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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-26040
COMPUTER LEARNING CENTERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 36-3501869
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
11350 RANDOM HILLS ROAD, 22030
SUITE 240, (ZIP CODE)
FAIRFAX, VIRGINIA 22030
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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(703) 359-9333
(TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference to Part III of this Form 10-K or any amendment to this
Form 10-K. X
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Aggregate market value of the voting stock held by non affiliates of the
Registrant based on the last sale price for such stock at April 26, 1999:
$79,812,958
Number of shares of Common Stock, $.01 par value, outstanding at April 26,
1999.
17,493,251
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the
Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders, which will be filed pursuant to Regulation 14A within 120 days
after the end of the Company's last fiscal year.
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COMPUTER LEARNING CENTERS, INC.
FORM 10-K
INDEX
PART I
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Item 1. Business.................................................... 3
Item 2. Properties.................................................. 19
Item 3. Legal Proceedings........................................... 20
Item 4. Submission of Matters to a Vote of Security Holders......... 21
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PART II
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Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 22
Item 6. Selected Financial Data..................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results
of Operations............................................... 24
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 34
Item 8. Consolidated Financial Statements and Supplementary Data.... F-1
Item 9. Changes in and Disagreements With Accountants on Accounting
and
Financial Disclosure........................................ I-1
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PART III
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Item 10. Directors and Executive Officers of the Registrant.......... I-1
Item 11. Executive Compensation...................................... I-2
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. I-2
Item 13. Certain Relationships and Related Transactions.............. I-2
</TABLE>
PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... I-6
Signatures............................................................ S-1
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PART I
ITEM 1. BUSINESS
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 six primary areas of study to adults seeking entry-level jobs in
information technology including: business applications; electronics, systems
and hardware; programming; networking; information technology support; and
business applications with networking.
The Company enrolled approximately 14,300 new students in fiscal year 1999
at its twenty-seven Learning Centers in the United States and Canada. Excluding
the fiscal 1999 acquisitions of three existing campuses at Paramus, NJ, and
Montreal and Laval, Quebec, the Company opened four new Learning Centers in
fiscal 1999 at South Plainfield, NJ, Pittsburgh, PA, Brossard, Quebec, and
Henderson, NV. The Company's Canadian Learning Centers consist of three campuses
located in and around Montreal, Quebec, and collectively operate under the name
of Delta College, Inc. ("CLC Delta").
Computer Learning Centers, Inc. was incorporated in Delaware in March 1987.
The Company's executive offices are located at 11350 Random Hills Road, Suite
240, Fairfax, Virginia 22030, and its telephone number is 703-359-9333.
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:
- 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 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 government 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 U.S. Department of Education, the number of students
graduating from high school is expected to increase by approximately 9%
from 1999 to 2007. 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
market 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 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.
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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. 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 17 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. Finally, CLC provides its
students with job placement assistance, including assistance with resume
writing, interview preparation and employment searches for recent graduates and
alumni.
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 continues to increase the
number of its Learning Centers throughout the United States. The expansion
includes opening new Learning Centers in areas of the country that the Company
currently serves, establishing Learning Centers in new geographical areas,
including Canada, and possibly acquiring organizations that offer attractive
opportunities to further strengthen the business. The Company acquired three
existing campuses and opened four Learning Centers in fiscal year 1999. The
Company intends to open at least two Learning Centers in fiscal year 2000.
Increase Availability of Associate Degree Programs. The Company currently
offers associate degree programs at nine Learning Centers. The Company intends
to increase the number of its Learning Centers that offer degree-granting
programs in order to broaden available programs and increase student
enrollments.
Develop New Programs/Enhance Existing Programs. The Company capitalizes 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 Internet related technologies. 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.
Improve Student Outcomes. The Company seeks to continuously improve the
retention 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 Centers.
CAREER PROGRAMS
The Learning Centers offer comprehensive career programs of study in six
areas of information technology including: business applications; electronics,
systems and hardware; programming; networking; information technology support;
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 17 months for part-time students. Nine
Learning Centers offer associate
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degree programs in computer electronics, information technology and network
support; computer systems and networking technology; client/server; computer
applications and network administration; and computer programming. These
associate degree programs combine the curricula from a diploma program with
state-mandated general education requirements and additional advanced material
to create 17-month (full-time) or 34-month (part-time) programs. Associate
degree program curricula are generally uniform across all Learning Centers and
are typically offered in morning or afternoon sessions depending on market
demand.
Career programs are delivered year-round in a modular format that are
generally provided with 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 17 modules, with each module lasting
approximately one month for full-time students and consisting of a single course
with an intensive and focused format. Full-time students typically attend
classes for approximately five hours per day, five days per week, with sessions
available three evenings per week for part-time students.
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 links
appropriate textbooks 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
wearing 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 and networking programs 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
employment as network administrators, engineers and systems analysts. Graduates
of the information technology support program have obtained employment as
computer support specialists, help desk operators, and user support analysts.
Tuition is fixed at the time of a student's initial enrollment, and varies
among U.S. Learning Centers based on local market conditions. At January 31,
1999, tuition ranged from $8,820 to $16,795 for diploma programs and from
$17,250 to $22,995 for associate degree programs.
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. Career programs are designed to engage adult students by
employing hands-on teaching methods; train students in computer technology
widely used in the work place; respond to market requirements and train students
to satisfy those requirements; and 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, which have been implemented where appropriate, and have provided a
means of setting quantitative benchmarks. The
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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, 1999, 50% of CLC's students (excluding CLC Delta) were college
graduates or had some college experience, including 10% who had four-year
college degrees or higher levels of educational attainment and 10% who had
two-year degrees. At that time, 28% of CLC's students (excluding CLC Delta) were
between 18 and 22 years of age, 48% were between 23 and 34, and 24% were over
35. Approximately 64% of the student population of U.S. Learning Centers was
male and 36% was female.
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 its U.S.
Learning Centers for fiscal 1999, 35% of its new enrollments resulted from
referrals by current students and graduates, 31% of its new enrollments resulted
from television advertising, newspaper advertising accounted for 12%, yellow
pages listings accounted for 7% and the remaining 15% were classified as
resulting from miscellaneous sources and other media.
The television advertising for each Learning Center is developed and
coordinated by CLC's senior management. All advertising includes a toll-free
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.
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 an independently developed
aptitude examination recognized and approved by the U.S. 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 a director of admissions who oversees a staff
of admissions representatives. Admissions policies and procedures, along with
marketing materials, 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, arranging for the testing of the candidate to determine his
or her aptitude for different programs and counseling qualified candidates about
available career paths. The Company uses both a third party and its regulatory
compliance department to review the admissions processes and practices of the
individual admissions representatives to monitor compliance with the Company's
policies and applicable state, federal and accrediting agency requirements.
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Once a student enrolls, 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 their career program.
Student withdrawals prior to program completion have negative regulatory,
financial and marketing effects on an educational institution. To minimize
withdrawals, each Learning Center employs a student services manager/counselor
who is available to advise 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 are
measured in part by their ability to ensure that students successfully 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.
The weighted average Learning Center retention rates, as calculated under
standards of the Accrediting Council for Independent Colleges and Schools
("ACICS"), the accrediting agency that accredits the U.S. Learning Centers, were
76% and 75%, respectively, for the twelve-month periods ended June 30, 1998 and
1997.
GRADUATE PLACEMENT SERVICES
The Graduate Placement Services Resource Center (the "Placement Center") is
a vital component of each Learning Center's programs. The Placement Center
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.
Utilizing ACICS standards, for the twelve-month periods ended June 30, 1998
and 1997, approximately 79% and 83%, respectively, of the Company's net
placeable graduates obtained employment in a field related to their program of
study. Net placeable graduates excludes graduates who were not seeking
employment due to health-related reasons or continuing their education or
entering military service. Students who graduated during the twelve-month period
beginning July 1 and ending June 30 and obtained employment in a field related
to their program of study prior to the required filing date of September 15 of
each respective year are counted as graduates placed.
Based on information from students and employers who have responded to
inquiries, the Company estimates the average annual starting salaries for U.S.
students who obtained employment in fields related to their education during the
twelve-month period ended June 30, 1998 were as follows:
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U.S. ESTIMATED
LEARNING CENTER AVERAGE ANNUAL
PROGRAM GRADUATES PLACED STARTING SALARY
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Business Applications (Associate Degree and Diploma).... 1,266 $21,600
Programming (Associate Degree and Diploma).............. 1,166 $28,000
Networking (Diploma).................................... 589 $33,700
Electronics, Systems and Hardware (Associate Degree and
Diploma).............................................. 564 $25,800
Information Technology & Support Professional
(Diploma)............................................. 226 $23,400
</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 Bell
Atlantic, Computer Associates, IBM, Lockheed Martin, Wells Fargo Bank, Media
One, Cisco Systems, and Bay Networks.
FACULTY
The Company employs both full-time and part-time faculty who are hired in
accordance with criteria established by the Company, 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
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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 program of in-house
training to continuously 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 their instructors using a
confidential survey prepared, distributed and processed by an independent third
party firm. The survey asks students to rate the faculty in such areas as
teaching effectiveness, substantive knowledge, fairness and quality of delivery
as well as course content.
ADMINISTRATION AND EMPLOYEES
Each Learning Center is managed by a local administrative team headed by a
school director who is accountable for the maintenance of educational quality
and placement success of the Learning Center, regulatory compliance and
profitability. Within the framework of federal and state regulations as well as
the framework of the Company's own policies, the Company encourages Learning
Center school directors to act autonomously in responding to local market
conditions. Each school director reports to a regional manager who oversees the
activities of several Learning Centers grouped by geographic region. Learning
Center school directors work closely with the regional managers to implement
marketing plans and curricula, expand capacity and maintain facilities. Regional
managers report directly to the Vice President of Operations, who in turn
reports directly to the Company's President.
Each Learning Center's administrative team also includes a director of
education, a director of admissions, a director of financial aid, a business
office manager, and a director of placement. As of January 31, 1999, the Company
employed approximately 1,337 full-time and 567 part-time employees. In addition,
the Company employed 197 CLC students under the Federal Work-Study Program. None
of the Company's employees are represented by a labor union or are subject to a
collective bargaining agreement. The Company has never experienced a work
stoppage and believes that its employee relations are satisfactory.
As of January 31, 1999, the Company employed 66 people at its corporate
headquarters in Fairfax, Virginia. The Company's corporate headquarters provides
centralized services to all of the Learning Centers in the areas of accounting,
marketing, public relations, curriculum development, purchasing, human
resources, regulatory affairs and real estate. In addition, headquarters
personnel develop policies and procedures and perform oversight for the Learning
Centers in areas of administrative and educational activities.
As of January 31, 1999, the Company employed 17 people at its student
receivables division in Norristown, Pennsylvania. The student receivables
division provides centralized services to all of the Learning Centers related to
the collection of student loans financed directly by the Company.
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 intensely
focused programs in information technology education and training help the
Company 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.
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FINANCIAL AID AND REGULATION
FINANCING STUDENT EDUCATION
Approximately 67% of the Company's fiscal 1999 tuition revenues were funded
either directly or indirectly from the federal student financial aid programs
under Title IV ("Title IV Programs" or "Title IV") of the Higher Education Act
of 1965, as amended ("Higher Education Act" or "HEA"). The majority of U.S.
Learning Center students receive some form of Title IV Program funding.
The Title IV Programs provide financial assistance to students who are
enrolled at an eligible postsecondary institution. The Title IV Programs consist
of grants, subsidies for part-time work and several different types of loans. To
determine financial need and eligibility for need-based Title IV Program aid,
the Company uses the national standard need analysis system established by the
HEA. The HEA also requires that all students who receive financial aid maintain
satisfactory progress toward completion of their program. A student who does not
meet the prescribed academic standards will, after a probationary period, be
denied further federal aid.
In addition to the Title IV Programs, the Company offers loans to certain
students that meet the Company's criteria of creditworthiness. During the first
quarter of fiscal 2000, the Company established a relationship with SLM
Financial Corporation ("SLM"), a subsidiary of the SLM Holding Corp. or "Sallie
Mae," whereby SLM will provide student loans with terms generally more favorable
than the Company's loan program to students meeting SLM's standards of
creditworthiness. The SLM loan program was begun on a test-basis at four
Learning Centers. In addition to these non-governmental sources of student loan
funding, the Company participates in several state administered financial aid
programs in certain states in which it operates.
Title IV Programs
CLC students receive funding under the following Title IV Programs:
- the Federal Family Education Loan ("FFEL") program, which includes the
subsidized and unsubsidized Federal Stafford loans and PLUS (parental)
loans. Tuition funded by FFEL loans accounted for approximately 28% of
the Company's revenues in fiscal 1999;
- the William D. Ford Federal Direct Loan ("FDL") program, which includes
subsidized and unsubsidized Federal Direct Stafford loans and Federal
Direct PLUS loans. Tuition funded by FDL loans accounted for
approximately 26% of the Company's revenues in fiscal 1999;
- the Federal Pell Grant ("Pell") program. Tuition funded by Pell grants
accounted for approximately 11% of the Company's revenues in fiscal 1999;
- the Federal Supplemental Educational Opportunity Grant ("FSEOG") program.
Tuition funded by FSEOG grants accounted for approximately 1% of the
Company's revenues in fiscal 1999;
- the Federal Perkins Loan ("Perkins") program. Tuition funded by Perkins
loans accounted for approximately 1% of the Company's revenues in fiscal
1999; and
- the Federal Work-Study ("FWS") program, which makes available Federal
funds to help subsidize the cost of part-time employment for needy
students In fiscal 1999, the Learning Centers employed approximately 600
FWS students, who received a total of approximately $865,000.
The Company matches every three dollars of FSEOG, Perkins and FWS federal
funds with one dollar of its own funds. In fiscal 1999, the matching
contribution was $334,000 for FSEOG, $118,000 for Perkins loans and $216,000 for
the FWS program.
Availability of Lenders and Guarantors
The FFEL program provides government guaranteed loans through banks and
other private lenders. Although the number of lenders willing to make federally
guaranteed student loans has declined in recent
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years, this decline has not affected the ability of Learning Center students to
obtain federally guaranteed loans. As of January 31, 1999, CLC students use
approximately 23 private lenders, one of which currently provides approximately
39% of FFEL loans. The Company believes that other lenders would be willing to
make federally guaranteed loans to its students if any or all of the Company's
current lenders ceased participating in the FFEL program or decided not to make
loans available to CLC students. Even if no private lenders were available to
provide loans to CLC students, the HEA provides for a "lender of last resort" to
make such loans. However, lenders of last resort are not required to provide
PLUS loans. Tuition derived from PLUS loans accounted for approximately 9% of
the Company's revenues in fiscal 1999.
FFEL loans made by private lenders are guaranteed by student loan guaranty
agencies. As of January 31, 1999, FFEL loans to Learning Center students are
guaranteed by 9 guaranty agencies, and one student loan guaranty agency
currently guarantees nearly 27% of such loans. 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 limited the volume of loans it would guarantee. As of January 31, 1999, all
of the twenty-three U.S. Learning Centers participating in the FFEL program or
direct loan program, had at least one guaranty agency. All states have a
designated guaranty agency that the Company believes would guarantee most FFEL
loans made to Learning Center students in that state. Based on the safeguards
built into the FFEL program, the Company does not believe that any reduction in
the number of agencies currently guaranteeing FFEL loans made to Learning Center
students would have a material adverse effect on the Company.
U.S. DEPARTMENT OF EDUCATION--REGULATION AND REVIEW
To provide students with access to financial aid provided through the Title
IV Programs, each Learning Center must meet specific legal standards. These
standards are prescribed by the Higher Education Act and regulations issued by
the U.S. Department of Education ("Department of Education" or "Department"). To
be eligible to participate in the Title IV Programs, each Learning Center must:
- be authorized by the state within which it operates to offer its
educational programs;
- be accredited by an accrediting agency recognized by the Secretary of
Education as a reliable authority as to the quality of the institution's
educational programs; and
- enter into a Program Participation Agreement with the Department of
Education.
Generally, each Learning Center must individually comply with applicable
regulatory standards with respect to the administration of Title IV funds on
behalf of its students. For purposes of determining institutional eligibility to
participate in the Title IV Programs, an "institution" is defined as a main
campus and any additional locations of that campus. Of the twenty-four Learning
Centers operating in the U.S. as of January 31, 1999, (including the Learning
Centers acquired during the fiscal year) nine are considered to be main campuses
and fifteen are additional locations of a main campus. During fiscal 1999,
twenty-three of the twenty-four U.S. Learning Centers participated in the Title
IV Programs. Each year every institution that participates in the Title IV
Programs must submit to the Department of Education audited financial statements
as well as the results of an audit by an independent accounting firm of that
institution's compliance with Title IV Program requirements. Approximately every
four years institutions participating in the Title IV Programs are reviewed for
continued participation in the Title IV Programs. The Department of Education
annually conducts its own compliance reviews of hundreds of institutions, and
other reviews of the Title IV Program compliance are conducted by the
Department's Inspector General, state education agencies and guaranty agencies.
The HEA also requires accrediting agencies to consider an institution's
compliance with Title IV Program requirements in making accrediting decisions.
Each of the U.S. based Learning Centers are therefore subject to frequent and
detailed oversight and must comply with a complex framework of laws and
regulations. Refer to "Potential Effects of Regulatory Violations," herein.
In May 1998, the Department of Education initiated a program review of the
administration of the Title IV Programs by the Alexandria, VA and Manassas, VA
Learning Centers for the period July 1, 1996 through June 30, 1998. By letter
dated September 11, 1998, the Department issued its report containing a
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number of findings alleging non-compliance with certain Title IV Program
requirements. The Company has submitted written responses to all of the findings
agreeing with certain of the findings and disputing others, and has conducted
file reviews with respect to certain issues. Upon completion of its review of
the Company's submissions, the Department will issue a final determination
letter. If the Company does not agree with some of the determinations, it may
appeal the determination to a Department of Education hearing officer and to the
Secretary of Education.
By letter dated December 15, 1998, the Department issued a preliminary
audit determination respecting its review of the Company's independent audit of
its compliance of certain Learning Centers with the Title IV Program
requirements for the year ending January 31, 1998, alleging noncompliance with
respect to timeliness of student refunds. The Department and the Company agreed
on a protocol for the review of student files and student refund data at the
Alexandria, VA, Houston, TX, Laurel, MD, Philadelphia, PA, and San Jose, CA
Learning Centers. The results of the file reviews were submitted to the
Department in March 1999. Once the results are reviewed, the Department will
issue a final audit determination letter. If the Company does not agree with
some of the determinations, it may appeal to a Department of Education hearing
officer and the Secretary of Education.
While the Company does not believe liabilities arising from either the
program review or the compliance audit will have a material adverse effect on
the Company's operations, certain actions by the Department of Education, if
taken, could have a material adverse effect on the Company. Refer to Item
7 -- "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Potential Adverse Effects of Regulation" contained herein.
In January 1999, the Department of Education initiated a program review of
the Laurel, MD Learning Center for the period July 1, 1997 through the present.
The Department has not yet issued a report on this program review.
Reauthorization of the Higher Education Act of 1965, as amended ("HEA")
In October 1998, the U.S. Congress enacted legislation reauthorizing and
extending the HEA until September 30, 2004. In general, the material Title IV
Program provisions and requirements remain in the same form and funding was
authorized at the same or higher levels. However, the new law did make certain
potentially significant changes in the Title IV Programs. Chief among these are:
- an increase in the adverse effect of high student loan default rates on
schools;
- an increase, from 85% to 90%, in the amount of revenues an institution
may derive from the Title IV Programs; and
- the streamlining of the process for recertifying an institution's
participation in the Title IV Programs following a change of ownership or
control so that the Department of Education may allow an institution to
continue uninterrupted participation in the Title IV Programs in certain
circumstances.
Although Congress has consistently reauthorized the HEA, and there is no
present indication that Congress will fail to make annual appropriations to
properly fund the Title IV Programs, there can be no assurance that government
funding for the Title IV Programs will be maintained at current levels or that
the current requirements for student and institutional participation in such
programs will not change in ways that might be unfavorable to the Company.
Student Loan Defaults
Under the Higher Education Act, an educational institution may lose its
eligibility to participate in some or all Title IV Programs if more than a
certain proportion of its former students default on the repayment of their
federal student loans. Each year the Department of Education calculates a rate
of student defaults (known as the "cohort default rate") for each institution
whose students participate in the FFEL or FDL loan programs. If an institution's
cohort default rate is at least 25% for three consecutive years, the school
loses its
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eligibility to participate in the FFEL and FDL programs as well as the Pell
program for the remainder of the year in which the Department makes that
determination and the subsequent two years. An institution whose cohort default
rate exceeds 40% for one year may lose its eligibility to participate in all of
the Title IV Programs. An institution has the right to appeal the Department of
Education's calculation of its cohort default rates. An institution would remain
eligible to participate in FFEL, FDL and Pell programs while its appeal is being
considered.
The official FY 1996 cohort default rates published in October 1998 for the
nine Learning Centers that are institutions as defined by the Department, and
which were then participating in the FFEL or FDL programs, averaged 15.5% and
ranged from a low of 2.6% to a high of 21.7% for that period. The average rate
for all proprietary institutions in the United States for the same period was
18.2%. All of the Learning Centers have well-established default management
programs consisting of student counseling and post-enrollment follow up to
minimize the risk of excessive loan defaults.
If an institution has an FFEL or FDL cohort default rate of 25% or more in
any one of the three most recent years or a default rate on Perkins loans of
more than 15% in a year, the Department of Education can place the school on
"Provisional Certification" for up to four years. Provisional certification
allows an institution to continue to participate in the Title IV Programs
subject to conditions imposed by the Department. However, if the school violates
a Department requirement, it can lose its eligibility with less procedural
protection than is afforded a standard certified institution. Four of the
Company's Learning Centers are provisionally certified through dates extending
to July 2000 through September 2001 due to either cohort default rate issues
arising in prior years or due to change of control following the Company's
acquisition of these campuses.
The Company administers the Perkins loan program on a combined basis for
seven of the Company's nine main U.S. based institutions, and in the past these
seven combined institutions have shared one Perkins loan default rate. For the
remaining two U.S. based institutions, the Perkins loan programs are
administered individually. For the year ending June 30, 1998, the most recent
year for which such rates have been calculated, the Company had a default rate
for Perkins loans of 19.7% for the seven institutions combined. For the same
period, the Company had Perkins default rates of 9.1% and 0% for the remaining
two institutions. Tuition funded by the Perkins program accounted for less than
1% of the Company's revenues in fiscal 1999.
Financial Responsibility
The Higher Education Act and the Department of Education regulations
require institutions participating in the Title IV Programs to demonstrate that
they have sufficient resources to properly administer Title IV funds on behalf
of their students and provide appropriate educational services to their
students. The regulations allow the Department to evaluate an institution based
on its own financial condition or that of the consolidated corporation.
Historically, the Department has evaluated the financial condition of the
Learning Centers on a consolidated basis.
Under regulations that took effect on July 1, 1998, the Department
evaluates an institution's financial responsibility based on three ratios: an
equity ratio, a primary reserve ratio and a net income ratio.
- the equity ratio measures an institution's capital resources, ability to
borrow and financial viability;
- the primary reserve ratio measures an institution's ability to support
current operations from expendable resources; and
- the net income ratio measures the ability of an institution to operate at
a profit.
The ratios are calculated each year based on an institution's annual
audited financial statements. The results of each ratio are assigned a strength
factor and then combined under a weighted formula to arrive at a composite score
for the institution ranging from minus one to three, the latter being the
highest possible score. An institution that achieves a composite score of at
least 1.5 is considered to be financially responsible. If an institution
achieves a composite score of more than 1.0 but less than 1.5, it may continue
to participate in the Title IV Programs under additional reporting and
monitoring procedures, including the receipt of its Title IV Program funds on
the "reimbursement" basis, under which an institution must disburse its own
funds to students before receiving Title IV Program funds. In addition,
regardless of its composite score, an institution may establish its financial
responsibility by posting an irrevocable letter of credit in favor of the
Secretary of
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Education in an amount equal to not less than one-half the Title IV Program
funds received by the institution during its most recent fiscal year.
Based on its audited financial statements for fiscal 1999, the Company has
calculated a composite score of 1.8 for CLC; thus, the Company as a whole
satisfies the Department's standards of financial responsibility.
The Department has the right to apply the financial responsibility measures
on an individual institution basis. The Company has calculated the composite
scores for its U.S. based Learning Centers that are institutions as defined by
the Department range from a low of 0.1 to a high of 3.0. As of January 31, 1999,
two of the Company's institutions have a composite score below 1.0, and the
remaining seven institutions have composite scores which exceed the 1.5 minimum
requirement. However, the Department has issued a transition year rule, which
allows for an institution to have its financial responsibility minimum measured
under the standards in effect prior to July 1, 1998. Under this transition year
rule, the Company has determined that each of its institutions satisfies the
Department's standards of financial responsibility. In conjunction with the
Company's request for recertification of an institution acquired in December
1997, the Department found that the institution lacked financial responsibility
at the time it was acquired. As a result, the Department required the Company to
post a letter of credit in the amount of $2,850,000.
Under a separate standard of financial responsibility, an institution that
has made late student refunds in more than 5% of cases in either of its last two
fiscal years must post a letter of credit in favor of the Secretary of Education
in an amount equal to 25% of the total Title IV Program refunds paid by the
institution in its prior fiscal year. Based on this standard, the Company has
posted a letter of credit in the amount of $1.5 million with respect to all U.S.
Learning Centers except the Learning Centers in Somerville and Methuen, MA for
which separate letters of credit were required and the Learning Center in
Paramus, NJ, for which a letter of credit was not required.
Incentive Compensation
The Higher Education Act 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.
Although the Department's regulations do not establish clear criteria for
compliance, the Company believes that its compensation plans for employees
engaged in student recruitment, admission or financial aid awarding activities
comply with the requirements of the HEA.
The 90/10 Rule
Under a provision of the HEA now known as the "90/10 Rule," a proprietary
institution loses 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
90% of the institution's applicable revenues for the prior fiscal year was
derived from Title IV Programs. Approximately 67% of the Company's revenues in
fiscal 1999 (ranging from a low of 58% and a high of 80% on an individual
institution basis) consisted of tuition funded by the Title IV Programs.
To reduce the risk that any Learning Center could lose its eligibility to
participate in the Title IV Programs under the 90/10 Rule, the Company closely
monitors the sources of revenue funding for each Learning Center. The Company
also continuously pursues 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 this rule, such loss would have a material
adverse effect on the Company.
Restrictions on Adding Locations
The HEA requires a proprietary institution to be in full operation for two
years before such institution can qualify to participate in the Title IV
Programs. However, the HEA and applicable regulations permit an institution that
is already certified to participate in the Title IV Programs to establish an
additional location
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that may immediately qualify for such participation 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. Excluding acquisitions, the Company opened three new U.S.
Learning Centers in fiscal 1999. 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 waiting
period for Title IV Program participation 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 Effects of Regulatory Violations
The violation of regulatory standards governing the Title IV Programs by
the Company or any Learning Center could be the basis for the Department of
Education to initiate a proceeding to take one or more of the following actions:
(a) seek repayment of previously disbursed Title IV Program funds, (b) seek
repayment of interest or special allowance subsidies the Department paid to
lenders with respect to student loans, (c) impose a fine, or (d) limit, suspend
or terminate the participation of the Company or the particular Learning Center
in the Title IV Programs. The Department also may take emergency action
temporarily to suspend an institution's participation in the Title IV Programs
without advance notice if it determines that a regulatory violation creates an
imminent risk of the material loss of public funds. Although there are no
limitation, suspension, termination or emergency proceedings pending, and the
Company does not believe any such proceeding is contemplated, if such a
proceeding were initiated against the Company, or any Learning Center, and
resulted in a substantial curtailment of the Company's participation in the
Title IV Programs, the Company would be materially and adversely affected.
The Department also has discretion to alter the way it provides Title IV
Program funds to participating institutions. It may transfer an institution from
the "advance" system of payment of Title IV Program funds, under which an
institution receives funding from the Department 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 Program
funds before receiving funds from the Department. The transfer of all or a
substantial proportion of the Learning Centers to the reimbursement system of
payment could, depending on the extent of such action and the specific nature of
the reimbursement system imposed by the Department, have a material adverse
effect on the Company.
The Department may also impose a modified requirement known as "heightened
cash monitoring." Based on its monitoring of litigation then pending against the
Company (refer to Item 3 -- "Legal Proceedings" herein) and certain student
complaints lodged against the Company or individual Learning Centers, on April
6, 1998, the Department placed all Learning Centers on heightened cash
monitoring status. Under this status, the Learning Centers continue to receive
all of the Title IV Program funds to which their students are entitled, but the
funds are drawn after they have been credited to student accounts and CLC is
required subsequently to provide supporting documentation to the Department. The
Department does not consider heightened cash monitoring status to represent
either an adverse or punitive action. This action by the Department has not had
any effect on the availability of Title IV funding to the Company's students, or
had a material effect on the Company's cash flow or operating results. This
requirement has led to delays (estimated by the Company as generally two to
three days) in timing of the Company's cash receipts, but has not significantly
impaired its business operations.
In addition, if as a result of a compliance review, a Learning Center were
required to repay more than 5% of the Title IV funds the Learning Center
received during the year under review, the Learning Center could be required to
post a letter of credit equal to not less than 10% of the Title IV Program funds
received by the Center during its most recent fiscal year and take additional
steps, including receipt of its funds on the
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reimbursement basis, to establish its financial responsibility to maintain its
participation in the Title IV Programs.
During fiscal 1999, two of the Company's institutions received regular
certification for continued participation in the Title IV Programs. If a
Learning Center lost its eligibility to participate in certain of the Title IV
Programs, or if the amount of Title IV funding was reduced, the Company would
seek to arrange alternative sources of funding 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 loans to Learning Center students, there is no
assurance that this would be the case, and the interest rate and other terms of
such student loans might not be as favorable as for Title IV Program funds.
Accordingly, the loss of eligibility of a Learning Center 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 alternative sources of funding for the
Learning Center's students.
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 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 initiate new
programs of study, or to obtain authorization to operate in certain additional
states. State regulatory requirements may overlap or exceed federal
requirements.
By letter dated April 3, 1998, from the State Superintendent of Education
of the State of Illinois, to the Schaumburg Learning Center (the "Letter"), the
Illinois State Board of Education ("ISBE"), the agency of the State of Illinois
that authorizes the Schaumburg Learning Center, notified the Learning Center
that they had determined that certain activities and procedures of the
Schaumburg Learning Center were not in compliance with the Illinois Private
Business and Vocational Schools Act ("Schools Act"). The Letter directed the
Schaumburg Learning Center to cease and desist from all marketing and student
enrollment activities until May 6, 1998. After reviewing the Company's initial
response, the ISBE lifted the cease and desist order as of May 7, 1998.
By letter dated December 18, 1998, the ISBE issued a report on its review
of documentation submitted by the Schaumburg Learning Center regarding student
refunds and placement statistics and issued a new order directing the Learning
Center to cease and desist from all marketing and student enrollment activities.
On February 26, 1999, in response to documentation submitted by the Learning
Center, the ISBE lifted the cease and desist order, effective March 1, 1999, and
announced that it would approve the extension of the Learning Center's license
upon confirmation of the Learning Center's compliance with Illinois
requirements. During March 3-5, 1999, the ISBE conducted a site visit at the
Schaumburg Learning Center to establish such confirmation and, the Company
believes that if the ISBE is satisfied, it will extend the Learning Center's
license through June 30, 1999. In June 1999, if the Learning Center demonstrates
continued compliance with the requirements of Illinois law, the ISBE will, in
due course, process the renewal of the Learning Center's license for the year
2000. If the ISBE determines that the Schaumburg Learning Center is not in
compliance, the ISBE may designate a hearing officer to decide whether the
Schaumburg Learning Center's license to operate should be suspended or
terminated.
On October 21, 1998, the Maryland Higher Education Commission ("MHEC")
issued a Notice of Deficiencies respecting the Laurel Learning Center. The
Notice questioned certain practices of the Learning Center, notably in the area
of admissions testing, and proposed certain corrective actions regarding record
keeping, student refunds and other policies and procedures. The Company has made
the refunds proposed by MHEC and has changed its admissions testing, record
keeping and other policies and procedures in accordance with the MHEC proposals.
In conjunction with a settlement agreement with the MHEC dated
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April 29, 1999, the Company was assessed a $60,000 fine and assured MHEC that
the Laurel Learning Center would continue to implement the revised policies and
procedures in accordance with MHEC proposals.
On October 29, 1998, the Texas Workforce Commission ("TWC") issued three
separate Complaint Investigation Reports (the "Reports") respecting complaints
submitted to the TWC by seven former students of the Houston Learning Center.
The Reports concluded that certain of the complaints were substantiated and
certain were not. With regard to the complaints that the TWC staff reported as
substantiated, the Reports proposed that various corrective actions be taken and
that various refunds be made to certain students, including but not limited to
the named complainants. The TWC also informed the Houston Learning Center that
it would not act on new program approval requests until the issues raised in the
Reports are resolved. The Company has entered into discussions with TWC staff
aimed at resolving the issues raised in the Reports, and has taken corrective
actions and initiated changes in policies and procedures, made certain of the
refunds proposed by the TWC, and has agreed to protocols for the remaining
proposed refunds. If the Company and TWC staff do not reach agreement on any or
all of the issues cited in the Report, the TWC may initiate action against the
Houston Learning Center respecting its authority to operate or seek to impose
restrictions on its operations, and may impose a monetary fine. Any such action
would be subject to administrative and judicial review in accordance with the
provisions of Texas law. The Company believes the matter will be resolved
without resort to formal proceedings and will not have a material adverse effect
on its operations or on the operations of the Houston Learning Center.
The loss of state authorization by an existing Learning Center or the
failure of a new or newly acquired Learning Center to obtain state authorization
would render the affected Learning Center ineligible to participate in the Title
IV Programs, would adversely 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 within their borders to become and continue to be
accredited as a condition of continuing state authorization. All of the
Company's U.S.-based Learning Centers are accredited by ACICS, which is an
accrediting agency recognized by the Department of Education. Three of the
Company's institutions operating in the United States are due for renewal of
accreditation during fiscal 2000. The loss of accreditation by an existing
Learning Center or the failure of a new or newly acquired Learning Center to
obtain accreditation would render the affected Learning Center ineligible to
participate in the Title IV Programs and 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 as that term is
defined in the HEA and Department of Education regulations, an institution
participating in the Title IV Programs must be recertified to continue its
participation. A change of control could also trigger similar reapproval
requirements at the state level and with an institution's accrediting agency.
For a publicly traded corporation like the Company, Department of Education
regulations specify that a change of control occurs when there is an event that
would obligate the corporation to file a current report on Form 8-K with the
Securities and Exchange Commission disclosing a change of control. Each state
and accrediting agency has its own requirements with respect to what constitutes
a change of control and the consequences of such a change. A change of control
could, depending on the nature of such change, have a material adverse effect on
the Company.
When the Company acquires an institution that participates in the Title IV
Programs, that institution undergoes a change of control and must demonstrate
that it meets the standards of institutional eligibility to be recertified by
the Department for such participation under its new ownership. Under recently
announced Department procedures implementing the 1998 reauthorization of the
HEA, the Department may temporarily and provisionally certify an institution
undergoing a change of control while the Department reviews the institution's
application. To obtain such temporary certification, the institution must submit
an application for recertification within 10 business days of the closing date
of the sale. A "materially complete" application
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normally would include all state and accrediting agency approvals that those
agencies require to be obtained before the closing date. If the Department finds
the application to be "materially complete," it would then issue a Temporary
Program Participation Agreement, and afford the institution a further period to
submit additional required materials. If all the remaining documentation is
timely submitted, the Department will continue the Temporary Program
Participation Agreement until it issues a new certification, which, in the case
of changes of ownership, is always provisional for at least one year. If an
institution fails to file a "materially complete" application or the additional
required materials within the prescribed times, it will become ineligible to
participate in the Title IV Programs until the Department completes its review
and recertifies the institution under its new ownership.
The standards and practices of ACICS, the accrediting agency that accredits
all of the Learning Centers, generally provide that, after an institution
obtains confirmation of continued authorization by the appropriate states
following a change of control, and submits a complete application, ACICS will
determine whether to temporarily reinstate the institution's accreditation,
during which period the institution must apply for permanent reinstatement of
its accreditation. The states with jurisdiction over the Learning Centers have
widely varying requirements for an institution to confirm its reauthorization
following a change of control as defined by each state.
A material adverse effect on the Company's financial position, results of
operations and cash flows could result if, in connection with a change in
control, the Company experienced significant delay in obtaining or failed to
obtain the accreditation of any Learning Center, experienced significant delay
in obtaining or failed to obtain authorization from any state in which the
Company has a Learning Center or experienced significant delay in reestablishing
or failed to reestablish the eligibility of any Learning Center to participate
in Title IV Programs. A change of control may also delay the ability of the
Company to establish new institutions and may have other adverse regulatory
effects.
CANADIAN REGULATION
Students who are residents of the province of Quebec are eligible to
receive loans and bursaries ("grants") from the Quebec Loans and Bursaries
Program ("QLBP"). Under the QLBP, student financial assistance is initially
provided in the form of a loan. CLC Delta is subject to the Act Respecting
Private Education ("ARPE") in Quebec. In accordance with ARPE, in order to
operate a private educational institution, the Company must hold a permit issued
by the Quebec Minister of Education (the "QME") for the institution itself and
for the educational services to be provided. The QME will issue the permit after
consulting with the Commission Consultative de l'Enseignement Prive (the
"Commission") concerning the particular institution and the educational services
to determine if such institution and services meet certain qualifying
conditions. Permits cannot be transferred without the written authorization of
the QME, and any entity holding a permit must advise the QME of any
consolidation, sale or transfer affecting such entity. Prior to any action, the
QME, after consultation with the Commission, has the authority to modify or
revoke a permit where the holder of the permit, among other things: does not
comply with the conditions, restrictions or prohibitions relating to the
institution or, is about to become insolvent. Prior to any action, the QME must
provide the institution with an opportunity to present its views before revoking
a permit. Given that the QME periodically revises its regulations and other
requirements and changes its interpretations of existing laws and regulations,
there can be no assurance that the QME will agree with the Company's
understanding of each requirement of the QME.
The Company does not believe that the QME's requirements will create
significant obstacles to its plans to acquire additional institutions, or open
new branches in Quebec or that the QME's requirements will create significant
obstacles to its plans to add new educational programs at CLC Delta. In
addition, the Company does not believe that there will be any impediment to
renewal of the permit issued to CLC Delta under the ARPE.
The legislative and regulatory requirements that relate to student
financial assistance programs in Quebec have recently changed. Effective May 1,
1999, the amount of financial assistance a student is eligible for will be less
than the amount of financial assistance historically available. For students
that have a remaining tuition
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balance not funded by Quebec's financial assistance programs, CLC Delta may make
available to qualifying students alternative financing arrangements to help fund
their education. This change in regulation may affect the eligibility for
student financial assistance of the students attending CLC Delta, which in turn
could materially adversely affect the Company's business, results of operations
and financial condition.
FEDERAL INCOME TAX RELIEF
Federal income tax relief in the form of tax credits, tax deductions and
income exclusions is available to eligible students and their families beginning
in 1998 under the Taxpayer Relief Act of 1997, as amended by the Internal
Revenue Service ("IRS") Restructuring and Reform Act of 1998 ("TRA-97"). The
TRA-97:
- provides an annual Hope Scholarship tax credit of up to $1,500 for
tuition and related expenses incurred on or after January 1, 1998, for
each of a student's first two years of postsecondary education.
- provides an annual Lifetime Learning tax credit of up to $1,000 in 1998
through 2002 and up to $2,000 in subsequent years for tuition and related
expenses incurred on or after July 1, 1998. The Lifetime Learning tax
credit is not available in any tax year in which the taxpayer is claiming
the Hope Scholarship tax credit.
- provides an annual tax deduction, ranging from $1,000 in 1998 to up to
$2,500 in 2001 and thereafter, for interest paid during the first 60
months in which interest payments are required on any student loans
incurred solely to pay qualified higher education expenses.
- provides an annual income exclusion of up to $5,250 for undergraduate
educational expenses incurred on or after January 1, 1998, and before
June 1, 2000, that are paid by the student's employer.
- allows taxpayers to establish Education IRAs, for taxable years beginning
on or after January 1, 1998, that can be funded with non-deductible
contributions of up to $500 annually for any child up to the age of 18
years.
The tax benefits provided by the TRA-97 may reduce the effective cost of
postsecondary education to the student and his or her family, which may decrease
student dependence on Title IV Program funds and may decrease Title IV Program
loan defaults. Educational institutions are required to submit certain
information about the student and the student's family to the IRS in order for
the student and the student's family to qualify for some of the tax benefits
under the TRA. The Company's existing systems will need to be modified during
fiscal year 2000, in order to facilitate compliance with these requirements.
Although these IRS reporting requirements will increase the administrative
burden on the Company, such compliance is not expected to have a material
adverse effect on the Company's financial condition, results of operations or
cash flows.
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ITEM 2. PROPERTIES
All CLC facilities are leased by the Company. The table below sets forth
certain information regarding these facilities as of January 31, 1999.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
LOCATION FOOTAGE
-------- -----------
<S> <C>
Alexandria, VA.............................................. 62,500
Alexandria, VA (1).......................................... 7,300
Anaheim, CA................................................. 22,000
Brossard, Quebec............................................ 5,400
Cherry Hill, NJ............................................. 21,000
Chicago, IL................................................. 24,100
Fairfax, VA (2)............................................. 16,300
Garland, TX................................................. 16,600
Henderson, NV............................................... 20,000
Hurst, TX................................................... 25,500
Houston, TX................................................. 28,400
Laval, Quebec............................................... 13,100
Laurel, MD.................................................. 34,500
Los Angeles, CA............................................. 45,000
Lowell, MA (3).............................................. 20,300
Madison Heights, MI......................................... 28,400
Manassas, VA................................................ 20,200
Marietta, GA................................................ 16,100
Methuen, MA (3)............................................. 2,000
Montreal, Quebec............................................ 44,900
Norcross, GA (4)............................................ 26,900
Norristown, PA (2).......................................... 3,200
Paramus, NJ................................................. 26,500
Philadelphia, PA............................................ 32,000
Pittsburgh, PA.............................................. 28,900
Plymouth Meeting, PA........................................ 29,600
San Francisco, CA........................................... 22,000
San Jose, CA................................................ 20,000
Schaumburg, IL.............................................. 30,000
Somerville, MA.............................................. 18,700
South Plainfield, NJ........................................ 20,000
Tysons Corner, VA........................................... 5,600
Woodhaven, PA............................................... 21,500
-------
Total............................................. 758,500
=======
</TABLE>
- ---------------
(1) Training facility for the Company's instructors.
(2) Corporate headquarters and support.
(3) The Company is relocating its Methuen, MA Learning Center to Lowell, MA and
expects to complete this relocation in July 1999.
(4) The Company expects to open a new Learning Center in Norcross, GA during
fiscal year 2000.
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 suitable, adequate and well-utilized.
19
<PAGE> 20
ITEM 3. LEGAL PROCEEDINGS
Active Litigation
On May 5, 1998, a class action lawsuit was filed against the Company in the
Superior Court of New Jersey in Bergen County, New Jersey, on behalf of all
students who attended a Learning Center in New Jersey within six years of May 5,
1998. The complaint alleges, among other things, that the Company, at its
Learning Centers located in the State of New Jersey, failed to provide certain
educational services and resources, misrepresented certain information
respecting services, resources, occupational opportunities and student outcomes
and violated the New Jersey Consumer Fraud Act. The Company is unable to
estimate the outcome of the matter or any potential liability.
On May 19, 1998, a lawsuit was filed against the Company in the District
Court of Harris County, Texas, by six former students of the Houston Learning
Center. Subsequently, the petition was amended to seek certification as a class
action lawsuit on behalf of all students who attended a Learning Center in Texas
within four years of May 19, 1998, and removed to the U.S. District Court for
the Southern District of Texas, Houston Division. The complaint alleges, among
other things, that the Company, at its Learning Centers located in the state of
Texas, failed to provide certain educational services and resources,
misrepresented certain information respecting services, resources, occupational
opportunities and student outcomes, and violated the Texas Deceptive Trade
Practices Act. The Company is unable to estimate the outcome of the matter or
any potential liability.
Between June 1, 1998 and December 31, 1998, the Company was named as
defendant in five other lawsuits in California, Texas and Virginia by individual
students or groups of students who formerly attended one of its Learning
Centers. The complaints allege, among other things, that the Company, at the
affected Learning Centers, failed to provide plaintiffs with certain educational
services and resources and misrepresented certain information respecting
services, resources, student outcomes and violated the applicable state consumer
laws. The Company is unable to estimate the outcome of these matters or any
potential liability.
In addition to the lawsuits discussed above, the Company is a defendant in
a number of civil lawsuits involving current and former employees, which the
Company considers incidental to its business and unlikely to have a material
effect on the Company's future operations. However, there can be no assurance
that these matters will not have a material adverse effect on the results of
operations of the Company in a future period, depending in part on the results
for such period.
The Company intends to defend itself vigorously in the lawsuits referred to
above; however, there can be no assurance that the Company will be successful in
defending itself in any of these proceedings. Even if the Company prevails on
the merits in such litigation, the Company expects to incur legal and other
defense costs as a result of such proceedings. These proceedings could involve
substantial diversion of the time of some members of management, and an adverse
determination in, or settlement of, such litigation could involve the payment of
significant amounts, or could include terms in addition to such payments, which
could have a severe impact on the Company's business, financial condition and
results of operations.
There can be no assurance that additional legal proceedings will not be
filed or that adverse actions will not be initiated against the Company, either
by federal or state regulators, or other parties. Any such legal proceedings or
adverse action could have a severe impact on the Company's business, financial
condition and results of operations.
Settled Litigation
Several lawsuits filed against the Company during the fiscal year have been
settled. These matters and the disposition of the cases are discussed below.
On March 13, 1998, a class action lawsuit was filed against the Company in
the United States District Court for the Central District of California on
behalf of all purchasers of Company Common Stock from April 30, 1997 through
March 10, 1998. Over the following two months, eight additional similar cases
were filed in United States District Courts: two in the Central District of
California; five in the Northern District of
20
<PAGE> 21
Illinois; and one in the Eastern District of Virginia. The complaints alleged
violations of the Securities Exchange Act of 1934, including allegations that
the Company was experiencing "operations difficulties" and failed to disclose
the alleged difficulties. The complaints also alleged that Company insiders
realized profits by trading their shares of Company stock while in possession of
material adverse information. All of the complaints were filed on behalf of
classes of shareholders of Company Common Stock beginning as early as March 11,
1997 and ending as late as April 7, 1998. All of these shareholder lawsuits were
consolidated and transferred to the United States District Court for the Eastern
District of Virginia. The Company entered into a settlement agreement with the
plaintiffs in February 1999, whereby the Company settled these allegations and
agreed to compensation to members of the plaintiffs' class. The terms of the
settlement call for the payment of $3.0 million in cash ($2.35 million is
covered by the Company's insurance) and the issuance of 550,000 shares of CLC
Common Stock, subject to certain price protection features, to guarantee a total
settlement of $7.5 million. The price protection features include a provision
that nullifies the settlement agreement at the option of the plaintiffs if the
market price of the Company's Common Stock is less than or equal to $2.00 per
share, during the time period specified in the agreement.
On March 10, 1998, the Attorney General of Illinois filed a complaint
against the Company in Circuit Court in Cook County, Illinois, asserting that
the Company had violated the Illinois Private Business and Vocational Schools
Act and the Illinois Consumer Fraud and Deceptive Business Practices Act (the
"Acts") at its Schaumburg, Illinois Learning Center. The complaint alleged that
the Company, at the Schaumburg Learning Center, failed to provide certain
educational services and resources and misrepresented certain information
respecting services, resources, occupational opportunities and student outcomes.
On June 8, 1998, the Company and the Attorney General reached an agreement
settling the litigation in the form of a final judgement and Consent Decree
approved by the court ("Consent Decree"). The settlement includes payment of a
voluntary contribution of $90,000 to the Attorney General's consumer education
fund, the provision by the Company on an annual basis for a four year period of
$95,000 worth of computer hardware and software to schools, programs, community
sites and other non-profit and public institutions in the Chicago area
designated by the Attorney General, and $10,000 worth of training in computer
skills annually at the Company's Schaumburg or Chicago Learning Centers for
teachers and other community based personnel to enable them to make effective
use of the computer equipment. The Company also agreed to take certain measures
to assure compliance with state regulatory requirements, and to establish an
ombudsman program and binding arbitration for the resolution of certain student
complaints. The Company has implemented the measures called for under the first
year of the Consent Decree. Failure of the Company to continue to comply with
the terms of the Consent Decree could result in adverse action against the
Learning Centers located in Illinois, including suspension or termination of the
Company's licenses to operate within Illinois and other sanctions. The loss of
operating authority in Illinois could have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders of the Company
during the fourth quarter of fiscal 1999.
21
<PAGE> 22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the NASDAQ National Market under
the symbol "CLCX." 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 1998*:
First Quarter............................................... $14.38 $ 9.25
Second Quarter.............................................. 24.63 13.50
Third Quarter............................................... 27.50 19.13
Fourth Quarter.............................................. 36.50 20.56
FISCAL YEAR 1999:
First Quarter............................................... $39.38 $ 8.63
Second Quarter.............................................. 30.63 11.13
Third Quarter............................................... 28.25 4.50
Fourth Quarter.............................................. 12.75 4.69
</TABLE>
- ---------------
* Restated for stock splits.
On December 8, 1997 the Company's Board of Directors declared a two for one
stock split, in the form of a stock dividend of one share of common stock for
every share owned. Distribution was made on January 8, 1998 to stockholders of
record as of the close of business on December 29, 1997. On March 24, 1997 the
Company's Board of Directors declared a three for two stock split, in the form
of a stock dividend of one share of common stock for every two shares owned.
Distribution was made on April 14, 1997 to stockholders of record as of the
close of business on April 8, 1997. As a result of the foregoing, the prices set
forth in the above table and all other share and per share amounts referenced in
this document have been restated for all prior periods. These over-the-counter
market quotations may reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
At April 19, 1999, there were approximately 95 holders of record of the
Company's Common Stock. The Company estimates that, including shareholders whose
shares are held in nominee accounts by brokers, there are approximately 9,250
total holders of its Common Stock.
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. It is the current
policy of the Company's Board of Directors to retain earnings to finance the
operations and expansion of the Company's business.
22
<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial and operating data is qualified by
reference to, and should be read in conjunction with, the consolidated financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in Items 7 and 8 of this
Form 10-K. The Consolidated Statements of Operations for each of the three years
in the period ended January 31, 1999 and the Consolidated Balance Sheets as of
January 31, 1999 and 1998, and the independent accountant's report thereon are
included in Item 8 of this Form 10-K. The share and per share amounts in the
table below have been restated to reflect the stock splits (Refer to Item 8
"Notes to Financial Statements and Supplementary Data" -- Note 3.)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues..................................... $144,351 $96,989 $64,025 $46,081 $39,297
-------- ------- ------- ------- -------
Costs and expenses:
Costs of instruction and services.......... 93,989 54,041 35,475 26,076 22,227
Selling and promotional.................... 21,729 15,289 11,407 7,884 6,371
General and administrative................. 15,614 7,657 5,584 4,052 3,727
Provision for doubtful accounts............ 8,388 4,794 3,084 2,613 3,313
Amortization of intangible assets.......... 558 362 362 363 393
-------- ------- ------- ------- -------
140,278 82,143 55,912 40,988 36,031
-------- ------- ------- ------- -------
Income from operations....................... 4,073 14,846 8,113 5,093 3,266
Litigation settlement expense................ (5,599) -- -- -- --
Interest income, net......................... 513 1,391 721 (96) (948)
Gain on sale of investment securities........ 279 -- 332 -- --
-------- ------- ------- ------- -------
(Loss) income before income taxes and
cumulative effect of accounting change..... (734) 16,237 9,166 4,997 2,318
Provision for (benefit from) income taxes.... (393) 6,657 3,565 2,078 1,131
-------- ------- ------- ------- -------
(Loss) income from operations before
cumulative effect of accounting change..... (341) 9,580 5,601 2,919 1,187
Cumulative effect of accounting change....... (245) -- -- -- --
-------- ------- ------- ------- -------
Net (loss) income............................ $ (586) $ 9,580 $ 5,601 $ 2,919 $ 1,187
======== ======= ======= ======= =======
Earnings (loss) per share
Basic...................................... $ (0.03) $ 0.60 $ 0.41 (a) (a)
======== ======= ======= ======= =======
Diluted.................................... $ (0.03) $ 0.56 $ 0.37 $ 0.25 $ 0.14
======== ======= ======= ======= =======
Weighted average number of shares
outstanding --
Basic...................................... 17,318 15,893 13,719 (a) (a)
======== ======= ======= ======= =======
Diluted.................................... 17,318 17,189 15,018 11,393 8,211
======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
-------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 7,691 $ 24,377 $26,950 $ 8,260 $ 4,753
Total current assets......................... 77,972 78,210 58,805 29,635 29,968
Total assets................................. 130,736 115,271 75,727 39,808 39,922
Total current liabilities.................... 67,551 59,349 33,811 21,093 18,460
Long term liabilities........................ 8,649 5,167 2,124 1,559 12,342
Total stockholders' equity................... 54,536 50,755 39,792 17,156 9,120
</TABLE>
- ---------------
(a) Basic earnings per share is not presented for years prior to fiscal 1997 as
such amounts do not present a meaningful comparison to fiscal 1999, 1998,
and 1997 amounts due to the differing capital structures as a result of the
1997 and 1996 public offerings (Refer to Item 8 "Financial Statements and
Supplementary Data' -- Note 4).
23
<PAGE> 24
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKGROUND AND OVERVIEW
The Company provided information technology education and training to over
14,300 students in fiscal year 1999. The Company designs programs and courses to
meet current information technology education needs, offering instruction in
rapidly growing technologies such as client/server, database, networking and
object-oriented programming through its twenty-seven locations throughout the
United States and Canada.
On February 17, 1998 the company acquired Markerdowne Corporation d/b/a
Computer Learning Centers Paramus ("CLC Paramus"), a privately-held provider of
information technology education and training based in Paramus, New Jersey. CLC
Paramus had approximately 800 students enrolled at the date of acquisition.
On February 20, 1998 the Company acquired Delta College ("CLC Delta"), a
Montreal, Quebec-based, privately-held provider of information technology
education and training. Delta College had approximately 800 students enrolled at
the date of acquisition at two locations: Montreal and Laval.
The business acquisitions were accounted for as a pooling of interests in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations." Current and prior years' financial statements were not restated
to include these acquisitions on the basis of immateriality to the Company. The
Company's results of operations incorporate each acquired Learning Center's
activity from its respective date of acquisition.
During fiscal 1999, the Company derived approximately 96% of its revenues
from Learning Centers course tuition, approximately 2% from the Advantec
Institutes (discontinued during fiscal year 1999) course fees, 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 17-month period for full-time students and over a 16-to
34-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.
The Company manages the collection risks associated with student accounts
receivable for withdrawn and graduate students by utilizing an in house
centralized credit and collection function staffed with 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 letters as well as
employing other activities related to collection. The Company makes available to
qualifying students alternative financing arrangements ("CLC financing") which
help fund their education. Dependent upon the credit worthiness of the
individual, CLC financing may be offered to assist students with meeting their
financial obligations related to attending CLC. The Company requires students
receiving CLC financing to make regular monthly payments. Depending on the level
of financing extended to students, payment plans offered generally range from
six months to three years. All amounts due to the Company in periods beyond one
year are classified as long-term receivables. Additionally, Company personnel
help students overcome financial obstacles to completing their educational
programs by assisting students in finding part-time employment when their own
resources, CLC financing and Title IV financial aid are not adequate to meet
their financial needs.
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. General and
administrative costs consist primarily of
24
<PAGE> 25
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 related to
capitalized costs of original U.S. Department of Education certifications.
This Annual Report on Form 10-K contains forward-looking statements.
Additional written or oral forward-looking statements may be made by the Company
from time to time in filings with the Securities and Exchange Commission or
otherwise. The words "believe," "expect," "anticipate," and "project," and
similar expressions identify forward-looking statements, which speak only as of
the date the statement was made. Such forward looking statements are within the
meaning of that term in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Such
statements may include, but not be limited to, projections of revenues, income
or loss, expenses, capital expenditures, the effect of inflation, government
regulation and plans relating to programs of the Company, as well as assumptions
relating to the foregoing. The Company undertakes no obligation to publicly
update or revise any forward looking statements, whether as a result of new
information, future events, or otherwise.
Forward looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those set forth in, contemplated
by, or underlying the forward-looking statements. Statements in this Annual
Report on Form 10-K, including the notes to the financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," describe factors, among others, that could contribute to, or cause
such differences. Additional factors that could cause actual results to differ
materially from those expressed in such forward-looking statements are set forth
in "Business," "Financial Aid and Regulation" and "Certain Factors That May
Affect Future Results" in this Annual Report on Form 10-K for the year ended
January 31, 1999.
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>
FOR THE YEARS ENDED
JANUARY 31,
------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
----- ----- -----
Costs and expenses:
Costs of instruction and services........................... 65.1 55.7 55.4
Selling and promotional..................................... 15.1 15.8 17.8
General and administrative.................................. 10.8 7.9 8.7
Provision for doubtful accounts............................. 5.8 4.9 4.8
Amortization of intangible assets........................... 0.4 0.4 0.6
----- ----- -----
97.2 84.7 87.3
----- ----- -----
Income from operations...................................... 2.8 15.3 12.7
Litigation settlement expense............................... (3.9) -- --
Interest income, net........................................ 0.4 1.4 1.1
Gain on sale of investment securities....................... 0.2 -- 0.5
----- ----- -----
Income before income taxes and cumulative effect of
accounting change......................................... (0.5)% 16.7% 14.3%
===== ===== =====
</TABLE>
25
<PAGE> 26
Fiscal 1999 Compared with Fiscal 1998
Revenues increased 49% to $144.4 million for fiscal 1999 from $97.0 million
for fiscal 1998 primarily due to an increase in enrollments at the Company's new
Learning Centers including the opening of four new Learning Centers in fiscal
1999. In addition to the opening of the four new Learning Centers, the Company
acquired five Learning Centers since December 1997, two in Quebec, Canada and
the others in Paramus, NJ and Somerville and Methuen, MA.
The number of students attending Learning Center programs as of the end of
the year increased 10% to 11,095 in fiscal 1999 from 10,112 in fiscal 1998,
which was the result of student enrollment growth of 11%. In fiscal 1999,
enrollments at the fourteen Learning Centers opened for more than two fiscal
years ("same centers") declined 20% to 9,618 from 12,031 students in fiscal year
1998. Enrollments at Learning Centers opened or acquired during the last two
fiscal years ("new centers") increased by 3,800 to 4,719 from 919 students in
fiscal year 1998. Learning Centers acquired during the last two fiscal years
accounted for 57% of enrollment growth at new centers. When evaluating the
sources of growth, the Company views all Learning Centers opened during the last
two fiscal years as "new" in order to account for the start up period inherent
in new Learning Center openings.
Accounts receivable, (both long and short-term), increased 21% as compared
to the revenues increase of 49%. The larger percentage increase in revenue as
compared to accounts receivable can be attributed to the following:
When students enroll in CLC, accounts receivables are established for the
balance of course tuition (however, only for year one of two-year programs) with
a corresponding amount recorded as deferred revenue. While the accounts
receivable balance may be paid at any time during the course, deferred revenue
is recognized ratably as tuition revenue over the period of instruction,
regardless of when accounts receivable are paid.
Since accounts receivable increases immediately by the full tuition when
students enroll, while tuition revenues are earned ratably over the period of
instruction, there will not be a direct correlation between the percentage
increases in tuition revenues (and correspondingly deferred revenues) and in
accounts receivable balances. This "lag" effect of revenues to receivables, is
further pronounced during the initial operations of a new Learning Center since
tuition revenues will be minimal when compared to the corresponding accounts
receivables. Additionally, Learning Centers in their second year of operations
(those opened in fiscal 1998) contribute significantly to the lag effect due to
the large levels of growth occurring in year two versus year one of operations.
Conversely, in periods of declining enrollments of the larger and more
established Learning Centers (as experienced in fiscal 1999), the relative
percentage of accounts receivable growth will decline faster than the relative
percentage of revenue growth The following summarizes the actual Learning Center
openings and acquisitions for the last three fiscal years.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
SCHOOL OPENINGS/ ACQUISITIONS 1999 1998 1997
----------------------------- ------ ------ ------
<S> <C> <C> <C>
First Quarter........................................... 5 -- 1
Second Quarter.......................................... 1 2 --
Third Quarter........................................... -- 1 1
Fourth Quarter.......................................... 1 3 2
-- -- --
Total......................................... 7 6 4
== == ==
</TABLE>
Costs of instruction and services increased 74% to $94.0 million in fiscal
1999 from $54.0 million in fiscal 1998 due primarily to the direct costs
necessary to support the increase in student population. These direct costs
consist primarily of compensation and related benefits, and depreciation.
Instruction costs and services as a percentage of revenues increased
significantly to 65.1% in fiscal 1999 from 55.7% in fiscal 1998. This increase
is primarily attributable to the start up of four Learning Centers since January
1998, lower enrollments during the fiscal year 1999 at several of the Company's
more established Learning Centers, the elimination of new enrollments at
Advantec Institutes as retail operations of their programs were phased-out, and
increased
26
<PAGE> 27
expense profiles of acquisitions with respect to revenues generated at those
Centers Due to the start up period inherent in Learning Centers open less than
one year. The ratio of cost of instruction and services to revenues generated
typically is very high as fixed costs typically exceed revenues during a
Learning Center's first year of operations. Lower enrollments at some of the
Company's more established Learning Centers resulted in a higher ratio of cost
of instruction due to decreased revenues without a corresponding decrease in
fixed costs.
Selling and promotional expenses increased 42% to $21.7 million in fiscal
1999 from $15.3 million in fiscal 1998 due primarily to increased marketing and
advertising necessary to support the growth in student enrollments and the
increase in the number of Learning Center locations. Selling and promotional
expenses as a percentage of revenues decreased to 15.1% in fiscal 1999 from
15.8% in fiscal 1998 primarily due to increased efficiencies associated with the
Company's marketing.
General and administrative expenses increased 104% to $15.6 million in
fiscal 1999 from $7.7 million in fiscal 1998, primarily as a result of
increasing the level of infrastructure needed to support the growth of the
business. Also impacting the relative increase was increased legal fees
associated with regulatory reviews coupled with the payment of student refunds
and related costs of $2.2 million associated with the various regulatory
matters. General and administrative expenses as a percentage of revenues
increased to 10.8% in fiscal 1999 from 7.9% in fiscal 1998.
Provision for doubtful accounts increased 75% to $8.4 million in fiscal
1999 from $4.8 million in fiscal 1998, primarily due to the increase in revenues
of 49% and related accounts receivable balances. Provision for doubtful accounts
as a percentage of revenues increased to 5.8% in fiscal 1999 from 4.9% in fiscal
1998. The Company attributes this increase to a shift in student enrollments to
higher priced tuition programs, which typically have higher amounts of self-pay
accounts receivable after application of available financial aid. The self-pay
receivables have historically had lower collection rates than loans from
traditional third-party lenders.
The Company provided $5.1 million for its obligations related to a
shareholder litigation settlement agreed to in February 1999. In addition to the
settlement obligation, the Company incurred $0.5 million of legal defense costs
during fiscal year 1999 in excess of reimbursements from its insurance carrier.
The Company realized net interest income of $0.5 million for fiscal 1999,
compared to net interest income of $1.4 million for fiscal 1998, primarily as a
result of the reduction of cash balances. The interest income in fiscal year
1998 was generated by larger average invested cash balances from the 1997 public
offering, completed in October 1996.
The Company's effective income tax rate increased to 53.5% in fiscal 1999
from 41.0% in fiscal 1998. This is a result of relative higher tax rates applied
to losses sustained in the Company's U.S. operations principally offset by
income from operations of the Company's Canadian subsidiary. The statutory rates
in Quebec, Canada, are lower than those of the Company's U.S. operations on a
weighted average basis.
Fiscal 1998 Compared with Fiscal 1997
Revenues increased 52% to $97.0 million for fiscal 1998 from $64.0 million
for fiscal 1997 primarily due to an increase in enrollments at the Company's
existing Learning Centers, the opening of four new Learning Centers in fiscal
1998 and the growing popularity of the Company's longer programs including
associated degree programs. In addition to the opening of the four new Learning
Centers, the Company acquired BEC on December 23, 1997, which added two Learning
Centers, one in Somerville, MA and the other in Methuen, MA.
The number of students attending Learning Center programs as of the end of
the year increased 56% to 10,112 in fiscal 1998 from 6,485 in fiscal 1997, which
was the result of student enrollment growth of 43%. In fiscal 1998, the
Company's new centers collectively contributed 79% of the total enrollment
growth and 81% of the total student population growth. BEC accounted for
approximately 18% of the population growth, however, did not significantly
impact the percentage growth in enrollments (3%) due to the acquisition
occurring in late December 1997.
27
<PAGE> 28
Accounts receivable, (both long and short-term), increased 76% as compared
to revenues increase of 52%. The larger percentage increase in accounts
receivable as compared to revenues can be attributed to the lag effect
previously described.
Costs of instruction and services increased 52% to $54.0 million in fiscal
1998 from $35.5 million in fiscal 1997 due primarily to the direct costs
necessary to support the increase in student population. These direct costs
consist primarily of compensation and related benefits, and depreciation.
Instruction costs and services as a percentage of revenues increased slightly to
55.7% in fiscal 1998 from 55.4% in fiscal 1997.
Selling and promotional expenses increased 34% to $15.3 million in fiscal
1998 from $11.4 million in fiscal 1997 due primarily to increased marketing and
advertising necessary to support the growth in student enrollments. Selling and
promotional expenses as a percentage of revenues decreased to 15.8% in fiscal
1998 from 17.8% in fiscal 1997 primarily due to increased efficiencies
associated with the Company's marketing, particularly those realized by the
opening of new Learning Centers within established Learning Center markets.
General and administrative expenses increased 37% to $7.7 million in fiscal
1998 from $5.6 million in fiscal 1997, primarily as a result of increasing the
level of infrastructure needed to support the growth of the business, which
includes credit and treasury administration, information systems, and other
related personnel costs. General and administrative expenses as a percentage of
revenues decreased to 7.9% in fiscal 1998 from 8.7% in fiscal 1997.
Provision for doubtful accounts increased 55% to $4.8 million in fiscal
1998 from $3.1 million in fiscal 1997, primarily due to the increase in revenues
of 52% and related accounts receivable balances. Provision for doubtful accounts
as a percentage of revenues increased slightly to 4.9% in fiscal 1998 from 4.8%
in fiscal 1997.
The Company realized net interest income of $1.4 million for fiscal 1998,
compared to net interest income of $721,000 for fiscal 1997, primarily as a
result of the interest generated by larger average invested cash balances.
The income tax rate increased to 41.0% in fiscal 1998 from 38.9% in fiscal
1997 primarily due to the fiscal 1997 utilization of a capital loss carry
forward offsetting the tax effect of the sale of investment securities.
CYCLICAL PATTERN OF ENROLLMENTS
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, the varying lengths of such
programs, and new Learning Centers opened.
LIQUIDITY AND CAPITAL RESOURCES
During the last three fiscal years, the Company has financed its operating
and capital expenditure requirements principally through cash provided by
operating activities and cash on hand. Cash (used in) provided by operating
activities for fiscal 1999, 1998 and 1997 was $(2.3) million, $16.2 million, and
$10.8 million, respectively.
The Company's principal sources of funds at January 31, 1999 were cash and
cash equivalents of approximately $7.7 million and net current accounts
receivable of $56.7 million. Additionally, the Company has a credit agreement
with a bank that provides for a $20 million secured revolving credit facility,
expiring in October 2000. The line of credit consists of a revolving credit
note, inclusive of a $7.0 million convertible term loan. The interest on the
facility is based either on the bank's U.S. prime rate or the London Interbank
Offer Rate ("LIBOR") which were 7.75% and 4.83%, respectively at January 31,
1999. Interest rates are equal to
28
<PAGE> 29
(i) the U.S. prime rate or LIBOR plus 1.25% for revolving credit loans and (ii)
the U.S. prime rate plus 0.25% or LIBOR plus 1.5% for the convertible term
loans. The Company borrowed $3.0 million on its line of credit for working
capital purposes in January 1999. The Company borrowed an additional $1.4
million on its line of credit in February 1999. In addition, the Company has
pledged portions of its line of credit to the Department of Education, to its
insurance carrier and to certain of its landlords on behalf of certain Learning
Centers. The Company has pledged a total of $6.0 million of its line of credit
for these obligations to the Department, its insurance carrier and certain of
its landlords. As of January 31, 1999, the Company had $11.0 million available
under the line of credit agreement.
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 $18.4 million, $19.6 million, and $7.5 million,
respectively, for fiscal 1999, 1998, and 1997, respectively. To date, cash
generated from operations and cash on hand have been sufficient to fund 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, cash on hand, and if necessary, the existing
credit facility.
The Company continues to expand current facilities, upgrade equipment and
open new Learning Centers. The Company expects fiscal 2000 capital expenditures
will be approximately $6 million. Estimated capital expenditures for a typical
new Learning Center average approximately $1.5 million. The Company anticipates
that its planned capital expenditures can be funded through cash generated from
operations and its line of credit.
A majority of the Company's revenues are derived from tuitions funded by
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 are also made
at the beginning and midpoint of the subsequent academic year. Although the
timing of loan disbursements to the Company is subject to existing regulatory
requirements, the Company typically receives student loan funds upon their
disbursement by the lender. During fiscal 1999, the Company collected
approximately $113.5 million, of accounts receivable.
The Company believes its available cash on hand and cash provided by
operating activities and existing lines of credit under the credit facility 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.
HEIGHTENED CASH MONITORING
Refer to Item 1 -- "Business" -- "Financial Aid and Regulation."
IMPACT OF INFLATION
Inflation has not had a significant impact on the Company's historical
operations.
YEAR 2000 COMPLIANCE
The Year 2000 computer issue (commonly referred to as "Y2K") exists because
many computer systems and software applications ("IT Systems") as well as non-IT
Systems containing embedded technology ("Non-IT Systems") currently use
two-digit date fields to designate a year. When the century date change occurs,
date-sensitive systems will recognize the year 2000 as 1900, or not at all. This
inability to recognize or properly treat the year 2000 may cause systems to
process critical information incorrectly.
29
<PAGE> 30
State of Readiness
The Company has completed its initial assessment of potential exposure of
its own IT-Systems. The Company has identified certain software for which it has
engaged third-party consultants to complete remediation as well as routine
upgrades to the system, which were completed in April 1999. In addition, an
active project is underway to replace the Company's payroll and human resources
systems to be Y2K ready as well as provide significant improvements over the
current systems. The payroll and human resource IT-System conversion is
scheduled to be completed by May 1999. Most of the Company's computer hardware
was acquired during the last few years and these newer systems do not possess a
Y2K problem. The Company has computer hardware at certain Learning Centers that
is not Y2K compliant, and it plans to replace or repair these systems prior to
December 1999. Most of this noncompliant computer hardware equipment is
scheduled for replacement in the ordinary course of business and not part of a
Y2K remediation effort The Company is in the process of formulating a plan
relating to testing its IT-Systems, however the Company has no plans to conduct
formal testing on Learning Center facilities readiness. Although the Company
does not anticipate it will be significantly affected by Y2K problems in its own
IT-Systems, it may be adversely affected by Y2K problems of its vendors, banking
and governmental relationships, as well as with the Company's leased facilities.
The Company has completed the assessment phase of evaluating the readiness of
its significant suppliers, business partners, banks, and government agencies to
determine the extent to which the Company may be vulnerable in the event that
those parties fail to properly remediate their own Y2K issues.
The Company's operations and liquidity largely depend upon the federal
student funding provided by Title IV Programs for its students. Processing of
applications for this funding is handled by the U.S. Department of Education's
("Department of Education" or "Department") computer systems. The U.S. General
Accounting Office reported in September 1998 that the Department of Education's
delay in addressing the Y2K problems in its IT Systems and the limited progress
in making contingency plans, should its IT systems fail, could result in serious
disruptions in the administration of, and disbursement of funds under Title IV
programs. On April 1, 1999, the Department of Education reported that the
Department's data systems are Y2K compliant, although the Department has not
tested the entire Title IV Programs delivery system which could reveal problems
that did not show up in tests of the individual systems. Any prolonged
interruption would have a material adverse impact on the education industry and,
accordingly, upon the Company's business, results of operations, liquidity and
financial condition.
Costs to address the Company's Year 2000 issues
The Company estimates that it has expended approximately $175,000 in direct
costs through January 31, 1999 to identify and remediate the Company's Y2K
issues. The Company estimates that it will expend an additional $125,000 during
fiscal year 2000 These amounts do not include:
- the salaries of the Company's employees involved in the remediation
process;
- the cost of the enhancement and replacements to the Company's
IT-Systems, occurring in the normal course of operations; and
- the cost of replacing or acquiring any Non IT-Systems in the normal
course of operations.
There can be no assurance that the cost estimates associated with the
Company's Y2K issues will prove to be accurate or that those actual costs will
not have a material adverse effect on the Company's results of operations and
financial condition.
Risks Associated with Y2K Issues
Remediation of the Company's Y2K problems may increasingly cause the
Company to divert management and employees time and attention. The Company is
unable to estimate these potential internal indirect costs expended on Y2K
efforts; however, it is not expected to have a material adverse effect on the
Company's financial condition, results of operations or cash flows. The Company
does not have a plan to utilize any
30
<PAGE> 31
independent verification or validation process to assure the reliability of the
Company's risk or cost estimates associated with Y2K efforts.
The Company has contemplated several possible worst case scenarios that
could arise from Y2K problems. At this time, there is insufficient information
to assess the likelihood of any of these scenarios. However, the most reasonably
likely worst case scenario for the Y2K issue would be that the third parties
with whom it has relationships would cease or not successfully complete their
Y2K remediation efforts. If this were to occur, the Company would encounter
disruptions to its business that could have a severe impact on its results of
operations, such as:
- - the Company could experience significant delays in receipt of federal, state
or third-party student financial aid in payment of students' education costs
of attending the Company's Learning Centers due to IT-System failures at the
Department of Education, any of the Company's lending institutions or its
electronic payment processing agent.
Contingency Plan
The Company intends to develop a contingency plan during the first half of
fiscal 2000 to prepare for the possibility that it may experience Y2K problems
in its own IT-Systems or Non IT-Systems. If Y2K problems occur with Non
IT-Systems, the Company expects to be able to isolate such systems so that they
do not affect other systems, and adjust the clocks on such Non IT-Systems that
are not date sensitive. The Company does not intend to create a formal
contingency plan for IT-System and Non IT-System that are not controlled by the
Company, including third party systems of the Department of Education, the
Company's accrediting agency, third-party student loan institutions, or the
financial institution on which the Company relies. The Company believes that
with the exception of the Department of Education, there are alternative service
providers with which the Company can contract in order to recover from any
temporary service interruptions due to Y2K problems.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following factors, among others, could cause actual results to differ
materially from those contained in forward looking statements made in this
Annual Report on Form 10-K and presented elsewhere by management from time to
time.
LITIGATION
The Company has been named as defendant in numerous lawsuits filed by
former students, employees, and its stockholders. The Company intends to defend
itself vigorously in these lawsuits; however, there can be no assurance that the
Company will be successful in defending itself in any of these proceedings. Even
if the Company prevails on the merits in such litigation, the Company expects to
incur significant legal and other defense costs as a result of such proceedings.
These proceedings could involve substantial diversion of the time of some
members of management, and an adverse determination in, or settlement of, such
litigation could involve the payment of significant amounts, or could include
terms in addition to such payments, which could have a severe impact on the
Company's business, financial condition and results of operations. Refer to Item
3 -- "Legal Proceedings" contained herein.
There can be no assurance that additional legal proceedings will not be
filed or that adverse actions will not be initiated against the Company, either
by federal or state regulators or other parties. Any such legal proceedings or
adverse action could have a severe impact on the Company's business, financial
condition and results of operations.
POTENTIAL ADVERSE EFFECTS OF REGULATION
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
31
<PAGE> 32
Title IV Programs. The Company is subject to extensive and varying regulation in
each of the states in which the Learning Centers currently operate.
The loss of state authorization by an existing Learning Center or the
failure of a new or newly acquired Learning Center to obtain state 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. (Refer to Item 1 -- "Business -- Financial Aid and
Regulation" contained herein.)
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, and the regulations promulgated thereunder, subject the
Company, the Learning Centers and all other higher education institutions
eligible to participate in the various Title IV Programs to significant
regulatory scrutiny. 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.
Because certain statutory and regulatory provisions impose significant
requirements on the Company and the Learning Centers and because the agency
administering these regulations, the Department of Education, has not fully
developed administrative interpretations of certain of the statutory and
regulatory provisions, it is not clear how the requirements imposed by statute
and regulations or other applicable laws, rules or regulations affect the
accreditation and authorization to operate in various states, permissible
activities or costs of doing business of the Company or one or more of the
Learning Centers. The failure to maintain or renew any required regulatory
approvals, accreditations and or authorizations by the Company or any of the
Learning Centers would have a material adverse effect on the Company.
The violation of federal requirements governing participation in the Title
IV Programs or of state or accrediting agency requirements governing the
provision of educational services by the Company or any Learning Center could
result in the restriction or loss by the Company or a Learning Center of its
ability to participate in government funding programs or to offer education and
training programs. For a description and current status of the Company's
regulatory matters refer to Item 1 -- "Business -- U.S. Department of
Education -- Regulation and Review," "Business -- State Authorization and
Accreditation" and "Business -- Potential Adverse Effects of Regulatory
Violations," contained herein. Any unfavorable outcomes or adverse actions
resulting from these regulatory reviews would have a material adverse effect on
the Company.
CONTROL BY GENERAL ATLANTIC ENTITIES; POTENTIAL ADVERSE REGULATORY EFFECTS OF
CHANGE OF CONTROL
General Atlantic Corporation ("GAC"), General Atlantic Partners II, L.P.
("GAP") and GAP-CLC Partners, L.P. ("GAP-CLC") (collectively, the "General
Atlantic Entities") beneficially own approximately 17.0% of the outstanding
shares of Common Stock. 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 CLC's 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 give rise to a change of ownership resulting in a change
of control of the Company under applicable federal and state regulations and
accrediting agency requirements, resulting in potential interruption of the
eligibility of Learning Centers 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 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, or all, of its Title IV funding during the reapproval
period. Refer to Item 1 -- "Business -- Financial Aid and Regulation -- Change
of Control," contained herein.
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<PAGE> 33
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.
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. 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.
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 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 successfully implement 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.
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 the Chief Executive Officer,
Chief Financial Officer, President and Vice President of Operations, are 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.
GENERAL
Because of these and other factors, past financial performance should not
be considered an indicator of future performance. Investors should not use
historical trends to anticipate future results and should be aware that the
trading price of the Company's common stock may be subject to wide fluctuations
in response to quarter-to-quarter variations in operating results, general
conditions in the education and training industry, changes in earnings estimates
and recommendations by analysts or other events.
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<PAGE> 34
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has minimal exposure to market risks as it relates to effects
of changes in interest rates and foreign currency exchange rates. The Company
does not hold or issue derivative financial instruments.
Interest Rate Risk
The Company principally invests its available cash balances in U.S.
government securities with maturity dates less than 90 days as well as overnight
repurchase agreements with its primary banking institution. These investments
are classified as cash and cash equivalents in the Company's financial
statements. The fair value of these instruments would not be significantly
impacted by either a 100 basis point increase or decrease in interest rates due
primarily to the short-term nature of the investments. The Company's credit
facility is directly impacted by changing interest rates in either the
Commercial Prime Rate of its lender or by a change in the London Inter-Bank
Offered Rate ("Key Borrowing Rates"). Assuming the Company maintained a $3
million outstanding loan balance, and an instantaneous increase or decrease of
one percentage point in its Key Borrowing Rates, the Company's after-tax
earnings would change by $18,000 over a twelve month period. The Company
believes that any material changes to interest rates on sources of loans for the
Company's students may have a material effect on enrollments and the Company's
financial condition and results of operation; however, such change would be
deemed extraordinary and is not expected to occur in the foreseeable future.
Foreign Currency Exchange Risk
The Company began transacting business in Quebec, Canada upon acquisition
of its subsidiary, CLC Delta, in February 1998. The Company does not currently
hedge its exposure to the effects of changes in the exchange rate of the
Canadian to U.S. dollar. The Company experienced an unrealized loss due to
foreign currency translation of approximately $48,000 in fiscal year 1999
recorded as other comprehensive loss in the consolidated statement of
stockholders' equity. The Company had revenues of approximately $7.5 million
from its Canadian operations during fiscal year 1999. Assuming the same level of
activity for fiscal year 2000, and an instantaneous increase or decrease of ten
percent in the Canadian exchange rate, the Company's comprehensive income could
change by approximately $86,000 during fiscal year 2000.
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<PAGE> 35
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COMPUTER LEARNING CENTERS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Statement of Operations for the Year Ended
January 31, 1999; Statements of Operations for the Years
Ended January 31, 1998 and 1997........................... F-3
Consolidated Balance Sheet at January 31, 1999; Balance
Sheet at January 31, 1998................................. F-4
Consolidated Statement of Stockholders' Equity at January
31, 1999; Statements of Stockholders' Equity at January
31, 1998 and 1997......................................... F-5
Consolidated Statement of Cash Flows for the Year Ended
January 31, 1999; Statements of Cash Flows for the Year
Ended January 31, 1998 and 1997........................... F-6
Notes to Consolidated Financial Statements.................. F-7
Consolidated Financial Statement Schedules for the Year
Ended January 31, 1999; Financial Statement Schedules for
the Years Ended January 31, 1998 and 1997
Schedule II -- Valuation and Qualifying Accounts............ I-7
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
F-1
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Computer Learning Centers, Inc.
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the consolidated financial position of
Computer Learning Centers, Inc. and its subsidiaries at January 31, 1999 and
1998, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended January 31, 1999, 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.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
March 17, 1999, except as to Note 16,
which is as of April 29, 1999.
F-2
<PAGE> 37
COMPUTER LEARNING CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... $144,351 $96,989 $64,025
-------- ------- -------
Costs and expenses:
Costs of instruction and services......................... 93,989 54,041 35,475
Selling and promotional................................... 21,729 15,289 11,407
General and administrative................................ 15,614 7,657 5,584
Provision for doubtful accounts........................... 8,388 4,794 3,084
Amortization of intangible assets......................... 558 362 362
-------- ------- -------
140,278 82,143 55,912
-------- ------- -------
Income from operations...................................... 4,073 14,846 8,113
Litigation settlement expense............................... (5,599) -- --
Interest income, net........................................ 513 1,391 721
Gain on sale of investment securities....................... 279 -- 332
-------- ------- -------
Income before income taxes and cumulative effect of
accounting change......................................... (734) 16,237 9,166
Provision for (benefit from) income taxes................... (393) 6,657 3,565
-------- ------- -------
Net (loss) income before cumulative effect of accounting
change.................................................... (341) 9,580 5,601
Cumulative effect of accounting change (Note 6)............. (245) -- --
-------- ------- -------
Net (loss) income........................................... $ (586) $ 9,580 $ 5,601
======== ======= =======
Earnings per share (Notes 3 and 5):
Basic --
Net (loss) income before cumulative effect of
accounting change.................................... $ (0.02) $ 0.60 $ 0.41
Cumulative effect of accounting change................. (0.01) -- --
-------- ------- -------
Net (loss) income...................................... $ (0.03) $ 0.60 $ 0.41
======== ======= =======
Diluted --
Net (loss) income before cumulative effect of
accounting change.................................... $ (0.02) $ 0.56 $ 0.37
Cumulative effect of accounting change................. (0.01) -- --
-------- ------- -------
Net (loss) income...................................... $ (0.03) $ 0.56 $ 0.37
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 38
COMPUTER LEARNING CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JANUARY 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 7,691 $ 24,377
Accounts receivable, net.................................. 56,697 48,114
Prepaid expenses and other current assets................. 8,913 4,137
Deferred tax asset........................................ 4,671 1,582
-------- --------
Total current assets.............................. 77,972 78,210
Fixed assets, net........................................... 37,604 25,199
Long-term accounts receivable, net.......................... 10,660 7,330
Other long-term assets...................................... 4,500 4,532
-------- --------
Total assets...................................... $130,736 $115,271
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable.................................... $ 6,503 $ 1,574
Accrued employee expenses................................. 1,775 3,025
Accrued other expenses.................................... 8,341 6,519
Deferred revenues......................................... 50,932 48,231
-------- --------
Total current liabilities......................... 67,551 59,349
Long-term deferred revenues................................. 3,073 3,713
Long-term debt.............................................. 3,000 --
Other long-term liabilities................................. 2,576 1,454
-------- --------
Total liabilities................................. 76,200 64,516
-------- --------
Stockholders' equity:
Preferred stock $.01 par value, 1,000,000 authorized
shares, no shares issued or outstanding................ -- --
Common stock, $.01 par value, 35,000,000 authorized
shares, 17,493,251 shares issued and
outstanding -- 1999; 16,239,236 issued and outstanding
shares -- 1998 (Note 3)................................ 175 162
Additional paid-in capital................................ 40,682 34,525
Accumulated other comprehensive (loss) income............. (48) 160
Retained earnings......................................... 13,727 15,908
-------- --------
Total stockholders' equity........................ 54,536 50,755
-------- --------
Commitments and contingencies (Note 13)
Total liabilities and stockholders' equity........ $130,736 $115,271
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 39
COMPUTER LEARNING CENTERS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
PREFERRED COMMON SUBSCRIPTION PAID-IN COMPREHENSIVE RETAINED
STOCK STOCK NOTES CAPITAL INCOME EARNINGS
--------- ------ ------------ ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 1, 1996............................... -- 129 (666) 15,663 211 1,819
Public offering (Note 4).................................. -- 21 666 13,911 -- --
Exercise of stock options................................. -- 6 -- 865 -- --
Tax benefit of non-qualified option exercises............. -- -- -- 1,665 -- --
Unrealized loss, net of realized gain on investment
securities.............................................. -- -- -- -- (99) --
1997 net income........................................... -- -- -- -- -- 5,601
Comprehensive income for fiscal 1997....................
------ ---- ----- ------- ----- -------
BALANCE AT JANUARY 31, 1997............................... $ -- $156 $ -- $32,104 $ 112 $ 7,420
------ ---- ----- ------- ----- -------
Exercise of stock options................................. -- 4 -- 807 -- --
Tax benefit of non-qualified option exercises............. -- -- -- 1,365 -- --
BEC acquisition (Note 2).................................. -- 2 -- 128 -- (1,092)
Employee stock purchase plan.............................. -- -- -- 121 -- --
Unrealized gain on investment securities.................. -- -- -- -- 48 --
1998 net income........................................... -- -- -- -- -- 9,580
Comprehensive income for fiscal 1998....................
------ ---- ----- ------- ----- -------
BALANCE AT JANUARY 31, 1998............................... $ -- $162 $ -- $34,525 $ 160 $15,908
------ ---- ----- ------- ----- -------
Exercise of stock options................................. -- 2 -- 472 -- --
CLC Paramus acquisition (Note 2).......................... -- 5 -- 32 -- 350
CLC Delta acquisition (Note 2)............................ -- 5 -- 680 -- (1,945)
Tax benefit of non-qualified option exercises............. -- -- -- 250 -- --
Litigation settlement (Note 13)........................... -- -- -- 4,500 -- --
Employee stock purchase plan.............................. -- 1 -- 223 -- --
1999 net loss............................................. -- -- -- -- -- (586)
Unrealized gain, net of realized gain on investment
securities.............................................. -- -- -- -- (160) --
Foreign currency translation adjustments.................. -- -- -- -- (48) --
Comprehensive loss for fiscal 1999......................
------ ---- ----- ------- ----- -------
BALANCE AT JANUARY 31, 1999............................... $ -- $175 $ -- $40,682 $ (48) $13,727
------ ---- ----- ------- ----- -------
<CAPTION>
TOTAL COMPREHENSIVE
STOCKHOLDERS' INCOME
EQUITY (LOSS)
------------- -------------
<S> <C> <C>
BALANCE AT FEBRUARY 1, 1996............................... 17,156
Public offering (Note 4).................................. 14,598
Exercise of stock options................................. 871
Tax benefit of non-qualified option exercises............. 1,665
Unrealized loss, net of realized gain on investment
securities.............................................. (99) $ (99)
1997 net income........................................... 5,601 5,601
------
Comprehensive income for fiscal 1997.................... $5,502
------- ------
BALANCE AT JANUARY 31, 1997............................... $39,792
-------
Exercise of stock options................................. 811
Tax benefit of non-qualified option exercises............. 1,365
BEC acquisition (Note 2).................................. (962)
Employee stock purchase plan.............................. 121
Unrealized gain on investment securities.................. 48 48
1998 net income........................................... 9,580 9,580
------
Comprehensive income for fiscal 1998.................... $9,628
------
-------
BALANCE AT JANUARY 31, 1998............................... $50,755
-------
Exercise of stock options................................. 474
CLC Paramus acquisition (Note 2).......................... 387
CLC Delta acquisition (Note 2)............................ (1,260)
Tax benefit of non-qualified option exercises............. 250
Litigation settlement (Note 13)........................... 4,500
Employee stock purchase plan.............................. 224
1999 net loss............................................. (586) (586)
Unrealized gain, net of realized gain on investment
securities.............................................. (160) (160)
Foreign currency translation adjustments.................. (48) (48)
------
Comprehensive loss for fiscal 1999...................... $ (794)
------
-------
BALANCE AT JANUARY 31, 1999............................... $54,536
-------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 40
COMPUTER LEARNING CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income........................................... $ (586) $ 9,580 $ 5,601
Adjustments to reconcile net income to cash from operating
activities:
Provision for doubtful accounts........................ 8,388 4,794 3,084
Depreciation........................................... 7,521 4,020 2,318
Litigation settlement expense.......................... 4,500 -- --
Amortization of intangible assets...................... 558 362 362
Deferred tax benefit................................... (3,126) (955) (150)
Changes in net assets and liabilities:
Accounts receivable.................................... (13,850) (22,405) (11,875)
Prepaid expenses and other current assets.............. (4,607) (962) (1,285)
Long-term accounts receivable.......................... (4,275) (4,888) (2,065)
Other long-term assets................................. (230) (203) (213)
Trade accounts payable................................. 4,140 (795) 821
Accrued employee expenses.............................. (1,343) 654 801
Accrued other expenses................................. 824 5,464 2,168
Deferred revenues...................................... (1,047) 18,617 10,455
Long-term deferred revenues............................ (640) 2,371 790
Other long-term liabilities............................ 1,455 581 (28)
-------- -------- --------
Cash (used for) provided by operating
activities...................................... (2,318) 16,235 10,784
-------- -------- --------
Cash flows from investing activities:
Capital expenditures...................................... (18,367) (19,548) (7,455)
Other..................................................... (113) (215) (108)
Cash from acquired companies.............................. 932 324 --
-------- -------- --------
Cash used for investing activities................ (17,548) (19,439) (7,563)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock.................... -- -- 11,530
Exercise of stock options................................. 474 811 3,273
Proceeds from sales of common stock through employee stock
purchase plan.......................................... 224 121 --
Redemption of subscription note receivable................ -- -- 666
Borrowing from long-term debt............................. 3,000 -- --
Repayments of long-term debt.............................. (518) (301) --
-------- -------- --------
Cash provided by financing activities............. 3,180 631 15,469
-------- -------- --------
Net (decrease) increase in cash and cash equivalents........ (16,686) (2,573) 18,690
Cash and cash equivalents, beginning of year................ 24,377 26,950 8,260
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 7,691 $ 24,377 $ 26,950
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 41
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 1 -- NATURE OF THE BUSINESS
Computer Learning Centers, Inc. (the "Company" or "CLC"), is a public
company traded on the NASDAQ National Market. As of January 31, 1999, the
Company had twenty-seven operating Learning Centers in the U.S. and Canada and
was headquartered in Fairfax, Virginia.
As used herein, the fiscal years ended January 31, 1999, 1998, and 1997 are
referred to as "1999", "1998", and "1997", respectively.
The Company is involved in litigation incident to its business -- (See note
13).
Geographic Information
Effective upon the acquisition of Delta College, Inc. (see Note 2) in
February 1999, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for reporting information about
operating segments and related disclosures about geographic areas in annual
financial statements. The Company operated exclusively in the U.S. prior to
1999. The following table illustrates financial information for the Company's
U.S. and Canadian operations in 1999.
<TABLE>
<CAPTION>
UNITED STATES CANADA CONSOLIDATED TOTALS
------------- ------ -------------------
<S> <C> <C> <C>
Total revenues.................................. $136,870 $7,481 $144,351
Long-lived assets............................... 36,564 1,040 37,604
</TABLE>
NOTE 2 -- ACQUISITIONS
On December 23, 1997, the Company completed the acquisition of Boston
Education Corp. ("BEC"), a privately held provider of information technology
education and training. The acquisition, which qualified as a tax free
organization, was accounted for as a pooling of interests in accordance with
Accounting Principles Bulletin No. 16, "Business Combinations" ("APB No. 16")
and was completed by issuing 200,148 shares of CLC common stock in exchange for
substantially all of the rights, title and interest in the assets and
substantially all of the liabilities of BEC. BEC had calendar 1997 revenues of
$5.2 million and had approximately 650 students enrolled at the date of
acquisition at its two campuses: a main campus located in Somerville, MA and a
branch in Methuen, MA. In connection with this acquisition, the Company incurred
$400 of pooling expenses related to certain legal and accounting fees, which are
reflected in the 1998 results of operations.
On February 17, 1998 the Company acquired Markerdowne Corporation or
Computer Learning Centers Paramus ("CLC Paramus"), a privately-held provider of
information technology education and training based in Paramus, New Jersey. The
acquisition, which qualified as a tax free reorganization, was accounted for as
a pooling of interests in accordance with APB No. 16. The acquisition was
completed by issuing 510,287 shares of CLC Common Stock in exchange for
substantially all of the rights, title and interest in the assets and
substantially all of the liabilities of CLC Paramus. CLC Paramus had calendar
1997 annual revenues of $6.7 million and had approximately 800 students enrolled
at the date of acquisition. In connection with this acquisition, the Company
incurred $385 of pooling expenses related to certain legal and accounting fees,
which are reflected in 1999 results of operations.
On February 20, 1998 the Company acquired Delta College, Inc. ("Delta
College"), a Montreal, Quebec-based, privately-held provider of information
technology education and training. The acquisition, which was accounted for as a
pooling of interests in accordance with APB No. 16 and was completed by means of
an exchange of all outstanding shares of Delta College for 548,408 shares of CLC
Common Stock. Delta College reported revenues of $6.7 million for its fiscal
year ended June 30, 1997 and had enrollment of approximately 800 students at the
date of acquisition at two locations: Montreal and Laval, Quebec. In
F-7
<PAGE> 42
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 2 -- ACQUISITIONS (CONTINUED)
connection with this acquisition, the Company incurred $467 of pooling expenses
related to certain legal and accounting fees, which are reflected in 1999
results of operations.
The prior years' financial statements were not restated to include the
operations of BEC, CLC Paramus and Delta College on the basis of the
immateriality of these acquisitions to the Company.
NOTE 3 -- STOCK SPLITS
On December 8, 1997, the Board of Directors declared a two-for-one stock
split payable on January 8, 1998 in the form of a 100% stock dividend on the
Company's common stock, to stockholders of record at the close of business on
December 29, 1997. On March 24, 1997 the Board of Directors declared a three for
two stock split, in the form of a 50% stock dividend on the Company's common
stock, payable April 14, 1997 to stockholders of record at the close of business
on April 8, 1997. Share and per share amounts for all prior periods have been
restated to reflect these stock splits.
NOTE 4 -- PUBLIC OFFERING
On November 1, 1996, the Company completed a public offering (with an
effective date of October 3, 1996), filing a registration statement on Form S-1
with the Securities and Exchange Commission ("SEC") for the sale of 3,915,000
shares of the Company's common stock at a price of $8.59 per share. The Company
received total net proceeds of approximately $11.5 million from the sale of
1,500,000 shares. In connection with the offering, the Company also received
approximately $2.4 million from the exercise of options to purchase 703,056
shares of common stock and approximately $666 for 211,944 shares of common stock
issued upon payment of subscription notes receivable of certain stockholders.
The remaining 1,500,000 shares were sold by certain selling stockholders, and
the Company did not receive any proceeds from the sale of those shares. The
total net proceeds of $14.6 million were used for the expansion of the Company's
programs through additional locations as well as for working capital and general
corporate purposes.
NOTE 5 -- EARNINGS PER SHARE
The following table sets forth the basic and diluted earnings per share
calculations for the years 1999, 1998 and 1997:
<TABLE>
<CAPTION>
NET (LOSS) PER SHARE
INCOME SHARES AMOUNT
---------- ---------- ---------
<S> <C> <C> <C>
1999
Earnings per share of common stock -- basic................. $ (586) 17,318,049 $(0.03)
Dilutive securities:
Stock options............................................. --
------ ---------- ------
Earnings per share of common stock -- diluted............... $ (586) 17,318,049 $(0.03)
------ ---------- ------
1998
Earnings per share of common stock -- basic................. $9,580 15,892,943 $ 0.60
Dilutive securities:
Stock options............................................. 1,295,921
------ ---------- ------
Earnings per share of common stock -- diluted............... $9,580 17,188,864 $ 0.56
------ ---------- ------
</TABLE>
F-8
<PAGE> 43
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 5 -- PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
NET (LOSS) PER SHARE
INCOME SHARES AMOUNT
---------- ---------- ---------
<S> <C> <C> <C>
1997
Earnings per share of common stock -- basic................. $5,601 13,718,912 $ 0.41
Dilutive securities:
Stock options............................................. -- 1,199,706
Subscription note......................................... 99,226
------ ---------- ------
Earnings per share of common stock -- diluted............... $5,601 15,017,844 $ 0.37
------ ---------- ------
</TABLE>
The Company had 1,664,831 options outstanding as of January 31, 1999
however, these options are not included in the calculation of the number of
dilutive securities outstanding as their impact is antidulitive due to the net
loss in 1999 and since certain options exercise prices were below the average
market price of the common shares during the period. All options of the
Company's stock had a dilutive effect for the years ended January 31, 1998 and
1997.
NOTE 6 -- SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
The financial statements include the Company and its wholly owned
subsidiaries, Computer Learning Centers of Quebec, Inc. and Delta College, Inc.
All significant intercompany balances and transactions have been eliminated.
Earnings per share
Earnings per share are calculated in accordance with the provisions of
Statement of Financial Accounting Standards No. 128 -- "Earnings per Share"
(SFAS No. 128), effective for 1998. SFAS No. 128 requires the Company to report
both basic earnings per share, which is based on the weighted-average number of
common shares outstanding and diluted earnings per share, which is based on the
weighted-average number of common shares outstanding and all potentially
dilutive common shares outstanding. 1997 earnings per share data have been
recalculated to reflect the provisions of SFAS No. 128.
Revenue recognition
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 tuition revenues on a pro rata basis over the
term of instruction, which varies from eight to thirty- four-month programs.
Reclassifications
Certain reclassifications have been made to prior years' amounts to conform
with the current year's presentation.
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. Prior to 1999, such
capitalized costs were amortized on a straight-line basis over a one-year period
commencing with the date of the start of the first class. In the fourth quarter
of 1999, the Company adopted AICPA Statement
F-9
<PAGE> 44
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 6 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of Position 98-5 "Reporting on the Costs of Start-Up Activities", which requires
the Company to expense these start-up costs as they are incurred. Accordingly,
the Company has recorded a charge of $245 (net of income tax benefit of $169) in
1999 representing the cumulative effect of this change in accounting principal.
Net deferred start-up costs included in prepaid expenses and other current
assets in the balance sheet as of January 31, 1998 was $414 (net of accumulated
amortization of $458).
Fair value of financial instruments
The carrying amount reported in the balance sheets for cash and cash
equivalents, accounts receivable, trade accounts payable, accrued other expenses
and deferred revenues approximate fair value because of the immediate or short
term maturity of these financial instruments.
Advertising costs
The Company expenses all advertising costs as incurred. Total advertising
expense was $9,389, $6,212, and $4,739 for 1999, 1998 and 1997, respectively.
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. Cash
paid for income taxes in 1999, 1998 and 1997 aggregated $7,188, $4,580, and
$2,429, respectively.
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 $1,224 and $851 at January 31, 1999 and 1998,
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 to
eight years) 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.
Intangible assets
Identifiable intangible net assets of $2,324 and $2,686 at January 31, 1999
and 1998, included in other long-term assets, consist primarily of U.S.
Department of Education ("Department of Education" or the "Department")
certifications of Title IV Program eligibility. These assets are being amortized
through 2007, using a straight-line method. Accumulated amortization for these
assets aggregated $4,195 and $3,833 at January 31, 1999 and 1998, respectively.
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
F-10
<PAGE> 45
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 6 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
holder surplus at the demutualization date. In January 1997, the Company sold
9,300 shares of the common stock and realized a gain of $332. In March of 1998,
the Company sold the remaining 4,349 shares of stock and realized a gain of
$279.
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" 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.
Other Comprehensive (Loss) Income
Effective February 1, 1998 the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"),
which establishes new rules for the reporting and display of changes in equity
from non-owner sources in the financial statements. Comprehensive income
includes reported net income as adjusted for other non-owner changes in equity.
Such changes consist of foreign currency translation adjustments and unrealized
holding gains and losses on marketable securities. As permitted under the
provisions of SFAS No. 130, these amounts are presented in the Consolidated
Statements of Stockholders' Equity. Prior year financial statements have been
reclassified to conform to SFAS No. 130 requirements.
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 allowance for doubtful accounts,
useful lives of intangible assets, regulatory provisions and deferred income
taxes. Actual results could differ from these estimates.
NOTE 7 -- ACCOUNTS RECEIVABLE
Student accounts receivables are initially established for the balance of
course tuition (however, only for year one of two-year programs) at the time a
student enrolls in the Learning Center and consist of financial aid, third party
and self-pay receivable balances. Financial aid receivables are student
receivable balances expected to be paid through Title IV program funds. Third
party student receivable balances are those expected to be paid by employer
companies or various non-Title IV federal and state agencies. Self-pay student
receivables consist of those amounts to be paid by the student. The Company
makes available to qualifying students alternative financing arrangements ("CLC
financing") which help fund their education. Dependent upon the credit
worthiness of the individual, CLC financing may be offered to assist students
with meeting their financial obligations related to attending CLC. The Company
requires students receiving CLC financing to make regular monthly payments.
Depending on the level of financing extended to students, payment plans offered
generally range from six months to three years. All amounts due to the Company
in periods beyond one year are classified as long-term receivables.
F-11
<PAGE> 46
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 7 -- ACCOUNTS RECEIVABLE (CONTINUED)
When a student withdraws, tuition paid in excess of earned tuition revenues
is refunded based on the applicable refund policy and tuition revenues earned in
excess of tuition paid remains as an accounts receivable. Based on comparison to
historical levels, the Company provides for estimated student withdrawals, as
reductions to accounts receivable and related deferred revenue balances, thus
stating these amounts at estimated net realizable value.
Accounts receivable balances are reviewed no less than quarterly for the
purposes of determining appropriate levels of the allowance for doubtful
accounts. The Company establishes the allowance for doubtful accounts using an
objective model, which applies various expected loss percentages to aging
categories based on historical bad debt experience. The Company charges-off
accounts receivable balances deemed to be uncollectible usually after they are
delinquent 120 days. All charge offs are recorded as reductions in the allowance
for doubtful accounts, with any recoveries of previously written off accounts
receivables recorded as increases to the allowance for doubtful accounts.
As of January 31, 1999 and 1998, net accounts receivable consisted of the
following:
<TABLE>
<CAPTION>
JANUARY 31, 1999
-----------------------------
CURRENT LONG TERM TOTAL
------- --------- -------
<S> <C> <C> <C>
Accounts receivable..................................... $75,360 $14,780 $90,140
Student withdrawal allowance............................ (12,664) (1,986) (14,650)
Allowance for doubtful accounts......................... (5,999) (2,134) (8,133)
------- ------- -------
$56,697 $10,660 $67,357
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, 1998
-----------------------------
CURRENT LONG TERM TOTAL
------- --------- -------
<S> <C> <C> <C>
Accounts receivable..................................... $61,582 $10,464 $72,046
Student withdrawal allowance............................ (11,086) (1,603) (12,689)
Allowance for doubtful accounts......................... (2,382) (1,531) (3,913)
------- ------- -------
$48,114 $ 7,330 $55,444
======= ======= =======
</TABLE>
NOTE 8 -- FINANCIAL AID PROGRAMS AND REGULATORY MATTERS
U.S. Department of Education -- Regulation and Review
The Company is subject to extensive regulation as a participant in various
federal and state government supported 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 their 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. For 1999,
approximately 67% of the Company's revenues were derived from tuitions that are
funded by various federal student financial aid programs.
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 to place that institution on
provisional certification for up to four years for lack of administrative
capability. As of
F-12
<PAGE> 47
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 8 -- FINANCIAL AID PROGRAMS AND REGULATORY MATTERS (CONTINUED)
January 31, 1999 four of the Company's Learning Centers are provisionally
certified for participation in FFEL, due to either cohort default rate issues
arising in prior years or due to a change of control following the Company's
acquisition of these campuses. The provisional certifications of these four
Learning Centers extend through July 2000 to September 2001.
Under the standards of financial responsibility of the Department of
Education, if an institution's annual financial aid compliance audit or a review
by another regulatory agency finds that the institution made refunds late (as
defined by Department regulation) to 5% or more of its students in either of the
two most recent fiscal years, the institution is required to post a letter of
credit in favor of the Department in an amount equal to 25% of the total Title
IV Program refunds paid by the institution in its prior fiscal year. Based on
this standard, on August 31, 1998, the Company posted a $1.5 million letter of
credit with respect to all U.S. Learning Centers except the Somerville and
Methuen, MA Learning Centers, for which separate letters of credit were required
and the Paramus, NJ Learning Center, for which no letter of credit was required.
During fiscal 1999, the Department of Education reviewed the Company's
administration of federal student financial aid programs at its Alexandria and
Manassas Learning Centers, respectively. The Department's report, issued in
September 1998, contained numerous findings of noncompliance with Department
regulations. The Company has responded to each of the findings raised in the
report and negotiations aimed at their resolution are continuing. The findings
raised in this report do not affect the current eligibility of these Learning
Centers to participate in federal student aid programs or the manner in which
such funds are disbursed. The Company does not believe that the resolution of
this review will have a severe impact on the Company's business, financial
condition and results of operations.
Heightened Cash Monitoring
On April 6, 1998, the Company was notified by the Department of Education
that, based upon Department's monitoring of recent litigation involving the
Company and certain student complaints lodged against the Company, it placed all
Learning Centers on a "heightened cash monitoring status." This status allows
all Learning Centers to continue to receive federal student financial assistance
funds so long as the funds requested are drawn after they have been credited to
student accounts and CLC subsequently provides evidence of such credit and other
supporting information to Department. The Department does not consider
"heightened cash monitoring status" to represent either an adverse or punitive
action. This action by Department should not have any effect on the availability
or timing of financial assistance to the Company's students, nor should it have
a material affect on the Company's cash flow or operating results.
State Authorization and Accreditation
The Maryland Higher Education Commission ("MHEC") and Texas Workforce
Commission ("TWC") reviewed programs at the Company's Laurel, Maryland and
Houston, Texas Learning Centers, respectively. In October 1998, the MHEC issued
its report citing several findings of regulatory noncompliance. The TWC's
reports, issued in October 1998, contain findings related to their investigation
of student complaints at the Houston Learning Center. The TWC and MHEC have
directed the Company to make refunds to certain students affected by the
noncompliance. In both of these states the Company has taken steps toward
concluding the reviews with the respective state agency and does not anticipate
that the actions taken by either state will jeopardize the licenses of either
Learning Center. During 1999, the Company recorded expenses of $2,226
representing the total expenditures for agreed-upon student refunds as well as
an accrual for estimated costs associated with resolving the findings included
in these open regulatory matters.
F-13
<PAGE> 48
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 8 -- FINANCIAL AID PROGRAMS AND REGULATORY MATTERS (CONTINUED)
By letter dated April 3, 1998, from the State Superintendent of Education
of the State of Illinois, to the Schaumburg Learning Center (the "Letter"), the
Illinois State Board of Education ("ISBE"), the agency of the State of Illinois
that authorizes the Schaumburg Learning Center, notified the Schaumburg Learning
Center that they had determined that certain activities and procedures of the
Schaumburg Learning Center were not in compliance with the Illinois Private
Business and Vocational Schools Act ("Schools Act"). The Letter directed the
Schaumburg Learning Center to cease and desist from all marketing and student
enrollment activities until May 6, 1998. After reviewing the Company's initial
response, the ISBE lifted the cease and desist order as of May 7, 1998.
By letter dated December 18, 1998, the ISBE issued a report on its review
of documentation submitted by the Schaumburg Learning Center regarding student
refunds and placement statistics and issued a new order directing the Learning
Center to cease and desist from all marketing and student enrollment activities.
On February 26, 1999, in response to documentation submitted by the Learning
Center, the ISBE lifted the cease and desist order, effective March 1, 1999, and
announced that it would approve the extension of the Learning Center's license
upon confirmation of the Learning Center's compliance with Illinois
requirements. During March 3-5, 1999, the ISBE conducted a site visit at the
Schaumburg Learning Center to establish such confirmation and, the Company
believes that if the ISBE is satisfied, it will extend the Learning Center's
license through June 30, 1999. In June 1999, if the Learning Center demonstrates
continued compliance with the requirements of Illinois law, the ISBE will, in
due course, process the renewal of the Learning Center's license for the year
2000. If the ISBE determines that the Schaumburg Learning Center is not in
compliance, the ISBE may designate a hearing officer to decide whether the
Schaumburg Learning Center's license to operate should be suspended or
terminated.
NOTE 9 -- FIXED ASSETS
Fixed assets consisted of the following:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Furniture and equipment..................................... $ 36,829 $ 25,958
Leasehold improvements...................................... 20,567 9,968
-------- --------
57,396 35,926
Less: Accumulated depreciation and amortization............. (19,792) (10,727)
-------- --------
$ 37,604 $ 25,199
======== ========
</TABLE>
NOTE 10 -- LONG-TERM DEBT
The Company has a credit agreement with a bank, which provides for a $20.0
million secured revolving credit facility (increased from $8.5 million in
October 1998), expiring on October 30, 2000. At January 31, 1999, there was a
$3,000 outstanding balance under the revolving facility. The line of credit
consists of a revolving credit note, inclusive of a $7.0 million convertible
term loan. The interest on the facility is based either on the bank's United
States ("U.S.") prime rate or the London Inter-Bank Offer Rate ("LIBOR") which
was 7.75% and 5.60%, respectively, at January 31, 1999. Interest rates are equal
to (i) the U.S. prime rate or LIBOR plus 1.25% for revolving credit loans and
(ii) the U.S. prime rate plus 0.25% or LIBOR plus 1.50% for convertible term
loans. All interest payments are payable quarterly on the outstanding balance.
The revolving loan balances are payable in a balloon payment on October 30, 2000
and the principal of the term
F-14
<PAGE> 49
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 10 -- LONG-TERM DEBT (CONTINUED)
loan component is payable in equal quarterly installments. The Company pays a
commitment fee of 0.20% based on the unused portion of the credit facility. The
Company has granted the bank a security interest in accounts receivable. The
agreement requires maintenance of certain financial ratios (current, leverage,
and fixed charge ratios) and contains other restrictive covenants including
limitations on purchases and sales of assets. At January 31, 1999, the Company
was in compliance with all financial ratio requirements and all covenants.
The Company had outstanding letters of credit of $5,991 and $432 at January
31, 1999 and 1998, respectively, primarily to the Department of Education for
recertification for the Title IV Programs of its Learning Centers, an insurance
company for surety bonds required by various states in which the Company
operates and with certain of its landlords securing future rental payments of
its facilities.
In connection with the acquisitions described in Note 2, the Company repaid
$518 and $301 of debt in 1999 and 1998, respectively.
NOTE 11 -- INCOME TAXES
The components of pre-tax income (loss) from continuing operations are as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
--------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
United States............................................. $(2,132) $16,237 $9,166
Canadian.................................................. 1,398 -- --
------- ------- ------
Total........................................... $ (734) $16,237 $9,166
======= ======= ======
</TABLE>
The components of the provisions for (benefits from) income taxes are as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Current:
Federal................................................. $ 1,631 $6,140 $2,813
State................................................... 559 1,472 902
Canadian................................................ 543 -- --
Deferred:
Federal and state....................................... (3,126) (955) (150)
------- ------ ------
Net provision for (benefit from) income taxes............. $ (393) $6,657 $3,565
======= ====== ======
</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.
F-15
<PAGE> 50
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 11 -- INCOME TAXES (CONTINUED)
At January 31, 1999 and 1998, the net deferred tax asset was comprised of
the following:
<TABLE>
<CAPTION>
JANUARY 31,
---------------
1999 1998
------ ------
<S> <C> <C>
Allowance for doubtful accounts............................. $2,517 $1,525
Shareholder litigation settlement obligation................ 2,112 --
Deferred rent accrual....................................... 1,153 632
Vacation pay accrual........................................ 341 203
Employee benefits........................................... 156 105
Lease terminations.......................................... -- 111
Other accruals.............................................. -- 17
------ ------
Total deferred tax assets......................... 6,279 2,593
------ ------
Depreciation and amortization............................... (499) (116)
Deferred start-up costs..................................... -- (139)
Other deferred tax liabilities.............................. (401) (85)
------ ------
Total deferred tax liabilities.................... (900) (340)
------ ------
Net deferred tax assets........................... $5,379 $2,253
====== ======
</TABLE>
Management believes, based on the Company's history of earnings, that
future income from 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. The long-term deferred tax assets
are included in other long-term assets in the 1999 and 1998 consolidated balance
sheets.
Differences between effective income tax rates and the statutory U.S.
federal income tax rates are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JANUARY 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. federal income tax rate...................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit.................. 6.6 6.4 6.8
Weighted average Canadian tax rates below U.S. and state tax
rates..................................................... (2.0) -- --
Permanent differences and other............................. 13.9 (0.4) (2.9)
---- ---- ----
Effective income tax rate................................... 53.5% 41.0% 38.9%
==== ==== ====
</TABLE>
The Company's effective income tax rate increased to 53.5% in 1999 from
41.0% in 1998. This is a result of relative higher tax rates applied to losses
sustained in the Company's U.S. operations principally offset by income from
operations of the Company's Canadian subsidiary. The statutory rates in Quebec,
Canada, are lower than those of the Company's U.S. operations on a weighted
average basis. On an individual country basis, effective income tax rates for
the U.S. and Canada were 43.9% and 38.9%, respectively.
NOTE 12 -- SAVINGS AND EMPLOYEE STOCK PURCHASE PLANS
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
F-16
<PAGE> 51
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 12 -- SAVINGS AND EMPLOYEE STOCK PURCHASE PLANS (CONTINUED)
compensation. Company contributions under the plan aggregated $260, $99 and $76
for 1999, 1998, and 1997, respectively.
On March 13, 1997, the Board of Directors ("Board") adopted, and on July
10, 1997, the Company's stockholders approved the 1997 Employee Stock Purchase
Plan ("ESPP"). With certain limited exceptions, all full time employees,
including executive officers, employed by the Company for at least one year, are
eligible to participate in the ESPP. The Company maintains payroll deduction
accounts for all participating employees and an employee may authorize a payroll
deduction in any whole percentage from 1% to 10% of the employee's eligible
compensation, not to exceed $25. Under the terms of the ESPP, the Company's
Common Stock may be acquired for an amount equal to 85% of the fair market value
per share of Common stock on either the first day or the last day of the
offering period, whichever is lower. The first offering period commenced on
August 1, 1997 and terminated on January 31, 1998. Thereafter, the offering
period commences on February 1 and terminates on January 31, unless otherwise
determined by the Board. A total of 400,000 shares are authorized and available
for purchase under the plan. There were 51,064 and 5,392 shares of Common Stock
issued under the ESPP to eligible employees during fiscal year 1999 and 1998,
respectively.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
Settled Litigation
On March 10, 1998, the Attorney General of Illinois ("AG") filed a
complaint against the Company in Circuit Court in Cook County, Illinois,
asserting that the Company had violated the Illinois Private Business and
Vocational Schools Act and the Illinois Consumer Fraud and Deceptive Business
Practices Act (the "Acts") at its Schaumburg Learning Center. The complaint
alleged that the Company, at the Schaumburg Learning Center, failed to provide
certain educational services and resources and misrepresented certain
information respecting services, resources, occupational opportunities and
student outcomes. The complaint sought suspension of the Schaumburg Center's
charter to operate within Illinois, restitution to persons alleged to have been
injured by the conduct of the Schaumburg Learning Center, costs, civil penalties
totaling $100 for violations of the Acts and an additional civil penalty of $50
for each alleged violation of each of the Acts, committed with intent to
defraud. On June 4, 1998, the Company timely filed an answer denying all of the
material allegations set forth in the complaint.
On June 8, 1998, the Company and the AG reached an agreement settling the
litigation filed on March 10, 1998. As a result of the settlement, which was
approved by the Circuit Court in Cook County, Illinois, the Company agreed to
make a voluntary contribution of $90 to the AG's consumer education fund,
establish a four-year program to annually provide $95 worth of computer hardware
and software to schools, programs, community sites and other non-profit or
public institutions in the Chicago area and $10 worth of training in computer
skills annually at the Company's Schaumburg and Chicago Learning Centers for
teachers and other community-based personnel to enable them to make the most
effective use of the computer equipment. The Company has fulfilled the first
year of its agreement with the AG. The Company has also taken various measures
required of it to comply with the agreement with the AG, including
implementation of an ombudsman program and binding arbitration to resolve
student complaints. Failure of the Company to continue to comply with the terms
of the agreement with the AG may give rise to a violation of the consent decree
settling the lawsuit, which in turn may result in adverse action against the
Company including suspension or termination of the Company's licenses to operate
within Illinois and other sanctions. The loss of operating authority in Illinois
could have a severe impact on the Company.
F-17
<PAGE> 52
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 13 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
On March 13, 1998, a class action lawsuit was filed against the Company in
the United States District Court for the Central District of California on
behalf of all purchasers of Company Common Stock from April 30, 1997 through
March 10, 1998. Over the following two months, eight similar cases were filed in
United States District Courts: two in the Central District of California; five
in the Northern District of Illinois; and one in the Eastern District of
Virginia. The complaints alleged violations of the Securities Exchange Act of
1934, including allegations that the Company was experiencing "operations
difficulties" and failed to disclose the alleged difficulties. The complaints
also alleged that Company insiders realized profits by trading their shares of
Company stock while in possession of material adverse information. All of the
complaints were filed on behalf of classes of shareholders of Company Common
Stock beginning as early as March 11, 1997 and ending as late as April 7, 1998.
All of these shareholder lawsuits were consolidated and transferred to the
United States District Court for the Eastern District of Virginia. The Company
entered into a settlement agreement to resolve the class action lawsuit in
January 1999. Terms of the settlement, which are subject to final judicial
approval and shareholder vote, call for the payment of $3.0 million in cash (of
which $2.35 million is covered by the Company's insurance policy) and the
issuance of 550,000 shares of the Company's common stock, $.01 par value,
subject to price protection features, which may result in additional payment of
cash or issuance of stock at the Company's option, to guarantee a total
settlement of $7.5 million. The price protection feature provides that the
Company will issue additional stock or pay additional cash equal to the
difference between the average stock price of the Company's common stock at
certain dates and $8.18 per share. The settlement agreement contains a floor of
$2.00 per share, at which the settlement agreement may be terminated at the
plaintiffs' option. In addition to the stock and cash components of the
settlement agreement, the total settlement expense also includes $449 of legal
expenses (in excess of insurance reimbursements) specifically related to the
class action litigation settlement.
Active Litigation
On May 5, 1998, a class action lawsuit was filed against the Company in the
Superior Court of New Jersey in Bergen County, New Jersey, on behalf of all
students who attended a Learning Center in New Jersey within six years of May 5,
1998. The complaint alleges, among other things, that the Company, at its
Learning Centers located in the state of New Jersey, failed to provide certain
educational services and resources, misrepresented certain information
respecting services, resources, occupational opportunities and student outcomes
and violated the New Jersey Consumer Fraud Act. The Company is unable to
estimate the outcome of the matter or any potential liability, however, an
unfavorable outcome may result in adverse action against the Company including
suspension or termination of the Company's licenses to operate within New Jersey
and other sanctions. The loss of operating authority in New Jersey would have a
severe impact on the Company.
On May 19, 1998, a lawsuit was filed against the Company in the District
Court of Harris County, Texas, on behalf of six former students of the Houston
Learning Center. Subsequently, the petition was amended to seek certification as
a class action lawsuit and removed to the U.S. District Court for the Southern
District of Texas, Houston Division. The complaint alleges, among other things,
that the Company, at its Learning Centers located in the state of Texas, failed
to provide certain educational services and resources, misrepresented certain
information respecting services, resources, occupational opportunities and
student outcomes, and violated the Texas Deceptive Trade Practices Act. The
Company is unable to estimate the outcome of the matter or any potential
liability however, an unfavorable outcome may result in adverse action against
the Company including suspension or termination of the Company's licenses to
operate within Texas and other sanctions. The loss of operating authority in
Texas would have a severe impact on the Company.
F-18
<PAGE> 53
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 13 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
Between June 1, 1998 and December 31, 1998, the Company was named as
defendant in five other lawsuits in California, Texas and Virginia by individual
students or groups of students who formerly attended one of its Learning
Centers. The complaints allege, among other things, that the Company failed to
provide plaintiffs with certain educational services and resources,
misrepresented certain information respecting services, resources, occupational
opportunities and student outcomes and violated applicable state consumer laws.
The Company is unable to estimate the outcome of these matters or any potential
liabilities connected with any of these lawsuits.
In addition to the legal proceedings described above, the Company may from
time to time be involved in routine litigation incident to its business.
The Company intends to defend itself vigorously in the above lawsuits;
however, there can be no assurance that the Company will be successful in
defending itself in any of these proceedings. Even if the Company prevails on
the merits in such litigation, the Company expects to incur significant legal
and other defense costs as a result of such proceedings. These proceedings could
involve substantial diversion of the time of some members of management, and an
adverse determination in, or settlement of, such litigation could involve the
payment of significant amounts, or could include terms in addition to such
payments, which could have a severe impact on the Company's business, financial
condition and results of operations.
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 non-cancelable lease terms in excess of one year as of
January 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $9,368
2001........................................................ 8,217
2002........................................................ 8,329
2003........................................................ 7,173
2004........................................................ 6,323
Thereafter.................................................. 20,000
-------
$59,410
=======
</TABLE>
Rent expense under these lease agreements aggregated $9,710, $6,299, and
$5,176 for 1999, 1998, and 1997, respectively.
Employee Agreements
On February 1, 1997, the Company entered into an employment agreement with
the Chief Executive Officer of the Company, pursuant to which he is entitled to
24 months of salary and benefits and a guaranteed
F-19
<PAGE> 54
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 13 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
bonus which would be payable with respect to the year in which any breach of
such agreement occurred, as specified. In addition, if he were terminated as the
result of a change of control as defined in the agreement, he will receive an
amount equal to three times the greater of the average annual total compensation
paid to him over the Company's last three fiscal years or the total compensation
paid during the Company's most recent fiscal year end.
On January 15, 1998, the Company entered into a severance agreement with
the Chief Financial Officer of the Company, pursuant to which he is entitled to
a lump sum of 12 months of salary for termination without cause or resignation
for good reason. In addition, if he were terminated as a result of a change in
control as defined in the agreement, he will receive a lump sum amount equal to
one and one half times his base salary and one and one half times his prior
fiscal year bonus or current year target bonus, whichever is larger.
On June 15, 1998, the Company entered into a severance agreement with the
Vice President of Operations of the Company, pursuant to which she is entitled
to a lump sum of 12 months of salary for termination without cause or
resignation for good reason. In addition, if she were terminated as a result of
a change in control as defined in the agreement, she will receive a lump sum
amount equal to one and one half times her base salary.
On November 3, 1998, the Company entered into a severance agreement with
the President of the Company, pursuant to which he is entitled to a lump sum of
one and one half times his annual salary for termination without cause or
resignation for good reason. In addition, if he were terminated as a result of a
change in control as defined in the agreement, he will receive a lump sum amount
equal to two times his current base salary and two times his annual bonus of the
prior fiscal year.
NOTE 14 -- 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 Company has
provided that no further grants may be made under the plan. As of January 31,
1999, options to purchase 95,771 shares of common stock were outstanding under
this plan.
The 1995 Stock Incentive Plan ("1995 Stock Plan"), provides a variety of
awards, including stock options, stock appreciation rights and restricted and
unrestricted stock grants 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 1,460,460 shares of common stock for
grant under the plan. As of January 31, 1999 options to purchase 1,317,000
shares of common stock were outstanding under this plan, and 11,460 options were
available for grant.
Due to declines in the market value of the Company's Common Stock, as of
December 14, 1998, some outstanding options under the Company's 1995 Stock Plan
were exercisable at prices which substantially exceeded the market value of the
Common Stock. In view of such declines in market value and in keeping with the
Company's philosophy of utilizing equity incentives to motivate and retain
qualified employees, the Board of Directors adopted amendments to regain the
incentive intended to be provided by options to purchase shares of the Company's
Common Stock. Under these amendments, stock options held on December 14, 1998,
by optionees other than directors and executive officers which had an exercise
price greater than $6.50 per share were amended to reduce their exercise price
to the closing price of CLC Common Stock on that date, or $5.0625 per share. The
amended options have the same vesting provisions as the original options to
which they relate except they will not be exercisable during the six-month
period beginning
F-20
<PAGE> 55
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 14 -- STOCK INCENTIVE PLANS (CONTINUED)
December 14, 1998. Options covering an aggregate of 212,800 shares of Common
Stock were amended by this action.
In August 1998 the stockholders' approved the Company's 1998 Stock
Incentive Plan, which provides for the same types of awards as under the 1995
Stock Plan. The Company has reserved 1,000,000 shares of common stock for grant
under this plan. As of January 31, 1999 options to purchase 100,000 shares of
common stock were outstanding under this plan, and 900,000 options were
available for grant.
The 1995 Non-Employee Directors Stock Option Plan, 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 exercise
price equal to the fair market value of the common stock on the date of grant.
The Company has reserved 210,534 shares for issuance under this plan. As of
January 31, 1999, options to purchase 148,060 shares of common stock were
outstanding under this plan, and 48,434 options were available for grant.
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 stock appreciation rights are outstanding.
Options may be granted in tandem with stock 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.
The Company accounts for stock compensation costs in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly, no compensation costs have been recognized
for its option plans. The following table sets forth pro forma information as if
compensation cost for its stock option plans had been determined based on the
fair value at the grant date for awards consistent with the requirements of SFAS
No. 123, "Accounting for Stock-Based Compensation."
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JANUARY 31,
-------------------------
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Net (loss) income -- as reported........................... $ (586) $9,580 $5,601
Net (loss) income -- pro forma............................. (1,530) 7,879 4,585
Earnings per share -- as reported:
Basic.................................................... $ (0.03) $ 0.60 $ 0.41
Diluted.................................................. (0.03) 0.56 0.37
Earnings per share -- pro forma:
Basic.................................................... $ (0.09) $ 0.50 $ 0.33
Diluted.................................................. (0.09) 0.46 0.31
</TABLE>
F-21
<PAGE> 56
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 14 -- STOCK INCENTIVE PLANS (CONTINUED)
The fair value of options at date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JANUARY 31,
---------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Expected life (years)....................................... 5 5 5
Interest rate............................................... 4.8% 5.6% 6.7%
Volatility.................................................. 64.3% 43.3% 42.5%
</TABLE>
The calculated weighted average fair values of stock options granted during
1999, 1998 and 1997, using the Black-Scholes model, were $3.20, $7.61 and $3.53
per option, respectively.
<TABLE>
<CAPTION>
INCENTIVE NON QUALIFIED WEIGHTED AVERAGE
STOCK STOCK EXERCISE
OPTIONS OPTIONS PRICES
--------- ------------- ----------------
<S> <C> <C> <C>
Outstanding at February 1, 1996....................... 1,540,194 353,244 $ 2.61
--------- -------- ------
Options granted..................................... 968,648 -- 7.45
Options exercised................................... (829,680) (329,694) 2.82
--------- -------- ------
Outstanding at January 31, 1997....................... 1,679,162 23,550 $ 5.22
--------- -------- ------
Options granted..................................... 160,050 -- $16.43
Options exercised................................... (399,196) -- 2.03
--------- -------- ------
Outstanding at January 31, 1998....................... 1,440,016 23,550 $ 7.31
--------- -------- ------
Options granted..................................... 311,505 1,245 $ 5.54
Options exercised................................... (84,935) (23,550) 3.91
Options cancelled................................... (3,000) -- 10.16
--------- -------- ------
Outstanding at January 31, 1999....................... 1,663,586 1,245 $ 6.77
--------- -------- ------
</TABLE>
The weighted average exercise prices for the nonqualified stock options
outstanding, included above, as of January 31, 1999 and 1998 was $5.06 and
$4.84, respectively. Incentive stock options and nonqualified stock options
exercisable were 747,313 and none at January 31, 1999 and 535,615 and 23,550 at
January 31, 1998 and 377,280 and 23,550 at January 31, 1997, respectively.
The following table summarizes information about options outstanding at
January 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------ -------------------------
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING AVERAGE NUMBER EXERCISABLE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE
--------------- ----------- ---------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$1.83 to $6.67...................... 846,891 7.7 years $4.04 288,031 $ 2.99
$6.68 to $12.00...................... 744,640 7.9 years 8.31 422,644 8.27
$12.01 to $22.25...................... 73,300 8.4 years 22.25 36,638 22.25
--------- --------- ----- ------- ------
1,664,831 8.2 years $6.77 747,313 $ 6.92
========= ========= ===== ======= ======
</TABLE>
F-22
<PAGE> 57
COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999, 1998 AND 1997 (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE STATED)
NOTE 15 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR 1999
THREE MONTHS ENDED
------------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1998 1998 1998 1999
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues............................................. $36,056 $35,273 $37,076 $35,946
Costs and expenses................................... 31,133 34,025 36,322 38,798
Income (loss) from operations........................ 4,923 1,248 754 (2,852)
Interest income, net................................. 284 135 36 58
Gain on sale of investment securities................ 279 -- -- --
Litigation settlement expense........................ (210) -- -- (5,389)
Cumulative effect of accounting change............... -- -- -- (245)
Net income (loss).................................... $ 3,143 $ 862 $ 473 $(5,064)
Earnings per share:
Basic.............................................. $ 0.18 $ 0.05 $ 0.03 $ (0.29)
Diluted............................................ $ 0.17 $ 0.05 $ 0.03 $ (0.29)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1998
THREE MONTHS ENDED
------------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1997 1997 1997 1998
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues............................................. $20,830 $22,138 $25,682 $28,339
Costs and expenses................................... 17,309 18,917 21,740 24,177
Income from operations............................... 3,521 3,221 3,942 4,162
Interest income, net................................. 346 367 341 337
Net income........................................... $ 2,243 $ 2,078 $ 2,595 $ 2,664
Earnings per share:
Basic.............................................. $ 0.14 $ 0.13 $ 0.16 $ 0.17
Diluted............................................ 0.14 0.12 0.15 0.15
</TABLE>
NOTE 16 -- SUBSEQUENT EVENTS
On April 29, 1999, the Company entered into a settlement agreement with the
MHEC (see Note 8 "State Authorization and Accreditation") regarding regulatory
matters at its Laurel, Maryland Learning Center. The settlement agreement
requires the Company pay a fine of $60, proceed with implementing administrative
procedures proposed and to continue providing documents requested to
substantiate the Company's compliance with MHEC demands made in its October 1998
letter. The Company has provided for the fine imposed by MHEC and this amount is
included in accrued other expenses in the consolidated balance sheet as of
January 31, 1999.
F-23
<PAGE> 58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information regarding directors of the Company will be set forth in the
Company's definitive Proxy Statement for its 1999 Annual Meeting of the
Stockholders which will be filed pursuant to Regulation 14A within 120 days
after the end of the Company's last fiscal year, and is incorporated herein by
reference. The following sets forth information as of January 31, 1999
concerning the Company's executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Reid R. Bechtle 46 Chief Executive Officer and Director
John L. Corse 57 President, Chief Operating Officer and Director
Charles L. Cosgrove 44 Vice President and Chief Financial Officer
Susan L. Luster 47 Vice President of Operations
Christine M. Strachota 52 Vice President
Harry H. Gaines 61 Chairman of the Board of Directors
</TABLE>
Mr. Bechtle joined the Company in 1991 as President of what was then its
Computer Learning Center division and has been Chief Executive Officer and a
director of the Company since October 1994. Mr. Bechtle also served as President
of the Company from October 1994 until November 1998. From 1982 to 1991, he
served as President of Multi-List, Inc., a software services subsidiary of
PRC/Litton, Inc. ("PRC").
Mr. Corse joined the Company in November 1998 as President and Chief
Operating Officer and has served as a Director of the Company since October
1994. Since September 1997, Mr. Corse had been a self-employed business
consultant. From February 1995 to August 1997, he 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.
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. She
served as Chief Operating Officer of the Company from November 1995 until
November 1998. 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.
Ms. Strachota joined the Company in February 1998 as Vice President. From
January 1982 to February 1998, she was Senior Vice President and Chief Operating
Officer of Interealty Corporation, a professional services firm serving the real
estate industry.
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 Development Incorporated, respectively. From 1989 through
September 1995, Mr. Gaines served as President of Blessing/White.
I-1
<PAGE> 59
ITEM 11. EXECUTIVE COMPENSATION
This information required by this Item 11 concerning remuneration of the
Company's officers and directors and information concerning material
transactions involving such officers and Directors is incorporated herein by
reference to the company's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders which will be filed pursuant to Regulation 14A within
120 days after the end of the Company's last fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 concerning the stock ownership of
management and five percent beneficial owners is incorporated herein by
reference to the Company's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders which will be filed pursuant to Regulation 14A within
120 days after the end of the Company's last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EMPLOYMENT AGREEMENTS
On February 1, 1997, the Company entered into an employment agreement with
the President and Chief Executive Officer of the Company, Reid Bechtle. The
Agreement has a term of one year but shall be automatically renewed for
successive one-year periods unless the Company notifies Mr. Bechtle of non-
renewal at least 90 days prior to the end of the initial term or any renewal
term. The agreement provides for an annual salary of $265,000, which may be
increased from time to time by the Compensation Committee of the Company's Board
of Directors, a guaranteed annual bonus equal to 25% of Mr. Bechtle's salary and
an additional annual bonus payable based on achievement by the Company of
certain revenue and income targets. In the event Mr. Bechtle's employment is
terminated other than for cause, as defined in the agreement, or due to his
voluntary resignation, he is entitled to receive an amount equal to two times
his then effective base salary and guaranteed bonus. In addition, if Mr.
Bechtle's employment is terminated as the result of a change of control as
defined in the agreement, he is entitled to receive an amount equal to three
times the greater of (i) the average annual total compensation paid to him over
the Company's last three fiscal years or (ii) total compensation paid during the
Company's most recent fiscal year ended.
On January 15, 1998, the Company entered into a severance agreement with
the Chief Financial Officer of the Company, Charles Cosgrove. The agreement will
expire upon the termination of Mr. Cosgrove's employment with the Company for
any reason whatsoever. The agreement provides for an annual salary of not less
than $165,000, which may be increased from time to time by the Compensation
Committee of the Company's Board of Directors. In addition, the agreement
specifies that Mr. Cosgrove shall be eligible to receive an annual bonus payable
under the Company's bonus plan in accordance with the bonus criteria established
by the Company's Board of Directors. In the event Mr. Cosgrove's employment is
terminated without cause or he resigns for reasons defined in the agreement, he
is entitled to receive a lump sum payment in an amount equal to one times his
base salary in effect as of the date of termination. In addition, if Mr.
Cosgrove's employment is terminated as a result of a change in control as
defined in the agreement, he will receive a lump sum amount equal to one and one
half times his base salary plus one and one half times his prior fiscal year
bonus or current year target bonus, whichever is larger.
On June 15, 1998, the Company entered into a severance agreement with the
Vice President of Operations of the Company, Susan L. Luster. The agreement will
expire upon the termination of Ms. Luster's employment with the Company for any
reason whatsoever. The agreement provides for an annual salary of not less than
$157,500, which may be increased from time to time by the Compensation
Committee. In the event Ms. Luster's employment is terminated without cause or
resignation for reasons defined in the agreement, she is entitled to a lump sum
of 12 months of salary for termination. In addition, if she were terminated as a
result of a change in control as defined in the agreement, she will receive a
lump sum amount equal to one and one half times her base salary.
I-2
<PAGE> 60
On November 3, 1998, the Company entered into a severance agreement with
the President of the Company, John L. Corse. The agreement will expire upon the
termination of Mr. Corse's employment with the Company for any reason
whatsoever. The agreement provides for an annual salary of not less than
$215,000, which may be increased from time to time by the Compensation
Committee. In the event Mr. Corse's employment is terminated without cause or
resignation for reasons defined in the agreement, he is entitled to a lump sum
of one and one half times his annual salary for termination. In addition, if he
were terminated as a result of a change in control as defined in the agreement,
he will receive a lump sum amount equal to two times is current base salary and
two times his annual bonus of the prior fiscal year.
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 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 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.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
A. Consolidated Financial Statements, see index in Item 8 on page F-1
(1) Report of Independent Accountants
(2) Consolidated Financial Statements
(a) Consolidated Statements of Operations for the years ended
January 31, 1999; Statements of Operations for the years
ended January 31, 1998 and 1997;
(b) Consolidated Balance Sheet as of January 31, 1999; Balance
Sheet as of January 31, 1998;
(c) Consolidated Statement of Stockholders' Equity as of January
31, 1999; Statements of Stockholders' Equity as of January
31, 1998 and 1997;
(d) Consolidated Statement of Cash Flows for the years ended
January 31, 1999; Statements of Cash Flows for the years
ended January 31, 1998 and 1997;
(e) Notes to Consolidated Financial Statements
B. Consolidated Financial Statement Schedule, see index in Item 8 on
page F-1
C. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT SEQUENTIALLY NUMBERED PAGE
- ------- ---------------------- --------------------------
<C> <S> <C>
2.1 Asset Purchase Agreement dated November Incorporated by reference to Exhibit 2 of
7, 1997, by and among the Company, BEC, the Registrant's Form S-3 Registration
CTG, David F. Carney and Sandra E. Carney Statement filed January 22, 1998 (No.
333-44729)
2.2 Asset Purchase Agreement dated December Incorporated by reference to Exhibit 99.1
31, 1997 by and among the Company, of the Company's Current Report on Form
Markerdowne Corporation, Graeme Dorras, 8-K filed March 10, 1998 (the "Form 8-K")
Randy Proto and Chris Coutts
</TABLE>
I-3
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT SEQUENTIALLY NUMBERED PAGE
- ------- ---------------------- --------------------------
<C> <S> <C>
2.3 Amended and Restated Share Purchase Incorporated by reference to Exhibit 99.2
Agreement dated February 20, 1998 by and of the Form 8-K)
among Computer Learning Centers, Inc.,
Computer Learning Centers of Quebec,
Inc., Delta College, Inc., Roger Matte,
Marie Josee-Matte, Dominique Matte,
Johanne Matte, Suzanne Matte and Dolmen
(1994) Inc.
3.1 Second Amended and Restated Certificate Incorporated by reference to Exhibit 3.1
of Incorporation, as amended of the Registrant's report on Form 10-Q
for the quarter ended July 31, 1997 filed
September 9, 1997
3.2 Second Amended and Restated Certificate Incorporated by reference to Exhibit 3.3
of Incorporation of the Registrant 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 Incorporated by reference to Exhibit 3.4
Registrant of the Registrant's Form S-1 Registration
Statement, as amended, filed March 29,
1995 (No. 33-90716) (the "Form S-1")
4.1 Form of Certificate for Shares of Incorporated by reference to Exhibit 4.1
Registrant's Common Stock of Form S-1
10.1 Severance Agreement, dated January 15, Incorporated by reference to Exhibit 10
1998, by and between Charles L. Cosgrove of the Registrant's S-3 Registration
and the Registrant Statement filed January 22, 1998
10.2* Long-Term Incentive Plan, as amended Incorporated by reference to Exhibit 10.1
of the Form S-1
10.3* 1995 Stock Incentive Plan, as amended by Incorporated by reference to Exhibit 10.1
the Board of Directors on March 23, 1996. of the Registrant's Report on Form 10-Q
filed June 13, 1996
10.4* 1995 Non-Employee Directors Stock Option Incorporated by reference to Exhibit 10.3
Plan of the Form S-1
10.5 Second Amended and Restated Shareholders' Incorporated by reference to Exhibit 10.1
Agreement of the 1995 Form 10-Q
10.6 Assignment Agreement, dated as of Incorporated by reference to Exhibit 10.6
February 27, 1995, by and among Blessing/ of the Form S-1
White Inc., Harry H. Gaines and the
Registrant.
10.7 Voting Agreement dated May 5, 1995 by and Incorporated by reference to Exhibit
among General Atlantic Corporation, 10.16 of the Form S-1
General Atlantic Partners II, L.P. and
GAP-CLC Partners, L.P.
10.8 Stock Repurchase Agreement, dated May 5, Incorporated by reference to Exhibit
1995, by and between Bankers Trust 10.17 of the Form S-1
(Delaware) and the Registrant.
10.9 Stock Repurchase Agreement, dated May 5, Incorporated by reference to Exhibit
1995 by and between BancBoston Capital, 10.18 of the Form S-1
Inc. and the Registrant.
</TABLE>
I-4
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT SEQUENTIALLY NUMBERED PAGE
- ------- ---------------------- --------------------------
<C> <S> <C>
10.10 Stock Repurchase Agreement, dated May 5, Incorporated by reference to Exhibit
1995 by and between GAP-CLC Partners, 10.19 of the Form S-1
L.P. and the Registrant.
10.11 Tax Sharing and Indemnification Agreement Incorporated by reference to Exhibit
by and between the Registrant and 10.26 of the Form 1996 10-K
Blessing/ White, Inc.
10.13 Employment Agreement, dated February 1, Incorporated by reference to Exhibit
1997, by and between Reid Bechtle and the 10.33 of the Registrant's Form 10-K filed
Registrant. April 30, 1997
10.14 Credit Agreement, dated December 23, 1996 Incorporated by reference to Exhibit
by and between CoreStates Bank, N.A. and 10.34 of the Registrant's Form 10-K filed
the Registrant. April 30, 1997
10.15 Severance Agreement, dated June 15, 1998, Incorporated by reference to Exhibit 10.1
by and between Susan L. Luster and the of the Form 10-Q filed September 14, 1998
Registrant.
10.16 Severance Agreement, dated November 3, Filed herewith
1998, by and between John L. Corse and
the Registrant.
10.17* 1998 Stock Incentive Plan Incorporated by reference to Exhibit 99.1
of the Registrant's Form S-8 filed
December 23, 1998
10.20 Stipulation and Agreement of Settlement, Filed herewith
dated February 17, 1999, by and between
Ganesh, L.L.C., et al., On Behalf of
themselves and All Others Similarly
Situated and the Registrant (Civil Action
No. 98-859-A filed in the U.S. District
Court-Eastern District of Virginia).
11.1 Computation of historical and Filed herewith
supplemental pro forma earnings per
share.
21.1 List of subsidiaries. Incorporated by reference to Exhibit 21.1
of the Form S-1
23.1 Consent of PricewaterhouseCoopers LLP Filed herewith
23.2 Consent of PricewaterhouseCoopers LLP Filed herewith
27 Financial Data Schedule Filed herewith
99.1 Computer Learning Centers, Inc. Employee Incorporated by reference to Exhibit 99.1
Stock Purchase Plan dated July 10, 1998 of the Registrant's Form S-8 Registration
Statement filed December 31, 1997
</TABLE>
- ---------------
* This exhibit is a compensatory plan or arrangement in which executive officers
or directors of the Registrant participate.
I-5
<PAGE> 63
PART IV
D. Reports on Form 8-K
<TABLE>
<CAPTION>
REPORT DATE EVENT REPORTED
----------- --------------
<S> <C>
February 17, 1998 The Company announced that it had completed
the separate acquisitions of Markerdowne
Corporation and Delta College, Inc. in
February 1998.
March 10, 1998 The Company announced that it was served with
a complaint by the Attorney General of
Illinois alleging that the Company violated
the state's private Business and Vocational
School Act and Consumer Fraud and Deceptive
Business Practices Act.
June 8, 1998 The Company announced that it had reached a
settlement with the previously announced
complaint by the Attorney General of Illinois
alleging violation of the Acts.
January 11, 1999 The Company announced that it had entered
into a memorandum of understanding to settle
a previously disclosed class-action
shareholder lawsuit filed against the Company
in early 1998.
</TABLE>
I-6
<PAGE> 64
SCHEDULE II
COMPUTER LEARNING CENTERS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND NET BALANCE AT
YEAR EXPENSES WRITE-OFFS END OF YEAR
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
January 31, 1997
Allowance for doubtful accounts................. 1,507 3,084 (2,341) 2,250
January 31, 1998
Allowance for doubtful accounts................. 2,250 4,794 (3,131) 3,913
January 31, 1999
Allowance for doubtful accounts................. 3,913 8,388 (4,168) 8,133
</TABLE>
The Company's allowance for doubtful accounts at January 31, 1999 and 1998
includes amounts applicable to current accounts receivable ($5,999 and $2,382,
respectively) and long-term accounts receivable ($2,134 and $1,531,
respectively).
I-7
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COMPUTER LEARNING CENTERS, INC.
Dated: May 3, 1999 By: /s/ REID R. BECHTLE
------------------------------------
Reid R. Bechtle,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ REID R. BECHTLE Chief Executive Officer and Director May 3, 1999
- -------------------------------------- (Principal Executive Officer)
Reid R. Bechtle
/s/ JOHN L. CORSE President, Chief Operating Officer, May 3, 1999
- -------------------------------------- and Director
John L. Corse
/s/ CHARLES L. COSGROVE Vice President and Chief Financial May 3, 1999
- -------------------------------------- Officer (Principal Financial Officer)
Charles L. Cosgrove
/s/ MARK M. NASSER Controller (Principal Accounting May 3, 1999
- -------------------------------------- Officer)
Mark M. Nasser
/s/ HARRY H. GAINES Director May 3, 1999
- --------------------------------------
Harry H. Gaines
/s/ RALPH W. CLARK Director May 3, 1999
- --------------------------------------
Ralph W. Clark
/s/ IRA D. COHEN Director May 3, 1999
- --------------------------------------
Ira D. Cohen
/s/ STEPHEN P. REYNOLDS Director May 3, 1999
- --------------------------------------
Stephen P. Reynolds
</TABLE>
S-1
<PAGE> 66
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
JANUARY 31, 1999, 1998, AND 1997
(DOLLAR AMOUNTS IN THOUSANDS, EXPECT PER SHARE AMOUNTS)
SEE NOTES 3 AND 5 TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net (loss) income..................................... $ (586) $ 9,580 $ 5,601
=========== =========== ===========
Weighted average number of common shares
outstanding -- Basic................................ 17,318,049 15,892,943 13,718,912
Dilutive securities:
Employee stock options.............................. (a) 1,197,052 998,199
Non employee stock options.......................... (a) 98,869 201,507
Subscription note receivable........................ -- -- 99,226
----------- ----------- -----------
Weighted average number of common shares
outstanding -- Diluted.............................. 17,318,049 17,188,864 15,017,844
=========== =========== ===========
Earnings per share:
Basic............................................... $ (0.03) $ 0.60 $ 0.41
=========== =========== ===========
Diluted............................................. $ (0.03) $ 0.56 $ 0.37
=========== =========== ===========
</TABLE>
- ---------------
(a) The Company had a total of 1,664,831 options outstanding as of January 31,
1999; however, these options are not included in the calculation of the
number of dilutive securities outstanding as their impact is antidulitive
due to the net loss in 1999 and that certain options exercise prices were
below the average market price of the common shares during the period.
Share amounts and earnings per share restated to reflect the January 1998
two for one stock split and the April 1997 three for two stock split.
<PAGE> 67
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-17009, 333-43633 and 333-69583) of Computer
Learning Centers, Inc. of our report dated March 17, 1999, except as to Note 16,
which is as of April 29, 1999, appearing on page F-2 of this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
- ---------------------------------------------------------
PricewaterhouseCoopers LLP
New York, New York
May 3, 1999
<PAGE> 68
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (Nos. 333-44729 and
333-48467) of Computer Learning Centers, Inc. of our report dated March 17,
1999, except as to Note 16, which is as of April 29, 1999, appearing on page F-2
of this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
- ---------------------------------------------------------
PricewaterhouseCoopers LLP
New York, New York
May 3, 1999
<PAGE> 1
EXHIBIT 10.16
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement") made as of the 3rd day of
November, 1998 by and between COMPUTER LEARNING CENTERS, INC., a Delaware
corporation (the "Company"), and JOHN L. CORSE (the "Executive").
The Executive is presently employed by the Company as its President and
Chief Operating Officer.
The Board of Directors of the Company (the "Board") desires to set
forth the nature and amount of compensation and other benefits to be provided to
Executive and any of the rights of the Executive in the event of his termination
of employment with the Company. The Executive is willing to commit himself to
continue to serve the Company, on the terms and conditions herein provided.
In order to effect the foregoing, the Company and the Executive wish to
enter into this Agreement under the terms and conditions set forth below.
Accordingly, in consideration of the promises and the respective covenants and
agreements of the parties herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Employment. The Company hereby agrees to continue to employ the
Executive, and the Executive hereby agrees to continue to serve the Company, on
the terms and conditions set forth herein.
2. Term. The term of Executive's employment under Section 1 will
terminate upon the termination of Executive's employment with the Company for
any reason whatsoever. No such termination shall affect any of the Company's
other obligations under this Agreement arising at or after such termination of
employment.
3. Position and Duties. The Executive shall serve as President and
Chief Operating Officer of the Company and shall have such responsibilities and
authority as may normally be exercised by a president and chief operating
officer of a company.
4. Place of Performance. The Executive shall be based at the current
principal executive offices of the Company in Northern Virginia, or in the
Company's headquarters, provided that such headquarters is not more than
thirty-five (35) miles from the location of the Company's principal executive
offices on the date hereof.
5. Compensation and Related Matters.
(a) Base Salary. During the Executive's employment with the
Company, the Company shall pay to the Executive a salary at a rate of not less
than Two Hundred Fifteen Thousand Dollars ($215,000) per annum in equal
installments as nearly as practicable on the normal payroll periods for
employees of the Company generally (the "Base Salary"). The Base Salary may be
increased from time to time and, if so increased, shall not thereafter be
decreased during the term of this Agreement.
1
<PAGE> 2
(b) Bonus. The Executive shall be eligible to receive an annual
bonus (the "Annual Bonus") payable under the Company's bonus plan in accordance
with the bonus criteria established by the Board for the Executive on an annual
basis.
(c) Expenses. During the term of the Executive's employment
hereunder, the Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Executive in performing services
hereunder, including all expenses of travel and living expenses while away from
home on business or at the request of and in the service of the Company,
provided that such expenses are incurred and accounted for in accordance with
the policies and procedures established by the Company.
(d) Benefits. During the term of the Executive's employment
hereunder, the Company shall maintain in full force and effect, and the
Executive shall be entitled to continue to participate in, all of its employee
benefit plans and arrangements in effect on the date hereof in which the
Executive participates or receives benefits, or plans or arrangements providing
the Executive with at least equivalent benefits thereunder. The Company shall
not make any changes in such plans and arrangements which would adversely affect
the Executive's rights or benefits thereunder, unless such change occurs
pursuant to a program applicable to all officers of the Company and does not
result in a proportionately greater reduction in the rights of or benefits to
the Executive as compared with any other officers of the Company. The Executive
shall be entitled to participate in or receive benefits under any employee
benefit plan or arrangement made available by the Company in the future to its
officers and key management employees subject to and on a basis consistent with
the terms, conditions and overall administration of such plans and arrangements.
Nothing paid to the Executive under any plan or arrangement presently in effect
or made available in the future shall be deemed to be in lieu of any amounts
payable to the Executive pursuant to this Section 5.
6. Termination and Definitions.
(a) Cause. This Agreement shall immediately be terminated and
neither party shall have any future obligation hereunder, except for the
Company's obligations in Section 7 hereof, and except for the Executive's
obligations in Section 8 hereof, if the Executive's employment is terminated for
Cause.
(b) Termination by the Executive. The Executive may terminate
his employment hereunder for Good Reason.
(c) Notice of Termination. Any termination of the Executive's
employment by the Company or by the Executive shall be communicated by written
Notice of Termination to the other party hereto.
(d) Definitions.
(i) For purposes of this Agreement, termination "for
Cause" shall arise where termination results from theft or dishonesty in the
conduct of the Company's
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<PAGE> 3
business, or intoxication while on duty, or conviction of a felony, in each case
having a material adverse effect on the business of the Company.
(ii) For purposes of this Agreement, "Good Reason" shall mean
(A) a Change in Control of the Company (as defined below), (B) a decrease in the
total amount of the Executive's Base Salary below its level in effect on the
date hereof, (C) a reduction in the importance of the Executive's job
responsibilities without the Executive's consent or (D) a geographical
relocation of the Executive without his consent.
(iii) For purposes of this Agreement, a "Change in Control" of
the Company shall be deemed to have occurred if (A) any person (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing twenty-five percent (25%) of more of the combined voting power of
the Company's then outstanding securities, (B) during any period of two (2)
consecutive years during the term of this Agreement, individuals who at the
beginning of such period constitute the Board cease for any reason to constitute
at least a majority thereof, unless the election of each director who was not a
director at the beginning of such period has been approved in advance by
directors representing at least two thirds of the directors then in office who
were directors at the beginning of the period, (C) the shareholders of the
Company approve a merger or consolidation involving the Company resulting in a
change of ownership of a majority of the outstanding shares of capital stock of
the Company, or (D) the shareholders of the Company approve a plan of
liquidation or dissolution of the Company or the sale or disposition by the
Company of all or substantially all of the Company's assets.
(iv) For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
7. Compensation upon Termination.
(a) Termination for Cause or Resignation Without Good Reason.
I f (i) the Executive's employment shall be terminated for Cause, or (ii) the
Executive voluntarily resigns from the employ of the Company and Good Reason
shall not have occurred, then the Company shall pay the Executive his Base
Salary through the date of delivery to him of a Notice of Termination at the
rate then in effect at the time and date the Notice of Termination is delivered,
and the Company shall have no further obligations to the Executive under this
Agreement.
(b) Termination Without Cause or Resignation for Good Reason.
If the Company shall terminate the Executive's employment other than pursuant to
Section 6(a) hereof (it being understood that a purported termination pursuant
to Section 6(a) hereof, which is disputed and finally determined not to have
been pursuant to Section 6(a) shall be a termination by the Company pursuant to
Section 6(b)), then:
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<PAGE> 4
(i) the Company shall pay to the Executive (A) his Base Salary
through the date of termination at the rate in effect at the time Notice of
Termination is delivered, plus (B) his Annual Bonus pro-rated through the date
of termination; and
(ii) in lieu of any further salary or bonus payments
to the Executive for periods subsequent to the date of termination, the Company
shall pay on the date of termination, as severance pay to the Executive, a lump
sum payment in an amount equal to one and one half (1 1/2) times the Executive's
Base Salary in effect as of the date of termination.
(c) Termination Upon a Change in Control. If there is a Change
in Control of the Company or there has been a public announcement of a Change in
Control of the Company (provided, however, that consummation of the Change in
Control of the Company shall be a condition precedent to the effectiveness of
this provision) and at any time thereafter the employment of the Executive under
this Agreement is terminated other than pursuant to Section 6(a) hereof by the
Company or a successor entity, then:
(i) the Company shall pay to the Executive (A) his Base
Salary through the date of termination at the rate in effect at the time Notice
of Termination is given, plus (B) his Annual Bonus pro-rated through the date of
termination; and
(ii) in lieu of any further salary or bonus payments to the
Executive for periods subsequent to the date of termination, the Company shall
pay on the date of termination as severance pay to the Executive, a lump sum
payment in an amount equal to (A) two (2) times the Executive's Base Salary in
effect as of the date of termination plus (B) two (2) times the Annual Bonus
paid to the Executive in the prior fiscal year of the Company.
(d) Continuation of Benefit Plans. Upon any termination of the
Executive's employment other than pursuant to Section 6(a) hereof, the Company
shall maintain in full force and effect for the continued benefit of the
Executive for eighteen (18) months, or twenty-four (24) months if there has
previously occurred a Change in Control of the Company, all employee benefit
plans and programs in which the Executive was entitled to participate.
(e) Participation in Benefit Plans after Termination of
Employment. The Executive shall be entitled to continue to participate in any
benefit plan or program of the Company for twelve (12) months after the
expiration of the period provided for in 7(d), provided, that the Executive pays
the direct cost of any such benefit plan or program.
8. Covenants Not to Compete or Hire Employees. It is recognized and
understood by the parties hereto that Executive, through Executive's association
with the Company as an employee, shall acquire a considerable amount of
knowledge and goodwill with respect to the business of the Company, which
knowledge and goodwill are extremely valuable to the Company and which would be
extremely detrimental to the Company if used by Executive to compete with the
Company. It is, therefore, understood and agreed by the parties hereto that,
because of the nature of the business of the Company, it is necessary to afford
fair protection to the Company from such competition by Executive. Consequently,
as a material inducement to the Company to enter into this Agreement, Executive
covenants and agrees that for the
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<PAGE> 5
period commencing with the date hereof and ending one (1) year after Executive's
termination of employment with the Company, Executive shall not engage,
directly, indirectly or in concert with any other person or entity, in the
information technology training industry in the geographical area of the
contiguous forty-eight (48) states of the United States. Executive further
covenants and agrees that for the period commencing on the date of Executive s
termination of employment for any reason whatsoever and ending one (1) year
after Executive's termination of employment with the Company, Executive shall
not, directly or indirectly, hire or engage or attempt to hire or engage any
individual who shall have been an employee of the Company at any time during the
one (1)-year period prior to the date of Executive's termination of employment
with the Company, whether for or on behalf of Executive or for any entity in
which Executive shall have a direct or indirect interest (or any subsidiary or
affiliate of any such entity), whether as a proprietor, partner, co-venturer,
financier, investor or stockholder, director, officer, employer, employee,
servant, agent, representative or otherwise.
9 Successors; Binding Agreement.
(a) Successors. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this Section 9 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
(b) Binding Agreement. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the Executive's
estate.
10. Notice. For the purposes of this Agreement, notices, demands and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States registered mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive: John L. Corse
13906 Whetstone Manor Court
Clifton, Virginia 20124
If to the Company: 11350 Random Hills Road
Suite 240
Fairfax, Virginia 22030
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<PAGE> 6
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Prior Agreement. All prior agreements between the Company and the
Executive with respect to the employment of the Executive are hereby superseded
and terminated effective as of the date hereof and shall be without further
force or effect.
12. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and duly authorized officer of the Company.
No waiver by either party hereto at any time of any breach by the other hereto
of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the Commonwealth of Virginia.
13. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
14. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators, in Washington, D.C., in
accordance with the rules of the American Arbitration Association then in
effect. The expense of such arbitration shall be borne by the Company.
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<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date and year first above written.
COMPUTER LEARNING CENTERS, INC.
Date: February 17, 1999 By: /S/ Harry H. Gaines
----------------- --------------------
Harry H. Gaines, Chairman of the Board
EXECUTIVE:
Date: February 21, 1999 /S/ John L. Corse
----------------- -----------------
John L. Corse
7
<PAGE> 1
EXHIBIT 10.20
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION
<TABLE>
<CAPTION>
<S> <C> <C>
GANESH, L.L.C., et al., On Behalf of )
Themselves and All Others Similarly Situated, )
)
Plaintiffs, )
) Civil Action No. 98-859-A
vs. ) CLASS ACTION
)
COMPUTER LEARNING CENTERS, INC., REID R. BECHTLE, )
CHARLES L. COSGROVE, HARRY H. GAINES and )
STEPHEN P. REYNOLDS, )
)
Defendants. )
)
</TABLE>
STIPULATION AND AGREEMENT OF SETTLEMENT
This stipulation and agreement of settlement dated as of
February 17, 1999 (the "Stipulation") is submitted pursuant to Rule 23 of the
Federal Rules of Civil Procedure. Subject to the approval of the Court, this
Stipulation is entered into among Plaintiffs Craig Anderson, Thomas J. Arnold,
Khousheh Azmoudeh, Roger J. Benkovic, John E. Bentley, Donald L. Berry, Roderick
Brown, Ronald T. Costello, James C. Crowdus, Christopher Dickison, James J.
Dougherty, Steward Eng, Jahanguir Esfandi, Vincent Galano, Courtney G. Greeley,
Terrie Vaile Hauck, Charles L. Hiltz, Dwight & Bruce Howland, Craig Imler,
Michael J. Laub, Phyllis Lieblich, Frank Longsdon, S. Markpetsch, Timothy
McClosky, McLean Trading Co., Jerome Menezes, Howard Merle, Hal Merritt, Sylvin
& Evelyn Pickner, Wayne L. Pravitz, Mark & Michele Senda, Mark A. Sohasky, Buck
Scogin, Tim Shoemaker, Alvin R. Sprintz, Teddy David Stein, George W. Temple,
Robert J. Trinka, True Value Fund, L.P., Nathan Uffenheimer, Debra L. Vitoux,
Jerry Wishes, Lu Zhang, Gerry A. Zimmerman, Ganesh, L.L.C., Jacob Spinner, Sybil
Meisel, Chet Meyerson, Carmen Caiazzo and Scott L. Silver, and the Class as
hereinafter defined(1),
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(1) Plaintiffs designated the following Plaintiffs as Class
Representatives: Vincent Galano, Phyllis Leiblich, Frank Longsdon, Jerome
Menezes, Juhanguie Esfandi, Timothy McClosky, Thomas J. Arnold, Howard Merle,
Charles L. Hiltz, Robert J. Trinka, John E. Bentley and Craig Anderson.
<PAGE> 2
and defendants Computer Learning Centers, Inc., ("CLC") Reid R. Bechtle,
Charles L. Cosgrove, Harry H. Gaines and Stephen P. Reynolds, (hereinafter the
"Defendants"), by and through their respective counsel.
WHEREAS:
A. Various actions have been consolidated under the above
caption which is hereinafter referred to as the "Action".
B. The Consolidated Amended Complaint (the "Consolidated
Complaint") filed in this Court in this Action on or about August 7, 1998,
generally alleges, among other things, that Defendants issued materially false
and misleading press releases and other statements regarding CLC's financial
condition during the Class Period --April 30, 1997 through April 6, 1998 -- in a
scheme to artificially inflate the value of CLC's securities.
C. The Consolidated Complaint further alleges that Plaintiffs
and the other class members purchased the common stock of CLC during the Class
Period at prices artificially inflated as a result of the Defendants'
dissemination of materially false and misleading statements regarding CLC in
violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934,
and Rule 10b-5 promulgated thereunder.
D. The Defendants deny any wrongdoing whatsoever and this
Stipulation shall in no event be construed or deemed to be evidence of or an
admission or concession on the part of any Defendant with respect to any claim
or of any fault or liability or wrongdoing or damage whatsoever, or any
infirmity in the defenses that Defendants have asserted. Defendants recognize,
however, that the litigation has been filed with adequate basis in fact under
Federal Rule of Civil Procedure 11, that the litigation is being voluntarily
settled after advice of counsel, and that the terms of the settlement are fair,
adequate and reasonable. This Stipulation shall not be construed or deemed to be
a concession by any plaintiff of any infirmity in the claims asserted in the
Action.
E. Plaintiffs' Counsel have conducted an investigation
relating to the claims and the underlying events and transactions alleged in the
complaints, including the analysis of over three hundred fifty thousand pages of
documents produced by Defendants and numerous non-parties and interviews and
depositions of witnesses. Plaintiffs' Counsel have analyzed the evidence adduced
during pretrial discovery and have researched the applicable law with respect to
the claims of Plaintiffs and the Class against the Defendants and the potential
defenses thereto.
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<PAGE> 3
F. Plaintiffs, by their counsel, have conducted discussions
and arms'-length negotiations with counsel for Defendants with respect to a
compromise and settlement of the Action with a view to settling the issues in
dispute and achieving the best relief possible consistent with the interests of
the Class;
G. As part of the settlement discussions, the Defendants,
while continuing to deny any liability, have stated their belief that the United
States Department of Education financial responsibility regulations, and similar
regulations of at least one state in which CLC does business, impose various
requirements such that if a substantial Judgment (e.g. $15 million or more) were
entered against CLC, CLC could be required to post a very large cash surety to
enable it to continue its participation in certain federal student aid programs
and could lose its right to continue in business in the state. If this occurred,
CLC's ability to continue in business would be in substantial doubt, and CLC
probably would be required to seek protection under the bankruptcy laws, which
in turn would, as a matter of federal law, result in the immediate, complete and
permanent exclusion of CLC from participation in the federal student aid
programs and therefore require the liquidation of the company, in which event
the ultimate recovery would likely be substantially less than is being obtained
in this Settlement;
H. Based upon their investigation and pretrial discovery as
set forth above, counsel for Plaintiffs and the Class have concluded that the
terms and conditions of this Stipulation are fair, reasonable and adequate to
the Class, and in their best interests, and have agreed to settle the claims
raised in the Action pursuant to the terms and provisions of this Stipulation,
after considering (a) the substantial benefits that the members of the Class
will receive from settlement of the Action, (b) the attendant risks of
litigation, and (c) the desirability of permitting the Settlement to be
consummated as provided by the terms of this Stipulation.
NOW THEREFORE, without any admission or concession on the part
of Plaintiffs of any lack of merit of the Action whatsoever, and without any
admission or concession of any liability or wrongdoing or lack of merit in the
defenses whatsoever by Defendants, it is hereby further STIPULATED AND AGREED,
by and among the parties to this Stipulation, through their respective
attorneys, subject to approval of the Court pursuant to Rule 23(e) of the
Federal Rules of Civil Procedure, in consideration of the benefits flowing to
the parties hereto from the Settlement, that all Settled Claims (as defined
below) as against the Released Parties (as defined below) shall be compromised,
settled, released and dismissed with prejudice, upon and subject to the
following terms and conditions:
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<PAGE> 4
CERTAIN DEFINITIONS
1. As used in this Stipulation, the following terms
shall have the following meanings:
a. "Class" and "Class Members" means, for the
purposes of settlement and for the purposes of this Stipulation only, all
persons who purchased the common stock of CLC during the period April 30, 1997
through and including April 6, 1998, excluding all purchase transactions that
were made to cover short positions. Excluded from the Class are the Defendants
in this action, members of the immediate families of each of the Defendants, any
person, firm, trust, corporation, officer, director or other individual or
entity in which any Defendant has a controlling interest or which is related to
or affiliated with any of the Defendants, and the legal representatives, heirs,
successors in interest or assigns of any such excluded party. Also excluded from
the Class are any putative Class Members who exclude themselves by filing a
request for exclusion in accordance with the requirements set forth in the
Notice.
b. "Authorized Claimant" means a Class Member
who submits a timely and valid Proof of Claim form to the Claims Administrator.
c. "Class Period" means, for the purposes of
this Stipulation only, the period of time from April 30, 1997 through and
including April 6, 1998.
d. "Defendants' Counsel" means the law firms
of Hale and Dorr LLP and Paul, Weiss, Rifkind, Wharton & Garrison.
e. "Effective Date of Settlement" or
"Effective Date" means the date upon which the Settlement contemplated by this
Stipulation shall become effective, as set forth in paragraph 22 below.
f. "Notice" means the Notice of Pendency of
Class Action, Hearing On Proposed Settlement and Attorneys' Fee Petition, and
Notice of Right to Share in Settlement Fund, which is to be sent to members of
the Class substantially in the form attached hereto as Exhibit 1 to Exhibit A.
g. "Order and Final Judgment" means the
proposed order substantially in the form attached hereto as Exhibit B.
h. "Order for Notice and Hearing" means the
proposed order substantially in the form attached hereto as Exhibit A.
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<PAGE> 5
i. "Plaintiffs' Co-Lead Counsel" means counsel
for Plaintiffs and the Class, the law firms of Milberg Weiss Bershad Hynes &
Lerach LLP, Reinhardt & Anderson and Stull, Stull & Brody.
j. "Publication Notice" means the summary
notice of proposed Settlement and hearing for publication substantially in the
form attached as Exhibit 3 to Exhibit A.
k. "Released Parties" means any and all of the
Defendants, their past or present subsidiaries, parents, affiliates, successors
and predecessors, officers, directors, shareholders, agents, employees,
attorneys, advisors, and investment advisors, insurers, auditors, accountants
and any person, firm, trust, corporation, officer, director or other individual
or entity in which any Defendant has a controlling interest or which is related
to or affiliated with any of the Defendants, and the legal representatives,
heirs, successors in interest or assigns of the Defendants.
l. "Settled Claims" means any and all claims,
rights or causes of action or liabilities whatsoever, whether based on federal,
state, local, statutory or common law or any other law, rule or regulation,
including both known and unknown claims, that have been or could have been
asserted in any forum by the Plaintiffs, Class Members or any of them or the
successors and assigns of any of them, whether directly, indirectly,
representatively or in any other capacity, against any of the Released Parties
which arise out of or relate in any way to the allegations, transactions, facts,
matters or occurrences, representations or omissions involved, set forth,
referred to or that could have been asserted in the Consolidated Complaint
relating to the purchase of shares of the common stock of CLC during the Class
Period, and including any claims relating to the defense of this action under
Rule 11 of the Federal Rules of Civil Procedure or any other claim or motion for
sanctions of any nature.
m. "Settled Defendants' Claims" means (a) all
claims asserted by any Defendant in the Action against any of the Plaintiffs,
Class Members of their counsel, and (b) all claims, rights or causes of action
or liabilities whatsoever, whether based on federal, state, local, statutory or
common law or any other law, rule or regulation, including both known and
unknown claims, that have been or could have been asserted in any forum by the
Defendants or any of them or the successors and assigns of any of them, whether
directly, indirectly, representatively or in any other capacity, against any of
the Plaintiffs, Class Members or their attorneys, which arise out of or relate
in any way to the institution or prosecution of the Action, and including any
claims relating to the
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<PAGE> 6
institution or prosecution of the Action under Rule 11 of
the Federal Rules of Civil Procedure or any other claim or motion for sanctions
of any nature.
n. "Settlement" means the settlement
contemplated by this Stipulation.
o. "Claims Administrator" means the firm
designated by Plaintiffs' Co-Lead Counsel to administer the Settlement.
Scope and Effect of Settlement
2. The obligations incurred pursuant to this Stipulation
shall be in full and final disposition of the Action and any and all Settled
Claims as against all Released Parties and any and all Settled Defendants'
Claims.
3. a. Upon the Effective Date of this Settlement,
Plaintiffs and members of the Class on behalf of themselves, their heirs,
executors, administrators, successors and assigns, beneficiaries, and any
persons they represent, shall, with respect to each and every Settled Claim
release and forever discharge, and shall forever be enjoined from prosecuting
any Settled Claims against any of the Released Parties.
b. Upon the Effective Date of this Settlement,
each Defendant, on behalf of themselves and the Released Parties, shall release
and forever discharge each and every of the Settled Defendants' Claim, and shall
forever be enjoined from prosecuting the Settled Defendants' Claims.
The Settlement Consideration
4. a. Defendants shall pay, within fifteen
business (15) days from the date hereof, into an escrow account established at
Citibank, N.A., or such other financial institution as the parties may agree, on
behalf of Plaintiffs and the Class $3,000,000.00 (the "Cash Settlement Amount").
b. In addition CLC shall issue, on behalf of
itself and the other Defendants, 550,000 shares of freely tradeable CLC common
stock ("Shares") for the benefit of the Class at a guaranteed minimum value of
$8.19 per share for a minimum total value of $4.5 million subject to the
following terms and conditions:
(1) If during the 10 trading days ending five business days prior
to the final settlement hearing, or ending on any other date
to which the parties may agree, the average closing market
price per share of CLC stock for that ten day period (the
"Average Price") is less than $8.19, Defendants
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<PAGE> 7
will pay to plaintiffs, in the form(2) of cash and/or
additional shares of CLC stock, an amount for each of the
550,000 shares equal to the difference between $8.19 and the
Average Price, but in no event shall that additional amount
paid exceed $6.19 per share; or
(2) If the Average Price is $2.00 or less, Plaintiffs' Co-Lead
Counsel may, at their option, terminate this agreement.
CLC shall either register the shares of common stock to be delivered for the
benefit of the Class or shall provide its counsel's certification that the
shares are exempt from registration under Section 3(a)(10) of the Securities Act
of 1933 and are therefore freely tradeable. CLC agrees to issue and deliver such
shares on the instructions of Plaintiffs' Co-Lead Counsel, in whole or in part
and from time to time as instructed by Plaintiffs' Co-Lead Counsel.
c. The Cash Settlement Amount and any interest earned
thereon, and the shares of CLC common stock (or the proceeds of the sale of any
or all of such shares, if sold, and the interest and any dividends thereon)
shall be the Gross Settlement Fund.
5. a. The Gross Settlement Fund, net of any Taxes (as
defined below) on the income thereof, shall be used to pay (i) the Notice and
Administration Costs referred to in Paragraph 7 hereof, (ii) the attorneys' fee
and expense award referred to in Paragraph 8 hereof, (iii) the remaining
administration expenses referred to in Paragraph 9 hereof. The balance of the
Gross Settlement Fund after the above payments shall be the Net Settlement Fund
which shall be distributed to the Authorized Claimants as provided in Paragraph
Paragraphs 10-12 hereof. Any sums required to be held in escrow hereunder prior
to the effective date shall be held by Milberg Weiss Bershad Hynes & Lerach LLP,
and Stull, Stull & Brody as Escrow Agents for the Settlement Fund. All funds
held by the Escrow Agents shall be deemed to be in custodia legis of the Court
and shall remain subject to the jurisdiction of the Court until such time as the
funds shall be distributed or returned to Defendants pursuant to this
Stipulation and/or further order of the Court. The Escrow Agents shall invest
any funds in excess of $100,000 in United States Government obligations with a
maturity of 180 days or less, and shall collect and reinvest all interest
accrued thereon. Any funds held in escrow in an amount of
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(2) CLC shall have discretion to choose the form of such additional
payment in cash or CLC Shares or any combination thereof. If additional CLC
Shares are used to make up the shortfall, they shall be valued at the Average
Price.
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<PAGE> 8
less than $100,000 may be held in an interest bearing bank account insured by
the FDIC. The parties hereto agree that the Settlement Fund is intended to be a
Qualified Settlement Fund within the meaning of Treasury Regulation Section
1.468B-1 and that the Escrow Agents, as administrators of the Settlement Fund
within the meaning of Treasury Regulation Section 1.468B-2(k)(3), shall be
responsible for filing tax returns for the Settlement Fund and paying from the
Settlement Fund any Taxes owed with respect to the Settlement Fund. Counsel for
CLC agrees to provide promptly to the Escrow Agent the statement described in
Treasury Regulation Section 1.468B-3(e).
b. All (i) taxes on the income of the
Settlement Fund, and (ii) expenses and costs incurred in connection with the
taxation of the Settlement Fund (including, without limitation, expenses of tax
attorneys and accountants) (collectively "Taxes") shall be paid out of the
Settlement Fund, shall be considered to be a cost of administration of the
settlement and shall be timely paid by the Escrow Agent without prior Order of
the Court.
i) Administration
6. The Claims Administrator shall administer the
Settlement under Plaintiffs' Co-Lead Counsel's supervision and subject to the
jurisdiction of the Court. Except as stated in Paragraph 14 hereof, Defendants
shall have no responsibility for the administration of the Settlement and shall
have no liability to the Class in connection with such administration.
Defendants' Counsel shall cooperate in the administration of the Settlement to
the extent reasonably necessary to effectuate its terms, including providing all
information from CLC's transfer records concerning the identity of class members
and their transactions.
7. Prior to the Effective Date, Plaintiffs' Co-Lead
Counsel may expend from the Settlement Amount, without further approval from the
Defendants or the Court, the reasonable costs and expenses associated with the
administration of the Settlement, including without limitation, the costs of
identifying members of the Class and effecting mail Notice and Publication
Notice. Such amounts shall include, without limitation, the actual costs of
publication, printing and mailing the Notice, reimbursements to nominee owners
for forwarding notice to their beneficial owners, and the administrative
expenses incurred and fees charged by the Claims Administrator in connection
with providing notice and processing the claims filed.
(ii) Attorneys' Fees And Expenses
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<PAGE> 9
8. Plaintiffs' Counsel will apply to the Court for an
award from the Gross Settlement Fund of attorneys' fees and reimbursement of
expenses. Such attorneys' fee and expenses as are awarded by the Court shall be
paid from the Gross Settlement Fund to Plaintiffs' Counsel immediately upon
award, notwithstanding the existence of any timely filed objections thereto, or
potential for appeal therefrom, or collateral attack on the settlement or any
part thereof, subject to Plaintiffs' Counsel's obligation to make appropriate
refunds or repayments to the settlement fund plus accrued interest, if and when,
as a result of any appeal and/or further proceedings on remand, or successful
collateral attack, the fee or cost award is reduced or reversed.
(iii) Administration Expenses
9. Plaintiffs' Counsel will apply to the Court, on
notice to Defendants' Counsel, for an order (the "Class Distribution Order")
approving the Claims Administrator's administrative determinations concerning
the acceptance and rejection of the claims filed herein and approving the fees
and expenses of the Claims Administrator, and, if the Effective Date has
occurred, directing payment of the Net Settlement Fund to Authorized Claimants.
(iv) Distribution To Authorized Claimants
10. The Claims Administrator shall determine each
Authorized Claimant's pro rata share of the "Net Settlement Fund" (the Gross
Settlement Fund including interest net of Taxes and less all approved costs fees
and expenses) based upon each Authorized Claimant's Recognized Claim (as defined
in the Plan of Allocation described in the Notice annexed hereto as Exhibit 1 to
Exhibit A, or in such other Plan of Allocation as the Court approves).
11. The Plan of Allocation proposed in the Notice is not
a necessary term of this Stipulation and it is not a condition of this
Stipulation that that Plan of Allocation be approved.
12. a. Each Authorized Claimant shall be allocated
a pro rata share of the Net Settlement Fund based on his or her Recognized Claim
compared to the total Recognized Claims of all accepted claimants.
b. To the extent not previously distributed in
accordance with instructions from Plaintiffs' Co-Lead Counsel, Defendants shall
cause the shares of CLC common stock to be distributed to the members of the
Class in proportion to the Authorized Claimant's Recognized Claims as determined
by the Claims
- 9 -
<PAGE> 10
Administrator. No fractional shares shall be issued. No adjustment
will be made in the cash distributions for fractional shares.
c. Defendants will have no involvement in reviewing or
challenging claims.
Administration of the Settlement
13. Any member of the Class who does not file a valid
Proof of Claim will not be entitled to receive any of the proceeds from the Net
Settlement Fund but will otherwise be bound by all of the terms of this
Stipulation and the Settlement, including the terms of the Judgment to be
entered in the Action and the releases provided for herein, and will be barred
from bringing any action against the Released Parties concerning the Settled
Claims.
14. Plaintiffs' Co-Lead Counsel shall be responsible for
supervising the administration of the Settlement and disbursement of the Net
Settlement Fund by the Claims Administrator. Except for their obligation to pay
the Settlement Amount and CLC shares, and to cooperate in the production of
information with respect to the identification of class members from the CLC's
shareholder transfer records, as provided herein, and to issue the CLC shares in
accordance with the instructions to be provided by Plaintiffs' Co-Lead Counsel
and/or the Claims Administrator, Defendants shall have no liability, obligation
or responsibility for the administration of the Settlement or disbursement of
the Net Settlement Fund. Plaintiffs' Co-Lead Counsel shall have the right, but
not the obligation, to waive what they deem to be formal or technical defects in
any Proofs of Claim filed in the interests of achieving substantial justice.
15. For purposes of determining the extent, if any, to
which a Class Member shall be entitled to be treated as an "Authorized
Claimant", the following conditions shall apply:
a. Each Class Member shall be required to
submit a Proof of Claim (see attached Exhibit 3 to Exhibit A), supported by such
documents as are designated therein, including proof of the Claimant's loss, or
such other documents or proof as Plaintiffs' Co-Lead Counsel, in their
discretion, may deem acceptable;
b. All Proofs of Claim must be submitted by
the date specified in the Notice unless such period is extended by Order of the
Court. Any Class Member who fails to file a Proof of Claim by such date shall be
forever barred from receiving any payment pursuant to this Stipulation (unless,
by Order of the Court, a later filed Proof of Claim by such Class Member is
approved), but shall in all other respects be bound by all of the
- 10 -
<PAGE> 11
terms of this Stipulation and the Settlement including the terms of the Judgment
to be entered in the Action and the releases provided for herein, and will be
barred from bringing any action against the Released Parties concerning the
Settled Claims. Provided that it is received before the distribution of the Net
Settlement Fund, a Proof of Claim shall be deemed to have been submitted when
posted, if received with a postmark indicated on the envelope and if mailed
first-class postage prepaid and addressed in accordance with the instructions
thereon. In all other cases, the Proof of Claim shall be deemed to have been
submitted when actually received by Plaintiffs' Counsel or its designee;
c. Each Proof of Claim shall be submitted to
and reviewed by the Claims Administrator, under the supervision of Plaintiffs'
Co-Lead Counsel, who shall determine in accordance with this Stipulation the
extent, if any, to which each claim shall be allowed, subject to review by the
Court pursuant to subparagraph e. below;
d. Proofs of Claim that do not meet the filing
requirements may be rejected. Prior to rejection of a Proof of Claim, the Claims
Administrator shall communicate with the Claimant in order to remedy the curable
deficiencies in the Proof of Claims submitted. The Claims Administrator, under
supervision of Plaintiffs' Co-Lead Counsel, shall notify, in a timely fashion
and in writing, all Claimants whose Proofs of Claim they propose to reject in
whole or in part, setting forth the reasons therefor, and shall indicate in such
notice that the Claimant whose claim is to be rejected has the right to a review
by the Court if the Claimant so desires and complies with the requirements of
subparagraph (e) below; and
e. If any Claimant whose claim has been
rejected in whole or in part desires to contest such rejection, the Claimant
must, within twenty (20) days after the date of mailing of the notice required
in subparagraph (d) above, serve upon the Claims Administrator a notice and
statement of reasons indicating the Claimant's grounds for contesting the
rejection along with any supporting documentation, and requesting a review
thereof by the Court. If a dispute concerning a claim cannot be otherwise
resolved, Plaintiffs' Co-Lead Counsel shall thereafter present the request for
review to the Court.
f. The administrative determinations of the
Claims Administrator accepting and rejecting claims shall be presented to the
Court, on notice to Defendants' Counsel, for approval by the Court in the Class
Distribution Order.
- 11 -
<PAGE> 12
16. Each Claimant shall be deemed to have submitted to
the jurisdiction of the Court with respect to the Claimant's claim, and the
claim will be subject to investigation and discovery under the Federal Rules of
Civil Procedure, provided that such investigation and discovery shall be limited
to that Claimant's status as a Class Member and the validity and amount of the
Claimant's claim. No discovery shall be allowed on the merits of the Action or
Settlement in connection with processing of the Proofs of Claim.
17. Payment pursuant to this Stipulation shall be deemed
final and conclusive against all Class Members. All Class Members whose claims
are not approved by the Court shall be barred from participating in
distributions from the Net Settlement Fund, but otherwise shall be bound by all
of the terms of this Stipulation and the Settlement, including the terms of the
Judgment to be entered in the Action and the releases provided for herein, and
will be barred from bringing any action against the Released Parties concerning
the Settled Claims.
18. All proceedings with respect to the administration,
processing and determination of claims described by Paragraph 15 of this
Stipulation and the determination of all controversies relating thereto,
including disputed questions of law and fact with respect to the validity of
claims, shall be subject to the jurisdiction of the Court.
19. The Net Settlement Fund shall be distributed to
Authorized Claimants by the Claims Administrator only after the Effective Date
and after: (i) all Claims have been processed, and all Claimants whose Claims
have been rejected or disallowed, in whole or in part, have been notified and
provided the opportunity to be heard concerning such rejection or disallowance;
(ii) all objections with respect to all rejected or disallowed claims have been
resolved by the Court, and all appeals therefrom have been resolved or the time
therefor has expired; and (iii) all matters with respect to attorneys' fees,
costs, and disbursements have been resolved by the Court, all appeals therefrom
have been resolved or the time therefor has expired, and (iv) all costs of
administration have been paid.
Terms of Order for Notice and Hearing
20. Concurrently with their application for preliminary
Court approval of the Settlement contemplated by this Stipulation, Plaintiffs'
Counsel and Defendants' Counsel jointly shall apply to the Court for entry of an
Order for Notice and Hearing, substantially in the form annexed hereto as
Exhibit A.
Terms of Order and Final Judgment
- 12 -
<PAGE> 13
21. If the Settlement contemplated by this Stipulation is
approved by the Court, counsel for the parties shall request that the Court
enter an Order and Final Judgment substantially in the form annexed hereto as
Exhibit B.
Effective Date of Settlement, Waiver or Termination
22. The Effective Date of Settlement shall be the date
when all the following shall have occurred:
(a) entry of the Order for Notice and Hearing
substantially in the form annexed hereto as Exhibit A;
(b) approval by the Court of the Settlement,
following notice to the Class and a hearing, as prescribed by Rule 23 of the
Federal Rules of Civil Procedure; and
(c) entry by the Court of an Order and Final
Judgment, substantially in the form set forth in Exhibit B annexed hereto, and
the expiration of any time for appeal or review of such Order and Final
Judgment, or, if any appeal is filed and not dismissed, after such Order and
Final Judgment is upheld on appeal in all material respects and is no longer
subject to review upon appeal or review by writ of certiorari, or, in the event
that the Court enters an order and final judgment in form other than that
provided above ("Alternative Judgment") and none of the parties hereto elect to
terminate this Settlement, the date that such Alternative Judgment becomes final
and no longer subject to appeal or review.
23. In the event that putative Class Members whose claims
represent more than 5% of the total damages incurred3 in this Action choose to
opt out of the Class, the Defendants, or any of them, may, at their option,
terminate the settlement. The Order for Notice and Hearing shall provide that
requests for exclusion shall be received at least ten (10) days prior to the
Settlement Hearing date. Upon receiving any request(s) for exclusion pursuant to
the Notice, the Claims Administrator shall promptly notify Plaintiffs' Co-Lead
Counsel and counsel for Defendants of such request(s) for exclusion, and shall
provide such counsel with copies of any requests for exclusion.
- ----------
(3) Calculated in accordance with the Recognized Claim formula as set
forth in the Notice compared to the potential average per share recovery, as set
forth in the Notice at paragraph 3, for all shares which may have been damaged,
as set forth in the Notice at paragraph 2.
- 13 -
<PAGE> 14
24. If the Defendants elect to exercise the option set
forth in Paragraph 23 hereof, written notice of such election must be provided
to Plaintiffs' Co-Lead Counsel on or before five (5) calendar days prior to the
Settlement Fairness Hearing.
25. In the event that Defendants file a written notice of
their intent to terminate the settlement pursuant to Paragraph 23 hereof, the
Defendants may withdraw their election by providing written notice of such
withdrawal to Plaintiffs' Counsel no later than 5:00 P.M. Eastern Daylight Time
on the day prior to the Settlement Fairness Hearing, or by such later date as
shall be agreed upon in writing as between Plaintiffs' Co-Lead Counsel and
counsel for the Defendants.
26. If the Defendants elect to withdraw from the
Stipulation pursuant to Paragraph 23 above, Plaintiffs' Co-Lead Counsel may,
within five (5) days of receipt of such notice of intention to withdraw from the
settlement (or such longer period as shall be agreed upon in writing between
Plaintiffs' Co-Lead Counsel and counsel for Defendants), review the validity of
any request for exclusion and may attempt to cause retraction or withdrawal of
any request for exclusion. If, within the five (5) day period (or longer period
agreed upon in writing), Plaintiffs' Lead Counsel succeed in causing the filing
of retractions or withdrawals of a sufficient number of requests for exclusion
such that the number of shares represented by the remaining requests for
exclusion does not constitute grounds for withdrawal as specified in Paragraph
23 above, then any withdrawal from the Stipulation by Defendants shall
automatically be deemed to be a nullity. To retract or withdraw a prior request
for exclusion, a member of the Class must file a written notice with the Court
stating the person's or entity's desire to retract or withdraw his, her or its
request for exclusion and that person's or entity's desire to be bound by any
judgment or settlement in this action; provided, however, that the filing of
such written notice may be facilitated by Plaintiffs' Co-Lead Counsel.
27. If a Defendant elects to withdraw from the
Stipulation in accordance with Paragraph 23 and such withdrawal is not nullified
in accordance with Paragraph 26, this Stipulation shall be withdrawn and
terminated and deemed null and void, and the provisions of paragraph 30 of this
Stipulation shall apply.
28. Defendants' Counsel or Plaintiffs' Co-Lead Counsel
shall have the right to terminate the Settlement and this Stipulation by
providing written notice of their election to do so ("Termination Notice") to
all other parties hereto within thirty days of (a) the Court's declining to
enter the Order for Notice and Hearing in any material respect; (b) the Court's
refusal to approve this Stipulation or any material part of it; (c) the Court's
declining
- 14 -
<PAGE> 15
to enter the Order and Final Judgment in any material respect; (d) the date upon
which the Order and Final Judgment is modified or reversed in any material
respect by the Court of Appeals or the Supreme Court; or (e) the date upon which
an Alternative Judgment is modified or reversed in any material respect by the
Court of Appeals or the Supreme Court. In the event of any such Termination
Notice is validly given this Stipulation shall be withdrawn and terminated and
deemed null and void, and the provisions of paragraph 30 of this Stipulation
shall apply.
29. a. Plaintiffs' Co-Lead Counsel shall have
the right to terminate the Settlement and this Stipulation by providing a
Termination Notice to Defendants' Counsel, if the Average Price is $2.00 or
less. In the event of any such Termination Notice is validly given this
Stipulation shall be withdrawn and terminated and deemed null and void, and the
provisions of paragraph 30 of this Stipulation shall apply.
b. In the event that there is any non-delivery
by CLC of any of the shares required to be delivered hereunder within ten (10)
business days after Plaintiffs' Co-Lead Counsel furnishes directions for such
delivery to Defendants' counsel, then Plaintiffs' Co-Lead Counsel shall have the
option to terminate this Settlement or move for specific enforcement of CLC's
obligation to deliver such shares, unless such non-delivery is cured within ten
(10) business days.
30. Except as otherwise provided herein, in the event the
Settlement is terminated or modified in any material respect or fails to become
effective for any reason, then the parties to this Stipulation shall be deemed
to have reverted to their respective status in the Action as of the date and
time immediately prior January 8, 1999 and, except as otherwise expressly
provided, the parties shall proceed in all respects as if this Stipulation and
any related orders had not been entered, and any portion of the Settlement
Amount previously paid by Defendants, together with any interest earned thereon,
less any Taxes due with respect to such income, and less costs of notice and
administration incurred, shall be returned to the Defendants paying the same.
No Admission of Wrongdoing
31. This Stipulation, whether or not consummated, and any
proceedings taken pursuant to it:
(a) shall not be offered or received against
the Defendants as evidence of or construed as or deemed to be evidence of any
presumption, concession, or admission by any of the Defendants of the truth of
any fact alleged by Plaintiffs or the validity of any claim that had been or
could have been asserted in the Action or in
- 15 -
<PAGE> 16
any litigation, or the deficiency of any defense that has been or could have
been asserted in the Action or in any litigation, or of any liability,
negligence, fault, or wrongdoing of Defendants;
(b) shall not be offered or received against
the Defendants as evidence of a presumption, concession or admission of any
fault, misrepresentation or omission with respect to any statement or written
document approved or made by any Defendant, or against the Plaintiffs and the
Class as evidence of any infirmity in the claims of Plaintiffs and the Class;
(c) shall not be offered or received against
the Defendants as evidence of a presumption, concession or admission of any
liability, negligence, fault or wrongdoing, or in any way referred to for any
other reason as against any of the parties to this Stipulation, in any other
civil, criminal or administrative action or proceeding, other than such
proceedings as may be necessary to effectuate the provisions of this
Stipulation; provided, however, that if this Stipulation is approved by the
Court, Defendants may refer to it to effectuate the liability protection granted
them hereunder;
(d) shall not be offered or received as
evidence of a presumption, concession or admission of the lack of any liability,
fault or wrongdoing claimed by Plaintiffs or of any infirmity of the claims
Plaintiffs asserted or intended to assert, or in any way referred to for any
other reason, against the Plaintiffs or any member of the Class in this or any
other civil, criminal or administrative action or proceeding other than such
proceedings as may be necessary to consummate or enforce this Stipulation; and
(e) shall not be construed against the
Defendants or the Plaintiffs or the Class as an admission or concession that the
consideration to be given hereunder represents the amount which could be or
would have been recovered after trial.
Miscellaneous Provisions
32. All of the exhibits attached hereto are hereby
incorporated by reference as though fully set forth herein.
33. Each Defendant warrants as to himself, herself or
itself that, as to the payments made by or on behalf of him, her or it, at the
time of such payment that the Defendant made or caused to be made pursuant to
paragraph 4 above, he, she or it was not insolvent nor did nor will the payment
required to be made by or on behalf of him, her or it render such Defendant
insolvent within the meaning of and/or for the purposes of the United States
- 16 -
<PAGE> 17
Bankruptcy Code, including Sections 101 and 547 thereof. This warranty is made
by each such Defendant and not by such Defendant's counsel.
34. If a case is commenced in respect of any Defendant
under Title 11 of the United States Code (Bankruptcy), or a trustee, receiver or
conservator is appointed under any similar law, and in the event of the entry of
a final order of a court of competent jurisdiction determining the transfer of
money to the Escrow Account or any portion thereof by or on behalf of such
Defendant to be a preference, voidable transfer, fraudulent transfer or similar
transaction and any portion thereof is required to be returned, and such amount
is not promptly deposited to the Cash Settlement Fund by other settling
Defendants, then, at the election of Plaintiffs' Co-Lead Counsel, the parties
shall jointly move the Court to vacate and set aside the releases given and
Judgment entered in favor of the Defendants pursuant to this Stipulation, which
releases and Judgment shall be null and void, and the Parties shall be restored
to their respective positions in the litigation as of January 7, 1999 and any
cash amounts in escrow shall be returned as provided in paragraph 30 above.
35. The Parties to this Stipulation intend the
Settlement to be a final and complete resolution of all disputes asserted or
which could be asserted by the Class Members against the Released Parties with
respect to the Settled Claims. Accordingly, the Plaintiffs and the Defendants
agree not to assert in any forum that the litigation was brought or defended in
bad faith or without a reasonable basis. The Parties agree that the amount paid
and the other terms of the Settlement were negotiated at arms'-length in good
faith by the Parties, and reflect a settlement that was reached voluntarily
after consultation with experienced legal counsel.
36. This Stipulation may not be modified or amended, nor
may any of its provisions be waived except by a writing signed by all parties
hereto or their successors-in-interest.
37. The headings herein are used for the purpose of
convenience only and are not meant to have legal effect.
38. The administration and consummation of the
Settlement as embodied in this Stipulation shall be under the authority of the
Court and the Court shall retain jurisdiction for the purpose of entering orders
providing for awards of attorneys' fees and expenses to Plaintiffs' Counsel and
enforcing the terms of this Stipulation.
- 17 -
<PAGE> 18
39. The waiver by one party of any breach of this
Stipulation by any other party shall not be deemed a waiver of any other prior
or subsequent breach of this Stipulation.
40. This Stipulation and its exhibits constitute the
entire agreement among the parties hereto concerning the Settlement of the
Action, and no representations, warranties, or inducements have been made by any
party hereto concerning this Stipulation and its exhibits other than those
contained and memorialized in such documents.
41. This Stipulation may be executed in one or more
counterparts. All executed counterparts and each of them shall be deemed to be
one and the same instrument provided that counsel for the parties to this
Stipulation shall exchange among themselves original signed counterparts.
42. This Stipulation shall be binding upon, and inure to
the benefit of, the successors and assigns of the parties hereto.
43. The construction, interpretation, operation, effect
and validity of this Stipulation, and all documents necessary to effectuate it,
shall be governed by the internal laws of the State of Virginia without regard
to conflicts of laws, except to the extent that federal law requires that
federal law governs.
44. This Stipulation shall not be construed more strictly
against one party than another merely by virtue of the fact that it, or any part
of it, may have been prepared by counsel for one of the parties, it being
recognized that it is the result of arms'-length negotiations between the
parties and all parties have contributed substantially and materially to the
preparation of this Stipulation.
45. All counsel and any other person executing this
Stipulation and any of the exhibits hereto, or any related settlement documents,
warrant and represent that they have the full authority to do so and that they
have the authority to take appropriate action required or permitted to be taken
pursuant to the Stipulation to effectuate its terms.
46. Plaintiffs' Co-Lead Counsel and Defendants' Counsel
agree to cooperate fully with one another in seeking Court approval of the Order
for Notice and Hearing, the Stipulation and the Settlement, and to promptly
agree upon and execute all such other documentation as may be reasonably
required to obtain final approval by the District Court of the Settlement.
DATED: February 17, 1999
- 18 -
<PAGE> 19
/S/ COHEN, MILSTEIN,
HAUSFELD & TOLL, P.L.L.C.
---------------------------------
COHEN, MILSTEIN, HAUSFELD
& TOLL, P.L.L.C.
1100 New York Avenue, N.W.
West Tower, Suite 500
Washington, DC 20005-3934
Plaintiffs Liaison Counsel
/S/ MILBERG WEISS BERSHAD HYNES
& LERACH, LLP
---------------------------------
MILBERG WEISS BERSHAD HYNES
& LERACH, LLP
One Pennsylvania Plaza
New York, NY 10019-0165
Kenneth J. Vianale
5355 Town Center Road
Suite 900
Boca Raton, FL 33486
- 19 -
<PAGE> 20
/S/ REINHARDT & ANDERSON
---------------------------------
REINHARDT & ANDERSON
E-1000 First National Bank Bldg.
332 Minnesota Street
St. Paul, MN 55101
/S/ STULL, STULL & BRODY
---------------------------------
STULL, STULL & BRODY Aaron
Brody 6 East 45th Street
New York, NY 10017
CO-LEAD COUNSEL FOR PLAINTIFFS
/S/ GARWIN BRONZAFT GERSTEIN
& FISHER, L.L.P.
---------------------------------
GARWIN BRONZAFT GERSTEIN
& FISHER, L.L.P.
1501 Broadway
Suite 1416
New York, NY 10036
/S/ WECHSLER HARWOOD HALEBIAN
& FEFFER LLP
---------------------------------
WECHSLER HARWOOD HALEBIAN
& FEFFER LLP
488 Madison Avenue
New York, NY 10022
/S/ MORRIS AND MORRIS
---------------------------------
MORRIS AND MORRIS
1605 North Market Street
Wilmington, DE 19801
/S/ WEISS & YOURMAN
---------------------------------
WEISS & YOURMAN
551 Fifth Avenue
New York, NY 10176
/S/ BERNSTEIN LITOWITZ BERGER
& GROSSMANN LLP
---------------------------------
BERNSTEIN LITOWITZ BERGER
& GROSSMANN LLP
1285 Avenue of the Americas
New York, NY 10019
/S/ CHITWOOD & HARLEY
---------------------------------
CHITWOOD & HARLEY
2900 Promenade II
1230 Peachtree Street, N.E.
Atlanta, GA 30309
- 20 -
<PAGE> 21
/S/ KIRBY MCINERNEY &
---------------------------------
SQUIRE, LLP KIRBY MCINERNEY
& SQUIRE, LLP 830 Third
Avenue 10th Floor New York,
NY 10022
/S/ ELWOOD S. SIMON
& ASSOCIATES, P.C.
---------------------------------
ELWOOD S. SIMON
& ASSOCIATES, P.C.
355 Old South Woodward Avenue
Suite 250
Birmingham, MI 48009
/S/ ROBERT D. ALLISON & ASSOCIATES
---------------------------------
ROBERT D. ALLISON & ASSOCIATES
122 South Michigan Avenue
Chicago, IL 60603
/S/ LAW OFFICES OF
LIONEL Z. GLANCY
---------------------------------
LAW OFFICES OF
LIONEL Z. GLANCY
1801 Avenue of the Stars
Suite 308
Los Angeles, CA 90067
/S/ FUTTERMAN & HOWARD CHTD.
---------------------------------
FUTTERMAN & HOWARD CHTD.
122 South Michigan Avenue
Suite 1850
Chicago, IL 60603
/S/ ROBINSON CURLEY
& CLAYTON, P.C.
---------------------------------
ROBINSON CURLEY
& CLAYTON, P.C.
300 South Wacker Drive
Chicago, IL 60606
/S/ MILLER FAUCHER CAFFERTY
& WEXLER LLP
---------------------------------
MILLER FAUCHER CAFFERTY
& WEXLER LLP
30 North LaSalle Street
Suite 3200
Chicago, IL 60602
- 21 -
<PAGE> 22
/S/ SCHIFFRIN CRAIG
& BARROWAY LLP
---------------------------------
SCHIFFRIN CRAIG
& BARROWAY LLP
750 West Lake Cook Road
Suite 190
Buffalo Grove, IL 60089
/S/ HOFFMAN & EDELSON
---------------------------------
HOFFMAN & EDELSON
45 West Court Street
Doylestown, PA 18901
/S/ WOLF POPPER LLP
---------------------------------
WOLF POPPER LLP
845 Third Avenue
New York, NY 10022
/S/ Patricia D. Ryan
---------------------------------
Patricia D. Ryan
(Va. Bar No. 35495)
4350 North Fairfax Drive
Suite 900
Arlington, VA 22203
/S/ FINKELSTEIN, THOMPSON
& LOUGHRAN
---------------------------------
FINKELSTEIN, THOMPSON
& LOUGHRAN
1055 Thomas Jefferson
Street, N.W., Suite 601
Washington, DC 20007
/S/ RABIN & PECKEL, LLP
---------------------------------
RABIN & PECKEL, LLP
275 Madison Avenue
New York, NY 10016
- 22 -
<PAGE> 23
<TABLE>
<S> <C>
/S/ LAW OFFICE OF LEO W. DESMOND
---------------------------------
LAW OFFICE OF LEO W. DESMOND
2161 Palm Beach Lakes Blvd.
Suite 204
West Palm Beach, FL 33409
ATTORNEYS FOR PLAINTIFFS
DEFENSE COUNSEL:
/S/ HALE and DORR LLP S/ Gaela K. Gehring-Flores (Va.Bar No. 40428)
- ----------------------------- -----------------------------------------------
HALE and DORR LLP Gaela K. Gehring-Flores (Va.Bar No. 40428)
1455 Pennsylvania Avenue, N.W. 1615 L Street, N.W.
Suite 1000 Washington, D.C. 20036-5694
Washington, DC 20004
/S/ PAUL, WEISS, RIFKIND,
WHARTON & GARRISON
---------------------------------
PAUL, WEISS, RIFKIND,
WHARTON & GARRISON
1285 Avenue of the Americas
New York, New York 10019-6064
Attorneys for the Defendants
</TABLE>
<PAGE> 24
EXHIBIT A
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION
<TABLE>
<S> <C> <C>
GANESH, L.L.C., et al., On Behalf of Themselves and All ))
Others Similarly Situated, ))
))
Plaintiffs, )) Civil Action No. 98-859-A
))
vs. ) CLASS ACTION
) ------------
)
COMPUTER LEARNING CENTERS, INC., REID R. BECHTLE, CHARLES )
L. COSGROVE, HARRY H. GAINES and STEPHEN P. REYNOLDS,
Defendants.
</TABLE>
PRELIMINARY ORDER IN CONNECTION
WITH SETTLEMENT PROCEEDINGS
WHEREAS, on February 17, 1999, the parties to the
above-entitled litigation entered into a Stipulation and Agreement of
Settlement (the "Stipulation") which is subject to review under Rule 23 of the
Federal Rules of Civil Procedure ("F.R.Civ.P.") and which, together with the
exhibits thereto, sets forth the terms and conditions for the proposed
settlement of the claims alleged in the Consolidated Complaint on the merits
and with prejudice upon the terms and conditions set forth in the Stipulation;
and the Court having read and considered the Stipulation and the accompanying
documents; and the Court having entered an Order dated March 12, 1999
certifying that this action may proceed as a class action pursuant to Rules 23
(a) and 23 (b) (3) of the Federal Rules of Civil Procedure for the limited
purposes of settlement, pursuant to a Memorandum Opinion also dated March 12,
1999 finding that all the requirements for class certification were met for the
purposes of settlement; and the parties to the Stipulation having consented to
the entry of this Order; and all capitalized terms used herein having the
meanings defined in the Stipulation;
<PAGE> 25
NOW, THEREFORE, IT IS HEREBY ORDERED, this _______ day of
___________, 1999, that:
47. A hearing (the "Settlement Fairness Hearing")
pursuant to F.R.Civ.P. 23(e) is hereby scheduled to be held before the Court on
____________ __, 1999, at __:__ _.m. for the following purposes:
a. to finally determine whether this action satisfies
the applicable prerequisites for class action treatment under F.R.Civ.P. 23(a)
and (b);
b. to determine whether the proposed Settlement is fair,
reasonable, adequate and in the best interests of the Class and should be
approved by the Court;
c. to determine whether the proposed Plan of Allocation
is fair and reasonable and in the best interests of the Class and should be
approved by the Court;
d. to determine whether the Order and Final Judgment as
provided under the Stipulation should be entered, dismissing the Complaint
filed herein, on the merits and with prejudice, and to determine whether the
release by the Class to the Released Parties, as set forth in the Stipulation,
should be provided to the Released Parties;
e. to consider Plaintiffs' Counsel's application for an
award of Attorneys' Fees and Expenses; and
f. to rule upon such other matters as the Court may deem
appropriate.
48. The Court reserves the right to approve the
Settlement with or without modification and with or without further notice of
any kind. The Court further reserves the right to enter its Order and Final
Judgment approving the Stipulation and dismissing the Complaint on the merits
and with prejudice regardless of whether it has approved the Plan of Allocation
or whether it has approved or awarded attorneys' fees and expenses.
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<PAGE> 26
49. The Court approves the form, substance and
requirements of the Notice of Pendency of Class Action, Hearing On Proposed
Settlement and Attorneys' Fee Petition, and Notice of Right to Share in
Settlement Fund (the "Class Notice"), and the Proof of Claim form annexed
hereto as Exhibits 1 and 2 respectively.
50. The Claims Administrator, under Plaintiffs' Co-Lead
Counsel's supervision, shall cause the Class Notice and the Proof of Claim,
substantially in the form annexed hereto, to be mailed, by first class mail,
postage prepaid, on or before_______ _____ __, 1999, to all Class Members who
can be identified with reasonable effort. The Defendants shall cooperate in
making their books, records and information (and that of their Transfer Agent)
available to the Claims Administrator for the purpose of identifying and giving
notice to the Class. The Claims Administrator shall use reasonable efforts to
give notice to nominee owners such as brokerage firms and other persons or
entities who held or now hold CLC common stock as record owners but not as
beneficial owners. Such nominee owners are directed to forward copies of the
Class Notice and Proof of Claim to their beneficial owners or to provide the
Claims Administrator with lists of the names and addresses of the beneficial
owners, and the Claims Administrator is ordered to send the Class Notice and
Proof of Claim promptly to such beneficial owners. Additional copies of the
Class Notice shall be made available to any record holder requesting such for
the purpose of distribution to beneficial owners, and such record holders shall
be reimbursed from the Settlement Fund, upon receipt by the Claims
Administrator of proper documentation, for the reasonable out-of-pocket expense
of sending the Class Notices and Proof of Claim to beneficial owners.
Plaintiffs' Co-Lead Counsel shall, at or before the Settlement Fairness
Hearing, file with the Court proof of mailing of the Class Notice and Proof of
Claim.
51. The Court approves the form of Publication Notice of
the pendency of this class action and the proposed settlement in substantially
the form and content annexed hereto as Exhibit 3 and directs that Plaintiffs'
Co-Lead Counsel shall cause the Publication Notice to be published in the
national edition of The Wall Street Journal within ten days of the mailing of
the Class Notice. Plaintiffs' Co-Lead Counsel shall, at or before the
Settlement Fairness Hearing, file with the Court proof of publication of the
Published Notice.
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<PAGE> 27
52. The form and method set forth herein of notifying the
Class of the Settlement and its terms and conditions meet the requirements of
F.R.Civ.P. 23 and due process, constitute the best notice practicable under the
circumstances, and shall constitute due and sufficient notice to all persons
and entities entitled thereto.
53. In order to be entitled to participate in the Net
Settlement Fund, in the event the Settlement is effected in accordance with all
of the terms and conditions thereof, each Class Member shall take the following
actions and be subject to the following conditions:
(a) A properly executed Proof of Claim (the "Proof of
Claim"), substantially in the form attached hereto as Exhibit 2, must be filed
with the Court, at the Post Office box indicated in the Class Notice, not later
than ____________ __, 1999. Such deadline may be further extended by Court
Order. Each Proof of Claim shall be deemed to have been filed when postmarked
(if properly addressed and mailed by first class mail, postage prepaid)
provided such Proof of Claim is actually received prior to the order of the
Court approving distribution of the Net Settlement Fund. Any Proof of Claim
submitted in any other manner shall be deemed to have been filed when it was
actually received at the address designated in the Class Notice.
(b) The Proof of Claim filed by each Class Member must
satisfy the following conditions: (i) it must be properly filled out, signed
and filed in a timely manner in accordance with the provisions of the preceding
subparagraph; (ii) it must be accompanied by adequate supporting documentation
for the transactions reported therein, in the form of broker confirmation
slips, broker account statements, an authorized statement from the broker
containing the transactional information found in a broker confirmation slip,
or such other documentation as is deemed adequate by Plaintiffs' Co-Lead
Counsel; (iii) if the person executing the Proof of Claim is acting in a
representative capacity, a certification of his current authority to act on
behalf of the Class Member must be included in the Proof of Claim; and (iv) the
Proof of Claim must be complete and contain no material deletions or
modifications of any of the printed matter contained therein and must be signed
under penalty of perjury.
(c) As part of the Proof of Claim, each Class Member
shall submit to the jurisdiction of the Court with respect to the claim
submitted, and shall (subject to effectuation of the Settlement) release all
claims as provided in the Stipulation.
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<PAGE> 28
54. Any putative Class Member who wishes to be excluded
from the Class may request exclusion by submitting a written notice requesting
exclusion from the Class and showing the Class Member's name, address and
Social Security or Taxpayer Identification Number. In addition, the putative
Class Member shall be requested to provide the date(s) price(s) and amount(s)
of shares of CLC common stock purchased or sold during the Class Period. To be
effective, the written request for exclusion must be signed by the beneficial
owner of the stock, or his, her or its legal representative, and must be
mailed, postage prepaid, to Computer Learning Centers Securities Litigation --
Exclusion Requests, C/O the Claims Administrator, at the address indicated in
the Notice, so as to be received no later than __________ __, 1999.
55. Class Members requesting exclusion from the Class
shall not be entitled to receive any payment out of the Net Settlement Fund as
described in the Stipulation and Class Notice.
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<PAGE> 29
56. The Court will consider comments and/or objections to
the Settlement, the Plan of Allocation, and/or the award of attorneys' fees and
reimbursement of expenses only if such comments or objections and any
supporting papers are filed in writing with the Clerk of the Court, United
States Courthouse, 401 Courthouse Square, Alexandria, Virginia 22314, and
copies of all such papers are received, on or before ___________ __, 1999, by
the following: for Plaintiffs, Robert P. Sugarman, Esq., MILBERG WEISS BERSHAD
HYNES & LERACH, LLP, One Pennsylvania Plaza, New York, NY 10019-0165, Randall
H. Steinmeyer, Esq., REINHARDT & ANDERSON, E-1000 First National Bank Bldg.,
332 Minnesota Street, St. Paul, MN 55101; Jules Brody, Esq., STULL, STULL &
BRODY, 6 East 45th Street, New York, NY 10017; and for Defendants, Geoffrey S.
Stewart, Esq., HALE and DORR LLP, 1455 Pennsylvania Avenue, N.W., Suite 1000,
Washington, DC 20004, and Steven B. Rosenfeld, Esq., PAUL, WEISS, RIFKIND,
WHARTON & GARRISON, 1285 Avenue of the Americas, New York, New York 10019-6064.
Attendance at the hearing is not necessary; however, persons wishing to be
heard orally in opposition to the approval of the Settlement are required to
indicate in their written objection their intention to appear at the hearing.
Persons who intend to object to the Settlement and/or counsel's application for
an award of attorneys fees and expenses and desire to present evidence at the
Settlement Fairness Hearing must include in their written objections the
identity of witnesses they may call to testify and exhibits they intend to
introduce into evidence at the Settlement Fairness Hearing. Class Members do
not need to appear at the hearing or take any other action to indicate their
approval.
57. Pending final determination of whether the Settlement
should be approved, the Plaintiffs, all Class Members, and each of them, and
anyone who acts or purports to act on their behalf, shall not institute,
commence or prosecute any action which asserts Settled Claims against any
Released Party.
58. If: (a) the Settlement is terminated pursuant to the
Stipulation; (b) any specified condition to the Settlement set forth in the
Stipulation is not satisfied and the satisfaction of such condition is not
waived in writing by Plaintiffs' Co-Lead Counsel and Counsel for the
defendants; (c) the Court rejects, in any respect, the Order and Final Judgment
in substantially the form and content annexed to the Stipulation as Exhibit B
and/or Plaintiffs' Co-Lead Counsel and Counsel for the defendants fail to
consent to the entry of another form of order in lieu thereof; (d) the Court
rejects the Stipulation, including any amendment thereto approved by
Plaintiffs'
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<PAGE> 30
Co-Lead Counsel and Counsel for the defendants; or (e) the Court approves the
Stipulation, including any amendment thereto approved by Plaintiffs' Co-Lead
Counsel and Counsel for the defendants, but such approval is reversed on appeal
and such reversal becomes final by lapse of time or otherwise, then, in any
such event, the Stipulation, including any amendment(s) thereof, and this
Preliminary Order certifying the Class and the Class Representatives for
purposes of the Settlement shall be null and void, of no further force or
effect, and without prejudice to any party, and may not be introduced as
evidence or referred to in any actions or proceedings by any person or entity,
and each party shall be restored to his, her or its respective position as it
existed prior to the execution of the Stipulation.
59. The Court retains exclusive jurisdiction over the
action to consider all further matters arising out of or connected with the
Settlement.
<TABLE>
<S> <C>
Dated: Alexandria, Virginia
, 1999
------- -----
-----------------------------------
UNITED STATES DISTRICT JUDGE
</TABLE>
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<PAGE> 31
EXHIBIT 1
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION
<TABLE>
<S> <C> <C>
GANESH, L.L.C., et al., On Behalf of Themselves and All ))
Others Similarly Situated, ))
))
))
))
Plaintiffs, ) Civil Action No. 98-859-A
)
)
)
vs.
CLASS ACTION
------------
COMPUTER LEARNING CENTERS, INC., REID R. BECHTLE, CHARLES
L. COSGROVE, HARRY H. GAINES and STEPHEN P. REYNOLDS,
Defendants.
</TABLE>
NOTICE OF PENDENCY OF CLASS ACTION,
PROPOSED SETTLEMENT THEREOF, SETTLEMENT HEARING
AND RIGHT TO SHARE IN SETTLEMENT FUND
TO: ALL PERSONS WHO PURCHASED COMMON STOCK IN COMPUTER LEARNING CENTERS,
INC., ("CLC") DURING THE PERIOD APRIL 30, 1997 TO APRIL 6, 1998,
EXCLUDING THOSE WHOSE PURCHASE TRANSACTIONS WERE MADE TO COVER SHORT
POSITIONS.
PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. YOUR RIGHTS WILL BE
AFFECTED BY PROCEEDINGS IN THIS LITIGATION. IF YOU ARE A CLASS MEMBER, YOU
ULTIMATELY MAY BE ENTITLED TO RECEIVE BENEFITS PURSUANT TO THE PROPOSED
SETTLEMENT DESCRIBED HEREIN.
CLAIMS DEADLINE: CLAIMANTS MUST SUBMIT PROOFS OF CLAIM, ON FORM ACCOMPANYING
THIS NOTICE, POST-MARKED ON OR BEFORE _______________, 1999.
EXCLUSION DEADLINE: REQUESTS FOR EXCLUSION MUST BE FILED SO AS TO BE RECEIVED
NO LATER THAN _____________, 1999.
SECURITIES BROKERS AND OTHER NOMINEES: PLEASE SEE INSTRUCTIONS ON PAGE ___
HEREIN.
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<PAGE> 32
SUMMARY OF SETTLEMENT AND RELATED MATTERS
60. Purpose of this Notice
This Notice is given pursuant to Rule 23 of the Federal Rules of Civil
Procedure and Orders of the Court dated March 12, 1999 and _____ 1999. The
purpose of this Notice is to inform you that this Action and the proposed
Settlement will affect all Class Members' rights. This Notice describes rights
you may have under the proposed Settlement and what steps you may take in
relation to this litigation. This Notice is not an expression of any opinion
by the Court as to the merits of any claims or any defenses asserted by any
party in this litigation, or the fairness or adequacy of the proposed
Settlement.
61. Statement of Plaintiff Recovery
Pursuant to the Settlement described herein, a Settlement Fund
consisting of $3,000,000 in cash, plus interest has been established. In
addition Defendant CLC shall issue at least $4,500,000 worth of CLC stock for
the Class, subject to certain conditions. Plaintiffs estimate that there were
approximately 11.2 million shares of CLC common stock traded during the Class
Period which may have been damaged as a result of the alleged wrongdoing
described at paragraphs 6 to 8 below. Plaintiffs estimate that the average
recovery per damaged share of CLC common stock under the Settlement is $0.67
per share before deduction of Court-awarded attorneys fees and expenses.
Depending on the number of claims filed, and when and if those shares were
sold, an individual Class Member may receive more or less than this average
amount.
A Class Member's distribution from the Settlement Fund will be
governed by the Plan of Allocation, as approved by the Court. Under the
relevant securities laws, a claimant's recoverable damages are limited to the
losses attributable to the alleged fraud. Losses which resulted from factors
other than the alleged fraud are not compensable from the Settlement Fund.
A detailed explanation of how each Class Member's claim will be
calculated is set forth in the Plan of Allocation which appears at page [ ] of
this Notice.
62. Statement of Potential Outcome of Case
If this litigation had proceeded to trial and Plaintiffs had prevailed
on every claim and contention asserted, Plaintiffs' counsel estimate that the
average per share recovery could have been as high as $7.21 per share before
deduction of any Court-awarded attorneys' fees and expenses. However,
Plaintiffs consider that there was a
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<PAGE> 33
substantial risk that Plaintiffs and the Class might not have prevailed on all
their claims and that there were risks that the decline in the price of CLC
stock could be attributed, in whole or in part, to other factors, therefore
Plaintiffs could have recovered nothing or substantially less than this amount.
Moreover, throughout the settlement discussions, Defendants' Counsel gave their
opinion that the United States Department of Education financial responsibility
regulations, and similar regulations of at least one state in which CLC does
business, impose various requirements such that if a substantial Judgment (e.g.
$15 million or more) were entered against CLC, CLC could be required to post a
very large cash surety to enable it to continue its participation in certain
federal student aid programs and could lose its right to continue in business
in the state. If this occurred, CLC's ability to continue in business would be
in substantial doubt, and CLC probably would be required to seek protection
under the bankruptcy laws, which in turn would, as a matter of federal law,
result in the immediate, complete and permanent exclusion of CLC from
participation in the federal student aid programs and therefore require the
liquidation of the company, in which event the ultimate recovery would likely
be substantially less than is being obtained in this Settlement.
The Defendants deny that they are liable to the Plaintiffs or the
Class and deny that Plaintiffs or the Class have suffered any damages. The
parties disagreed on both liability and damages.
63. Statement of Attorneys' Fees and Costs Sought
Plaintiffs' counsel intend to apply for fees of up to one-third of the
Settlement Fund, and for reimbursement of expenses incurred in connection with
the prosecution of this litigation in the approximate amount of $575,000, or an
average of $0.27 per share.
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<PAGE> 34
64. Further Information
Further information regarding the litigation and this Notice may be
obtained by contacting Lead Counsel for Plaintiffs and the Class: Robert P.
Sugarman, Esq., MILBERG WEISS BERSHAD HYNES & LERACH, LLP, One Pennsylvania
Plaza, New York, NY 10019-0165, Telephone (212) 954-5300; Randall H.
Steinmeyer, Esq., REINHARDT & ANDERSON, E-1000 First National Bank Bldg., 332
Minnesota Street, St. Paul, MN 55101, Telephone (651) 227-9990; Jules Brody,
Esq., STULL, STULL & BRODY, 6 East 45th Street, New York, NY 10017, Telephone
(212) 687-7230.
NOTICE OF SETTLEMENT HEARING
NOTICE IS HEREBY GIVEN, pursuant to Rule 23 of the Federal Rules of
Civil Procedure and an Order of the United States District Court for the
Eastern District of Virginia
Alexandria Division (the "Court") dated _________, 1999, that a hearing will be
held before the Honorable ______________________ in Courtroom No. ___ of the
United States Courthouse, 401 Courthouse Square, Alexandria, Virginia 22314, at
___, on _________, 1999 (the "Settlement Hearing") to determine whether a
proposed settlement (the "Settlement") of the above-captioned litigation (the
"Litigation") as set forth in the Stipulation of Settlement dated February 17,
1999 (the "Stipulation"), is fair, reasonable and adequate, and to consider the
Plan of Allocation and the application of class counsel for attorneys' fees and
reimbursement of expenses.
The Court, by Order dated March 12, 1999, has certified for purposes
of settlement a plaintiff class consisting of: "all persons who purchased
common stock of Computer Learning Centers, Inc. ("CLC") during the period April
30, 1997 to April 6, 1998, excluding those whose purchase transactions were
made to cover short positions, and also excluding the Defendants themselves,
members of their immediate families, and any entity in which any of them has a
controlling interest."
BACKGROUND OF THE LITIGATION
65. Plaintiffs allege that, during the Class Period, Defendants
issued material misstatements to and omitted material facts from the investing
public to inflate the price of CLC stock in violation of the federal securities
laws. Plaintiffs allege that as a purported provider of information technology
and computer-related education and training, CLC's primary goal and focus was
to admit as many students as possible, including a large number of unqualified
students, simply to increase revenues, while providing a woefully substandard
education. As part of
- 34 -
<PAGE> 35
their alleged scheme, Defendants allegedly issued materially false and
misleading statements about the quality of education offered by CLC, the
modernity of the equipment and software used by CLC for educational purposes,
the qualifications of CLC's instructors and CLC's graduate placement rates.
Allegedly, by increasing its admissions improperly, CLC was able to report
materially greater revenues and earnings, principally through students eligible
for federal financial grants and loans. The Company derived approximately
70%-75% of its revenues from Title IV federal student financial aid assistance.
66. The Consolidated Amended Class Action Complaint seeks redress
on behalf of thousands of investors who, relying on the Company's public
statements regarding the Company and its purported profitability and success,
as well as the integrity of the market for CLC's common stock, suffered
substantial damage because they bought shares of CLC common stock at prices
artificially inflated by these material misrepresentations and omissions.
Meanwhile, Defendants allegedly profited handsomely from their own sales of CLC
stock.
67. The Complaint further alleges that, commencing on April 30,
1997, when Defendants filed with the SEC CLC's Report on Form 10-K for the
fiscal year ended January 31, 1997, Plaintiffs and other class members
purchased the common stock of CLC during the Class Period at artificially
inflated prices as a result of the Defendants' dissemination of false and
misleading statements regarding CLC in violation of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. On
April 6, 1998, CLC shocked investors, revealing that the Company had been
ordered to suspend marketing of and enrollment in one of its training centers.
It was also revealed that all CLC "Learning Centers" had been placed on
heightened cash-monitoring status by the United States Department of Education.
CLC shares plummeted to $13 per share.
68. The Defendants filed a motion to dismiss the Action. By Order
dated September 11, 1998, the Court denied Defendants' motion to dismiss.
Plaintiffs' motion for class certification was heard on December 18, 1998, and
that same day the Court issued an Order denying the class but granting
Plaintiffs leave to file an amended motion redefining the class consistent with
the Court's Opinion. Plaintiffs refiled the motion to certify the action as a
class action in accordance with the Court's Opinion. Thereafter the parties
negotiated the proposed Settlement. Plaintiffs' amended motion for class
certification was granted for purposes of the Settlement by Order dated March
12, 1999.
BACKGROUND TO THE SETTLEMENT
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<PAGE> 36
69. The Defendants have denied all averments of wrongdoing or
liability in the Litigation and all other accusations of wrongdoing or
violations of law. The Stipulation is not and shall not be construed or be
deemed to be evidence or an admission or a concession on the part of any of the
Defendants of any fault or liability or damages whatsoever, and Defendants do
not concede any infirmity in the defenses which they have asserted or intended
to assert in the Litigation.
70. Prior to entering into the Stipulation, Plaintiffs' Counsel
conducted an investigation relating to the events and transactions underlying
Plaintiffs' claims and conducted pretrial discovery on the merits, including,
inter alia, analysis of over three hundred fifty thousand pages of documents
produced by Defendants and numerous non-parties, which included among others,
outside auditors, securities analysts, loan servicing agencies, regulatory
agencies and product and service providers and interviews and depositions of
witnesses. Plaintiffs' Counsel's decision to enter into this Settlement was
made with knowledge of the facts and circumstances underlying Plaintiffs'
claims and the strengths and weaknesses of those claims. In determining to
settle the action, they have evaluated the extensive discovery taken in the
litigation and taken into account the substantial expense and length of time
necessary to prosecute the litigation through trial, post-trial motions and
likely appeals, taking into consideration the significant uncertainties in
predicting the outcome of this complex litigation. Plaintiffs' Counsel also
considered the financial condition of the company and the potential bankruptcy
that could result from a more substantial Judgment. Counsel for Plaintiffs
believe that the Settlement described herein confers very substantial benefits
upon the Class. Based upon their consideration of all of these factors,
Plaintiffs and their counsel have concluded that it is in the best interest of
the Class to settle the action on the terms described herein.
71. All of the parties have now agreed to settle all aspects of
the Litigation, subject to approval of the Court.
72. Plaintiffs recognized the uncertainty and the risk of the
outcome of any litigation, especially complex litigation such as this, and the
difficulties and risks inherent in the trial of such an action. Plaintiffs
desired to settle the claims of the Class against Defendants on the terms and
conditions described herein which provide substantial benefits to the Class.
Counsel for the Class deem such settlement to be fair, reasonable and adequate
to, and in the best interests of the members of the Class.
- 36 -
<PAGE> 37
73. The Defendants, while continuing to deny all allegations of
wrongdoing or liability whatsoever, desired to settle and terminate all
existing or potential claims against them, without in any way acknowledging any
fault or liability.
74. The amount of damages, if any, which Plaintiffs could prove
was also a matter of serious dispute, and the Settlement's use of a Recognized
Claim formula for distributing the Settlement proceeds does not constitute a
finding, admission or concession that provable damages could be measured by the
Recognized Claim formula. No determination has been made by the Court as to
liability or the amount, if any, of damages suffered by the Class, nor on the
proper measure of any such damages. The determination of damages, like the
determination of liability, is a complicated and uncertain process, typically
involving conflicting expert opinions. During the course of the Litigation
Defendants, in addition to denying any liability, disputed that Plaintiffs and
the Class were damaged by any wrongful conduct on Defendants' part. The
Settlement herein is providing an immediate and substantial cash benefit and
avoids the risks that liability or damages might not have been proven at trial.
75. THE COURT HAS NOT FINALLY DETERMINED THE MERITS OF THE
PLAINTIFFS' CLAIMS OR THE DEFENSES THERETO. THIS NOTICE DOES NOT IMPLY THAT
THERE HAS BEEN OR WOULD BE ANY FINDING OF VIOLATION OF THE LAW OR THAT RECOVERY
COULD BE HAD IN ANY AMOUNT IF THE ACTION WERE NOT SETTLED.
TERMS OF THE SETTLEMENT
76. In full and complete settlement of the claims which have or
could have been asserted in this action, and subject to the terms and
conditions of the Stipulation, Defendants have paid into escrow on behalf of
Plaintiffs and the Class Three Million Dollars ($3,000,000.00) (the "Cash
Settlement Amount"), which has been earning interest for the benefit of the
Class since __________ _____ __, 1999. In addition, Defendants will deliver
550,000 shares of freely tradeable CLC common stock ("Shares") for the benefit
of the Class at a guaranteed minimum value as of the time of the Settlement
Hearing of $8.19 per share(4) for a minimum total value of $4.5 million. The
value of
- ----------------------------------
(4) The Stipulation provides the following terms and conditions
for the Shares:
(1) If during the 10 trading days ending five business days prior to the
final settlement hearing, or ending on any other date to which the
parties may agree, the average
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<PAGE> 38
the CLC stock is not guaranteed by the Defendants beyond the date of the
Settlement Hearing and may go up or down depending on numerous factors,
including market conditions and the operations and prospects of CLC.
77. Pursuant to the Settlement, and on the Effective Date,
Plaintiffs and members of the Class on behalf of themselves, their heirs,
executors, administrators, successors and assigns, and any persons they
represent, shall release and forever discharge, and shall forever be enjoined
from prosecuting the Released Parties (defined below) with respect to each and
every Settled Claim (defined below).
78. The "Defendants" include the following, each of whom will be
released from all claims relating to the allegations in the Complaint or to any
purchase of common stock of CLC during the Class Period: Computer Learning
Centers, Inc., ("CLC"), Reid R. Bechtle, Charles L. Cosgrove, Harry H. Gaines
and Stephen P. Reynolds. In addition the Settlement will release the Class'
claims against any and all of the Defendants their past or present
subsidiaries, parents, successors and predecessors, officers, directors,
shareholders, agents, employees, attorneys, advisors, and investment advisors,
insurers, auditors, accountants and any person, firm, trust, corporation,
officer, director or other individual or entity in which any Defendant has a
controlling interest or which is related to or affiliated with any of the
Defendants, and the legal representatives, heirs, successors in interest or
assigns of the Defendants (collectively the "Released Parties").
79. "Settled Claims" means any and all claims, rights or causes of
action or liabilities whatsoever, whether based on federal, state, local,
statutory or common law or any other law, rule or regulation, including both
known and unknown claims, that have been or could have been asserted in any
forum by the Plaintiffs, Class Members or any of them or the successors and
assigns of any of them, whether directly, indirectly, representatively
- -------------------------------------------------------------------------------
closing market price per share of CLC stock for that ten day period
(the "Average Price") is less than $8.19, Defendants will pay to
plaintiffs, in the form of cash and/or additional shares of CLC stock,
an amount for each of the 550,000 shares equal to the difference
between $8.19 and the Average Price, but in no event shall that
additional amount paid exceed $6.19 per share. If additional CLC
Shares are used to make up the shortfall, they shall be valued at the
Average Price; or
(2) If the Average Price is $2.00 or less, Plaintiffs' Co-Lead Counsel
may, at their option, terminate this agreement.
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<PAGE> 39
or in any other capacity, against any of the Released Parties which arise out
of or relate in any way to the allegations, transactions, facts, matters or
occurrences, representations or omissions involved, set forth, referred to or
that could have been asserted in the Consolidated Complaint relating to the
purchase of shares of the common stock of CLC during the Class Period.
80. If the Settlement is approved by the Court, all claims which
have or could have been asserted in the action will be dismissed on the merits
and with prejudice as to all Class Members and all Class Members shall be
forever barred from prosecuting a class action or any other action raising any
Settled Claims against any Released Party.
81. The Stipulation provides that the Defendants may withdraw from
and terminate the Settlement in the event that in excess of a certain amount of
claimants exclude themselves from the Class.
82. The Settlement will become effective at such time as Orders
entered by the Court approving the Settlement shall become final and not
subject to appeal (the "Effective Date").
PLAN OF ALLOCATION
OF SETTLEMENT PROCEEDS AMONG CLASS MEMBERS
83. The $3,000,000 Cash Settlement Amount and the interest earned
thereon, and the 550,000 shares of CLC common stock (or the proceeds of the
sale of any or all of such shares, if sold) shall be the Gross Settlement Fund.
The Gross Settlement Fund, less all taxes, approved costs, fees and expenses
(the "Net Settlement Fund") shall be distributed to members of the Class who
file acceptable Proofs of Claim ("Authorized Claimants").
84. The Claims Administrator shall determine each
Authorized Claimant's pro rata share of the Net Settlement Fund based upon each
Authorized Claimant's "Recognized Claim." The Recognized Claim formula set
forth below reflects Plaintiffs' contention that the price of the shares of CLC
began to be artificially inflated at the beginning of the Class Period, April
30, 1997, until March 9, 1998, when part of the alleged artificial inflation
was allegedly eliminated by the disclosures in an article in the Washington
Post. Plaintiffs further contended that some artificial inflation continued
thereafter until April 6, 1998, the end of the Class Period, when CLC disclosed
that the Company had been ordered to suspend marketing and enrollment at one of
its training centers and that each and every CLC facility had been placed on
heightened cash-monitoring status by the United States Department of Education,
immediately after which the price of CLC shares fell to $13 per share.
Thereafter,
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<PAGE> 40
in the 90-day period following April 6, 1998, (ending July 2, 1998) the mean
trading price of CLC shares was $17.17. The Defendants deny that their conduct
caused any artificial inflation in the price of CLC shares and the use of the
Recognized Claim formula herein does not constitute any admission or concession
on the part of the Defendants that there was any wrongdoing, liability or
damages.
85. An Authorized Claimant's "Recognized Claim" shall mean the
amount determined in accordance with the following formula:
(i) for each share of common stock of CLC Corporation
purchased during the period from April 30, 1997 through the close of
trading on March 9, 1998 which an Authorized Claimant continued to
hold as of the close of trading on July 2, 1998, the Recognized Claim
shall be equal to the difference, if a loss, between the amount paid
for CLC common stock (including brokerage commissions and transaction
charges), and $17.17;
(ii) for each share of common stock of CLC Corporation
purchased during the period from April 30, 1997 through the close of
trading on March 9, 1998 which an Authorized Claimant continued to
hold as of the close of trading on March 9, 1998, but sold on or prior
to July 2, 1998, the Recognized Claim shall be equal to the
difference, if a loss, between the amount paid for CLC common stock
(including brokerage commissions and transaction charges), and the sum
for which said shares were sold at a loss (net of brokerage
commissions and transaction charges);
(iii) for each share of common stock of CLC Corporation
purchased during the period from April 30, 1997 through the close of
trading on March 9, 1998 which an Authorized Claimant sold prior to
the close of trading on March 9, 1998, the Recognized Claim shall be
equal to 50% of the difference, if a loss, between the amount paid for
CLC common stock (including brokerage commissions and transaction
charges), and the sum for which said shares were sold at a loss (net
of brokerage commissions and transaction charges);
(iv) for each share of common stock of CLC Corporation
purchased during the period from March 10, 1998, through the close of
trading on April 6, 1998 which an Authorized Claimant continued to
hold as of the close of trading on July 2, 1998, the Recognized Claim
shall be equal to the difference, if a
- 40 -
<PAGE> 41
loss, between the amount paid for CLC common stock (including
brokerage commissions and transaction charges), and $17.17;
(v) for each share of common stock of CLC Corporation
purchased during the period from March 10, 1998 through the close of
trading on April 6, 1998 which an Authorized Claimant continued to
hold as of the close of trading on April 6, 1998, but sold on or prior
to July 2, 1998, the Recognized Claim shall be equal to the
difference, if a loss, between the amount paid for CLC common stock
(including brokerage commissions and transaction charges), and the sum
for which said shares were sold at a loss (net of brokerage
commissions and transaction charges);
(vi) for each share of common stock of CLC Corporation
purchased during the period from March 10, 1998 through the close of
trading on April 6, 1998 which an Authorized Claimant sold prior to
the close of trading on April 6, 1998, the Recognized Claim shall be
equal to 50% of the difference, if a loss, between the amount paid for
CLC common stock (including brokerage commissions and transaction
charges), and the sum for which said shares were sold at a loss (net
of brokerage commissions and transaction charges);
86. Transactions resulting in a gain shall not be included. In the
event a Class Member has more than one purchase or sale of CLC common stock,
all purchases and sales shall be matched on a First In First Out ("FIFO")
basis. Any person or entity who sold shares of CLC common stock "short" shall
have no Recognized Claim with respect to any purchase during the Class Period
to cover such short sale. A purchase or sale of CLC common stock shall be
deemed to have occurred on the "contract" or "trade" date as opposed to the
"settlement" or "payment" date. The receipt or grant by gift, devise or
operation of law of CLC common stock during the Class Period shall not be
deemed a purchase or sale of CLC common stock for the calculation of an
Authorized Claimant's Recognized Claim nor shall it be deemed an assignment of
any claim relating to the purchase of such shares unless specifically provided
in the instrument of gift or assignment. The receipt of CLC common stock
during the Class Period in exchange for securities of any other corporation or
entity shall not be deemed a purchase or sale of CLC common stock.
87. Each Authorized Claimant shall be allocated pro rata
shares of the cash and CLC Shares in Net Settlement Fund based on his, her or
its Recognized Claim compared to the Total Recognized Claims of all
- 41 -
<PAGE> 42
accepted claimants. The amount of cash to be paid to each Authorized Claimant
shall be determined by multiplying his, her or its "Recognized Claim" by a
fraction the numerator of which shall be the cash Net Settlement Fund and the
denominator of which shall be the Total Recognized Claims of all Authorized
Claimants. To the extent not previously sold or distributed, the amount of CLC
Shares to be paid to each Authorized Claimant shall be determined by
multiplying his, her or its "Recognized Claim" by a fraction the numerator of
which shall be the CLC Shares in the Net Settlement Fund and the denominator of
which shall be the Total Recognized Claims of all Authorized Claimants. No
fractional shares shall be issued. No adjustment will be made in the cash
distributions for fractional shares.
88. Class Members who do not file acceptable Proofs of Claim will
not share in the settlement proceeds. Class Members who do not either file a
request for exclusion or file acceptable Proofs of Claim will nevertheless be
bound by the judgment and the Settlement.
THE RIGHTS OF CLASS MEMBERS
89. The Court has certified this action to proceed as a class
action for purposes of the Settlement. If you purchased common stock of CLC
during the period from April 30, 1997 through and including April 6, 1998
(excluding any purchase transactions to cover short positions and excluding the
Defendants themselves, members of their immediate families, and any entity in
which any of them has a controlling interest), then you are a Class Member.
Class Members have the following options pursuant to Rule 23 (c) (2) of the
Federal Rules of Civil Procedure:
(a) If you wish to remain a member of the Class you may share in
the proceeds of the settlement, provided that you submit an acceptable Proof of
Claim. Class Members will be represented by the Plaintiffs and their counsel,
unless you enter an appearance through counsel of your own choice at your own
expense. You are not required to retain your own counsel, but if you choose to
do so, such counsel must file an appearance on your behalf on or before
___________, 1999, and must serve copies of such appearance on the attorneys
listed in Paragraph 37 below.
(b) If you do not wish to remain a member of the Class you may
exclude yourself from the Class by following the instructions in Paragraph 37
below. Persons who exclude themselves from the Class will NOT receive any
share of the settlement proceeds and will not be bound by the Settlement.
- 42 -
<PAGE> 43
(c) If you object to the Settlement or any of its terms, including the
Plan of Allocation, or to Plaintiffs' Counsel's application for fees and
expenses, and if you do not exclude yourself from the Class, you may present
your objections by following the instructions in paragraph 37 below.
FILING AND PROCESSING OF PROOFS OF CLAIM
90. IN ORDER TO BE ELIGIBLE TO RECEIVE ANY DISTRIBUTION FROM THE
SETTLEMENT FUND, YOU MUST COMPLETE AND SIGN THE ATTACHED PROOF OF CLAIM AND
RELEASE FORM AND SEND IT BY PREPAID FIRST CLASS MAIL POST-MARKED ON OR BEFORE
______________, 1999, ADDRESSED AS FOLLOWS:
In re Computer Learning Centers Securities Litigation
C/O Gilardi & Co. LLC
Claims Administrator
Post Office Box 8040
San Rafael, CA 94912-8040
91. IF YOU DO NOT FILE A PROPER PROOF OF CLAIM FORM, YOU WILL NOT
BE ENTITLED TO ANY SHARE OF THE SETTLEMENT FUND.
92. IF YOU ARE A CLASS MEMBER AND YOU DO NOT PROPERLY EXCLUDE
YOURSELF FROM THE CLASS, YOU WILL BE BOUND BY THE SETTLEMENT AND THE FINAL
JUDGMENT OF THE COURT DISMISSING THIS LITIGATION, EVEN IF YOU DO NOT FILE A
PROOF OF CLAIM. IF YOU EXCLUDE YOURSELF, YOU WILL NOT BE BOUND BY THE JUDGMENT
BUT YOU WILL NOT BE ENTITLED TO ANY SHARE OF THE SETTLEMENT FUND.
93. All Proofs of Claim must be submitted by the date specified in
this Notice unless such period is extended by Order of the Court.
94. Each Claimant shall be deemed to have submitted to the
jurisdiction of the United States District Court for the Eastern District of
Virginia with respect to his, her or its claim.
EXCLUSION FROM THE SETTLEMENT
95. Each Member of the Class shall be bound by all determinations
and judgments in this action concerning the Settlement, whether favorable or
unfavorable, unless such person shall mail, by first class mail, a written
request for exclusion from the Class, postmarked no later than ________, 1999,
addressed to "Computer Learning Centers Securities Litigation Exclusions, C/O
Gilardi & Co. LLC, P.O. Box 8040, San Rafael, CA 94912-
- 43 -
<PAGE> 44
8040." No person may exclude himself from the Settlement Class after that
date. In order to be valid, each such request for exclusion must set forth the
name and address of the person or entity requesting exclusion, must state that
such person or entity "requests exclusion from the Class in the Computer
Learning Centers Securities Litigation, Civil Action No. 98-859-A" and must be
signed by such person or entity. Persons and entities requesting exclusion are
requested to also provide the following information: Social Security or
Taxpayer Identification Number, the number(s) of shares of CLC common stock
purchased during the Class Period and the price(s) paid therefor, and the
number(s) of shares of CLC common stock sold during the class period and the
amount(s) received therefor, and the number of shares still owned as of the
close of trading on April 6, 1998.
SETTLEMENT HEARING
96. At the Settlement Hearing, the Court will determine whether to
finally approve this Settlement and dismiss the Litigation and the claims of
the Class. The Court will also determine whether the Plan of Allocation for
the Net Settlement Fund, and the terms and conditions for the distribution of
CLC common stock pursuant to the Settlement Agreement are fair, reasonable,
adequate and in the best interests of the Class. The Settlement Hearing may be
adjourned from time to time by the Court without further written notice to the
Class.
- 44 -
<PAGE> 45
97. At the Settlement Hearing, any Class member who has not
properly filed a Request for Exclusion from the Class may appear in person or
by counsel and be heard to the extent allowed by the Court in opposition to the
fairness, reasonableness and adequacy of the Settlement, the Plan of Allocation
or the application for an award of attorneys' fees and reimbursement of
expenses, provided, however, that in no event shall any person be heard in
opposition to the Settlement, Plan of Allocation or Plaintiffs' Counsel's
application for attorneys' fees and expenses and in no event shall any paper or
brief submitted by any such person be accepted or considered by the Court,
unless, on or before _________, 1999, such person (a) files with the Clerk of
the Court notice of such person's intention to appear, together with a
statement that indicates the basis for such opposition, along with any
documentation in support of such objection, and (b) simultaneously serves
copies of such notice, statement and documentation, together with copies of any
other papers or briefs such person files with the Court, in person or by mail
upon the following counsel: for Plaintiffs, Robert P. Sugarman, Esq., MILBERG
WEISS BERSHAD HYNES & LERACH, LLP, One Pennsylvania Plaza, New York, NY
10019-0165; Randall H. Steinmeyer, Esq., REINHARDT & ANDERSON, E-1000 First
National Bank Bldg., 332 Minnesota Street, St. Paul, MN 55101; Jules Brody,
Esq., STULL, STULL & BRODY, 6 East 45th Street, New York, NY 10017; and for
Defendants, Geoffrey S. Stewart, Esq., HALE and DORR LLP, 1455 Pennsylvania
Avenue, N.W., Suite 1000, Washington, DC 20004; and Steven B. Rosenfeld, Esq.,
PAUL, WEISS, RIFKIND, WHARTON & GARRISON, 1285 Avenue of the Americas, New
York, New York 10019-6064.
ATTORNEYS' FEES AND DISBURSEMENTS
98. At the Settlement Hearing or at such other time as the Court
may direct, Plaintiffs' Counsel intend to apply to the Court for an award of
attorneys' fees from the Settlement Fund in an amount not greater than one
third of the both the cash and CLC Shares in the Gross Settlement Fund and for
reimbursement, from the cash settlement proceeds, of their actual,
out-of-pocket expenses up to a maximum amount of $575,000, plus interest at the
same rate as earned by the cash Settlement Fund. Plaintiffs' Counsel, without
further notice to the Class, may subsequently apply to the Court for fees and
expenses incurred in connection with administering and distributing the
settlement proceeds to the members of the Class.
- 45 -
<PAGE> 46
FURTHER INFORMATION
99. For a more detailed statement of the matters involved in this
Litigation, reference is made to the pleadings, to the Stipulation, to the
Orders entered by the Court and to the other papers filed in the Litigation,
which may be inspected at the Office of the Clerk of the United States District
Court for the Eastern District of Virginia, Alexandria Division, United States
Courthouse, 401 Courthouse Square, Alexandria, Virginia 22314 during regular
business hours.
100. ALL INQUIRIES CONCERNING THIS NOTICE OR THE PROOF OF CLAIM
FORM BY CLASS MEMBERS SHOULD BE MADE TO THE CLAIMS ADMINISTRATOR IN WRITING.
NO INQUIRIES SHOULD BE DIRECTED TO THE COURT.
SPECIAL NOTICE TO
SECURITIES BROKERS AND OTHER NOMINEES
101. If you purchased common stock of Computer Learning Centers,
Inc., during the Class Period for the beneficial interest of a person or
organization other than yourself, the Court has directed that within seven days
of your receipt of this Notice, you either (a) provide to the Claims
Administrator the name and last known address of each person or organization
for whom or which you purchased such stock during such time period or (b) you
request additional copies of this Notice and the Proof of Claim form, which
will be provided to you free of charge, and within seven days mail the Notice
and Proof of Claim form directly to the beneficial owners of the securities
referred to herein. If you choose to follow this alternative procedure (b),
the Court has ordered that you must, upon such mailing, send a statement to the
Claims Administrator confirming that the mailing was made as directed. You are
entitled to reimbursement from the Settlement Fund of your reasonable
out-of-pocket expenses actually incurred in connection with the foregoing,
including reimbursement of postage expense and the cost of ascertaining the
names and addresses of beneficial owners. Those expenses will be paid upon
request and submission of appropriate supporting documentation. All
communications concerning the foregoing should be addressed to the Claims
Administrator:
<TABLE>
<S> <C>
In re Computer Learning Centers Securities Litigation By Order of the Court
C/O Gilardi & Co. LLC ---------------------
Claims Administrator CLERK OF THE COURT
Post Office Box 8040
San Rafael, CA 94912-8040 Dated: , 1999
Alexandria, Virginia
</TABLE>
- 46 -
<PAGE> 47
EXHIBIT 2
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION
<TABLE>
<S> <C>
GANESH, L.L.C., et al., On Behalf of Themselves and All )
Others Similarly Situated, )
)
Plaintiffs, ) Civil Action No. 98-859-A
)
vs. ) CLASS ACTION
) ------------
COMPUTER LEARNING CENTERS, INC., REID R. BECHTLE, CHARLES )
L. COSGROVE, HARRY H. GAINES and STEPHEN P. REYNOLDS, )
)
Defendants. )
)
)
</TABLE>
PROOF OF CLAIM AND RELEASE
DEADLINE FOR SUBMISSION: , 1999.
-----------
IF YOU PURCHASED COMMON STOCK OF COMPUTER LEARNING CENTERS, INC.,
("CLC") DURING THE PERIOD APRIL 30, 1997 TO APRIL 6, 1998("CLASS
PERIOD"), (EXCLUDING THOSE WHOSE PURCHASE TRANSACTIONS WERE MADE TO
COVER SHORT POSITIONS, AND ALSO EXCLUDING THE DEFENDANTS THEMSELVES,
MEMBERS OF THEIR IMMEDIATE FAMILIES, AND ANY ENTITY IN WHICH ANY OF
THEM HAS A CONTROLLING INTEREST) YOU ARE A "CLASS MEMBER" AND YOU MAY
BE ENTITLED TO SETTLEMENT PROCEEDS.
IF YOU ARE A CLASS MEMBER, YOU MUST COMPLETE AND SUBMIT THIS FORM IN
ORDER TO BE ELIGIBLE FOR ANY SETTLEMENT BENEFITS.
YOU MUST COMPLETE AND SIGN THIS PROOF OF CLAIM AND MAIL IT BY
PRE-PAID, FIRST CLASS MAIL, POSTMARKED NO LATER THAN _________ , 1999
TO THE FOLLOWING ADDRESS:
In re Computer Learning Centers Securities Litigation
C/O Gilardi & Co. LLC
Claims Administrator
Post Office Box 8040
San Rafael, CA 94912-8040
YOUR FAILURE TO SUBMIT YOUR CLAIM BY ________, 1999 WILL SUBJECT YOUR
CLAIM TO REJECTION AND PRECLUDE YOUR RECEIVING ANY MONEY IN CONNECTION
WITH THE SETTLEMENT OF THIS LITIGATION. DO NOT MAIL OR DELIVER YOUR
CLAIM TO THE COURT OR TO ANY OF THE PARTIES OR THEIR COUNSEL AS ANY
SUCH CLAIM WILL BE DEEMED NOT TO HAVE BEEN SUBMITTED. SUBMIT YOUR
CLAIM ONLY TO THE CLAIMS ADMINISTRATOR.
- 47 -
<PAGE> 48
I. I did ___, I did not ___ (check one) purchase the Common Stock
of COMPUTER LEARNING CENTERS, INC., between April 30, 1997 through and
including April 6, 1998, excluding all purchase transactions that were made to
cover short positions.
II. By submitting this Proof of Claim, I state that I believe in
good faith that I am a Class member as defined above and in the Notice Of
Pendency Of Class Action, Proposed Settlement Thereof, Settlement Hearing And
Right To Share In Settlement Fund (the "Notice"), or am acting for such person;
that I have read and understand the Notice; that I believe that I am entitled
to receive a share of the Net Settlement Fund; that I elect to participate in
the proposed Settlement described in the Notice; and that I have not filed a
request for exclusion.
III. I have set forth where requested below all relevant
information with respect to each purchase of CLC common stock, during the Class
Period, and each sale, if any, of such securities. I represent that in
connection with any purchases of CLC stock during the Class Period claimed
herein that such purchase(s) were not made to cover any short position.
IV. I have enclosed photocopies of the stockbroker's confirmation
slips, stockbroker's statements, relevant portions of my tax returns or other
documents evidencing each purchase, sale or retention of CLC common stock
listed below in support of my claim. IF ANY SUCH DOCUMENTS ARE NOT IN YOUR
POSSESSION, PLEASE OBTAIN A COPY OR EQUIVALENT DOCUMENTS FROM YOUR BROKER OR
TAX ADVISOR BECAUSE THESE DOCUMENTS ARE NECESSARY TO PROVE AND PROCESS YOUR
CLAIM.
V. I understand that the information contained in this Proof of
Claim is subject to such verification as the Court may direct, and I agree to
cooperate in any such verification. I further agree and understand that if the
proposed Settlement is approved by the Court and becomes effective, all claims,
demands, or causes of action against any or all defendants, and certain other
persons or entities further identified below, which have been or could have
been asserted relating to the subject matter of the Litigation will be
satisfied, discharged and extinguished forever.
VI. Upon the occurrence of the Effective Date (as defined in the
Notice) my signature hereto will constitute a full and complete release, remise
and discharge by me or, if I am submitting this Proof of Claim on behalf of a
corporation, a partnership, estate or one or more other persons, by it, him,
her or them, and by my, its,
- 48 -
<PAGE> 49
his, her or their heirs, executors, administrators, successors, and assigns, of
each of the "Released Parties" of all "Settled Claims," as defined in the
Notice.
VII. Statement of Claim
<TABLE>
<S> <C> <C>
Name(s) of Beneficial Owner(s):
Name
--------------------------------------------------------
Name
--------------------------------------------------------
Street No.
--------------------------------------------------------
City State Zip Code
-------------------- --------------- -----------
( ) ( )
-------------------- ---------------------
Telephone No. (Day) Telephone No. (Night)
Taxpayer I.D. No. or Social Security No.
Check one:
___ Individual ___ Corporation ___ Estate
___ Other (specify)
----------------------------------------------
Record Owner's Name (if different from Beneficial
--------------------------------------------------------
Owner listed above)
</TABLE>
I. At the close of business on April 29, 1997, I owned _______
shares of CLC common stock.
- 49 -
<PAGE> 50
J. I made the following purchases of CLC common stock during the
period April 30, 1997 through April 6, 1998, inclusive. (Persons who received
CLC common stock during the Class Period other than by purchase are not
eligible to file claims for those transactions.) Do not include any purchase
transactions made to cover any short positions.
<TABLE>
<CAPTION>
Date(s) of Purchase Aggregate
Purchase Number of Price Per Cost (including
(List Chrono- Shares of Share of commission,
logically) Common Stock Common Stock taxes and fees)
- ------------- ------------ ------------ ---------------
<S> <C>
$ $
- ------------- ------------ ------------ ---------------
$ $
- ------------- ------------ ------------ ---------------
$ $
- ------------- ------------ ------------ ---------------
$ $
- ------------- ------------ ------------ ---------------
</TABLE>
K. I made the following sales of CLC common stock during the
period April 30, 1997 through July 2, 1998 inclusive:
<TABLE>
<CAPTION>
Date(s) of Number of Proceeds
Sale (List Shares of Sales Price (net of
Chronologically) Common Stock Per Share of commission,
Month/Day/Year Sold Common Stock taxes and fees)
- -------------- ------------ ------------ ---------------
<S> <C> <C> <C>
$ $
- -------------- ------------ ------------ ---------------
$ $
- -------------- ------------ ------------ ---------------
$ $
- -------------- ------------ ------------ ---------------
$ $
- -------------- ------------ ------------ ---------------
</TABLE>
L. At the close of business on July 2, 1998, I still owned ____
shares of CLC common stock.
VIII. Substitute Form W-9
Request for Taxpayer Identification Number:
Enter taxpayer identification number below for the Beneficial
Owner(s). For most individuals, this is your Social Security number. The
Internal Revenue Service ("I.R.S.") requires such taxpayer identification
number. If you fail to provide this information, your claim may be rejected.
- 50 -
<PAGE> 51
<TABLE>
<S> <C>
Social Security Number
---------------------------------------------------------
(for individuals) or
Employer Identification Number
--------------------------------------------------------
(for estates, trusts, corporations, etc.)
</TABLE>
IX. Certification
UNDER THE PENALTIES OF PERJURY, I (WE) CERTIFY THAT ALL OF THE
INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE.
I (We) certify that I am (we are) NOT subject to backup withholding
under the provisions of Section 3406 (a)(1)(c) of the Internal Revenue Code
because: (a) I am (We are) exempt from backup withholding, or (b) I (We) have
not been notified by the I.R.S. that I am (we are) subject to backup
withholding as a result of a failure to report all interest or dividends, or
(c) the I.R.S. has notified me (us) that I am (we are) no longer subject to
backup withholding.
NOTE: If you have been notified by the I.R.S. that you are subject to
backup withholding, please strike out the language that you are not subject to
backup withholding in the certification above.
Signature of Claimant (If this
claim is being made on behalf
of Joint Claimants, then each
must sign)
(Signature)
-------------------------------
(Signature)
-------------------------------
Date:
------------------------
THIS PROOF OF CLAIM MUST BE SUBMITTED NO LATER THAN ____________,
1999, AND MUST BE MAILED TO:
In re Computer Learning Centers Securities Litigation
C/O Gilardi & Co. LLC
Claims Administrator
Post Office Box 8040
San Rafael, CA 94912-8040
- 51 -
<PAGE> 52
A Proof of Claim received by the Claims Administrator shall be deemed
to have been submitted when posted, if mailed by ________, 1999, and if a
postmark is indicated on the envelope and it is mailed first class postage
prepaid, and addressed in accordance with the above instructions. In all other
cases, a Proof of Claim shall be deemed to have been submitted when actually
received by the Claims Administrator.
If you wish to be assured that your Proof of Claim is actually
received by the Claims Administrator then you should send it by Certified Mail,
Return Receipt Requested. No acknowledgment will be made as to the receipt of
claim forms. You should be aware that it will take a significant amount of
time to process fully all of the Proofs of Claim and to administer the
Settlement. This work will be completed as promptly as time permits, given the
need to investigate and tabulate each Proof of Claim.
- 52 -
<PAGE> 53
EXHIBIT 3
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION
<TABLE>
<S> <C><C>
GANESH, L.L.C., et al., )
Plaintiffs, ) Civil Action No. 98-859-A
vs. )
COMPUTER LEARNING CENTERS, INC., et al., ) CLASS ACTION
-- --- ) ------------
Defendants.
</TABLE>
SUMMARY NOTICE OF PENDENCY OF CLASS ACTION,
PROPOSED SETTLEMENT AND SETTLEMENT HEARING
TO: ALL PERSONS WHO PURCHASED THE COMMON STOCK IN COMPUTER LEARNING
CENTERS, INC., ("CLC") DURING THE PERIOD APRIL 30, 1997 THROUGH AND
INCLUDING APRIL 6, 1998, EXCLUDING THOSE WHOSE PURCHASE TRANSACTIONS
WERE MADE TO COVER SHORT POSITIONS.
YOU ARE HEREBY NOTIFIED, pursuant to Rule 23 of the Federal Rules of
Civil Procedure and an Order of the Court dated ____________, 1999, that the
above-captioned action has been certified as a class action, and that a
settlement for $3,000,000, plus 550,000 shares of common stock of CLC has been
proposed. A hearing will be held at the United States Courthouse, 401
Courthouse Square, Alexandria, VA 22314, at ____, on ___________, 1999 to
determine whether the proposed settlement should be approved by the Court as
fair, reasonable and adequate, and to consider the application of Class
Counsel for attorneys' fees and reimbursement of expenses.
IF YOU ARE A MEMBER OF THE CLASS DESCRIBED ABOVE, YOUR RIGHTS WILL BE
AFFECTED AND YOU MAY BE ENTITLED TO SHARE IN THE SETTLEMENT FUND. If you have
not yet received the full printed Notice of Pendency of Class Action, Proposed
Settlement and Settlement Hearing and a Proof of Claim form, you may obtain
copies of these documents by identifying yourself as a member of the Class and
by writing to:
In re Computer Learning Centers Securities Litigation
C/O Gilardi & Co. LLC
Claims Administrator
Post Office Box 8040
San Rafael, CA 94912-8040
- 53 -
<PAGE> 54
Inquiries, other than requests for the forms of Notice and Proof of
Claim, may be made to the following counsel for plaintiffs:
<TABLE>
<S> <C> <C>
Robert P. Sugarman, Esq. Jules Brody, Esq. Randall Steinmeyer,Esq.
MILBERG WEISS BERSHAD STULL, STULL & BRODY REINHARDT & ANDERSON
HYNES & LERACH, LLP 6 East 45th Street E-1000 First National
One Penn Plaza New York, NY 10017 Bank Bldg.
New York, NY 10019-0165 Tel. (212) 687-7230 332 Minnesota Street
Tel. (212) 954-5300 St. Paul, MN 55101
Tel. (651) 227-9990
</TABLE>
To participate in the Settlement, you must file a Proof of Claim no
later than ___________, 1999. To exclude yourself from the Class you must file
a request for exclusion so as to be received no later than ________, 1999. IF
YOU ARE A CLASS MEMBER AND DO NOT EXCLUDE YOURSELF OR DO NOT FILE A PROPER
PROOF OF CLAIM, YOU WILL NOT SHARE IN THE SETTLEMENT BUT YOU WILL BE BOUND BY
THE FINAL ORDER AND JUDGMENT OF THE COURT.
Further information may be obtained by directing your inquiry in
writing to the Claims Administrator.
PLEASE DO NOT CONTACT THE COURT OR THE CLERK'S OFFICE FOR
INFORMATION.
By Order of The Court
- 54 -
<PAGE> 55
EXHIBIT B
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION
<TABLE>
<S> <C><C>
GANESH, L.L.C., et al., On Behalf of Themselves and All )
Others Similarly Situated, )
)
)
Plaintiffs, )
) Civil Action No. 98-859-A
)
vs. )
) CLASS ACTION
) ------------
)
COMPUTER LEARNING CENTERS, INC., REID R. BECHTLE, CHARLES )
L. COSGROVE, HARRY H. GAINES and STEPHEN P. REYNOLDS, )
)
Defendants.
</TABLE>
ORDER AND FINAL JUDGMENT
On this ______ day of _______________, 1999, a hearing having
been held before this Court to determine: (1) whether the terms and conditions
of the Stipulation and Agreement of Settlement, dated February __, 1999 (the
"Stipulation") are fair, reasonable and adequate for the settlement of all
claims asserted by the Class against the Defendants in the complaint now
pending in this Court under the above caption, including the release of the
Defendants and the Released Parties and should be approved; (2) whether
judgment should be entered dismissing the complaint on the merits and with
prejudice in favor of the Defendants only and as against all persons or
entities who are members of the Class herein who have not requested exclusion
therefrom; (3) whether to approve the Plan of Allocation; and (4) whether and
in what amount to award counsel for plaintiffs and the Class fees and
reimbursement of expenses. The Court having considered all matters submitted
to it at the hearing and otherwise; and it appearing that a notice of the
hearing substantially in the form approved by the Court was mailed to all
persons or entities reasonably identifiable, who purchased common stock of
Computer Learning Centers, Inc., ("CLC") during the period April 30, 11997
through April 6, 1998 (the "Class Period") excluding all purchase transactions
that were made to cover short positions, and except those persons or entities
excluded from the definition of the Class, as shown by the records of CLC's
transfer agent, at the respective addresses set forth in such
- 55 -
<PAGE> 56
records, and that a summary notice of the hearing substantially in the form
approved by the Court was published in The Wall Street Journal pursuant to the
specifications of the Court; and the Court having considered and determined the
fairness and reasonableness of the award of attorneys' fees and expenses
requested; and all capitalized terms used herein having the meanings as set
forth and defined in the Stipulation.
NOW, THEREFORE, IT IS HEREBY ORDERED THAT:
- 56 -
<PAGE> 57
1. The Stipulation is approved as fair, reasonable and
adequate, and in the best interests of the Class, and the Class Members and the
Parties are directed to consummate the Stipulation in accordance with its terms
and provisions.
2. The Complaint is hereby dismissed with prejudice and
without costs, except as provided in the Stipulation, as against any and all of
the Defendants, their past or present subsidiaries, parents, successors and
predecessors, officers, directors, shareholders, agents, employees, attorneys,
advisors, and investment advisors, insurers, auditors, accountants and any
person, firm, trust, corporation, officer, director or other individual or
entity in which any Defendant has a controlling interest or which is related to
or affiliated with any of the Defendants, and the legal representatives, heirs,
successors in interest or assigns of the Defendants (collectively the "Released
Parties").
3. The Defendants and the successors and assigns of any
of them, are hereby permanently barred and enjoined from instituting,
commencing or prosecuting, either directly or in any other capacity, any
Settled Defendants' Claims against any of the Plaintiffs, Class Members or
their attorneys. The Settled Defendants' Claims are hereby compromised,
settled, released, discharged and dismissed on the merits and with prejudice by
virtue of the proceedings herein and this Order and Final Judgment.
4. Members of the Class and the successors and assigns
of any of them, are hereby permanently barred and enjoined from instituting,
commencing or prosecuting, either directly or in any other capacity, any and
all claims, rights or causes of action or liabilities whatsoever, whether based
on federal, state, local, statutory or common law or any other law, rule or
regulation, including both known and unknown claims, that have been or could
have been asserted in any forum by the Plaintiffs, Class Members or any of them
or the successors and assigns of any of them, whether directly, indirectly,
representatively or in any other capacity, against any of the Released Parties
which arise out of or relate in any way to the allegations, transactions,
facts, matters or occurrences, representations or omissions involved, set
forth, referred to or that could have been asserted in the Consolidated
Complaint relating to the purchase of shares of the common stock of CLC during
the Class Period (the "Settled Claims") against any and all of the Released
Parties. The Settled Claims are hereby compromised, settled, released,
- 57 -
<PAGE> 58
discharged and dismissed as against the Released Parties on the merits and with
prejudice by virtue of the proceedings herein and this Order and Final
Judgment.
5. The Plan of Allocation is approved as fair and
reasonable, and in the best interests of the Class, and Plaintiffs' Counsel and
the Claims Administrator are directed to administer the Stipulation in
accordance with its terms and provisions.
6. The terms and conditions for the distribution of the
CLC Shares pursuant to the Stipulation are approved as fair, reasonable and
adequate and in the best interests of the Class. The Court finds that the
provisions of Section 3(a)(10) of the Securities Act of 1933 have been met and
that the CLC Shares may be issued by CLC and are exempt from the registration
requirements of the federal securities laws.
7. Neither the Stipulation, nor any of its terms and
provisions, nor any of the negotiations or proceedings connected with it, nor
any of the documents or statements referred to therein shall be:
(a) offered or received against the Defendants as evidence of or
construed as or deemed to be evidence of any presumption, concession, or
admission by any of the Defendants of the truth of any fact alleged by
Plaintiffs or the validity of any claim that had been or could have been
asserted in the Action or in any litigation, or the deficiency of any defense
that has been or could have been asserted in the Action or in any litigation,
or of any liability, negligence, fault, or wrongdoing of Defendants;
(b) offered or received against the Defendants as evidence of
a presumption, concession or admission of any fault, misrepresentation or
omission with respect to any statement or written document approved or made by
any Defendant, or against the Plaintiffs and the Class as evidence of any
infirmity in the claims of Plaintiffs and the Class;
(c) offered or received against the Defendants as evidence of
a presumption, concession or admission of any liability, negligence, fault or
wrongdoing, or in any way referred to for any other reason as against any of
the parties to this Stipula-
- 58 -
<PAGE> 59
tion, in any other civil, criminal or administrative action or proceeding,
other than such proceedings as may be necessary to effectuate the provisions of
this Stipulation; provided, however, that if this Stipulation is approved by
the Court, Defendants may refer to it to effectuate the liability protection
granted them hereunder;
(d) offered or received as evidence of a presumption,
concession or admission of the lack of any liability, fault or wrongdoing
claimed by Plaintiffs or of any infirmity of the claims Plaintiffs asserted or
intended to assert, or in any way referred to for any other reason, against the
Plaintiffs or any member of the Class in this or any other civil, criminal or
administrative action or proceeding other than such proceedings as may be
necessary to consummate or enforce this Stipulation; and
(e) offered or construed against the Defendants or the
Plaintiffs or the Class as an admission or concession that the consideration to
be given hereunder represents the amount which could be or would have been
recovered after trial.
8. Counsel for plaintiffs and the Class are hereby
awarded ____________% of the both the Cash Settlement Amount and CLC Shares in
the Gross Settlement Fund as and for their attorneys' fees, which amounts the
Court finds to be fair and reasonable, and $__________ from the cash in the
Gross Settlement Fund in reimbursement of their litigation expenses, which cash
payments shall be paid to Plaintiffs' Co-Lead Counsel from the Settlement Fund
with interest from the date such Settlement Fund was funded to the date of
payment at the same rate that the Gross Settlement Fund earns. The award of
attorneys' fees shall be allocated among counsel for plaintiffs and the Class
in a fashion which, in the opinion of Plaintiffs' Co-Lead Counsel, fairly
compensates counsel for the plaintiffs and the Class for their respective
contributions in the prosecution of the litigation.
9. Exclusive jurisdiction is hereby retained over the
Parties and the Class Members for all matters relating to this litigation,
including the administration, interpretation, effectuation or enforcement of
the Stipulation and this Order and Final Judgment, and including any
application for fees and expenses incurred in connection with administering and
distributing the settlement proceeds to the members of the Class.
10. Without further order of the Court, the Parties may
agree to reasonable extensions of time to carry out any of the provisions of
the Stipulation.
- 59 -
<PAGE> 60
11. There is no just reason for delay in the entry of
this Order and Final Judgment and immediate entry by the Clerk of the Court is
expressly directed pursuant to Rule 54 (b) of the Federal Rules of Civil
Procedure.
Dated: Alexandria, Virginia
, 1999
------------
-----------------------------------
UNITED STATES DISTRICT JUDGE
- 60 -
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
JANUARY 31, 1999, 1998, AND 1997
(DOLLAR AMOUNTS IN THOUSANDS, EXPECT PER SHARE AMOUNTS)
SEE NOTES 3 AND 5 TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net (loss) income..................................... $ (586) $ 9,580 $ 5,601
=========== =========== ===========
Weighted average number of common shares
outstanding -- Basic................................ 17,318,049 15,892,943 13,718,912
Dilutive securities:
Employee stock options.............................. (a) 1,197,052 998,199
Non employee stock options.......................... (a) 98,869 201,507
Subscription note receivable........................ -- -- 99,226
----------- ----------- -----------
Weighted average number of common shares
outstanding -- Diluted.............................. 17,318,049 17,188,864 15,017,844
=========== =========== ===========
Earnings per share:
Basic............................................... $ (0.03) $ 0.60 $ 0.41
=========== =========== ===========
Diluted............................................. $ (0.03) $ 0.56 $ 0.37
=========== =========== ===========
</TABLE>
- ---------------
(a) The Company had a total of 1,664,831 options outstanding as of January 31,
1999; however, these options are not included in the calculation of the
number of dilutive securities outstanding as their impact is antidulitive
due to the net loss in 1999 and that certain options exercise prices were
below the average market price of the common shares during the period.
Share amounts and earnings per share restated to reflect the January 1998
two for one stock split and the April 1997 three for two stock split.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-17009, 333-43633 and 333-69583) of Computer
Learning Centers, Inc. of our report dated March 17, 1999, except as to Note 16,
which is as of April 29, 1999, appearing on page F-2 of this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
- ---------------------------------------------------------
PricewaterhouseCoopers LLP
New York, New York
May 3, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (Nos. 333-44729 and
333-48467) of Computer Learning Centers, Inc. of our report dated March 17,
1999, except as to Note 16, which is as of April 29, 1999, appearing on page F-2
of this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
- ---------------------------------------------------------
PricewaterhouseCoopers LLP
New York, New York
May 3, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS AND THE CONSOLIDATED BALANCE SHEET AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<CIK> 0000943206
<NAME> COMPUTER LEARNING CENTERS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 7,691
<SECURITIES> 0
<RECEIVABLES> 90,140
<ALLOWANCES> (22,783)
<INVENTORY> 1,224
<CURRENT-ASSETS> 77,972
<PP&E> 57,396
<DEPRECIATION> (19,792)
<TOTAL-ASSETS> 130,736
<CURRENT-LIABILITIES> 67,551
<BONDS> 0
0
0
<COMMON> 175
<OTHER-SE> 54,361
<TOTAL-LIABILITY-AND-EQUITY> 130,736
<SALES> 0
<TOTAL-REVENUES> 144,351
<CGS> 0
<TOTAL-COSTS> 140,278
<OTHER-EXPENSES> 5,599
<LOSS-PROVISION> 8,388
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (734)
<INCOME-TAX> (393)
<INCOME-CONTINUING> (341)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (245)
<NET-INCOME> (586)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
