "Selling Stockholders") pursuant to an Underwriting
Agreement to be entered into by and among the Company, the Selling
Stockholders and Robertson, Stephens & Company and Piper Jaffray Inc., as
representatives of the several underwriters named in such Underwriting
Agreement (the "Underwriting Agreement").
We have acted as counsel for the Company in connection with the issue
and sale by the Company of the Shares. We have examined signed copies of the
Registration Statement and all exhibits thereto, all as filed with the
Commission. We have also examined and relied upon the original or copies of
minutes of meetings of the stockholders and Board of Directors of the
Company, stock record books of the Company, a copy of the Second Amended and
Restated Certificate of Incorporation of the Company and a copy of the
Amended and Restated By-laws of the Company.
<PAGE>
Computer Learning Centers, Inc.
September 9, 1996
Page 2
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures and authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the authenticity of
the originals of such latter documents.
We assume that the appropriate action will be taken, prior to the offer
and sale of the Shares, to register and qualify the Shares for sale under all
applicable state securities or "blue sky" laws.
Based upon the foregoing, we are of the opinion that the Shares have
been duly authorized and that, when the Shares to be sold by the Company
pursuant to the Underwriting Agreement are issued and sold by the Company
pursuant thereto, the Shares will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as part of the
Registration Statement and to the use of our name therein and in the related
Prospectus under the caption "Legal Matters".
It is understood that this opinion is to be used only in connection with
the offer and sale of the Shares while the Registration Statement is in
effect.
Very truly yours,
HALE AND DORR
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the prospectus constituting part of this
Registration Statement on Amendment No. 2 to Form S-1 of our report dated March
15, 1996, relating to the consolidated financial statements of Computer Learning
Centers, Inc., which appears in such Prospectus. We also consent to the
application of such report to the Financial Statement Schedule for the three
years ended January 31, 1996 listed under Item 16(b) of this Registration
Statement when such schedule is read in conjunction with the consolidated
financial statements referred to in our report. The audits referred to in such
report also included this schedule. We also consent to the references to us
under the headings "Experts" and "Selected Consolidated Financial Data" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Consolidated Financial Data."
PRICE WATERHOUSE LLP
New York, New York
September 9, 1996
