<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 13, 1998
REGISTRATION NO. 333-47565
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CALIBER LEARNING NETWORK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 8200 52-2001020
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
3600 CLIPPER MILL ROAD
SUITE 300
BALTIMORE, MARYLAND 21211
(410) 843-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHRIS L. NGUYEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CALIBER LEARNING NETWORK, INC.
3600 CLIPPER MILL ROAD
SUITE 300
BALTIMORE, MARYLAND 21211
410-843-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES OF ALL COMMUNICATIONS,
INCLUDING ALL COMMUNICATIONS SENT TO THE AGENT FOR SERVICE, SHOULD BE SENT TO:
RICHARD C. TILGHMAN, JR. WALTER G. LOHR, JR.
PIPER & MARBURY L.L.P. HOGAN & HARTSON, L.L.P.
36 SOUTH CHARLES STREET 111 SOUTH CALVERT STREET
BALTIMORE, MARYLAND 21201 BALTIMORE, MARYLAND 21202
410-539-2530 410-659-2700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]___________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE OFFERING OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PRICE PER UNIT PRICE(1) FEE(2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $.01 par
value................. 6,210,000 $14.00 $86,940,000 $25,647
- ------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
- -----------
(1) Includes amount to be sold pursuant to an over-allotment option to be
granted to the Underwriters.
(2) The Company paid previously $17,700 of the Registration Fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
APRIL 13, 1998
5,400,000 Shares
[LOGO OF CALIBER(SM) LEARNING NETWORK, INC. APPEARS HERE]
Common Stock
-----------
Of the 5,400,000 shares of Common Stock offered hereby, 4,200,000 are being
sold by Caliber Learning Network, Inc. ("Caliber" or the "Company") and
1,200,000 by a stockholder of the Company (the "Selling Stockholder"). See
"Principal and Selling Stockholders." The Company will not receive any proceeds
from the sale of shares by the Selling Stockholder. Prior to this offering,
there has been no public market for the Common Stock of the Company. It is
currently anticipated that the initial public offering price will be between
$12.00 and $14.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. Application
has been made to list the Common Stock on the Nasdaq National Market under the
symbol "CLBR."
-----------
THE COMMON STOCK OFFERED HEREBY IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 7 HEREOF.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
- --------------------------------------------------------------------------------
Total(2).......................... $ $ $ $
================================================================================
</TABLE>
(1) Before deducting expenses payable by the Company estimated at $700,000.
(2) The Company and Selling Stockholder have granted the Underwriters a 30-day
option to purchase up to 810,000 additional shares of Common Stock solely
to cover over-allotments, if any. To the extent that the option is
exercised, the Underwriters will offer the additional shares at the Price
to Public as shown above. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Stockholder will be $ , $ , $ and
$ respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the
offices of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about ,
1998.
BT Alex. Brown NationsBanc Montgomery
Securities LLC
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
[PHOTOGRAPH OF INTERIOR OF CALIBER CAMPUS]
Trademarks or service marks appearing in this Prospectus are trademarks or
service marks of the companies that utilize them.
The Company intends to furnish to its stockholders annual reports containing
audited financial statements and quarterly reports containing unaudited
financial information for the first three quarters of each year.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Financial Statements and related Notes thereto appearing elsewhere in this
Prospectus. Unless otherwise indicated, all information contained in this
Prospectus assumes (i) the Preferred Stock Conversions, the exercise by Sylvan
Learning Systems, Inc. ("Sylvan") of the Hill Option and the Recapitalization
have been effected, (ii) Sylvan's payment of the balance due on the Sylvan
Subscription, (iii) the 1.2274-for-1 split of the outstanding capital stock and
(iv) no exercise of the Warrant held by MCI Communications Corporation ("MCI")
or the Underwriters' over-allotment option. See "--Initial Capitalization and
Recapitalization of the Company" and "Underwriting."
The Company is establishing a state-of-the-art, graduate level learning and
professional training distribution network throughout the United States
designed to meet the needs of prominent universities, major corporations and
working adults. Caliber intends to distribute courses developed by prominent
universities and to distribute professional development and training programs
to Fortune 1000 corporations. Caliber has entered into a five-year contract
with The Johns Hopkins University ("Johns Hopkins") and a five-year contract
with The Wharton School of the University of Pennsylvania ("Wharton") to begin
programs for working adults in 1998. In addition, the Company has signed joint
development agreements with the University of California at Berkeley Extension
School, the Massachusetts Institute of Technology ("MIT") and Georgetown
University. The Company has entered into contracts with Compaq Corporation
("Compaq"), Macmillan Computer Publishing ("Macmillan") and MCI Systemhouse
Corp. ("MCI Systemhouse") to begin programs in 1998. As of April 1, 1998, the
Company had 34 Caliber Campuses open in 34 markets and expects to have 41
Caliber Campuses open in 40 markets by September 1998. Sylvan and MCI organized
Caliber in November 1996, bringing together the educational services expertise
of Sylvan and the technology and telecommunications expertise of MCI.
Caliber's goal is to become the standard for distributed learning and
professional training by maintaining high quality course content, advanced
technology, a professional learning environment and a national presence.
Initially, the Company intends to focus on educational and training programs in
the fields of health care, management development, information
technology/engineering and education. These fields are characterized by (i)
large, dispersed and changing professional populations; (ii) rapid changes in
subject matter; and (iii) required continuing education or professional
development. Caliber is establishing alliances with prominent universities and
major corporations to provide solutions for their lifelong learning and
professional training needs. Caliber believes that it will be able to use these
alliances to facilitate collaboration between universities and corporations for
the development of customized professional development, training and corporate
communications programs. Caliber will distribute these programs to dispersed
corporate constituencies through the Caliber network. Caliber will also provide
other services to increase Campus utilization, including video conferencing
services and hourly classroom rental.
Expenditures in the post-secondary education market were approximately $220
billion in 1996-97, compared to approximately $135 billion in 1989-90. In 1996-
97, approximately 45% of the students enrolled in post-secondary education were
adults age 25 and older. Corporations budgeted approximately $60 billion in
1997 to provide training for their employees, compared to $46 billion in 1990.
The Company believes that an increasing need for technical skills in the
workforce is the primary reason for growth in the training market.
Increasing numbers of working adults have concluded that graduate level
education is necessary for career advancement. Many would prefer to obtain this
education from prominent universities because the prestige of these
universities increases the value of the credentials earned. However, most
universities use a teaching method and provide course content targeted toward
traditional, full-time students that do not meet the practical needs of either
working adults or the corporations that are funding their employees' education.
To date, the alternatives for working adults have been conventional distance
learning and local two-year and four-year colleges. Conventional distance
learning addresses the problems of time and location for working adults but
fails to provide the benefits of traditional classroom learning or the value of
the credential from a prominent university.
3
<PAGE>
Corporations have been spending increasing amounts on communicating with and
training their employees, dealers, and customers. Transporting corporate
trainers to remote offices or employees, dealers and customers to central
training facilities is costly and often difficult to coordinate. The corporate
trainer is typically an intermediary between the expert and the employees,
which may lower the quality of the training.
Caliber combines the best elements of the traditional classroom with the
convenience of distance learning. Caliber Campuses feature professional
classrooms, educational facilitators, state-of-the-art satellite transmission,
video conferencing, wide-area network computing and Internet technologies.
These features give working adults access to live expert instruction, real-time
two-way interactivity with the instructor and the ability to collaborate with
the other course participants. In addition, Caliber integrates personal
computing and the Internet to enhance student-teacher interactivity and to
extend the learning experience beyond the classroom. The Caliber network
addresses the practical constraints of working adults by providing local access
across the nation to prominent university content and professional development
and training programs. The Caliber network enables prominent universities to
extend the market for their educational products without sacrificing high-
quality instruction. Caliber accomplishes this by distributing live,
interactive instruction developed by the university through satellite
broadcast, video conferencing and Internet technologies to Caliber Campuses,
which enables one instructor to teach students across the country. The Caliber
network enables corporations to have an expert address a corporation's
workforce, customers or dealers in geographically diverse locations at the same
time. The efficiency of the Caliber network allows corporations to rapidly
disseminate time sensitive subject matter. In addition, Caliber plans to use
its relationships with prominent universities to manage collaborations between
corporations and universities to develop high quality, effective professional
development programs with content specifically tailored to the corporations'
needs.
The Company was incorporated in Maryland in March 1996. The Company's
executive offices are located at 3600 Clipper Mill Road, Suite 300, Baltimore,
Maryland 21211, and its telephone number is 410-843-1000.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company................ 4,200,000 shares
Common Stock offered by the Selling Stockholder.... 1,200,000 shares
Common Stock to be outstanding after the offering.. 11,718,642 shares(1)
Use of Proceeds.................................... To finance leasehold
improvements and equip
Caliber Campuses, to repay
outstanding indebtedness
and management fees, to
pay accrued Preferred
Stock dividends and to
provide working capital to
support the Company's
planned growth.
Nasdaq National Market Symbol...................... CLBR
</TABLE>
- --------
(1) After giving effect to the automatic conversion of all of the 2,442,513
currently outstanding shares of the 8% Series A Redeemable Convertible
Preferred Stock (all of which are held by MCI) and the 1,227,393 currently
outstanding shares of the Series B Redeemable Junior Convertible Preferred
Stock (all of which are held by Sylvan) into an aggregate of 3,669,906
shares of Common Stock at the closing of this offering. Excludes (i)
5,167,328 shares of Common Stock issuable upon future conversion of the
5,167,328 shares of Non-Voting Convertible Preferred Stock (all of which
will be held by Sylvan) to be outstanding upon closing of this offering,
(ii) 1,193,573 shares of Common Stock issuable to MCI upon exercise of a
warrant (the "MCI Warrant") at an aggregate exercise price of $3.78
million, and (iii) 1,156,349 shares of Common Stock issuable upon exercise
of management stock options outstanding as of the date of this Prospectus,
at a weighted average exercise price of $1.46 per share. See
"Capitalization," "Management--Employee Benefit Plans" and "Certain
Relationships and Related Transactions."
4
<PAGE>
INITIAL CAPITALIZATION AND RECAPITALIZATION OF THE COMPANY
Upon completion of this offering, 11,718,642 shares of Common Stock and
5,167,328 shares of 6% Non-Voting Convertible Preferred Stock will be
outstanding.
Prior to completion of this offering, the authorized capital of the Company
included two classes of Common Stock, equivalent in all respects except that
each share of Class A Common Stock was entitled to one vote and each share of
Class B Common Stock was entitled to ten votes. The authorized capital also
included two classes of preferred stock, the 8% Series A Convertible Preferred
Stock and Series B Junior Convertible Preferred Stock, each of which will
automatically convert into Class A Common Stock, on a share for share basis,
simultaneously with completion of this offering, subject to payment of accrued
dividends on the Series A Preferred Stock. The Company was capitalized pursuant
to a Stock Purchase Agreement, dated October 23, 1996, under which MCI
purchased 2,442,513 shares of 8% Series A Convertible Preferred Stock for $10.0
million in cash; Sylvan purchased 1,227,393 shares of Series B Junior Preferred
Stock for $1.3 million in cash; each of R. Christopher Hoehn-Saric and Douglas
L. Becker, Sylvan's co-Chief Executive Officers, purchased 1,718,351 shares of
Class A Common Stock for $350,000 each in cash; and John P. Hill, an
independent investor, purchased 5,167,328 shares of Class B Common Stock for
$1.0 million in cash. Messrs. Hoehn-Saric and Becker subsequently transferred
their shares to Sterling Caliber Investment, L.L.C. ("Sterling Caliber"), which
is owned by Messrs. Hoehn-Saric and Becker, two other investors and trusts for
the benefit of their respective families.
In connection with the Company's capitalization: (i) Mr. Hill granted Sylvan
the option to purchase his shares of Class B Common Stock for the lesser of
$5.0 million or the fair market value of the shares on the date of purchase
(the "Hill Option"); (ii) the Company issued MCI a warrant to purchase the
number of shares of Class A Common Stock that would equal 7% of the capital
stock of the Company to be outstanding after the exercise of the warrant at an
aggregate exercise price of $3.78 million (the "MCI Warrant"); (iii) Sylvan
agreed to provide a line of credit to, or guarantee debt for, the Company of up
to $3.0 million (the "Sylvan Loan"); (iv) Sylvan agreed to contribute an
additional $8.0 million of capital to Caliber (the "Sylvan Subscription") to
the extent needed by Caliber for working capital; and (v) MCI agreed to provide
up to $20.0 million in equipment lease financing to the Company, on a "last
look" basis (the "MCI Lease and Guarantee Commitment"). Sylvan, MCI and Messrs.
Becker, Hill and Hoehn-Saric (collectively, the "Stockholders") also entered
into a Stockholders' Agreement in November 1996 which restricted the
transferability of their shares of Caliber stock, required the Stockholders to
elect the other Stockholders or their representatives to the Company's Board of
Directors and prohibited the Company from taking certain actions without the
approval of MCI's Board representative. The Stockholders' Agreement will
terminate upon completion of this offering. Under a Registration Rights
Agreement executed in November 1996, the Company granted Sylvan, MCI and
Messrs. Hoehn-Saric and Becker the right to have their shares of Class A Common
Stock registered under the Securities Act of 1933, as amended (the "Securities
Act"), at various times during the four years following completion of this
offering. Messrs. Hoehn-Saric and Becker have transferred their rights under
the Registration Rights Agreement to Sterling Caliber.
Immediately prior to completion of this offering, (i) the Company's Charter
will be amended so that there will be authorized a single class of Common
Stock, for which all shares of Class A Common Stock will be exchanged on a
share for share basis, and a series of 6% Non-Voting Convertible Preferred
Stock, for which all shares of Class B Common Stock will be exchanged on a
share for share basis (the "Recapitalization"); (ii) MCI's 2,442,513 shares of
8% Series A Convertible Preferred Stock and Sylvan's 1,227,393 shares of Series
B Junior Convertible Preferred Stock will be converted into an aggregate of
3,669,906 shares of Common Stock (the "Preferred Stock Conversion"); (iii)
Sylvan will exercise the Hill Option and purchase Mr. Hill's stock, which will
have been converted to 5,167,328 shares of 6% Non-Voting Convertible Preferred
Stock, for $5.0 million in cash; and (iv) Sylvan will contribute the balance
due on the Sylvan Subscription. MCI will not exercise the MCI Warrant in
connection with this offering, but the MCI Warrant will become exercisable for
1,193,573 shares of Common Stock and no longer will be subject to adjustment
(except for stock splits and similar changes in the capitalization of the
Company). See "Capitalization," "Certain Relationships and Related
Transactions" and "Description of Capital Stock."
5
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 22,
1996
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
-------------- ------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue......................................... $ -- $ 1,199,293
Expenses:
Campus operating expenses..................... -- 7,133,744
Management fees to Sylvan..................... 480,000 2,400,500
Other selling, general and administrative
expenses..................................... 1,155,171 5,380,972
----------- ------------
Total expenses................................ 1,635,171 14,915,216
Other income (expense):
Interest income............................... -- 536,100
Interest expense.............................. -- (391,312)
----------- ------------
Net loss........................................ $(1,635,171) $(13,571,135)
=========== ============
Net loss per common share attributable to common
stockholders................................... $ (0.21) $ (1.62)
=========== ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
----------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 3,850,440 $8,219,798 $40,115,514
Working capital...................... (1,290,891) 4,073,440 39,270,967
Total assets......................... 14,510,389 18,879,747 62,775,463
Total debt........................... 7,033,076 7,033,076 4,033,076
Redeemable preferred stock........... 11,300,000 -- --
Stockholders' equity (deficit)....... (11,500,356) 5,164,002 55,242,002
</TABLE>
- --------
(1) Pro forma to reflect the (i) Preferred Stock Conversion, (ii)
Recapitalization and (iii) Sylvan's payment of the $5.4 million balance due
on the Sylvan Subscription. See Note 15 of Notes to Financial Statements.
(2) Pro forma as adjusted for the sale of the 4,200,000 shares of Common Stock
offered by the Company hereby (at an assumed initial public offering price
of $13.00 per share), after deduction of underwriting discounts and
commissions and offering expenses, and application of the net proceeds
therefrom, as described in "Use of Proceeds."
6
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby is speculative
and involves a high degree of risk. In addition to the other information in
this Prospectus, the following factors should be considered carefully in
evaluating an investment in the shares of Common Stock offered hereby.
Development Stage Company; History of Operating Losses; and Negative Cash
Flow. Sylvan and MCI organized Caliber in November 1996. To date, Caliber has
been engaged principally in development activities. The Company generated
minimal revenues during 1997 and, therefore, has incurred operating losses and
negative cash flow since inception. As of December 31, 1997, Caliber had
accumulated losses of approximately $15.2 million, and the Company expects to
continue to incur significant losses for at least the next two years. There
can be no assurance that the Company will ever generate sufficient revenues to
achieve or sustain profitability or generate positive cash flow. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Significant Cash Requirements. The Company's continued development,
construction, expansion and operation of its learning network will require
substantial capital. The Company's ability to fund its planned expenditures
and operations depends upon its ability to obtain sufficient equity and debt
financing. The Company's initial capitalization consisted of $13.0 million in
equity from Sylvan, MCI and the other initial stockholders. MCI agreed to
provide $20.0 million, as needed, in lease financing or lease guarantees for
the purchase of furniture and equipment, and Sylvan agreed to guarantee up to
$3.0 million of the Company's debt or to provide up to a $3.0 million line of
credit, at an interest rate of 1% above the NationsBank prime rate. As of
December 31, 1997, $4.0 million of MCI's Lease and Guarantee Commitment had
been used and all of the Sylvan Loan had been drawn. During 1997, the Company
received $2.6 million in partial payment of the Sylvan Subscription. The
Company expects to receive approximately $50.1 million in net proceeds from
this offering and approximately $5.4 million from Sylvan's payment of the
balance due on the Sylvan Subscription. Of these amounts, $3.3 million will be
used to repay the outstanding principal balance and accrued interest on the
Sylvan Loan, $2.9 million to repay deferred management fees to Sylvan and $1.2
million to pay accrued dividends on the Series A Preferred Stock. This will
leave Caliber with approximately $48.1 million of net proceeds from this
offering and payment of the balance of the Sylvan Subscription, $16.0 million
of unused lease commitments from MCI, $3.0 million of available borrowings
under the Sylvan Loan and $3.9 million of existing cash and cash equivalents
as of December 31, 1997. There can be no assurance that these cash resources
following this offering will be sufficient to fund the Company's expected
negative cash flow and its capital expenditures. The Company, therefore, may
need to obtain additional equity or debt financing. There can be no assurance
that the Company will be able to obtain the additional financing necessary to
satisfy its cash requirements or to implement its growth strategy
successfully, in which event the Company will be forced to curtail its planned
business expansion and may be unable to fund its ongoing operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Technology and Technology Implementation Risks. The successful operation of
the Caliber network requires the development of sophisticated software and the
integration of a number of diverse communications technologies. To date,
Caliber has only tested the software and the network under simulated operating
conditions and operated the network under actual operating conditions on a
limited basis. The ability of the network to function as intended at multiple
sites simultaneously cannot be confirmed until a significant volume of actual
programs are regularly delivered over the Caliber network. Technical
difficulties may prevent or delay the Company's offering of educational
programs, which is likely to have a material adverse effect on market
acceptance of the network for distance learning. See "Business--Caliber
Technology."
Risk of Non-Acceptance of Caliber Learning Concept. Use of the Caliber
Campuses will require a significant change in the way universities,
corporations and working adults experience graduate level learning and
professional training. Prominent universities may be unwilling to accept the
Caliber network as an appropriate way to provide quality education, and
faculty members may be unwilling to use the Caliber network
7
<PAGE>
to teach. Corporations and students may not accept the Caliber network as an
alternative to traditional classroom instruction. If the Caliber network fails
to gain this acceptance, it is unlikely that Caliber will ever become a viable
business. See "Business--The Caliber Network."
Rapid Expansion of Operations. The Company plans to expand its business
rapidly. The Company currently has 34 Caliber Campuses open and expects to
have 41 Caliber Campuses open in 40 markets by September 1998. There can be no
assurance that all 41 Caliber Campuses will be opened on schedule. The
Company's ability to manage its rapid expansion effectively will require it to
develop effective operating, financial and accounting systems and to add and
retain qualified personnel at each Caliber Campus and at the corporate level.
Failure to develop financial controls and accounting and reporting systems or
add and retain personnel that adequately support the Company's growth will
materially adversely affect its business, results of operations and financial
condition. See "Business--Employees" and "Management."
Reliance on Sylvan Management and Systems. Currently, the Company relies
extensively on Sylvan's resources, systems and personnel for management,
administrative, legal, accounting and financial functions. The Company also
uses office space leased by Sylvan. Sylvan has agreed to provide payroll,
legal, accounting and other services and lease space only through 1999 for a
fee of $2.0 million in each of 1998 and 1999 and is not obligated to continue
to do so thereafter. During the next two years, the Company will be required
to develop its own systems to replace those currently provided by Sylvan and
to add and integrate a substantial number of new managerial, finance,
accounting and support personnel. Failure to develop these systems or add and
retain personnel to manage the Company's business effectively would have a
material adverse effect on the Company's business and growth. See "Business--
Employees," "Management" and "Certain Relationships and Related Transactions--
Sylvan Management Agreement."
Dependence on Skilled Personnel. The ability to provide distance learning
services as contemplated by the Company will require the services of skilled
technicians and educational facilitators. In addition, the Company will need
additional marketing and sales personnel to support planned growth. There can
be no assurance that the Company will be successful in adding or retaining the
necessary personnel. Failure to do so is likely to have a material adverse
effect on the Company's business and growth. See "Business--Marketing and
Sales" and--"Employees."
Dependence on Strategic Partners. The Company's success will depend upon
establishing and maintaining strategic alliances with prominent universities
and corporations to provide high quality educational and training programs.
However, to date, only Johns Hopkins, Wharton, Compaq, Macmillan and MCI
Systemhouse have agreed to provide programs through the Caliber network, with
Johns Hopkins and Wharton each agreeing to deliver only a single program. Many
of these contracts are terminable if Caliber fails to achieve stated
performance objectives contained in these contracts. There can be no assurance
that the Company will be successful in maintaining and expanding these
existing relationships or that it will be able to establish and maintain new
strategic relationships with other prominent universities or corporations. If
the initial programs are unsuccessful, if these universities and corporations
do not expand their offerings through the Caliber network or if Caliber is
unable to enter into other strategic relationships, it is unlikely that
Caliber will become a viable business. See "Business--Strategy."
Untested Business Plan. The Company made numerous assumptions in developing
its business plan, such as the number of students expected to enroll in a
given program, the prices the Company will be able to charge for programs, the
rate at which additional programs will be added to the Caliber network and the
cost of operating Caliber Campuses. The assumptions underlying Caliber's
business plan may prove to be too optimistic, and the Company may encounter
delays in achieving the objectives in its business plan. This is likely to
result in lower than planned revenues, higher than expected expenses and
sustained unprofitability. The Company can give no assurance that it will be
able to adjust its operations and business plan. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
8
<PAGE>
Significant Regulation. Many of the states in which Caliber intends to
operate Caliber Campuses require that any entity providing educational
programs obtain a license to operate. Since Caliber's distance learning
concept is novel and state authorities may not have substantial experience
with arrangements of this type, the Company cannot predict with certainty
whether states will grant the licenses necessary to offer educational programs
at all Caliber Campuses. Certain states accept accreditation as evidence of
meeting minimum state standards for a license, and other states apply separate
standards. Accreditation organizations may require prior approval and periodic
monitoring of distance learning programs. Caliber expects that each university
offering courses through the Caliber network will be required to obtain the
necessary license, possibly one for each program offered, in each state where
a Caliber Campus is located. If the Company or the universities are unable to
obtain the necessary licenses or accreditations or if the licenses or
accreditations are delayed or revoked, Caliber's business and growth may be
materially adversely affected.
Congress is expected to consider reauthorization of the Higher Education Act
of 1965, as amended ("HEA"), in 1998. Treatment of distance learning is
expected to be a major topic in the reauthorization process. There can be no
assurance that the HEA will not be amended to impose stricter or additional
requirements which would affect the Company. In addition, state and federal
regulation of distance learning programs, as well as private accreditation of
such programs, are undergoing significant review by the U.S. Department of
Education, state regulators and accreditation organizations. Caliber cannot
predict the scope or the outcome of this review, but additional regulation of
distance learning may result from this review. This additional regulation may
adversely affect the way Caliber intends to deliver educational content over
its network. See "Business--Government Regulation."
Rapid Technological Change. The telecommunications industry is characterized
by rapid technological change, and the Company's future success will depend on
its ability to implement technological advances. Caliber anticipates that if
interactive distance learning becomes accepted as an effective means of
providing educational and training programs, the industry will evolve rapidly.
To remain competitive, Caliber must be able to respond quickly to evolving
industry trends, technological advances and changes in client needs. There can
be no assurance that the Company will be successful in adapting to these
trends, advances or changes. In addition, technologies developed by
competitors may significantly reduce demand for the Company's services or
render the Company's services obsolete. See "Business--Caliber Technology."
Competition. Competition among providers of lifelong learning and
professional training is intense. Management believes that its principal
potential competitors will be prominent universities located in the markets
served by Caliber Campuses. In each of Caliber's markets, there are also other
two-year and four-year colleges which have their own continuing education and
graduate level programs. Each of these competitors offers live classroom
instruction and has an established reputation in the educational field and,
therefore, may enjoy a competitive advantage. In addition, two-year and four-
year higher education institutions, particularly public institutions, are
offering distance education courses, and several distance education
initiatives are currently underway among public higher education institutions.
Other competitors include for-profit educational organizations, such as the
Apollo Group's University of Phoenix, Strayer University and DeVry's Keller
School of Management, that provide lifelong learning programs targeted to
working adults and feature live classroom instruction. Caliber may also
compete with distance learning companies that offer self-paced correspondence
courses, videos, audiocassettes and other distance learning products. More
recent distance learning products include CD-rom and Internet-based
instruction. If the Caliber distance learning concept proves successful,
Caliber expects competitors to enter the market. For example, businesses that
have facilities in multiple markets that could be linked by satellite, such as
major hotel and movie theater chains, could decide to establish networks of
distance learning facilities to compete with Caliber. Westcott Communications,
Inc., which has established a one-way satellite-based network currently used
by a number of larger corporations to distribute their training programs,
could decide to make its network interactive. The Company also competes
against a significant number of third party training companies that provide
various training programs to corporations. In addition, corporations may
continue to use internal resources to satisfy their training needs. See
"Business--Competition."
9
<PAGE>
Limited Protection of Proprietary Expertise and Methodologies. The Company's
success will be highly dependent upon its specialized and proprietary
expertise, methodologies and software. The Company must rely on a combination
of trade secret laws, employee nondisclosure policies and third-party
confidentiality agreements. There can be no assurance that the steps taken by
the Company to protect its proprietary rights will be adequate to prevent
misappropriation of such rights or that third parties will not independently
develop functionally equivalent or superior methodologies or software. There
also can be no assurance that third parties will not assert infringement
claims against the Company relative to the Company's methodologies, which
could result in costly litigation or the need to establish license
arrangements. The Company intends to seek a patent on certain design features
of its network. However, there can be no assurance this patent will be granted
or, if granted, that it will cover all the proprietary features of the
network. See "Business--Proprietary Rights."
Dependence on Management. The Company is highly dependent on the members of
its senior management, particularly Messrs. Nguyen, Frier, Dobkin, Polivka,
Locher and Peterson, the loss of any of whose services may significantly delay
or prevent the achievement of critical development, marketing and other
business objectives. If the Company's business expands, attracting and
retaining additional qualified management personnel will be critical to the
Company's success. There can be no assurance that the Company will be able to
attract and retain such individuals on acceptable terms, and the failure to do
so could have a material adverse effect on the Company's ability to expand its
business. The Company does not have employment contracts with senior
management. The Company is in the process of obtaining a $3 million "key man"
insurance policy on Mr. Nguyen's life. See "Management."
Control by Existing Stockholders. Upon completion of this offering, MCI,
Sylvan, Mr. Hoehn-Saric and Mr. Becker will beneficially own 1,242,513,
1,227,393, 1,718,351 and 1,718,351 shares of Common Stock, respectively, and
Sylvan will own 5,167,328 shares of 6% Non-Voting Convertible Preferred Stock,
which is convertible at any time after the second anniversary of this offering
into an equivalent number of shares of Common Stock. Accordingly, MCI, Sylvan
and Messrs. Hoehn-Saric and Becker together will control approximately 50.4%
of the Common Stock (or 67.9% if Sylvan were to convert all of its shares of
6% Non-Voting Preferred Stock to Common Stock and MCI were to exercise the MCI
warrant). This is likely to be sufficient to enable them to effectively
control the outcome of any matter submitted to the stockholders, assuming they
choose to vote their shares together. See "Principal and Selling Stockholders"
and "Description of Capital Stock."
Substantial Proceeds of Offering Payable to Sylvan and MCI. Of the net
proceeds of this offering, the Company will use $3.3 million to pay accrued
interest and principal on the Sylvan Loan, $1.2 million to pay MCI accrued
dividends on the Series A Preferred Stock and $2.9 million to pay accrued
management fees due to Sylvan. As a result, a significant portion of the net
proceeds of this offering will not be available to the Company to fund its
operations and planned growth. See "Use of Proceeds."
Potential Conflicts of Interest. Conflicts of interest may arise between the
Company, Sylvan and MCI in a number of areas relating to their ongoing or
future relationships. There are no non-competition agreements between Caliber
and either Sylvan or MCI. Sylvan currently provides substantial management and
administrative services to Caliber but is not obligated to continue to do so
after 1999. MCI has agreed to provide $20.0 million of lease financing to
Caliber, as needed, and provides various ongoing telecommunications services
to Caliber. Caliber may enter into additional material transactions and
agreements with Sylvan and MCI in the future. MCI, Sylvan and Sterling Caliber
have the right to require that their shares of Caliber Common Stock be
registered for sale under the Securities Act at various times over the next
four years and may decide to sell their shares in the public market at any
time. Directors of the Company who are also directors or employees of Sylvan
or MCI may have conflicts of interest with respect to matters affecting the
Company, such as financing, acquisitions and other corporate opportunities.
There can be no assurance that these or any other conflicts of interest will
be resolved in favor of the Company. See "Certain Relationships and Related
Transactions."
Shares Eligible for Future Sale. Upon completion of this offering, the
Company will have outstanding 11,718,642 shares of Common Stock, plus
1,156,349 shares issuable upon exercise of currently outstanding options,
1,193,573 million shares issuable upon exercise of the MCI Warrant and
5,167,328 million shares issuable upon conversion by Sylvan of the 6% Non-
Voting Convertible Preferred Stock. The 5,400,000 shares
10
<PAGE>
offered hereby will be freely transferable unless acquired by affiliates of
the Company. All of the remaining outstanding shares, upon expiration of the
Underwriters' lock-up described below, will be saleable under Rule 144 of the
Securities Act, unless then held by affiliates of the Company. The 1,156,349
shares reserved for issuance upon exercise of outstanding options and the
1,043,290 shares reserved for future grants under the Company's 1998 Plan will
be registered under the Securities Act upon completion of this offering. Those
shares will be freely transferable upon issuance unless held by affiliates of
the Company. The Company has granted MCI, Sylvan and Sterling Caliber, who
hold an aggregate of 7,100,181 shares of Common Stock (assuming exercise of
the MCI Warrant) shares of Common Stock and 5,167,328 shares of 6% Non-Voting
Convertible Preferred Stock, the right to have their shares of Common Stock
registered under the Securities Act on one or more occasions over the next
four years. See "Shares Eligible for Future Sale."
Sales of substantial amounts of Common Stock following this offering, or the
perception that such sales could occur, could adversely affect prevailing
market prices of the Common Stock and could impair the Company's ability to
raise capital through an offering of its equity securities.
All of the Company's officers and employees who own Common Stock, or hold
options to purchase 7,500 shares or more, have agreed not to sell or otherwise
dispose of any of their shares for a period of two years after the date of
this Prospectus without the prior written consent of both BT Alex. Brown
Incorporated and the Company. Sylvan, MCI and Sterling Caliber, who will hold
in the aggregate 7,100,181 shares of Common Stock and 5,167,328 shares of 6%
Non-Voting Convertible Preferred Stock upon completion of this offering, have
agreed not to sell or dispose of any of their shares for a period of one year
after the date of this Prospectus without the prior written consent of BT
Alex. Brown Incorporated. See "Underwriting."
No Prior Market for Common Stock; Possible Volatility of Stock Price. Prior
to this offering, there has been no public market for the Common Stock, and
there can be no assurance that an active public market for the Common Stock
will develop or be sustained after the offering. The initial public offering
price will be determined by negotiations among the Company and the
Representatives of the Underwriters and may not be indicative of market prices
of the Common Stock after this offering. See "Underwriting." The market price
of the Common Stock may be subject to significant fluctuations in response to
variations in Caliber's quarterly operating results and other events or
factors, such as Caliber's announcement of new strategic alliances with
prominent universities or corporations, changes in financial estimates by
securities analysts and announcements by other companies in the lifelong
learning industry. Moreover, the stock market and the market prices of the
shares of many emerging growth companies in recent years have experienced
significant price and volume fluctuations. These fluctuations often have been
unrelated to the operating performance of any specific company. Broad stock
market fluctuations, as well as economic conditions generally, may adversely
affect the market price of the Common Stock. There can be no assurance that
the market price of the Common Stock will not decline below the initial public
offering price.
Certain Anti-takeover Provisions. Certain provisions of the Company's
Amended and Restated Articles of Incorporation (the "Charter") and Maryland
law may have the effect of discouraging a change of control of the Company or
deterring tender offers for the Common Stock. The Charter grants to the Board
of Directors authority to issue shares of preferred stock with terms and
conditions which could have the effect of discouraging a takeover or other
transaction in which the holders of some of the shares of Common Stock might
receive a premium over the then-prevailing market price of the Common Stock.
The Charter also divides the Board of Directors into three classes of
Directors who will serve for staggered terms, which may have the effect of
inhibiting or delaying a change of control of the Company. A Director may be
removed only for cause and only by the affirmative vote of a majority of the
outstanding shares of Common Stock. See "Description of Capital Stock--Anti-
takeover Provisions of Charter and By-Laws."
The Maryland General Corporation Law (the "MGCL") prohibits certain business
combinations between a Maryland corporation and any person who owns 10% or
more of the voting power of the corporation's capital stock (an "Interested
Stockholder") or an affiliate thereof for a period of five years after the
most recent date on which the Interested Stockholder became an Interested
Stockholder and imposes additional requirements on the approval and terms of
the transaction. The MGCL also provides that shares acquired by a stockholder
which
11
<PAGE>
would cause the stockholder to hold certain percentages of the Company's stock
will have no voting rights unless the share acquisition was approved by a
super majority vote of the stockholders. See "Description of Capital Stock--
Business Combinations" and "--Control Share Acquisition."
Dilution. The initial public offering price will be substantially higher
than the net tangible book value per share of the Common Stock. Investors
purchasing shares of Common Stock in this offering will, therefore, incur
immediate and substantial dilution. See "Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,200,000 shares of
Common Stock offered by it hereby are estimated to be $50.1 million ($52.9
million if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $13.00 per share, after deducting
underwriting discounts and commissions and estimated offering expenses. The
Company will also receive $5.4 million upon consummation of the offering from
Sylvan's payment of the balance due on the Sylvan Subscription. The Company
intends to use the net proceeds from the offering and Sylvan's payment of the
balance due on the Sylvan Subscription to (i) purchase approximately $12.0
million of leasehold improvements and equipment for Caliber Campuses to be
constructed during 1998 and 1999; (ii) repay approximately $3.3 million of
principal and interest outstanding under the Sylvan Loan and $2.9 million of
deferred management fees due to Sylvan; and (iii) pay MCI approximately $1.2
million of accrued dividends on the 8% Series A Convertible Preferred Stock.
The Company intends to use the $36.1 million balance to support anticipated
operating losses through the end of 1999. The principal amount outstanding
under the Sylvan Loan was incurred to finance leasehold improvements and
purchases of furniture and fixtures at existing Caliber Campuses and bears
interest at 1% above the NationsBank prime rate. As of December 31, 1997,
principal outstanding under the Sylvan Loan bore interest at 9.5%. The Company
intends to invest the net proceeds in interest-bearing, investment-grade
obligations pending application thereof in the manner described above.
DIVIDEND POLICY
Concurrently with consummation of this offering, the Company will pay MCI
approximately $1.2 million of accrued dividends on the 8% Series A Convertible
Preferred Stock, which must be paid upon the automatic conversion of the
Series A Preferred Stock to Common Stock. The 6% Non-Voting Convertible
Preferred Stock (which will be held by Sylvan after this offering) will be
entitled to a 6% annual cumulative dividend ($60,000), and all accrued
dividends will become payable upon conversion of the 6% Non-Voting Preferred
Stock. The 6% Non-Voting Preferred Stock will be convertible into an equal
number of shares of Common Stock at the option of the holder at any time on or
after the second anniversary of this offering (or earlier under certain
circumstances). See "Description of Capital Stock--6% Non-Voting Convertible
Preferred Stock."
The Company has never paid any cash dividends on its Common Stock, and the
Board of Directors intends to retain any future earnings to finance Caliber's
business rather than to pay dividends on the Common Stock. Any future
dividends on the Common Stock will depend upon the Company's results of
operations, financial condition, cash requirements and other factors deemed
relevant by the Board of Directors.
12
<PAGE>
CAPITALIZATION
The following table sets forth at December 31, 1997: (i) the total
capitalization of the Company; (ii) the pro forma capitalization of the
Company after giving effect to the Preferred Stock Conversion (including
payment of accrued dividends), the Recapitalization and Sylvan's payment of
the balance due on the Sylvan Subscription; and (iii) the pro forma
capitalization of the Company as adjusted to give effect to the sale by the
Company of the 4,200,000 shares of Common Stock offered by it hereby and
application of the net proceeds therefrom (other than payment of accrued
dividends), after deducting underwriting discounts and commissions and
estimated offering expenses. This table should be read in conjunction with the
Company's Financial Statements and related Notes thereto and other financial
information appearing elsewhere in this Prospectus. See "Use of Proceeds,"
"Dividend Policy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
8% Series A Redeemable Convertible
Preferred Stock, $.01 par value;
1,990,000 shares authorized, issued
and outstanding actual; and no
shares outstanding pro forma and pro
forma as adjusted................... $ 10,000,000 $ -- $ --
Series B Redeemable Junior
Convertible Preferred Stock, $.01
par value; 1,000,000 shares
authorized, issued and outstanding
actual; and no shares outstanding
pro forma and pro forma as
adjusted............................ 1,300,000 -- --
Stockholders' equity (deficit):
6% Non-Voting Convertible Preferred
Stock, $0.01 par value, no shares
authorized, issued and outstanding
actual; 5,167,328 shares
authorized, issued and outstanding
pro forma and pro forma as
adjusted.......................... -- 51,674 51,674
Class A Common Stock, $0.01 par
value; 42,800,000 shares
authorized; 3,829,986 shares
issued and outstanding actual; no
shares authorized, issued and
outstanding pro forma and pro
forma as adjusted................. 38,300 -- --
Class B Common Stock, $0.01 par
value; 5,167,328 shares
authorized, 5,167,328 shares
issued and outstanding actual; no
shares authorized, issued and
outstanding pro forma and pro
forma as adjusted................. 51,674 -- --
Common Stock, $0.01 par value,
50,000,000 shares authorized; no
shares issued and outstanding
actual; 7,499,892 shares issued
and outstanding pro forma;
11,699,892 shares issued and
outstanding pro forma as
adjusted(1)....................... -- 74,999 116,999
Additional paid-in capital........... 9,975,334 21,238,635 71,274,635
Subscription receivable(2)........... (5,364,358) -- --
Accumulated deficit.................. (16,201,306) (16,201,306) (16,201,306)
------------ ------------ ------------
Total stockholders' equity
(deficit)......................... (11,500,356) 5,164,002 55,242,002
------------ ------------ ------------
Total capitalization............. $ (200,356) $ 5,164,002 $ 55,242,002
============ ============ ============
</TABLE>
- --------
(1) Excludes (1) 5,167,328 shares of Common Stock issuable upon conversion of
the 5,167,328 shares of 6% Non-Voting Convertible Preferred Stock (all of
which will be held by Sylvan) to be outstanding upon the closing of this
offering, (ii) 1,193,573 shares of Common Stock issuable upon exercise of
the MCI Warrant
13
<PAGE>
at an aggregate exercise price of $3.78 million; and (iii) 1,070,047 shares
of Common Stock issuable upon exercise of management stock options
outstanding as of December 31, 1997 at a weighted average exercise price of
$1.07 per share. See "Management--Employee Benefit Plans" and "Certain
Relationships and Related Transactions."
(2) Represents the balance due on the Sylvan Subscription.
14
<PAGE>
DILUTION
At December 31, 1997, the pro forma net tangible book value of the Company
was $5,164,002, or $0.41 per share of Common Stock after giving effect to (i)
the Preferred Stock Conversion (including payment of accrued dividends), (ii)
the Recapitalization (assuming conversion of the 6% Non-Voting Convertible
Preferred Stock), and (iii) Sylvan's payment of the balance due on the Sylvan
Subscription. Pro forma net tangible book value per share is determined by
dividing the pro forma tangible book value of the Company (total tangible
assets less total liabilities) by the pro forma number of outstanding shares
of Common Stock as of that date. After (i) giving effect to the sale by the
Company of the 4,200,000 shares of Common Stock offered by it, assuming an
initial public offering price of $13.00 per share, and (ii) deducting
underwriting discounts and commissions and estimated offering expenses, the
Company's pro forma net tangible book value as of December 31, 1997 would have
been $55,242,002, or $3.28 per share. This represents an immediate increase in
pro forma net tangible book value to existing stockholders of $2.87 per share
and an immediate dilution to new investors of $9.72 per share. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price.......................... $13.00
Pro forma tangible book value per share at December 31,
1997........................................................ $0.41
Increase per share attributable to new investors............. 2.87
-----
Pro forma net tangible book value after the offering........... 3.28
------
Net tangible book value dilution per share to new investors.... $ 9.72
======
</TABLE>
The following table summarizes, as of December 31, 1997, on a pro forma
basis after giving effect to (i) the Preferred Stock Conversion (including the
payment of accrued dividends) (ii) the Recapitalization, and (iii) Sylvan's
payment of the balance due on the Sylvan Subscription, the differences between
existing stockholders and new investors with respect to the number of shares
of Common Stock purchased from the Company, the total consideration paid and
the average price paid per share, assuming an initial public offering price of
$13.00 per share but before deducting underwriting discounts and commissions
and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).. 12,667,220 75.1% $21,250,308 28.0% $ 1.68
New investors............. 4,200,000 24.9 54,600,000 72.0 $13.00
---------- ----- ----------- -----
Total................... 16,867,220 100.0% $75,850,308 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Includes 7,499,892 shares of Common Stock and 5,167,328 million shares of
6% Non-Voting Convertible Preferred Stock (which are convertible into an
equivalent number of shares of Common Stock). Excludes shares of Common
Stock issuable upon exercise of the MCI Warrant.
At December 31, 1997, there were also outstanding options to purchase an
additional 1,070,047 shares of Common Stock at a weighted average exercise
price of $1.07 per share. To the extent these options are exercised, there
will be further dilution to new investors in the net tangible book value of
their shares. See "Capitalization," "Management--Employee Benefit Plans" and
"Description of Capital Stock."
15
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the period from November 22, 1996
(inception) to December 31, 1996, for the year ended December 31, 1997 and for
the period from inception to December 31, 1997 have been derived from the
financial statements of the Company included elsewhere in this Prospectus
which have been audited by Ernst & Young LLP, independent public accountants.
The data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM NOVEMBER NOVEMBER 22, 1996
22, 1996 (INCEPTION) YEAR ENDED (INCEPTION) TO
TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
-------------------- ------------- -----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................... $ -- $ 1,199,293 $ 1,199,293
Expenses:
Campus operating ex-
penses................... -- 7,133,744 7,133,744
Management fees due to
Sylvan................... 480,000 2,400,500 2,880,500
Other selling, general and
administrative........... 1,155,171 5,380,972 6,536,143
------------ ------------- -------------
Total expenses........ 1,635,171 14,915,216 16,550,387
Other income (expense):
Interest income........... -- 536,100 536,100
Interest expense.......... -- (391,312) (391,312)
------------ ------------- -------------
Net loss.................... $ (1,635,171) $ (13,571,135) $ (15,206,306)
============ ============= =============
Net loss per common share
attributable to common
stockholders............... $ (0.21) $ (1.62) $ (1.82)
============ ============= =============
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
-------------------- -------------
BALANCE SHEET DATA (AT END OF
PERIOD):
<S> <C> <C>
Cash and cash equivalents... $ 13,000,000 $ 3,850,400
Working capital............. 11,616,200 (1,290,891)
Total assets................ 13,057,629 14,510,389
Total debt.................. 1,212,800 7,033,076
Redeemable preferred stock.. 11,300,000 11,300,000
Stockholders' equity
(deficit).................. (134,171) (11,500,356)
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since its organization in November 1996, the Company has devoted
substantially all of its efforts to raising capital, developing the Caliber
network, recruiting and training personnel and establishing initial
relationships with universities, corporations and suppliers. The Company has
incurred cumulative net losses since inception and expects to incur additional
losses for at least the next two years, due primarily to additional start-up
costs related to the expansion of the Caliber network and costs associated
with the development and marketing of products and services. The Company
expects that losses will fluctuate from quarter to quarter and that the
fluctuations may be substantial. As of December 31, 1997, the Company had
accumulated net losses of $15.2 million.
Revenue. It is expected that future revenue will be generated primarily from
the distribution of graduate level learning and professional development and
training programs, as well as video conferencing, hourly classroom rental and
related services. Revenue from university programs will be recognized ratably
over the period that the courses are delivered. Some university contracts will
provide for the university to recover its course development costs prior to
allocation of any tuition revenue to the Company. See "Business--Lifelong
Learning Products and Services."
Contracts with commercial enterprises signed in the fourth quarter of 1997
and in the first quarter of 1998 for professional development and training
programs provide for Caliber to receive specific program fees, based on the
length of the program and the Caliber facilities utilized. The Company will
recognize revenue from the distribution of courses and programs when the
related tuition or fees are earned, which generally will be on a straight-line
basis over the course or program distribution period. The Company also
anticipates that it will generate revenue from video teleconferencing services
and hourly classroom rental, which will be recognized when the service is
provided.
Costs and expenses. The Company incurs operating costs and expenses related
to campus operating expenses, management fees payable to Sylvan and selling,
general and administrative expenses. Campus operating expenses consist
primarily of payroll, lease expense, depreciation and telecommunications costs
associated with the Caliber campuses.
Since its organization in November 1996, Caliber has relied on Sylvan for
certain resources, systems and personnel for management, administrative,
legal, accounting and financial functions. Additionally, Sylvan provides
office space for the Company's operations. Under the Sylvan Management
Agreement, the Company agreed to pay Sylvan $2.9 million of management fees
incurred from November 22, 1996 through December 31, 1997. The Company has
agreed to pay Sylvan $2.0 million annually for these services in 1998 and
1999. During the next two years, the Company intends to develop its own
systems to replace those currently provided by Sylvan and to add and integrate
a substantial number of new managerial, finance, accounting and support
personnel.
Since Caliber's inception, selling, general and administrative expenses have
consisted primarily of payroll and employee benefits, travel, marketing costs
and consulting fees. The Company expenses all start-up costs related to
program development and campus development when incurred. Course production
costs related to the creation of various media and course materials will be
capitalized and amortized over the expected useful lives of the media and
materials. Advertising and marketing costs are expensed when incurred, except
direct-response advertising costs related to a specific course offering, which
will be capitalized and amortized over the course distribution period.
RESULTS OF OPERATIONS
In 1997, the Company generated $1,199,293 of revenue. All of this revenue
resulted from the CBT Services Agreement with Sylvan. Under this agreement,
Caliber manages 32 Sylvan Testing Centers ("STCs") that may
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be converted to Caliber Campuses in the future. The Company receives a fixed
fee per month to manage these centers, a fee per test delivered above a
specified number of tests and 50% of any profits to Sylvan from Sylvan's
digital fingerprinting joint venture with Identix Corporation. Caliber pays
all operating expenses for these 32 centers. During 1997, operating expenses
exceeded the revenue received from Sylvan for Caliber's management of the 32
centers. See "Business--Sylvan Testing Centers" and "Certain Relationships and
Related Transactions--CBT Services Agreement."
During 1997, Caliber incurred $7,133,744 of campus operating expenses.
Campus operating expenses include costs associated with the following: the
opening of 19 Caliber Campuses in 1997, 13 Caliber Campuses that were in
various stages of development and 32 STCs managed by Caliber.
The Company incurred $1,155,171 and $5,380,972 of selling, general and
administrative expenses in 1996 and 1997, respectively. As of December 31,
1997, the Company employed 46 management, sales and administrative personnel,
compared to 14 at December 31, 1996. During 1997, the Company incurred
approximately $600,000 of non-recurring expenses related to executive
recruiting and relocation as well as start-up costs related to the
implementation of distance learning technologies.
During 1997, net interest expense was $144,788. The Company generated
$536,100 of interest income from the temporary investment of cash received
from Caliber's initial capitalization. Interest expense of $391,312 resulted
from borrowings on the $3.0 million Sylvan Loan and interest on capital lease
obligations.
The Company recorded a net deferred tax asset of $5.9 million as of December
31, 1997. This deferred tax asset consisted principally of start-up costs
capitalized for income tax purposes and net operating loss carryforwards.
Income tax regulations contain provisions which may limit the use of net
operating loss carryforwards in any given year if certain events occur,
including changes in ownership of the Company. The Company has established a
valuation allowance for the entire amount of its net deferred tax asset due to
uncertainties regarding future taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has used $10.5 million of cash in operating
activities and $4.5 million for investing activities, consisting principally
of the acquisition of property and equipment. These cash needs have been
primarily financed through the initial capitalization of $13.0 million, the
Sylvan Loan of $3.0 million and a portion of the Sylvan Subscription of $2.6
million. See "Prospectus Summary--Initial Capitalization and Recapitalization
of the Company." As of December 31, 1997, the Company had cash and cash
equivalents of $3.9 million, $5.4 million unpaid under the $8.0 million Sylvan
Subscription and $16.0 million available under the $20.0 million MCI Lease and
Guarantee Commitment. The Company believes that these resources, together with
the estimated net proceeds from this offering and $3.0 million of available
borrowings under the Sylvan Loan will be sufficient capital for implementation
of the Caliber network and to fund negative cash flow through at least 1999.
However, there can be no assurance that the Company's cash resources following
this offering will be sufficient to fund the Company's negative cash flow and
expected capital expenditures through 1999. The Company, therefore, may need
to obtain additional equity or debt financing during this period. There can be
no assurance that the Company will be able to obtain the additional financing
to satisfy its cash requirements or to implement its growth strategy
successfully, in which event the Company will be forced to curtail its planned
business expansion and may be unable to fund its ongoing operations.
YEAR 2000
The Company has initiated discussions with its significant suppliers, large
customers and financial institutions to ensure that those parties have
appropriate plans to remediate Year 2000 issues where their systems interface
with the Company's systems or otherwise impact its operations. The Company is
assessing the extent to which its operations are vulnerable should those
organizations fail to remediate properly their computer systems.
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The Company's comprehensive Year 2000 initiative is being managed by a team
of internal staff and outside consultants. The team's activities are designed
to ensure that there is no adverse effect on the Company's core business
operations and that transactions with customers, suppliers, and financial
institutions are fully supported. The Company is well under way with these
efforts, which are scheduled to be completed in early 1999. While the Company
believes its planning efforts are adequate to address its Year 2000 concerns,
there can be no guarantee that the systems of other companies on which the
Company's systems and operations rely will be converted on a timely basis and
will not have a material effect on the Company. The cost of the Year 2000
initiatives is not expected to be material to the Company's results of
operation or financial position.
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BUSINESS
The Company is establishing a state-of-the-art, graduate level learning and
professional training distribution network throughout the United States
designed to meet the needs of prominent universities, major corporations and
working adults. Caliber intends to distribute courses developed by prominent
universities and to distribute professional development and training programs
to Fortune 1000 corporations. Caliber has entered into a five-year contract
with Johns Hopkins and a five-year contract with Wharton to begin programs for
working adults in 1998. In addition, the Company has signed joint development
agreements with the University of California at Berkeley Extension School, MIT
and Georgetown University. The Company has entered into contracts with Compaq,
Macmillan and MCI Systemhouse to begin programs in 1998. As of April 1, 1998,
the Company had 34 Campuses open in 34 markets and expects to have 41 Caliber
Campuses open in 40 markets by September 1998. Sylvan and MCI organized
Caliber in November 1996, bringing together the educational services expertise
of Sylvan and the telecommunications and technology expertise of MCI.
INDUSTRY OVERVIEW
Expenditures in the post-secondary education market were approximately $220
billion in 1996-97, compared to approximately $135 billion in 1989-90. In
1996-97, approximately 45% of the students enrolled in post-secondary
education were adults age 25 and older. Corporations budgeted approximately
$60 billion in 1997 to provide training for their employees, compared to $46
billion in 1990. The Company believes that an increasing need for technical
skills in the workforce is the primary reason for growth in the training
market. Corporations also spend significant amounts each year on corporate
communications programs, such as product introductions and customer training.
The U.S. Department of Education predicts that, by the year 2000,
approximately 85% of all U.S. jobs will require post-secondary education or
equivalent skills training.
Lifelong Learning Programs. "Lifelong learning" refers to programs directed
primarily toward working adults. Increasing numbers of working adults have
concluded that graduate level education is necessary for career advancement.
Many would prefer to obtain this education from prominent universities because
the prestige of these universities increases the value of the credentials
earned. Practical constraints, however, often force working adults to choose
local universities or conventional distance learning rather than attend
prominent institutions farther from home.
Most universities use a traditional learning method characterized by (i) on-
campus classroom instruction, (ii) semester long courses and (iii) weekday
course offerings. Universities prefer the classroom environment because of its
live, interactive nature. Universities also believe this traditional learning
method is needed to maintain consistent, high quality instruction and
admissions standards. Additionally, most universities are unable or unwilling
to expand existing campuses to accommodate more students or build satellite
campuses to serve remote students. According to the National Center for
Education Statistics, universities that are interested in providing distance
learning have not offered these programs because of program development and
equipment costs and limited technological infrastructure. Universities
generally target their course content toward traditional, full-time students
and, therefore, do not meet the career-oriented learning needs of working
adults or the corporations who pay for their employees' education. To date,
the alternatives for working adults have been conventional distance learning
and local two-year and four-year colleges. Conventional distance learning
allows working adults to learn through printed course materials or videotaped
presentations, the Internet or one-way broadcast instruction. These methods
address the problems of time and location, but they do not provide the
benefits of traditional classroom learning.
For-profit educational organizations, such as Apollo Group's University of
Phoenix, Strayer University and DeVry's Keller School of Management, have
succeeded by focusing on the practical needs of working adults. These
organizations offer job-related courses at convenient times and locations;
however, credentials obtained from these institutions may have less perceived
value than those obtained from prominent universities. These organizations
also rely on part-time, adjunct faculty rather than full-time university
professors. Some prominent
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universities want to serve working adults, but the capacity of their campuses
and faculty limits their ability to teach more students. These universities
have not adopted conventional distance learning because they believe it would
compromise the quality of their instruction and the integrity of their
credentials.
Many corporations pay for their employees' lifelong learning through tuition
reimbursement plans. Typically, these plans reimburse employees for courses at
any accredited academic institution as long as the course has some relevance
to the employee's job and the employee achieves a passing grade. Corporations
may derive greater benefits from their tuition reimbursement programs by
gaining control over the content and quality of their employees' education.
Corporate Communications and Training. Corporations have been spending
increasing amounts on communicating with and training their employees, dealers
and customers. Transporting corporate trainers to remote offices or
transporting employees, dealers or customers to central training facilities is
costly and difficult to coordinate. The corporate trainer is typically an
intermediary between the expert and the employees, which may lower the quality
of the training. In addition, the shortage of qualified training personnel
causes many businesses to be unable to produce effective training programs.
Communications technology can increase the quality and reduce the cost of
corporate training programs. However, many businesses do not have the in-house
expertise to establish their own technology-based distance learning programs.
Internal training programs could be made more effective by outsourcing content
preparation to a leading university or specialized training organization.
THE CALIBER LEARNING NETWORK SOLUTION
Caliber combines the best elements of the traditional classroom with the
convenience of distance learning. Caliber Campuses feature professional
classrooms, educational facilitators, state-of-the-art satellite transmission,
video conferencing, wide-area network computing and Internet technologies.
These features give working adults access to live, expert instruction, real-
time two-way interactivity with the instructor and the ability to collaborate
with other course participants. In addition, Caliber integrates personal
computing and the Internet to enhance student-teacher interactivity and to
extend the learning experience beyond the classroom.
Caliber addresses the practical constraints of working adults by providing
prominent university content and professional development and training
programs at convenient times and locations. Caliber will provide working
adults with a portfolio of graduate level courses from prominent universities.
Caliber enables prominent universities to extend the market for their
educational products without sacrificing high-quality instruction. Caliber
accomplishes this by distributing live, interactive instruction developed by
the university through satellite broadcast, video conferencing and Internet
technologies to Caliber Campuses, which enables universities to have an
outstanding instructor teach students simultaneously at different locations
across the country. The Caliber network enables corporations to have an expert
address its workforce, customers or dealers across the country at the same
time. The Caliber network allows corporations to disseminate time sensitive
subject matter rapidly. Caliber believes it is well positioned to deliver
high-quality educational content produced by prominent universities as well as
to manage collaboration between universities and corporations to produce
customized professional development and training programs. Gaining control of
the content and quality of their professional development and training
programs will improve corporations' return on their tuition reimbursement
plans and training expenditures.
STRATEGY
To achieve its goal of becoming the leading provider of distance learning to
working adults, Caliber has developed the following six-part strategy:
Rapidly create the foremost distributed learning network. Caliber is
establishing the first nationwide learning and professional training
distribution network designed to meet the requirements of prominent
universities, corporations and working adults. The Company's goal is to become
the standard for distributed
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learning by maintaining high quality course content, advanced technology, a
professional learning environment and a national presence. Caliber Campuses
combine the best elements of the traditional classroom with the convenience of
distance learning.
Establish long-term strategic alliances with prominent universities. Caliber
is forming strategic alliances with universities that have outstanding course
content and national reputations. The Company intends to assemble a portfolio
of high-quality, graduate level courses. Caliber plans to use its success in
establishing these alliances to develop strategic alliances with other
prominent universities and thereby broaden the scope of its offerings.
Form consultative relationships with major corporations. Caliber is
establishing working relationships with major corporations to provide cost-
effective solutions for their communications, professional development and
training needs. By establishing these alliances, Caliber intends to become the
leading communication, professional development and training resource for
Fortune 1000 companies. Caliber will assist major corporations in analyzing
their communications, professional development and training needs and in
producing effective distance learning solutions.
Target professional development and training programs to specific
industries. Caliber intends to focus initially on educational and training
programs in the fields of health care, management development, information
technology/engineering and education. These fields are characterized by (i)
large, dispersed and changing professional populations; (ii) rapid changes in
subject matter; and (iii) requirements for continuing education or
professional development.
Manage collaboration among prominent universities and corporations. Caliber
plans to use its alliances with prominent universities to facilitate
collaboration between these universities and Caliber's corporate clients to
develop customized professional development and training programs. Caliber
will distribute these programs to dispersed corporate constituencies through
the Caliber network.
Optimize utilization of the Caliber network. Caliber intends to optimize
utilization of the network by providing other services to increase Campus
utilization, including video conferencing services and hourly classroom
rental. Caliber expects that corporations will use the Campuses on weekdays
for professional training and corporate communications programs and that
working adults will use the Campuses in the evenings and on weekends for
lifelong learning.
THE CALIBER NETWORK
By September 1998, Caliber expects to have 41 Campuses linked to studios
located near content providers and to each other by satellite transmission,
video conferencing, wide-area network computing and Internet technologies. The
Caliber network is designed to give working adults nationwide access to live
expert instruction, real-time two-way interactivity with the instructor and
the ability to collaborate with other students. The Caliber network integrates
the capabilities of personal computing and the Internet to enhance instructor-
student interactivity and to extend the learning experience beyond the
classroom.
The Caliber Learning Experience. A Caliber-trained educational facilitator
will greet students entering a Caliber Campus and direct the students to their
appropriate classrooms. In each classroom, the facilitator will distribute
course materials to the students and familiarize them with the facilities,
including the PCs embedded in their workstations, before instruction begins.
The class instructor will be located at a remote production studio, together
with one or more teaching assistants and a Caliber studio technician. The
technician will coordinate transmission of the instruction and presentation
materials and manage the communications technologies so that students in all
Caliber Campuses can interact with the instructor and teaching assistants
throughout the presentation. When the instructor begins, the studio technician
transmits the broadcast to the Caliber Campus classrooms. Students will view
the instructor on a large projection screen located at the front of each
classroom. The instructor can transmit any graphics or text being shown on
projection screens directly to the students' PCs.
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The instructor can also use visual aids, such as PowerPoint(TM) slides, and
direct the Caliber technician to display them either on the projection screen
or the PCs, or both.
At any time during the broadcast, the instructor can connect one or more
classrooms directly to the studio using video conferencing so that the
instructor can see and talk directly to students in any classroom while
students in other classrooms view the exchange. Students can also interact
with the instructor or teaching assistants by sending questions to the studio
through their PCs. Teaching assistants can send responses immediately to the
students' PCs, or they may choose to forward frequently asked questions to the
instructor so the instructor can address those questions to all locations
simultaneously. Students can communicate with others in their classroom and
those in other classrooms through their PCs during or after the instructor's
presentation. Between classes, students can access the course's own web page
to review course materials and a log of frequently asked questions.
Caliber Campuses. The Company expects to have opened 41 Caliber Campuses in
40 markets by September 1998. Campuses will be in upscale commercial
properties or upscale suburban malls. These locations will provide students
with secure evening and weekend access and ample parking. The design and
management of every Caliber Campus will be uniform, allowing the Company to
achieve educational consistency and cost-savings. Most Caliber Campuses will
have three classrooms which can be configured into one large room by
retracting the soundproof walls. This gives Caliber the flexibility to serve
large or small groups and the ability to designate a space which is physically
and economically appropriate for the size of the group. The average classroom
can seat 24 students and will have 12 multi-media computers embedded into the
work stations. Each Caliber Campus also has a multi-purpose office and video
conferencing room. At the front of each classroom is a large projection
screen, which enables each student to have an unobstructed view of the
presentation.
PROTOTYPICAL CALIBER LEARNING CENTER FLOORPLAN
LOGO
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LIFELONG LEARNING PRODUCTS AND SERVICES
Caliber intends to distribute lifelong learning programs to working adults
through alliances with prominent universities. Caliber will focus initially on
establishing alliances with universities having national reputations in the
fields of health care, management development, information
technology/engineering or education. Caliber offers these universities the
facilities and marketing expertise to distribute their course content to a
large number of working adults without lowering educational or admissions
standards. Caliber will assist faculty members in adapting their course
content into effective presentations which take full advantage of Caliber's
interactive delivery capabilities. Caliber has a five-year agreement with
Johns Hopkins to begin a graduate certificate program in April 1998 and a
five-year contract with Wharton to begin a series of middle management
certificate programs in September 1998. Universities often issue graduate
certificates to students who complete a non-degree program. In some instances,
students who obtain several certificates may also obtain a masters degree. The
University of California at Berkeley Extension School, MIT and Georgetown
University have signed joint development agreements to explore developing
distance learning programs with Caliber.
The Johns Hopkins University. Johns Hopkins offers a four-course program
entitled the "Hopkins Business of Medicine" to physicians. This program
teaches doctors the fundamental business skills needed to manage their
practices effectively in the current managed care environment. Johns Hopkins
currently offers the Hopkins Business of Medicine program on the Johns Hopkins
medical school campus. Approximately 80 doctors complete the program every
year, and there is a long waiting list. Johns Hopkins believes that many other
physicians throughout the country would like to attend the program but are
unable to take time away from their practices to travel to Baltimore. The
program consists of four, ten-week courses. Doctors who complete the program
receive 12 graduate level credits and a graduate certificate from Johns
Hopkins. Physicians who complete the program as well as an additional 36
credit hours receive a Masters of Science in Business with a Concentration in
Medical Management.
Johns Hopkins has agreed to deliver the Hopkins Business of Medicine program
through the Caliber network for a five-year period beginning in April 1998.
Johns Hopkins will deliver the first course beginning in April 1998 at
approximately 20 Caliber Campuses and expects to broadcast the Hopkins
Business of Medicine program to approximately 30 campuses beginning in
September 1998. Doctors can complete the entire Hopkins Business of Medicine
program in 12 months, at a total cost to the student of $6,000. Caliber and
Johns Hopkins will share profits once they have recovered their direct costs
of developing, marketing and delivering the Program.
Caliber is marketing the Hopkins Business of Medicine program to individual
doctors, physicians' groups and other health care providers under the Johns
Hopkins name. Doctors may respond by return mail, toll-free telephone or the
Internet. Caliber also holds open houses at its Campuses.
The Wharton School. For many years, Wharton has offered degree programs such
as the Executive Masters of Business Administration and non-degree courses
targeted toward business executives. Wharton and Caliber will deliver the
Wharton "Working Knowledge Series" through the Caliber network over the next
five years to working adults who meet Wharton's admission standards. The
Working Knowledge Series will consist of multiple non-credit certificate
programs, each focusing on a different business process. Each program will
take approximately six weeks to complete and will cost students approximately
$2,500. Caliber will deliver the first program in September 1998. Wharton has
agreed to introduce new programs beginning in January 1999.
Future University Programs. Caliber is in discussions with other prominent
universities that have expressed interest in forming alliances to deliver
courses in such disciplines as education, engineering, telecommunications,
international relations and health sciences. The Company believes there is
significant demand for courses in these disciplines among working adults
interested in advancing their careers and
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maintaining their certifications or licenses. To date, these discussions have
led to joint development agreements with the University of California at
Berkeley Extension School, MIT and Georgetown University. The University of
California at Berkeley Extension School is exploring developing and delivering
a telecommunications graduate certificate program specifically designed for
employees of MCI. Georgetown University is exploring developing an
international relations graduate certificate program.
CORPORATE PRODUCTS AND SERVICES
The Company intends to market the Caliber network to Fortune 1000
corporations as a solution to their corporate communications, professional
development and training needs. Caliber will make its network available to
corporations to provide nationwide distribution of corporate communications,
professional development and training programs. Caliber will assist
corporations in redesigning programs to take advantage of Caliber's
telecommunications and computing technologies. In addition, Caliber plans to
use its relationships with prominent universities to manage collaboration
between corporations and universities to develop high quality, effective
professional development programs with content specifically tailored to the
corporations' needs. Corporations also can utilize the Caliber network to
communicate with and educate their dealers and customers.
Compaq Dealer Training. In January 1998, Caliber entered into a three-year
agreement with Compaq to deliver communications and training to its dealers
through the Caliber network. Compaq will invite dealers to convenient Caliber
Campuses to receive information and training on newly introduced Compaq
products. Compaq has agreed to produce 15 to 20 programs a year, each to be
delivered to approximately 50 Caliber classrooms at a fixed cost per program.
A program is defined as up to four hours of broadcast time delivered in up to
50 classrooms. In February 1998, the first Compaq program was delivered to
approximately 700 dealers at 29 Caliber Campuses. The Company subsequently has
delivered three additional programs, with the most recent program delivered to
dealers at 34 Caliber Campuses.
Caliber trains Compaq's instructors to use the Caliber network and converts
Compaq's training content to a format appropriate for broadcast. Caliber also
facilitates training programs by checking in dealers, distributing class
materials and supporting the dealers during the program as well as testing
dealers and returning raw test data to Compaq. Compaq has the right to
terminate the agreement after two years if its distance learning requirements
change so that Caliber cannot meet those requirements.
MCI Systemhouse Training. MCI Systemhouse, a systems integrator with 1997
revenues of approximately $1.7 billion, has agreed to spend a minimum of $1.0
million through February 1999 to use the Caliber network to deliver internal
professional development classes, new employee orientation classes and a
series of topical seminars open to employees and the public. Traditionally,
MCI Systemhouse has delivered its training programs live at a single location
and has not offered topical seminars to the public.
Macmillan Computer Publishing. Caliber and Macmillan have entered into a
three-year contract to distribute, through the Caliber network, training
courses on widely-used software application programs. The courses are designed
to expand the expertise of corporate technology professionals and to train
non-professionals to become qualified as information technology ("IT")
professionals. Macmillan will develop courses consisting of both instructor-
led training modules and Internet-based modules to support the instructor.
Each instructor-led training module will consist of two sessions offered over
two days. Macmillan will supply the instructors and all written course
materials. Caliber will assist Macmillan with conversion of the courses to the
Caliber environment, development and execution of a marketing plan and
coordination of student registration. The courses will be jointly marketed by
Macmillan and Caliber. The Company anticipates that Macmillan will offer at
least 15 IT professional training courses during the course of the contract.
Macmillan is obligated to deliver at least eight courses during the first year
of the contract.
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Wave Technologies. Caliber has entered into an agreement with Wave
Technologies, Inc. ("Wave"), under which Wave, an IT training company, will
offer technology training seminars, workshops and other informational programs
on timely IT topics to working adults through the Caliber network. Wave will
introduce three pilot programs in the third and fourth quarters of 1998, with
each pilot program lasting approximately six hours. Caliber has committed at
least 30 classrooms to each of these programs. Caliber and Wave have agreed to
negotiate to extend the duration and scope of their relationship, subject to
the success of the pilot programs.
IT Insight. Caliber is developing, in conjunction with several specialized
IT training companies, a series of monthly technical seminars on new Microsoft
products and other leading software products. This program will be called "IT
Insight" and will be aimed toward IT development officers responsible for
establishing technology strategies for their employers. Seminars will consist
of in-depth technical briefings based on research, case studies and analysis
by technical experts. Seminar instructors will discuss the features and
functions of new products as well as the current technology framework and
implementation issues. Seminars will initially focus primarily on new
Microsoft offerings. Microsoft has agreed to include the IT Insight seminars
on the Microsoft Developers' home page and to provide guest speakers to
discuss Microsoft programs. Caliber will be responsible for registration and
will collect evaluations at the end of each seminar. Caliber expects to begin
broadcasting this series by the end of June 1998.
Other Programs. The Company has distributed pilot programs through the
Caliber network for Microsoft and Salomon Smith Barney. In March 1998,
Microsoft delivered a marketing program to approximately 1,300 school
principals and district technical coordinators across the country. In March
1998, Salomon Smith Barney delivered a training program to its internal
brokers. Intel Corporation ("Intel") and Life Underwriters Training Council
("LUTC") have agreed to distribute pilot programs through the Caliber network
during 1998. Intel will conduct a training program for its value-added
resellers, and LUTC will conduct two communication and training programs for
its professionals and clients.
OTHER PRODUCTS AND SERVICES
Caliber's strategy is to maximize the revenue generating capabilities of the
Caliber network. To take advantage of available network capacity, Caliber
intends to develop a range of programs on topics where there is an unmet need
for large scale understanding. Caliber will develop programs that have proven
marketability on a local basis and which the Company can efficiently configure
for delivery through the Caliber network. The Company also plans to offer
other services to increase Campus utilization, including video conferencing
services and classroom rental on a per hour basis.
Year 2000 Training. Caliber hired several former IBM employees to develop a
COBOL training program designed to teach Year 2000 remediation skills. COBOL
has not been widely taught as a computer programming language since the early
1980s, which has resulted in a severe shortage of programmers available to
remediate the Year 2000 problem. The Year 2000 program will consist of six
courses lasting between one day and five weeks and will cover topics ranging
from COBOL training to executive briefings on Year 2000 issues. The cost per
course is expected to be between $800 to $4,000. Caliber has an agreement with
the University System of Maryland to conduct Year 2000 courses for their
students. The University System of Maryland has committed to running 11
classes during April, May and June of 1998 through Caliber, of which three are
currently underway. Thirty-one students are enrolled in these first three
classes. Caliber receives $4,000 for each student enrolled. Caliber also
intends to market the program to Fortune 1000 companies, large systems
integrators and federal and state governments.
Classroom Rental and Related Services. Caliber will rent individual Caliber
Campus classrooms and video conferencing services on a per hour or per day
basis, with additional services available at additional fees. Classrooms can
be used for meetings, training sessions and video conferencing. By using
Caliber facilities, clients will not have to rent a local conference room or
similar space and will not have to equip the space with personal computers and
audio visual equipment. Clients provide their own course content and
materials. Clients can load their software through Caliber's intranet to all
of the PCs in the rented classroom or through the Internet to the PCs of
remote attendees.
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SYLVAN TESTING CENTERS
Under the Testing Center Management and CBT Services Agreement (the "CBT
Services Agreement"), Caliber agreed to assume management and responsibility
for all obligations and operations of 32 Sylvan Testing Centers ("STCs") and
to deliver computer-based testing ("CBT") services on behalf of Sylvan at
those STCs through December 31, 2000. The Company receives a fixed amount per
month to manage these centers, an additional fee per test delivered above a
specified number of tests and 50% of any profits to Sylvan from Sylvan's
digital fingerprint joint venture with Identix Corporation. See "Certain
Relationships and Related Transactions--CBT Services Agreement."
CALIBER TECHNOLOGY
The Caliber Learning Network features select telecommunication and computing
technologies, such as digital satellite broadcasting, PCs with Pentium(R)
processors, Internet and intranet technologies and room-based video
conferencing. The Caliber network is a PC-based, open architecture network,
comprised of state-of-the-art components which can be replaced or upgraded
without redesigning the network.
MCI Network Management Agreement. At its inception, Caliber decided to seek
a strategic partner to whom it could outsource the design, supply and support
of the infrastructure of the Caliber network. Accordingly, in July 1997,
Caliber entered into a four-year Enterprise Management Agreement with MCI
Systemhouse. Under this agreement, MCI Systemhouse agreed to design the
network's infrastructure and supply and support the infrastructure's
components (other than the satellite system), including the Caliber Data
Center, and Caliber agreed to purchase all of these components through MCI
Systemhouse. Support services include individual component maintenance,
network fault and performance monitoring and help desk services. See "--
Equipment and Telecommunications Services."
Studio Technology. University professors and training instructors will
broadcast from production studios that Caliber has leased and upgraded with
the Company-designed Broadcast Origination Support System ("BOSS") as well as
other telecommunications technology. The broadcast team consists of the
Caliber technical coordinator, the instructor and one or more teaching
assistants. The team uses the BOSS system to coordinate the broadcast of the
presentation by satellite to Caliber Campuses and to facilitate interaction
with students in all locations during and after the presentation through two-
way video conferencing and Internet interfaces. The Caliber network uses
digital satellite technology to deliver broadcast quality video and audio. The
BOSS system consists of advanced PCs and video conferencing units configured
in a local area network ("LAN"). A wide area network ("WAN") connection links
the BOSS system to the Caliber Data Center. The video conferencing units use
two-way video and audio signals, enabling an instructor to see and talk with
students at any Caliber Campus while broadcasting the conversation to all
other Campuses. The BOSS PC interfaces enable the instructor to present visual
aids, such as PowerPoint(TM) slides or videotaped segments, simultaneously on
all classroom PCs or the large classroom screens. Through BOSS, the instructor
can ask students written questions through their PCs, students can answer
through their PCs and answers can be immediately tabulated and presented both
to the instructor and the students. The BOSS system's PC interface also allows
the instructor to track all questions that have been asked during the course.
The BOSS system's Internet interface enables the instructor and students to
communicate asynchronously beyond the classroom, by asking questions,
reviewing notes, distributing assignments and reprinting the text of
presentations for students who have missed a class.
Caliber designed the BOSS system to interface with standard production
studio equipment so that Caliber can rapidly establish a network of broadcast
studios by equipping existing studios. The BOSS system costs approximately
$100,000 per studio. In addition to the cost of the BOSS system, Caliber
anticipates that the average rent for a studio will be approximately $5,000
per day, depending on studio location.
Data Center. The Caliber Data Center consists of multiple PC file servers,
WAN equipment and high-speed data communications lines. Caliber uses a high-
end PC file server as the production control server for the intranet
application that controls all interactions during a course. The Data Center
hosts PC web servers to provide participants access to course materials and
learning activities from outside Campuses.
27
<PAGE>
Campus Technology. Each Caliber Campus is equipped with approximately
$200,000 of telecommunications equipment and computing technology. Principal
components include satellite dishes, control PCs linked to the Caliber
intranet, video conferencing units, a computer-controlled audio/video
projection and lighting system, desktop PCs configured to the Internet and
Caliber's proprietary classroom instruction software system. Each classroom
contains PCs with Pentium(R) processors and a local web server connected to a
Microsoft NT LAN and linked to the Caliber Data Center via a dedicated 56
kilobit frame relay line. Each classroom has a video conferencing unit linked
to each Caliber studio and a large screen projector unit attached to the
ceiling, through which the course is delivered. Since large screens are best
viewed in dim lighting, the overhead lighting system automatically dims
whenever the instructor is lecturing. When the instructor is talking to
students within a classroom via videoconferencing, the lighting system
automatically raises so that the students' images do not appear darkened when
captured by the video conferencing unit. Caliber's classroom instruction
software system allows students, through their PCs, to review course
materials, chat with students at other sites, ask and respond to questions
from the instructor, take notes, review frequently asked questions, receive
individualized instruction from teaching assistants and run other software
applications.
Proprietary Software. Caliber developed its own Internet software
application to control and deliver its distance learning courses. In addition
to the normal "pull" functionality of Internet applications, Caliber has added
a series of "push" functions that allow instructors to control the activities
of participants. Caliber has designed its system to allow instructors to
deliver an activity to the students' workstations within five seconds. Caliber
has tested its application and believes that this level of performance can be
achieved with up to 5,000 workstations in over 100 Campuses within the Caliber
intranet.
Caliber's software system has a subset of the major functions used for
asynchronous distance learning. Caliber will extend the Internet functions of
its software to include the major functions of most asynchronous distance
learning tools to be able to fully support participants both when they are in
the Campuses and when they are between sessions. Caliber's intent is to extend
and maintain its software internally.
MARKETING AND SALES
Caliber's principal marketing strategy is to establish long-term strategic
alliances with prominent universities and with major corporations.
Alliances with Prominent Universities. Caliber seeks to establish
relationships with the provosts and deans of prominent universities who have
responsibility for the distance learning initiatives of their universities.
Senior management currently has primary responsibility for contact with the
provosts and deans. Caliber anticipates hiring a Vice President of Academic
Services during 1998 to assume primary responsibility for these activities.
The first step to a university alliance is a joint development agreement
which calls for Caliber and the university to work together to develop a
program. A joint development agreement places Caliber in a preferred position
if the university decides to engage in distance learning. A joint development
agreement obligates Caliber to establish a broadcast studio and an affiliate
learning center on the university's campus and obligates the university to
provide Caliber the space for the studio and affiliate center. Caliber will
identify and determine potential market demand for specific course offerings.
Once a joint development agreement has been signed, Caliber will work with the
provost and deans to identify courses appropriate for a pilot distance
learning program.
Alliances with Corporations. Caliber's initial marketing focus is on Fortune
1000 companies in the IT/engineering and professional services industries
because these companies tend to have (i) geographically dispersed employees,
dealers and customers, (ii) significant training requirements and (iii) the
need for rapid dissemination of information. Caliber targets senior management
and others with responsibility for professional development and training or
employee benefits, such as tuition reimbursement. Caliber uses a consultative
marketing approach, believing that the Caliber network can be a solution to a
corporation's training and communications needs only after Caliber has
assessed those needs.
28
<PAGE>
Marketing and Sales to Working Adults. Caliber will assume primary
responsibility for marketing the university programs to corporations and to
individual working adults. Caliber plans to build program awareness through
targeted direct mail, direct response advertising and outbound telemarketing.
Caliber expects to use affinity marketing to members of professional
associations within its target industries. Caliber intends to enlist the
endorsement of corporations' senior management and human resource departments
in marketing its university programs to the corporations' employees.
Marketing and Sales Personnel. Caliber has 21 people dedicated to sales and
marketing and expects to have approximately 35 people by the end of 1998. In
March 1998, Caliber established a telemarketing operation. Telemarketing
representatives are responsible for outbound telemarketing and for the
enrollment of individuals who respond to Caliber's direct marketing campaigns.
EMPLOYEES
The Company's staff includes technical integration personnel responsible for
maintaining and extending the Company's network; instructional design and
video production staff who produce courses; sales and marketing staff; and
Campus facilitators who assist in the delivery of courses on Caliber Campuses.
Each Caliber Campus will have up to two facilitators. Caliber has a regional
management staff that will recruit and train these facilitators. As of January
31, 1998, Caliber had 133 full-time employees and 111 part-time facilitators.
The Company considers its relationship with its employees to be good. None of
the Company's employees is subject to a collective bargaining agreement.
COMPETITION
Management believes that its principal potential competitors will be
prominent universities located in the markets served by Caliber Campuses. In
each of Caliber's markets, there are also other two-year and four-year
colleges which have their own continuing education and graduate level
programs. Each of these competitors offers live classroom instruction and,
therefore, may enjoy a competitive advantage. Other competitors include for-
profit educational organizations, such as the Apollo Group's University of
Phoenix, Strayer University and DeVry's Keller School of Management, that
provide lifelong learning programs targeted to working adults and feature live
classroom instruction. Caliber may also compete with distance learning
companies that offer self-paced correspondence courses, videos, audiocassettes
and other distance learning products. More recent distance learning products
include CD-rom and Internet-based instruction. If the Caliber distance
learning concept proves successful, Caliber expects competitors to enter the
market. For example, businesses that have facilities in multiple markets that
could be linked by satellite, such as major hotel and movie theater chains,
could decide to establish networks of distance learning facilities to compete
with Caliber. Westcott Communications, Inc., which has established a one-way
satellite-based network currently used by a number of larger corporations to
distribute their training programs, could decide to make its network
interactive. The Company also competes against a significant number of third
party training companies that provide various training programs to
corporations. In addition, corporations may continue to use internal resources
to satisfy their training needs.
GOVERNMENT REGULATION
State Licensure. Many of the states in which Caliber intends to open Caliber
Campuses require that any entity providing educational programs obtain a
license to operate. Some states accept accreditation as evidence of meeting
minimum state standards for licensing. Other states impose their own
standards, including, in some instances, standards for distance learning. The
state in which a university is primarily located may require the university to
obtain approval to offer distance education programs, even if delivered to
another state. Moreover, the state receiving the university's distance
education program may require that the university obtain a license to deliver
distance education programs in that state. Some of these standards may limit
the number of courses that may be offered through distance education, require
specified levels of student support services, set minimum graduation
requirements and otherwise restrict distance education programs. Since most of
the prominent universities with which Caliber will establish alliances
typically have campuses in only one state, they may not
29
<PAGE>
have considered whether delivering their course content in other states will
subject them to the educational licensing requirements of those states.
Some jurisdictions may require Caliber to obtain one or more educational
licenses depending on the number of Caliber Campuses in that jurisdiction in
addition to, or instead of, the licensing requirements for the university
content providers even though Caliber only provides the delivery system for a
licensed university's course content. State regulators may be reluctant to
grant licenses to Caliber because it is not a traditional educational
provider. Corporate content providers are not required to obtain educational
licensing to deliver training and similar courses to their own employers;
however, delivering this content through the Caliber network to the public
generally may subject them to licensing requirements.
State requirements for distance education are rapidly evolving, and Caliber
cannot predict whether new requirements could adversely affect the way Caliber
intends to deliver courses over its network. The Company believes that state
and local universities and colleges, who may view the Company as competition,
may be successful in persuading state legislatures to enact new laws making it
more difficult for Caliber to operate as planned. Caliber or its content
providers may be unable to obtain licenses to deliver courses as planned or
required licensing may be unduly delayed or revoked.
Accreditation. The Company intends to contract with universities accredited
by recognized accreditation organizations. In some instances, specific
programs offered by those universities may be accredited by specialized
accreditation organizations. Some accreditation organizations have developed
guidelines for distance education programs, which address such aspects of
distance education as curriculum and instruction, evaluation and assessment,
library and learning resources, student services and facilities and finances.
As required by federal law, the institutional accreditation organization may
view the offering of distance education as a substantive change to the
university's operations, requiring prior written approval by the accreditation
organization. There can be no assurance that accreditation requirements will
not become more detailed or onerous in the future. If universities are
required to seek approval for, and undergo monitoring of, distance education
by accreditation organization, the Company may be unable to deliver courses
when or as planned.
Federal Student Financial Aid. The Higher Education Act of 1965, as amended
("HEA"), authorizes various federal student financial aid programs. Most
universities with which Caliber intends to contract participate in those
programs. Programs that do not result in the granting of a degree, such as
those to be offered initially by Johns Hopkins and Wharton, are not eligible
for federal student financial aid. If degree programs are offered in the
future through the Caliber network, students may become eligible for federal
student financial aid. HEA imposes numerous restrictions on institutions
participating in federal student financial aid programs, including limitations
on the number of courses that an institution of higher education may offer
through telecommunications and on the number of students that may be enrolled
in these courses. If the universities with which the Company contracts exceed
those limitations, the institutions could lose their eligibility to
participate in federal student financial aid programs.
Failure of an otherwise eligible institution to comply with state licensing
requirements could render that institution ineligible to participate in
federal financial aid programs. If a university fails to obtain necessary
state approval for distance education, it could be liable to the United States
Department of Education ("ED") for student financial aid to students in the
program or other penalties. Furthermore, the HEA restricts the ability of
institutions to contract with third parties for educational programs. Because
the Company will be providing only a delivery system for university courses
rather than its own educational programming, the Company believes that these
restrictions will not apply to its arrangements with universities, but there
can be no assurance that ED will not reach a different conclusion.
Student Affairs. Individuals enrolled in university programs offered through
the Caliber network will be students of the university offering the program.
As such, the students will generally have the same rights and responsibilities
as other students enrolled at that university. Among other legal obligations
to students, the universities with which the Company intends to contract are
subject to federal and state laws protecting the privacy of student records
and are likely to require the Company also to abide by those laws. These laws
will limit the Company's ability to obtain and/or use student information or
images for marketing or other purposes.
30
<PAGE>
If the Company were found to have misused student records, it could be barred
under federal law from access to such records for five years. In addition, a
university may be required, and may require the Company, to make reasonable
accommodations for otherwise qualified disabled students to take courses
through the Caliber network.
HEA Reauthorization and Regulation Review. Congress is expected to consider
reauthorization of the HEA in 1998. Treatment of distance education is
expected to be a major topic in the reauthorization process. There can be no
assurance that the HEA will not be amended to impose stricter or additional
requirements which would affect the Company. In addition, state and federal
regulation of distance education programs, as well as private accreditation of
such programs, are undergoing significant review by ED, state regulators and
accreditation organizations. Caliber cannot predict the scope or the outcome
of this review with regard to state and federal regulation of distance
education, neither the scope nor the outcome of any analysis, review or
development can be confidently predicted. Government and private regulation of
distance education may impose requirements that could delay, limit, impair or
impede operations of the Caliber network. This additional regulation may
delay, limit or impair the way Caliber intends to deliver educational content
over its network.
FACILITIES AND EQUIPMENT
The Company currently utilizes approximately 18,000 square feet of space in
Baltimore for its corporate and administrative offices. Sylvan leases this
space and charges the Company for its use as part of the Sylvan Management
Agreement.
Caliber Campuses. The Company expects to have opened 41 Caliber Campuses in
40 markets by September 1998, all of which will be on leased premises. The
average size of a Caliber Campus is between 4,000 and 5,000 square feet.
Campus leases have terms ranging from five to ten years. The Company expects
its aggregate lease expense for all 41 Caliber Campuses to be approximately
$3.5 million annually.
The following shows the location of the Caliber Campuses open and under
construction or planned as of April 1, 1998. Caliber Campuses under
construction or planned are expected to be open by September 1998.
<TABLE>
<CAPTION>
OPENED UNDER CONSTRUCTION OR PLANNED
----------------------------------- -----------------------------
<S> <C> <C>
Atlanta, GA Nashville, TN Indianapolis, IN
Austin, TX New Orleans, LA Long Island, NY
Baltimore, MD New York, NY Memphis, TN
Boston, MA Oklahoma City, OK Miami, FL
Charlotte, NC Orlando, FL Phoenix, AZ
Chicago,IL Paramus, NJ San Jose, CA
Cincinnati, OH Philadelphia, PA St. Louis, MO
Cleveland, OH Pittsburgh, PA
Dallas, TX Portland, OR
Denver, CO Raleigh, NC
Detroit, MI Rochester, NY
Houston, TX Salt Lake City, UT
Jacksonville, FL San Diego, CA
Kansas City, KS San Francisco, CA
Los Angeles, CA Seattle, WA
Milwaukee, WI Tampa, FL
Minneapolis, MN Washington, DC
</TABLE>
Affiliate Centers. The Company also expects to open affiliate centers on
university campuses and at corporate training centers. Affiliate centers will
be equipped with the same technology as Caliber Campuses and will be able to
deliver the same Caliber learning experience, but most will have only one
classroom. A university-based affiliate center will enable the university to
test the Caliber network on a real time basis and may be available as an
additional site for offering Caliber programs. Corporations can use an
affiliate center located on their campus exclusively for their training
programs. As of April 1, 1998, the Company had opened four affiliate
31
<PAGE>
centers and had agreements with two corporations to open additional affiliate
centers during 1998. The Company expects that by the end of 1998, it will have
opened approximately eight affiliate centers, at a cost to the Company of
approximately $75,000 per center.
Production Studios. As of April 1, 1998, Caliber had established BOSS-
enabled studios at Maryland Public Television's facilities near Baltimore and
The Production Company's Houston facilities. The Company also intends to
establish one Company-owned studio in downtown Baltimore during 1998. Caliber
intends to establish BOSS-enabled studios located near or on the premises of
universities and corporations as it enters into strategic alliances with them.
Equipment and Telecommunications Services. Caliber has entered into a four-
year Enterprise Management Agreement with MCI Systemhouse, under which MCI
Systemhouse will provide the computer hardware, WAN system components and
other infrastructure components (other than the satellite system) necessary to
operate the Caliber network, as well as telecommunication services. MCI
Systemhouse also will support and maintain these components. Under the
Enterprise Management Agreement, although Caliber is not required to purchase
exclusively from MCI Systemhouse, it must notify MCI Systemhouse of
competitors' bids to provide equipment or services and give MCI Systemhouse
the opportunity to furnish Caliber with the last bid. The Company's
infrastructure components are standard design products bought unmodified from
the manufacturer. The Company believes that alternative network components are
available from a number of manufacturers.
PROPRIETARY RIGHTS
The Company relies upon a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect its
proprietary rights.
The Company has filed a comprehensive patent application with the U.S.
Patent and Trademark Office ("PTO") covering certain features of the Caliber
network which Caliber believes to be proprietary. The application describes
the Caliber network as a distance learning system which emulates a classroom
setting using satellite links, two-way video-conferencing, a PC-based network
for directly linking each student to the instructor, BOSS technology and
hardware, particular design features of the Caliber classrooms and furniture
and certain unique control and switching mechanisms. Caliber is unable to
predict whether it will be able to obtain this patent or if it does whether
the patent will be effective to protect any portion of the Caliber network
from infringement.
The Caliber network employs a combination of proprietary and non-proprietary
software. The Company considers proprietary certain applications software used
to create the user-interface of the PC network. The Company may include the
proprietary software in the patent application or, in the alternative, seek
separate copyright protection for the software.
Applications by the Company to register "Caliber," "Caliber Learning
Campus," "Caliber Learning Network," and the Caliber logo as service marks are
currently pending before the PTO. While the Company considers these marks to
be proprietary and entitled to registration, there can be no assurance that
these applications will be approved.
RISK MANAGEMENT
The Company may be subject to claims that the Caliber network did not meet
promised standards or that errors or omissions by the Company's employees
contributed to disruptions in the network's operation. The Company carries
insurance for public liability, property damage and workers' compensation, in
amounts management believes to be adequate to cover these types of potential
losses. The Company endeavors to include provisions in its contracts that
limit the Company's liability for network failures and exclude liability for
consequential damages. From time to time, the Company may become involved in
routine legal proceedings incidental to the conduct of its business.
32
<PAGE>
MANAGEMENT
The following table sets forth information regarding the executive officers,
directors and key employees of the Company, effective as of completion of this
offering:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS (1) AGE POSITION
- ------------------------------------ --- ------------------------------------------------------------
<S> <C> <C>
R. Christopher Hoehn-
Saric.................. 35 Chairman of the Board of Directors
Douglas L. Becker....... 31 Vice Chairman of the Board of Directors, Secretary, Director
Chris L. Nguyen......... 36 President, Chief Executive Officer
Rick P. Frier........... 36 Vice President; Chief Financial Officer
Janeen M. Armstrong..... 34 Director
John P. Hill............ 63 Director
Susan Mayer............. 48 Director
KEY EMPLOYEES
- -------------
David R. Dobkin......... 45 Senior Vice President, Corporate Services
G. Bryan Polivka........ 40 Senior Vice President, Programming & Production
William G. Durden....... 48 Vice President, Academic Affairs
R. Brady Locher, Jr..... 43 Vice President, Marketing Services
Richard Peterson........ 43 Vice President, Operations
</TABLE>
- --------
(1) The Company intends to add a director who is not affiliated with the
Company, Sylvan or MCI to its Board of Directors and the Audit and
Compensation Committees within 90 days after this offering.
Each director holds office until his successor is duly elected and
qualified, or until his earlier death, resignation or removal. Upon completion
of this offering, the Board of Directors will be classified into three
classes. The new director and Ms. Armstrong will serve in the class whose term
will expire at the 1999 annual meeting of stockholders; Messrs. Hill and
Hoehn-Saric will serve in the class whose term will expire at the 2000 annual
meeting of stockholders; and Mr. Becker and Ms. Mayer will serve in the class
whose term will expire at the 2001 annual meeting of stockholders. Upon
expiration of the initial term of each class of directors, directors
comprising that class will be elected to a three-year term at the next
succeeding annual meeting of stockholders.
The directors of the Company were elected pursuant to the Stockholders'
Agreement. See "Certain Relationships and Related Transactions."
R. Christopher Hoehn-Saric. Mr. Hoehn-Saric has served as Caliber's Chairman
of the Board of Directors since November 1996. From November 1996 until
February 1998, Mr. Hoehn-Saric also served as Caliber's Co-Chief Executive
Officer. Mr. Hoehn-Saric has served as Chairman of the Board of Directors of
Sylvan since April 1993 and as its Co-Chief Executive Officer since December
1995. From 1988 to 1993, he served as Sylvan's President. He also is a
principal in Sterling Capital, Ltd., an investment partnership ("Sterling").
Douglas L. Becker. Mr. Becker has served as Caliber's Vice Chairman of the
Board of Directors and Secretary since February 1998. From November 1996 until
February 1998, Mr. Becker served as President, Co-Chief Executive Officer and
a director of Caliber. Mr. Becker has served as President of Sylvan since
April 1993 and as its Co-Chief Executive Officer since December 1995. Mr.
Becker served as Chief Executive Officer of Sylvan's Learning Center Division
from February 1991 until April 1993. Mr. Becker was a co-founder of Health
Management Corporation and Sterling.
Chris L. Nguyen. Mr. Nguyen has served as Caliber's President and Chief
Executive Officer since February 1998. From November 1996 until February 1998,
Mr. Nguyen served as Caliber's Chief Operating Officer. Mr. Nguyen was Vice
President, Operations of Sylvan Prometric, Sylvan's computer-based testing
division, from 1993 to November 1996, when he joined Caliber. He joined
Sylvan's predecessor in 1987.
33
<PAGE>
Rick P. Frier. Mr. Frier has served as Vice President and Chief Financial
Officer of Caliber since March 1998. From 1991 through 1997, he served as Vice
President-Finance and Treasurer of Treasure Chest Advertising Company, Inc., a
company that provides advertising and marketing services to the retail
industry. From 1988 to 1991, Mr. Frier was a corporate banking officer at
Wells Fargo Bank.
Janeen M. Armstrong. Ms. Armstrong has served as a director of Caliber since
November, 1996. Ms. Armstrong has been self-employed as a certified public
accountant and consultant since 1993. Ms. Armstrong is Mr. Hill's daughter.
John P. Hill. Mr. Hill has served as a director of Caliber since November
1996. Mr. Hill has been self-employed as a financial consultant since 1975.
Prior to 1975, Mr. Hill held various staff and supervisory positions with
public accounting firms, the Board of Governors of the Federal Reserve System
and the Securities and Exchange Commission.
Susan Mayer. Ms. Mayer has served as a director of Caliber since November
1996. Ms. Mayer has been Senior Vice President of MCI Communications
Corporation since 1994. From 1993 to 1994, Ms. Mayer served as Vice President
of MCI Communications Corporation. From 1996 to 1997, Ms. Mayer was also
President and Chief Operating Officer of Sky MCI.
David R. Dobkin. Mr. Dobkin has served as Caliber's Senior Vice President,
Corporate Services since April 1997. Mr. Dobkin was a principal with the
Connected Enterprise Solutions group of Ernst & Young LLP from 1996 to 1997.
From 1995 to 1996, Mr. Dobkin served as Vice President, Sales and Marketing
for The Times Mirror Company, and from 1979 to 1995, he held various
management level sales and marketing positions with R. R. Donnelley & Sons.
G. Bryan Polivka. Mr. Polivka has served as Caliber's Senior Vice President,
Programming and Production since November 1996. Mr. Polivka served as Vice
President, Programming of Westcott Communications Inc. from 1991 through
September 1996. Prior to joining Westcott, Mr. Polivka was a producer with the
National Broadcasting Corporation and ProServ Television.
William G. Durden. Mr. Durden has served as Caliber's Vice President,
Academic Affairs since January 1, 1998. Mr. Durden serves concurrently as
President of the Sylvan Academy. Prior to joining Caliber and Sylvan, he
served as a Senior Fellow of the Wisconsin Policy Research Institute, the
Executive Director of the Institute of the Academic Advancement of Youth and a
member of the German Department of Johns Hopkins.
R. Brady Locher, Jr. Mr. Locher has served as Caliber's Vice President,
Marketing Services since July 1997. Mr. Locher served as Vice President of the
Marketing Services Group of Automatic Data Processing, Inc. from 1992 until
July 1997, and prior thereto, he held various positions in consumer products
marketing and advertising.
Richard F. Peterson. Mr. Peterson has served as Caliber's Vice President,
Operations since July 1997. Mr. Peterson served as Vice President of
Operations and Administration of Service Merchandise Co., Inc. from 1982 to
July 1997.
Other than Mr. Hill and Ms. Armstrong, there are no family relationships
among any of the executive officers or directors of the Company.
DIRECTOR COMPENSATION
Directors do not currently receive any compensation for their service on the
Board of Directors.
34
<PAGE>
BOARD COMMITTEES
The Board of Directors has established a Compensation Committee and will
establish an Audit Committee following completion of this offering. At least
two directors not affiliated with Sylvan or MCI will serve as the members of
the Audit Committee. The Audit Committee's principal functions will include
making recommendations to the Board regarding the annual selection of
independent public accountants, reviewing the proposed scope of each annual
audit and reviewing the recommendations of the independent public accountants
as a result of their audit of the Company's financial statements. The
Compensation Committee's principal function is to establish the compensation
of officers of the Company and to establish and administer the Company's
compensation programs, including the Company's 1998 Stock Incentive Plan. The
Board of Directors may from time to time establish other committees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
In 1997, the Board of Directors or senior management determined compensation
matters. Messrs. Hoehn-Saric and Becker, as Co-Chief Executive Officers,
participated in these decisions and are employees and directors of Sylvan.
None of the directors on the Compensation Committee is an employee of the
Company, and neither the Chief Executive Officer nor any other executive
officers will serve on the Compensation Committee. See "Certain Relationships
and Related Transactions."
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth information with
respect to the annual and long-term compensation earned in 1997 by the then
Co-Chief Executive Officers and the other four highest paid officers
(collectively, the "Named Officers") for services rendered in all capacities
to the Company during 1997:
<TABLE>
<CAPTION>
LONG-TERM
COMPEN-
SATION
ANNUAL COMPENSATION AWARDS
-------------------------- ----------
SHARES OF
OTHER COMMON
ANNUAL STOCK ALL OTHER
COMPENSA- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY BONUS TION(1) OPTIONS ($)(2)
- --------------------------- -------- ------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
R. Christopher Hoehn-
Saric(3)................... -- -- -- -- --
Co-Chief Executive Officer
Douglas L. Becker(3)........ -- -- -- -- --
Co-Chief Executive Officer
Chris L. Nguyen(4).......... $140,833 $16,625 $6,600 306,846 --
Chief Operating Officer
David R. Dobkin(5).......... 124,846 41,500 4,675 49,157 $58,935
Senior Vice President, Cor-
porate Services
G. Bryan Polivka............ 140,000 13,745 6,600 49,157 47,206
Senior Vice President,
Programming and Production
R. Brady Locher, Jr......... 74,462 25,000 3,025 49,157 56,909
Vice President, Marketing
Services(6)
</TABLE>
- --------
(1) Amounts consist of car allowances.
(2) Amounts consist of reimbursed relocation expenses.
(3) Messrs. Hoehn-Saric and Becker served as Co-Chief Executive Officers of
the Company during 1997 and also as Co-Chief Executive Officers of Sylvan.
During 1997, neither Mr. Hoehn-Saric nor Mr. Becker received any
compensation from Caliber and are not expected to receive compensation for
their services to Caliber in the future.
(4) Mr. Nguyen served as the Company's Chief Operating Officer during 1997. In
February 1998, he became President and Chief Executive Officer.
(5) Mr. Dobkin joined Caliber in April 1997 and currently is entitled to an
annual salary of $180,000 and an annual bonus based upon performance, not
to exceed $90,000.
(6) Mr. Locher joined Caliber in July 1997 and currently is entitled to an
annual salary of $165,000 and an annual bonus based upon performance, not
to exceed $41,250.
35
<PAGE>
NON-COMPETITION AGREEMENTS
Since November 1996, Messrs. Hoehn-Saric and Becker have been subject to
customary confidentiality and non-competition provisions in favor of the
Company. The non-competition provisions do not restrict Messrs. Hoehn-Saric
and Becker from working for Sylvan. All Caliber stock option grant agreements
contain non-competition provisions.
OPTION GRANTS
Option Grants. The following table sets forth information regarding options
to purchase shares of the Common Stock granted during 1997 to each of the
Named Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT
ASSUMED ANNUAL
RATES OF
STOCK PRICE
APPRECIATION
FOR OPTION
INDIVIDUAL GRANTS TERM(3)
--------------------------------------------- ---------------------
NUMBER OF
SECURITIES PERCENT OF
UNDERLYING TOTAL OPTIONS EXERCISE
OPTIONS GRANTED TO PRICE PER EXPIRATION
NAME GRANTED EMPLOYEES SHARE(1) DATE(2) 5% 10%
- ---- ---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
R. Christopher Hoehn-
Saric.................. -- -- -- -- -- --
Douglas L. Becker....... -- -- -- -- -- --
Chris L. Nguyen......... 98,314 9.2% $1.02 4/30/03 $1,612,472 $2,163,920
208,532 19.5 1.02 11/20/03 3,420,184 4,589,850
David Dobkin............ 49,157 4.6 1.02 4/30/03 806,236 1,081,960
G. Bryan Polivka........ 49,157 4.6 1.02 4/30/03 806,236 1,081,960
R. Brady Locher, Jr..... 49,157 4.6 1.02 6/19/03 806,236 1,081,960
</TABLE>
- --------
(1) The exercise price equaled the fair market value of the Common Stock as
determined by the Board of Directors on the date of grant. The exercise
price is payable in cash or by delivery of shares of Common Stock having a
fair value equal to the exercise price of options exercised.
(2) With certain exceptions, these options become vested, at the rate of 20%
per year, beginning one year from the date of grant. Each optionee has
generally agreed not to sell or otherwise transfer any shares acquired
upon exercise of these options for two years after the date of this
Prospectus.
(3) The assumed annual rates of appreciation of 5% and 10% would result in the
price of the Common Stock increasing to $17.42 and $23.03, respectively,
from an assumed initial public offering price of $13.00 per share during
the six-year term of the options. The 5% and 10% assumed annual rates of
price appreciation used to calculate potential gains to optionees are
mandated by the rules of the Securities and Exchange Commission. The
potential realizable value does not represent the Company's prediction of
its stock price performance. There can be no assurance that the stock
price will actually appreciate over the six-year option term at the
assumed 5% and 10% rates, if at all.
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<PAGE>
OPTION HOLDINGS
The following table sets forth information concerning the number and value
of unexercised options to purchase Common Stock held as of December 31, 1997
by the Named Officers. None of the Named Officers exercised any options to
purchase Common Stock during 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
EXERCISABLE/UNEXERCISABLE IN-THE-MONEY OPTIONS AT
NAME OPTIONS AT YEAR-END(1) YEAR-END(2)
- ---- ------------------------------- -----------------------
<S> <C> <C>
R. Christopher Hoehn-
Saric.................. --(E) --(E)
--(U) --(U)
Douglas L. Becker....... --(E) --(E)
--(U) --(U)
Chris L. Nguyen......... --(E) --(E)
306,846(U) $3,676,015(U)
David Dobkin............ --(E) --(E)
49,157(U) 588,901(U)
G. Bryan Polivka........ --(E) --(E)
49,157(U) 588,901(U)
R. Brady Locher, Jr..... --(E) --(E)
49,157(U) 588,901(U)
</TABLE>
- --------
(1) (E) = Exercisable; (U) = Unexercisable.
(2) Value equals an assumed initial public offering price of $13.00 per share,
less the per share exercise price.
EMPLOYEE BENEFIT PLANS
1997 Stock Option Plan. The Company's 1997 Stock Option Plan (the "1997
Plan") was adopted by the Company's Board of Directors and approved by the
stockholders as of April 30, 1997. Under the 1997 Plan, a committee of the
Board of Directors is authorized to grant stock appreciation rights and non-
qualified or incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), to purchase shares of
Common Stock to any consultant, employee, officer or director of the Company
as compensation for services rendered or contributions made to the Company.
There are an aggregate of 1,227,400 shares reserved for issuance upon exercise
of options granted under the 1997 Plan. With certain exceptions, employee
options vest ratably over a five-year period commencing with the date of grant
and expire six years after the date of grant, unless terminated earlier as a
result of termination of employment. Options granted under the 1997 Plan are
intended to qualify as incentive stock options to the maximum extent allowed
by the Code. As of December 31, 1997, there were outstanding under the 1997
Plan options to purchase an aggregate of 974,310 and 95,737 shares of Common
Stock at exercise prices of $1.02 and $1.63 per share, respectively, held by
61 employees. With certain exceptions, the options outstanding as of the date
of this Prospectus will begin to be exercisable on April 30, 1998, assuming
those currently holding options remain as employees of the Company. In
connection with the Company's adoption of the 1998 Stock Incentive Plan, the
1997 Plan was terminated as to new grants.
1998 Stock Incentive Plan. The Company's 1998 Stock Incentive Plan (the
"1998 Plan") was adopted by the Company's Board of Directors and approved by
the stockholders as of February 17, 1998. The purpose of the 1998 Plan is to
promote the long-term growth and profitability of the Company by providing
individuals with incentives to improve stockholder value and to contribute to
the growth and financial success of the Company and by enabling the Company to
attract, retain and reward the best-available persons. The 1998 Plan provides
for the grant of non-qualified stock options, incentive stock options within
the meaning of Section 422 of the Code, stock appreciation rights, restricted
and non-restricted stock awards, phantom stock awards, convertible debentures
and performance awards, each of which may be granted separately or in tandem
with other awards. The Compensation Committee has authority to select the
persons (including directors) to whom
37
<PAGE>
awards will be granted and to determine the terms of each award. In addition,
the Compensation Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, awards in recognition of unusual
or nonrecurring events affecting the Company or the financial statements of
the Company or any subsidiary, changes in applicable laws, regulations, or
accounting principles, whenever the Compensation Committee determines that
such adjustments are appropriate in order to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available under the
1998 Plan. The Company has reserved an aggregate of 1,043,290 shares of Common
Stock for issuance under the 1998 Plan. Participation in the 1998 Plan is open
to all employees, officers, directors and consultants of the Company or its
affiliated entities, although only employees of the Company or any subsidiary
may receive grants of incentive stock options.
Options under the 1998 Plan intended to qualify as incentive stock options
under Section 422 of the Code must have an exercise price at least equal to
the fair market value of the underlying shares on the date of grant, but non-
qualified stock options may be granted with an exercise price less than fair
market value. Incentive stock options may not be exercisable more than ten
years from the date the option is granted. If any employee of the Company or
any subsidiary owns or is deemed to own at the date of grant shares of stock
representing in excess of 10% of the combined voting power of all classes of
stock of the Company, the exercise price for the incentive stock options
granted to such employee may not be less than 110% of the fair market value of
the underlying shares on that date, and the option may not be exercisable more
than five years from the date the option is granted. The option exercise price
may be paid in cash, in shares of Common Stock, by a combination of cash and
shares or by any other means the Compensation Committee approves. Awards of
stock appreciation rights, stock and phantom stock awards and performance
awards may be settled in cash, shares of Common Stock or a combination of
each, in the discretion of the Compensation Committee.
The Board of Directors may terminate, amend or modify the 1998 Plan or any
portion thereof at any time, except that all awards made prior to termination
of the 1998 Plan will remain in effect until satisfied or terminated in
accordance with the terms of the 1998 Plan and such awards.
401(k) Savings Plan. The Company participates in the Sylvan 401(k)
Retirement Savings Plan, a defined contribution pension plan with a cash or
deferred arrangement as described in Section 401(k) of the Code (the "401(k)
Plan"). The 401(k) Plan is intended to qualify under Section 401(a) of the
Code, so that contributions, and income earned thereon, are not taxable to
employees until withdrawn. Generally, all employees of the Company who have
completed at least three months of service are eligible to participate in the
401(k) Plan. The 401(k) Plan provides that each participant may make elective
pre-tax and/or after-tax salary deferral contributions up to 15% of his or her
annual compensation, subject to statutory limits. The Company also may make
annual discretionary matching contributions and discretionary profit sharing
contributions in amounts determined by the Board of Directors, subject to
statutory limits. As of December 31, 1997, the Company had not made any
contributions. An employee must have performed one year of service before he
or she is eligible to receive an allocation of such matching or profit sharing
contributions. The Trustee of the 401(k) Plan invests each employee's account
at the direction of the employee, who may choose among several investment
alternatives, which do not currently include shares of Common Stock.
38
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stock Purchase Agreement. The Company was capitalized pursuant to a Stock
Purchase Agreement, dated October 23, 1996, under which MCI purchased
2,442,513 shares of 8% Series A Convertible Preferred Stock for $10.0 million
in cash; Sylvan purchased 1,227,393 shares of Series B Junior Preferred Stock
for $1.3 million in cash; each of R. Christopher Hoehn-Saric and Douglas L.
Becker, Sylvan's Co-Chief Executive Officers, purchased 1,718,351 shares of
Class A Common Stock for $350,000 each in cash; and John P. Hill, an
independent investor, purchased 5,167,328 shares of Class B Common Stock for
$1.0 million in cash. Messrs. Hoehn-Saric and Becker subsequently transferred
their shares to Sterling Caliber Investment, L.L.C., which is owned by Messrs.
Hoehn-Saric and Becker, two other investors and trusts for the benefit of
their respective families.
MCI Lease and Guarantee Commitment. Under the MCI Lease and Guarantee
Commitment contained in the Stock Purchase Agreement, MCI committed to provide
directly, or through a subsidiary, an aggregate of $20.0 million of (i) five
year capital leases for computer hardware and software, video equipment,
satellite equipment and other telecommunications equipment as well as
furniture required for the business of Caliber (collectively, the "Required
Equipment") or the procurement, installation and deployment, maintenance,
financing, technology upgrades and appropriate support service for the
Required Equipment, including, but not limited to, help desk services
(collectively, the "Required Services"); (ii) guarantees by MCI of Caliber's
obligations under other leases for Required Equipment or Required Services; or
(iii) a combination thereof. The MCI Lease and Guarantee Commitment requires
Caliber to notify MCI Systemhouse of the terms of other companies' bids to
provide Required Equipment or Required Services leases and to give MCI
Systemhouse the opportunity to furnish Caliber with the last bid for such
leases but does not require Caliber to accept MCI Systemhouse's bid if, in
Caliber's good faith judgment, a competitive bid is more advantageous to
Caliber. In connection with the MCI Lease and Guarantee Commitment, MCI
Systemhouse and Caliber entered into the Enterprise Management Agreement
described in "Business--Caliber Technology."
Under the MCI Lease and Guarantee Commitment, SHL Financial Services
Telecommunications Corporation, an affiliate of MCI, ("SHL") has a first
security interest in all furniture and equipment provided by MCI Systemhouse
under the Enterprise Management Agreement and SHL has a first security
interest in any furniture and equipment provided in any subsequent MCI
Systemhouse lease. Under the Enterprise Management Agreement, upon certain
events of default, MCI and MCI Systemhouse have the right to terminate the MCI
Lease and Guarantee Commitment, the Enterprise Management Agreement and any
other MCI Systemhouse leases.
Stockholders' Agreement. In connection with the Company's capitalization,
the Stockholders and the Company entered into the Stockholders' Agreement,
pursuant to which: (i) Sylvan agreed to make the Sylvan Loan; (ii) Sylvan
agreed to contribute an additional $8.0 million of capital to Caliber to the
extent needed by Caliber for working capital; (iii) Mr. Hill granted Sylvan
the Hill Option; (iv) the Stockholders' ability to transfer their shares of
Caliber stock was restricted; (v) the Stockholders agreed to elect the other
Stockholders or their representatives to the Company's Board of Directors; and
(vi) the Company was prohibited from taking certain actions without the
approval of MCI's Board representative. Pursuant to the Stockholders'
Agreement, Mr. Hill, Ms. Armstrong, Mr. Hoehn-Saric, Mr. Becker and Ms. Mayer
were elected and currently serve as directors of the Company. The
Stockholders' Agreement will terminate upon completion of this offering.
Registration Rights Agreement. Under the Registration Rights Agreement, the
Company has agreed to register under the Securities Act all or any portion of
the shares of Common Stock owned by Sylvan, MCI and Sterling Caliber at any
time upon their request during the four years after completion of this
offering. Caliber is only required to register shares held by these
Stockholders an aggregate of four times on an S-1 registration statement and
an aggregate of six times on an S-3 registration statement. Caliber is
required to register these shares on an S-1 registration statement only if the
shares to be registered have a fair market value of at least $3.0 million and
on an S-3 registration statement only if the shares to be registered have a
fair market value of at least $1.0 million. Caliber can require any offering
of the registered shares to be underwritten by one or more investment banking
firms of national reputation selected by the Company if the fair market value
of the shares being registered exceeds $3.0 million.
39
<PAGE>
MCI Warrant. The Company issued the MCI Warrant to MCI in connection with
MCI's purchase of 2,442,513 shares of 8% Series A Convertible Preferred Stock.
The MCI Warrant has been generally exercisable for that number of shares of
Common Stock that would equal 7% of the total number of shares outstanding
after exercise of the MCI Warrant. As a result of this offering, the MCI
Warrant will become exercisable for 1,193,573 shares and will be subject for
adjustment only (i) if the Company sells shares of Common Stock for less than
$3.17 or issues rights, options (other than management stock options) or
warrants to purchase shares of Common Stock for less than $3.17, or (ii) for
stock splits and similar changes in the capitalization of the Company. The
aggregate exercise price of the MCI Warrant is $3.78 million.
Sylvan Loan. As of December 31, 1997, the Company owed $3.0 million to
Sylvan under the Sylvan Loan. Amounts outstanding bear interest at 1% above
the NationsBank prime rate. As of December 31, 1997, principal outstanding
under the Sylvan Loan bore interest at 9.5%. Accrued interest payable under
the Sylvan Loan was $301,784 at December 31, 1997. The Company intends to use
a portion of the net proceeds from this offering to repay the Sylvan Loan with
accrued interest. The Sylvan Loan will continue to be available to Caliber
after completion of this offering.
Hill Option. Mr. Hill granted Sylvan the right to purchase his 5,167,328
shares of Class B Common Stock. Immediately prior to closing of this offering,
Mr. Hill's shares will automatically be exchanged for 5,167,328 shares of 6%
Non-Voting Convertible Preferred Stock, and Sylvan will exercise the Hill
Option and purchase all of Mr. Hill's shares of 6% Non-Voting Convertible
Preferred Stock for $5.0 million.
Sale of Shares to Management. Since November 1996, Caliber has sold shares
of Common Stock for $1.02 per share as follows: B. Lee McGee--98,314 shares;
Chris L. Nguyen--49,155 shares; David Dobkin--73,735 shares; Brian Polivka--
49,157 shares; and Brady Locher--73,766. All of Mr. Polivka's shares as well
as 49,157 of the shares issued to each of Messrs. Dobkin and Locher were in
exchange for services rendered or as an employment bonus.
Sylvan Management Agreement. Since Caliber's formation in 1996, Caliber has
occupied a portion of Sylvan's facilities and currently occupies a facility
leased by Sylvan at 3600 Clipper Mill Road, Baltimore, Maryland 21211 the rent
for which is included in the management fee payable to Sylvan. In addition,
Sylvan has provided to Caliber certain administrative support and executive
management services, including financial management; tax and accounting
services; legal services; management information services; and human resources
administration. Sylvan and Caliber entered into an Intercompany Management and
Facility Use Agreement, dated January 1, 1998, which expires on December 31,
1999. Under this agreement, Sylvan will continue to provide facilities and
services to Caliber on an as- needed basis and in accordance with past
practice, subject to Caliber's payment of a $2.0 million annual facility use
and management fee. Caliber has accrued approximately $2.9 million of facility
use and management fees through December 31, 1997, which will be paid to
Sylvan upon consummation of the offering.
CBT Services Agreement. Under the Testing Center Management and CBT Services
Agreement, as amended (the "CBT Services Agreement"), Caliber agreed to assume
management and responsibility for operation of 32 Sylvan Testing Centers and
to deliver computer-based testing ("CBT") services on behalf of Sylvan at
those STCs through December 31, 2000. Caliber is responsible for utilities,
salaries, data communications and, in the case of STCs leased from the NASD by
Sylvan, all operating costs billed to Sylvan by the NASD under a management
agreement between those parties. In return, Sylvan pays Caliber a fixed amount
per month, a fee per test above a specified number of tests and 50% of any
profits Sylvan receives from its digital fingerprinting joint venture with
Identix Corporation. Mr. Nguyen and Mr. Hoehn-Saric are directors of the
Sylvan Identix joint venture.
40
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information as of the date of this Prospectus
(after giving effect to the Preferred Stock Conversion, the Recapitalization
and Sylvan's exercise of the Hill Option), as to the beneficial ownership of
the Common Stock by (i) each person who owns beneficially more than 5% of the
Common Stock, (ii) each of the directors of the Company, (iii) each of the
Named Officers, and (vi) all directors and executive officers as a group and
(vii) the Selling Stockholder. Unless otherwise indicated, each named person
exercises sole voting and investment power.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO SHARES OWNED AFTER
OFFERING OFFERED OFFERING
----------------------- --------- -----------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT
- --------------------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Sylvan Learning Systems,
Inc.(2)................ 1,227,393 16.3% -- 1,227,393 10.5%
MCI Communications
Corporation(3)......... 3,636,086 41.7 1,200,000 2,436,086 18.9
R. Christopher Hoehn-
Saric(4)(5)............ 1,718,351 22.8 -- 1,718,351 14.7
Douglas L.
Becker(4)(5)........... 1,718,351 22.8 -- 1,718,351 14.7
Chris L. Nguyen(6)(8)... 68,817 * -- 68,817 *
Rick P. Frier(8)........ 18,750 * -- 18,750 *
David R. Dobkin(7)(8)... 83,566 * -- 83,566 *
G. Bryan Polivka(7)(8).. 58,988 * -- 58,988 *
R. Brady Locher,
Jr.(8)................. 73,766 * -- 73,766 *
Janeen M. Armstrong..... -- -- --
John P. Hill............ -- -- --
Susan Mayer(9).......... -- -- --
All directors and
executive officers as a
group (7 persons)...... 3,740,599 49.8 -- 3,740,599 31.9
</TABLE>
- --------
* Less than 1%.
(1) The address of each stockholder listed in the table is c/o Caliber
Learning Network, Inc., 3600 Clipper Mall Road, Baltimore, Maryland 21211,
except MCI Communications Corporation and Ms. Mayer, whose addresses are
1801 Pennsylvania Avenue, NW, Washington, DC 20006.
(2) Excludes 5,167,328 shares of 6% Non-Voting Convertible Preferred Stock,
convertible into Common Stock, on a share for share basis, beginning two
years from the date of this Prospectus.
(3) Includes 1,193,573 million shares of Common Stock issuable upon exercise
of the MCI Warrant.
(4) In November 1996, Messrs. Hoehn-Saric and Becker each transferred
1,718,351 shares of Common Stock to Sterling Caliber but retained voting
power over all of the transferred shares. The shares held by Sterling
Caliber are owned equally by Douglas L. Becker, R. Christopher Hoehn-
Saric, Eric Becker (Douglas L. Becker's brother) and Steven Taslitz, or
trusts for the benefit of their respective families.
(5) Excludes the 1,227,393 shares of Common Stock and 5,167,328 shares of 6%
Non-Voting Convertible Preferred Stock owned by Sylvan.
(6) Includes 49,094 shares held in two irrevocable educational trusts for the
benefit of Mr. Nguyen's children and 19,662 shares underlying options
which will be exercisable within 60 days of the date of this Prospectus.
(7) Includes 9,831 shares underlying options which will be exercisable within
60 days of the date of this Prospectus held by each of Messrs. Dobkin and
Polivka.
(8) Excludes outstanding options to purchase 287,184, 49,157, 39,326, 39,326
and 49,157 shares of Common Stock held by Messrs. Nguyen, Frier, Dobkin,
Polivka and Locher, respectively, none of which is exercisable within 60
days of the date of this Prospectus.
(9) Excludes the 3,636,086 million shares of Common Stock owned beneficially
by MCI.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue up to 50 million shares of Common Stock,
par value $.01 per share, and up to 5,167,328 shares of 6% Non-Voting
Convertible Preferred Stock, par value $0.01 per share. Upon completion of
this offering, 11,718,642 shares of Common Stock (including the 5,400,000
shares offered hereby) and 5,167,328 shares of 6% Non-Voting Convertible
Preferred Stock will be issued and outstanding.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share on all
matters submitted to the stockholders for a vote. There are no cumulative
voting rights in the election of directors. Subject to the prior rights of any
outstanding preferred stock, the shares of Common Stock are entitled to
receive such dividends as may be declared and paid by the Board of Directors
out of funds legally available therefor and to share, ratably, in the net
assets, if any, of the Company upon liquidation. The stockholders have no
preemptive rights to purchase any shares of the Company's capital stock. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be, when issued and paid for, duly authorized, validly issued,
fully paid and nonassessable.
The Board of Directors, without further action by the holders of the Common
Stock, is authorized to classify any shares of its authorized but unissued
Common Stock as preferred stock in one or more series, from time to time. With
respect to each series, the Board of Directors determines the number of shares
constituting such series, the dividend rate on the shares of each series,
whether such dividends shall be cumulative and the relation of such dividends
to any dividends payable on any other class of stock, whether the shares of
each series shall be redeemable and the terms thereof, whether the shares
shall be convertible into Common Stock and the terms thereof, the amount per
share payable on each series or other rights of holders of such shares on
liquidation or dissolution of the Company, the voting rights, if any, of
shares of each series and any other rights and privileges not in conflict with
the Company's charter and any qualifications, limitations or restrictions
thereof. The Board of Directors has no present intention to issue any
additional series of preferred stock. The availability of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of discouraging takeover
proposals, and the issuance of preferred stock could have the effect of
delaying or preventing a change in control of the Company not approved by the
Board of Directors.
6% NON-VOTING CONVERTIBLE PREFERRED STOCK
Dividends. Holders of 6% Non-Voting Convertible Preferred Stock are entitled
to receive pro rata for each share held, when and as declared by the Board of
Directors of the Company, out of funds of the Company legally available for
payment, cumulative annual cash dividends aggregating $60,000, payable
beginning May 31, 1999. Accumulated dividends will not bear interest.
Until all accumulated dividends are paid in full, the Company may not,
without first obtaining the consent of the holders of all of the outstanding
shares of 6% Non-Voting Convertible Preferred Stock, declare or pay dividends
on or make any other distributions on, or redeem or purchase or otherwise
acquire for consideration, any shares of the Company's capital stock ranking
junior to the 6% Non-Voting Convertible Preferred Stock (other than shares
acquired in exchange for other shares of the Company's capital stock ranking
junior to the 6% Non-Voting Convertible Preferred Stock).
Conversion. Shares of 6% Non-Voting Convertible Preferred Stock will be
convertible to Common Stock on a one-for-one basis, subject to adjustment for
stock dividends, stock splits and similar changes in the capitalization of the
Company. Generally, holders of the 6% Non-Voting Convertible Preferred Stock
may not exchange their shares for shares of Common Stock until two years from
the date of this offering. However, in the event of a Qualified Public
Offering, holders of the 6% Non-Voting Convertible Preferred Stock may elect
to convert their shares of 6% Non-Voting Convertible Preferred Stock to Common
Stock immediately prior to the
42
<PAGE>
closing thereof but only to the extent of shares of Common Stock issued upon
such conversion that are included by such holders in the Qualified Public
Offering. For these purposes, a "Qualified Public Offering" means an
underwritten public offering pursuant to a registration statement filed by the
Company under the Securities Act which includes shares of Common Stock to be
sold by one or more holders. Holders of 6% Non-Voting Convertible Preferred
Stock also may convert their shares to Common Stock immediately prior to a
Change of Control of the Company. For these purposes, a "Change of Control"
means (i) any person, other than the Company, becomes the beneficial owner,
directly or indirectly, through a purchase or other acquisition transaction or
series of transactions (other than a merger or consolidation with the
Company), of shares of capital stock of the Company entitling such person to
exercise in excess of 50% of the total voting power of all share of capital
stock of the Company entitled to vote generally in the election of directors;
(ii) there occurs any consolidation of the Company with, or merger of the
Company into, any other person, any merger of another person into the Company,
or any sale or transfer of the assets of the Company, as an entirety or
substantially as an entirety, to another person; or (iii) a change in the
Board of Directors of the Company in which the individuals who constituted the
Board of Directors of the Company at the beginning of the one-year period
immediately preceding such change cease for any reason to constitute a
majority of the directors then in office.
Redemption. The 6% Non-Voting Convertible Preferred Stock is not subject to
redemption.
Liquidation. The holders of the 6% Non-Voting Convertible Preferred Stock
are entitled to receive in the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, a liquidation
preference for each share of the 6% Non-Voting Convertible Preferred Stock
equal to $0.194 plus all accrued and unpaid dividends on such share to the
date of payment, subject to adjustment for stock splits, combinations and
dividends on the Common Stock. Until the holders of the Junior Preferred Stock
have been paid their aggregate liquidation preference in full, no payment will
be made to (i) any holder of the Company's capital stock ranking on a parity
with the 6% Non-Voting Convertible Preferred Stock, except distributions made
ratably on the 6% Non-Voting Convertible Preferred Stock and any stock ranking
on parity therewith or (ii) any holder of the Company's capital stock ranking
junior to the 6% Non-Voting Convertible Preferred Stock.
Voting Rights. Except as otherwise from time to time required by applicable
law, the holders of shares of 6% Non-Voting Convertible Preferred Stock have
no voting rights.
ANTI-TAKEOVER PROVISIONS OF CHARTER AND BY-LAWS
Upon completion of this offering, the Company's Charter will provide for a
Board of Directors of three classes, with the initial classes having one, two
and three year terms, respectively, and thereafter staggered three year terms.
Under the Charter, directors may be removed for cause only upon the
affirmative vote of at least 80% of the shares of capital stock entitled to
vote in the election of directors. Under the By-Laws, the number of directors
will be fixed at eight, which number may be changed only upon the vote of two-
thirds of the directors then in office.
The Company's Charter and By-Laws will require that any stockholder proposal
relating to the nomination of a director must be delivered to the Company's
Secretary no more than 90 days nor less than 60 days prior to the Annual
Meeting of Stockholders at which such nominee will be voted upon.
The foregoing provisions of the Charter and all provisions of the By-Laws
may be amended or repealed by the stockholders only upon the affirmative vote
of at least 80% of the shares of capital stock entitled to vote thereon. The
By-Laws also may be amended or repealed by the Board of Directors, but only
upon the vote of at least two-thirds of the directors then in office. These
provisions of the Charter and By-Laws could have the effect of discouraging
takeover proposals and delaying or preventing a change in control of the
Company not approved by the Board of Directors.
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<PAGE>
BUSINESS COMBINATIONS
Under Section 3-601, et seq. of the Maryland General Corporation Law (the
"Business Combination Statute"), certain "business combinations" (including
mergers or similar transactions subject to a statutory stockholder vote and
additional transactions involving transfers of assets or securities in
specific amounts) between a Maryland corporation subject to the Business
Combination Statute and any person who beneficially owns 10% or more of the
voting power of the corporation's shares or any affiliate of the corporation
who, at any time within the preceding two years, was the beneficial owner of
10% or more of the voting power of the then-outstanding voting stock of the
corporation (an "Interested Stockholder"), or an affiliate thereof, are
prohibited for five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder unless an exemption is available.
Thereafter, any such business combination must be recommended by the board of
directors of the corporation and approved by the affirmative vote of at least:
(i) 80% of the votes entitled to be cast by all holders of outstanding voting
shares of the corporation; and (ii) two-thirds of the votes entitled to be
cast by holders of outstanding voting shares of the corporation other than
shares held by the Interested Stockholder with whom the business combination
is to be effected, unless the corporation's stockholders receive a minimum
price (as described in the Business Combination Statute) for their shares and
the consideration is received in cash or in the same form as previously paid
by the Interested Stockholder for its shares. The Business Combination Statute
does not apply, however, to business combinations that are (a) exempted in the
corporation's charter prior to the time the corporation became subject to the
Business Combination Statute or (b) approved or exempted by the board of
directors prior to the time that the Interested Stockholder becomes an
Interested Stockholder. After a corporation becomes subject to the Business
Combination Statute, in order to amend the corporation's charter to elect not
to be subject to the foregoing requirements with respect to one or more
Interested Stockholders, the affirmative vote of at least 80% of the votes
entitled to be cast by all holders of outstanding shares of voting stock and
two-thirds of the votes entitled to be cast by holders of outstanding shares
of voting stock who are not Interested Stockholders is required.
CONTROL SHARE ACQUISITION
Section 3-701 et seq. of the Maryland General Corporation Law (the "Control
Share Acquisition Statute") provides that "control shares" of a Maryland
Corporation acquired in a "control share acquisition" have no voting rights
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast on the matter, excluding shares of stock owned by the acquiror or by
officers or directors who are employees of the corporation. "Control shares"
are voting shares of stock which, if aggregated with all other such shares of
stock previously acquired by the acquiror, or in respect of which the acquiror
is able to exercise or direct the exercise of voting power except solely by
virtue of a revocable proxy, would entitle the acquiror to exercise voting
power in electing directors within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third; (ii) one-third or more
but less than a majority; or (iii) a majority of all voting power. Control
shares do not include shares the acquiring person is then entitled to vote as
a result of having previously obtained stockholder approval. A "control share
acquisition" means the acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses
and delivery of an "acquiring person statement"), may compel the corporation's
board of directors to call a special meeting of stockholders to be held within
50 days of demand to consider the voting rights of the shares. If no request
for a meeting is made, the corporation may itself present the question at any
stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement within 10 days following a
control share acquisition then, subject to certain conditions and limitations,
the corporation may redeem any or all of the control shares (except those for
which voting rights have previously been approved) for fair value determined,
without regard to the absence of voting rights for the control shares, as of
the date of the last control share acquisition or of any meeting of
stockholders at which the voting rights of such shares are considered and not
approved. Moreover, if voting rights for control shares are approved at a
stockholders' meeting and the acquiror becomes entitled to exercise or direct
the exercise of a
44
<PAGE>
majority or more of all voting power, other stockholders may exercise
appraisal rights. The fair value of the shares as determined for purposes of
such appraisal rights may not be less than the highest price per share paid by
the acquiror in the control share acquisition. The Control Share Acquisition
Statute does not apply to shares acquired in a merger, consolidation or share
exchange to which the corporation is a party.
The Business Combination Statute and the Control Share Acquisition Statute
could have the effect of discouraging takeover proposals and delaying or
preventing a change of control of the Company not approved by its Board of
Directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is State Street Bank
and Trust Company, Boston, Massachusetts.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
11,718,642 shares of Common Stock, plus 1,156,349 shares issuable upon
exercise of currently outstanding options, 1,193,573 shares issuable upon
exercise of the MCI Warrant and 5,167,328 shares issuable upon conversion by
Sylvan of the 6% Non-Voting Convertible Preferred Stock. The shares offered
hereby will be freely transferable unless acquired by affiliates of the
Company. All of the remaining outstanding shares, upon expiration of the
Underwriters' lock-up described below, will be saleable under Rule 144 of the
Securities Act, unless then held by affiliates of the Company. The 1,156,349
shares reserved for issuance upon exercise of outstanding options and the
1,043,290 shares reserved for future grants under the Company's 1998 Plan will
be registered under the Securities Act upon completion of this offering. Those
shares will be freely transferable upon issuance unless held by affiliates of
the Company. The Company has granted MCI, Sylvan and Sterling Caliber, who
hold 7,100,181 shares of Common Stock (assuming exercise of the MCI Warrant)
and 5,167,328 shares of 6% Non-Voting Convertible Preferred Stock, the right
to have their shares of Common Stock registered under the Securities Act on
one or more occasions over the next four years.
Sales of substantial amounts of Common Stock following this offering, or the
perception that such sales could occur, could adversely affect prevailing
market prices of the Common Stock and could impair the Company's ability to
raise capital through an offering of its equity securities.
All of the Company's officers who own Common Stock or hold options to
purchase 7,500 shares or more, have agreed not to sell or otherwise dispose of
any of their shares for a period of two years after the date of this
Prospectus without the prior written consent of both BT Alex. Brown
Incorporated and the Company. Sylvan, MCI and Sterling Caliber, who hold, in
the aggregate, 7,100,181 shares of Common Stock (assuming exercise of the MCI
Warrant) and 5,167,328 shares of 6% Non-Voting Convertible Preferred Stock at
the completion of this offering, have agreed not to sell or dispose of any of
their shares for a period of one year after the date of this Prospectus
without the prior written consent of BT Alex. Brown Incorporated and Caliber.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose securities are aggregated) who (together with predecessor
holders who are not affiliates of the Company) has beneficially owned shares
of Common Stock which were not acquired in an offering registered under the
Securities Act ("restricted shares") for at least one year is entitled to
sell, within any three-month period, a number of shares that does not exceed
the greater of (i) 1% of the then outstanding shares of the Common Stock
(approximately 117,280 shares immediately following this offering) or (ii) the
average weekly trading volume in the Common Stock during the four calendar
weeks immediately preceding the date on which notice of the sale is filed with
the Commission. Sales under Rule 144 are also subject to certain manner-of-
sale provisions and notice requirements and to the availability of current
public information about the Company. Restricted shares held by non-affiliates
of the Company for more than two years can be sold without limitation under
Rule 144. Affiliates of the Company must comply with the restrictions and
requirements of Rule 144 when transferring restricted shares even after the
two year holding period has expired and must comply with the restrictions and
requirements of Rule 144 (other than the one-year holding period) in order to
sell unrestricted shares (such as shares acquired by affiliates in the public
market or registered shares acquired upon exercise of options.
46
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives,
BT Alex. Brown Incorporated and NationsBanc Montgomery Securities LLC
(together, the "Representatives"), have severally agreed to purchase from the
Company and the Selling Stockholder the following respective number of shares
of Common Stock at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
BT Alex. Brown Incorporated........................................
NationsBanc Montgomery Securities LLC..............................
---------
Total............................................................ 5,400,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the shares of Common Stock offered hereby, if any of such
shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may re-allow, a concession
not in excess of $ per share to certain other dealers. After commencement
of the initial public offering, the public offering price and other selling
terms may be changed by the Representatives.
The Company and the Selling Stockholder have granted the Underwriters an
option, exercisable not later than 30 days after the date of this Prospectus,
to purchase up to 230,000 and 580,000 additional shares of Common Stock,
respectively, at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus. To
the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased
by it in the above table bears to 5,400,000, and the Company and the Selling
Stockholder will be obligated, pursuant to the option, to sell such shares to
the Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the Common Stock offered
hereby. If purchased, the Underwriters will offer such additional shares on
the same terms as those on which the 5,400,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity and contribution
between the Underwriters and the Company and the Selling Stockholder regarding
certain liabilities, including liabilities under the Securities Act.
To facilitate the offering of the Common Stock, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price
of the Common Stock. Specifically, the Underwriters may over-
47
<PAGE>
allot shares of Common Stock in connection with this offering, thereby
creating a short position in the Underwriters' syndicate account.
Additionally, to cover such over- allotments or to stabilize the market price
of the Common Stock, the Underwriters may bid for, and purchase, shares of the
Common Stock in the open market. Any of these activities may maintain the
market price of the Common Stock at a level above that which might otherwise
prevail in the open market. The Underwriters are not required to engage in
these activities, and, if commenced, any such activities may be discontinued
at any time. The Representatives, on behalf of the Underwriters, also may
reclaim selling concessions allowed to an Underwriter or dealer, if the
syndicate repurchases shares distributed by that Underwriter or dealer.
All of the Company's officers, together with all other employees who own
Common Stock or hold options to purchase 7,500 or more, have agreed not to
sell or otherwise dispose of any of their shares for a period of two years
after the date of this Prospectus without the prior written consent of BT
Alex. Brown Incorporated and the Company. Sylvan, MCI and Sterling Caliber,
who will hold, in the aggregate, 7,100,181 shares of Common Stock (assuming
exercise of the MCI Warrant) and 5,167,328 shares of Non-Voting Convertible
Preferred Stock at the completion of this offering, have agreed not to sell or
dispose of any of their shares for a period of one year after the date of this
Prospectus without the prior written consent of BT Alex. Brown Incorporated.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock
will be determined by negotiations among the Company and the Representatives.
Among the factors which will be considered in such negotiations will be the
prevailing market conditions, the results of operations of the Company in
recent periods, the market capitalizations and stages of development of other
companies which the Company and the Representatives believe to be comparable
to the Company, estimates of the business potential of the Company, the
present state of the Company's development and other factors which may be
deemed relevant by the Company and the Representatives.
LEGAL MATTERS
The legality of the Common Stock offered hereby has been passed upon for the
Company by Piper & Marbury L.L.P., Baltimore, Maryland. A lawyer with Piper &
Marbury L.L.P. serves as trustee for two trusts established for the benefit of
Mr. Nguyen's children, which hold an aggregate of 49,094 shares of Common
Stock. Certain legal matters relating to the offering will be passed upon for
the underwriters by Hogan & Hartson L.L.P., Baltimore, Maryland.
EXPERTS
The financial statements of Caliber Learning Network, Inc. at December 31,
1997 and 1996, and for year ended December 31, 1997 and the period from
November 22, 1996 (date of inception) to December 31, 1996, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement on Form S-1 under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the
48
<PAGE>
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed therewith. The
Company has applied for listing on the Nasdaq National Market. Reports and
other information concerning the Company can be inspected at the offices of
the Nasdaq National Market. A copy of the Registration Statement, and the
exhibits and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the Securities and Exchange Commission in
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and copies of all or any part of the Registration Statement
may be obtained from the Commission upon payment of a prescribed fee. This
information is also available from the Commission's Internet web site at http:
www.sec.gov.
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Stockholders' Equity (Deficit)................................ F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Caliber Learning Network, Inc.
We have audited the accompanying balance sheets of Caliber Learning Network,
Inc. ("the Company"), a development stage company, as of December 31, 1997 and
1996, and the related statements of operations, stockholders' equity (deficit)
and cash flows for the year ended December 31, 1997 and for the period
November 22, 1996 (date of inception) through December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Caliber Learning Network,
Inc., a development stage company, as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for the year ended December 31,
1997 and for the period November 22, 1996 (date of inception) through December
31, 1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Baltimore, Maryland
March 5, 1998,
except for Note 16, as to which the date is
April 10, 1998
F-2
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------- DECEMBER 31,
1996 1997 1997
----------- ------------ ------------
(UNAUDITED
--NOTE 15)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $13,000,000 $ 3,850,440 $ 8,219,798
Accounts receivable................. -- 17,400 17,400
Due from landlords for tenant
allowances......................... -- 1,427,525 1,427,525
Other receivables................... 28,000 574,807 574,807
Prepaid expenses..................... -- 25,066 25,066
----------- ------------ ------------
Total current assets................. 13,028,000 5,895,238 10,264,596
Property and equipment:
Furniture and fixtures.............. 29,629 1,271,930 1,271,930
Computer equipment and software..... -- 2,723,993 2,723,993
Leasehold improvements.............. -- 4,727,830 4,727,830
----------- ------------ ------------
29,629 8,723,753 8,723,753
Accumulated depreciation and
amortization....................... -- (388,483) (388,483)
----------- ------------ ------------
29,629 8,335,270 8,335,270
Other assets........................ -- 279,881 279,881
----------- ------------ ------------
Total assets........................ $13,057,629 $ 14,510,389 $ 18,879,747
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable and accrued ex-
penses............................. $ -- $ 2,065,436 $ 2,065,436
Borrowings from Sylvan.............. 1,212,800 3,000,000 3,000,000
Interest payable to Sylvan.......... -- 301,784 301,784
Accrued dividends payable........... 199,000 995,000 --
Current portion of deferred tenant
allowances......................... -- 208,014 208,014
Current portion of capital lease ob-
ligations due to related party..... -- 615,895 615,895
----------- ------------ ------------
Total current liabilities........... 1,411,800 7,186,129 6,191,129
Management fee payable to Sylvan..... 480,000 2,880,500 2,880,500
Deferred tenant allowances, less
current portion..................... -- 1,226,935 1,226,935
Capital lease obligations due to
related party, less current
portion............................. -- 3,417,181 3,417,181
8% Series A Redeemable Convertible
Preferred Stock, $.01 par value;
2,442,513 shares authorized, issued
and outstanding in 1996 and 1997, 0
pro forma; $9,999,750 aggregate
liquidation preference.............. 10,000,000 10,000,000 --
Series B Redeemable Junior
Convertible Preferred Stock, $.01
par value; 1,227,393 shares
authorized, issued and outstanding
in 1996 and 1997, 0 pro forma;
$1,000,000 aggregate liquidation
preference.......................... 1,300,000 1,300,000 --
Commitments and contingencies........ -- -- --
Stockholders' equity (deficit):
6% Non-Voting Convertible Preferred
Stock, $0.01 par value; 5,167,328
shares authorized, issued and
outstanding in pro forma........... -- -- 51,674
Class A Common Stock, $.01 par
value:
Authorized shares -- 42,800,000;
issued and outstanding shares of
3,436,702 in 1996, 3,829,986 in
1997 and 0 in pro forma ........... 34,367 38,300 --
Convertible Class B Common Stock,
$.01 par value:
Authorized, issued and outstanding
shares -- 5,167,328 in 1996 and
1997, 0 in pro forma............... 51,674 51,674 --
Common Stock, $.01 par value:
Authorized shares--50,000,000; pro
forma issued and outstanding shares
of 7,499,892....................... -- -- 74,999
Additional paid-in capital.......... 9,613,959 9,975,334 21,238,635
Subscription receivable............. (8,000,000) (5,364,358) --
Deficit accumulated during the
development stage.................. (1,834,171) (16,201,306) (16,201,306)
----------- ------------ ------------
Total stockholders' equity
(deficit)......................... (134,171) (11,500,356) 5,164,002
----------- ------------ ------------
Total liabilities and stockholders'
equity (deficit).................. $13,057,629 $ 14,510,389 $ 18,879,747
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
NOVEMBER 22, 1996 NOVEMBER 22, 1996
(INCEPTION) THROUGH YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997
------------------- ------------ -------------------
<S> <C> <C> <C>
Management fees from Syl-
van..................... $ -- $ 1,199,293 $ 1,199,293
Costs and expenses:
Campus operating ex-
penses................ -- 7,133,744 7,133,744
Management fees to Syl-
van................... 480,000 2,400,500 2,880,500
Other selling, general
and administrative
expenses.............. 1,155,171 5,380,972 6,536,143
----------- ------------ ------------
1,635,171 14,915,216 16,550,387
Other income (expense):
Interest income........ -- 536,100 536,100
Interest expense....... -- (391,312) (391,312)
----------- ------------ ------------
-- 144,788 144,788
----------- ------------ ------------
Net loss................. (1,635,171) (13,571,135) (15,206,306)
Dividends accrued on re-
deemable preferred
stock................... (199,000) (796,000) (995,000)
----------- ------------ ------------
Net loss attributable to
common stockholders..... $(1,834,171) $(14,367,135) $(16,201,306)
=========== ============ ============
Basic and diluted loss
per common share
attributable to common
stockholders............ $ (0.21) $ (1.62) $ (1.82)
=========== ============ ============
Pro forma basic and
diluted loss per common
share attributable to
common stockholders..... $ (1.08)
============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
COMMON COMMON PAID-IN SUBSCRIPTION ACCUMULATED
STOCK STOCK CAPITAL RECEIVABLE DEFICIT TOTAL
------- ------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Initial issuance of
3,436,702 shares of
Class A Common Stock
and 5,167,328 shares of
Convertible Class B
Common Stock........... $34,367 $51,674 $9,613,959 $(8,000,000) $ -- $ 1,700,000
Loss for the period
November 22, 1996 (date
of inception) through
December 31, 1996...... -- -- -- -- (1,635,171) (1,635,171)
Dividends accrued on 8%
Series A Convertible
Preferred Stock........ -- -- -- -- (199,000) (199,000)
------- ------- ---------- ----------- ------------ -------------
Balance at December 31,
1996................... 34,367 51,674 9,613,959 (8,000,000) (1,834,171) (134,171)
Issuance of 245,813
shares of Class A
Common Stock for cash.. 2,457 -- 247,851 -- -- 250,308
Issuance of 147,471
shares of Class A
Common Stock to
employees as
compensation........... 1,476 -- 98,524 -- -- 100,000
Stock options to
purchase 36,820 shares
of Class A Common Stock
granted to non-
employees.............. -- -- 15,000 -- -- 15,000
Payment of stock
subscription........... -- -- -- 2,635,642 -- 2,635,642
Loss for the year ended
December 31, 1997...... -- -- -- -- (13,571,135) (13,571,135)
Dividends accrued on 8%
Series A Convertible
Preferred Stock........ -- -- -- -- (796,000) (796,000)
------- ------- ---------- ----------- ------------ -------------
Balance at December 31,
1997................... $38,300 $51,674 $9,975,334 $(5,364,358) $(16,201,306) $ (11,500,356)
======= ======= ========== =========== ============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
NOVEMBER 22, 1996 NOVEMBER 22, 1996
(INCEPTION) THROUGH YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31 DECEMBER 31, DECEMBER 31
1996 1997 1997
------------------- ------------ -------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................ $(1,635,171) $(13,571,135) $(15,206,306)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation and
amortization........... -- 388,483 388,483
Non-cash compensation... -- 115,000 115,000
Negative amortization of
capital lease
obligations charged to
interest expense....... -- 87,057 87,057
Changes in operating
assets and liabilities:
Accounts receivable..... -- 10,600 10,600
Other receivables....... (28,000) (26,512) (54,512)
Prepaid expenses........ -- (25,066) (25,066)
Accounts payable and
accrued expenses
related to operating
expenses............... -- 991,533 991,533
Management fee payable
to Sylvan.............. 480,000 2,400,500 2,880,500
Interest payable to
Sylvan................. -- 301,784 301,784
----------- ------------ ------------
Net cash used in
operating activities... (1,183,171) (9,327,756) (10,510,927)
INVESTING ACTIVITIES
Purchases of property
and equipment.......... (29,629) (4,215,073) (4,244,702)
Increase in other
assets................. -- (279,881) (279,881)
----------- ------------ ------------
Net cash used in
investing activities... (29,629) (4,494,954) (4,524,583)
FINANCING ACTIVITIES
Initial issuance of
stock for cash......... 13,000,000 -- 13,000,000
Borrowings from Sylvan.. 1,212,800 1,787,200 3,000,000
Issuance of Class A
common stock........... -- 250,308 250,308
Payment of subscription
receivable............. -- 2,635,642 2,635,642
----------- ------------ ------------
Net cash provided by
financing activities... 14,212,800 4,673,150 18,885,950
----------- ------------ ------------
Net increase (decrease)
in cash and cash
equivalents............ 13,000,000 (9,149,560) 3,850,440
Cash and cash
equivalents at
beginning of period.... -- 13,000,000 --
----------- ------------ ------------
Cash and cash
equivalents at end of
period................. $13,000,000 $ 3,850,440 $ 3,850,440
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Caliber Learning Network, Inc. (the "Company") was incorporated on March 28,
1996 under the laws of the state of Maryland for the purpose of providing
adults with university-quality continuing education using multimedia
technology. The Company was organized by Sylvan Learning Systems, Inc.
("Sylvan") and MCI Communications Corporation ("MCI") to bring together the
educational services expertise of Sylvan and the technology and
telecommunications expertise of MCI. The Company contracts with nationally
recognized universities and corporations to provide high-quality courses
through a multi-site, satellite-linked network of campuses throughout the
nation. The Company, commencing November 1996, has devoted most of its efforts
to raising capital, developing markets and recruiting and training personnel.
Accordingly, minimal revenue has been generated from planned principal
operations, and the Company is considered a development stage company at
December 31, 1997.
Effective May 1, 1997, the Company entered into an agreement with Sylvan to
manage the operations of certain certification centers located throughout the
United States which administer computer-based tests for major corporations,
professional associations and government agencies. These centers may be
converted into centers capable of delivering Caliber programs. Sylvan owns all
of the outstanding shares of Series B Redeemable Junior Convertible Preferred
Stock, and Sylvan's co-CEO's own, through Sterling Caliber, 3,436,702 shares
of the outstanding Class A Common Stock.
Basis of Presentation
The Company incurred an operating loss of $13,571,135 for the year ended
December 31, 1997 and $1,635,171 for the period November 22, 1996 (date of
inception) through December 31, 1996. Operating deficiencies since inception
have been funded by the stockholders. Management believes that additional
financing will be obtained from its current investors and from other sources.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and related disclosures. Actual
results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed for owned
assets using the straight-line method over the useful lives of the assets.
Assets capitalized under capital leases are amortized using the straight-line
method over the lesser of the lease term or the useful life of the assets. No
depreciation expense was recognized during the period from November 22, 1996
through December 31, 1996 as the assets were not placed in service until the
end of that period.
F-7
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Deferred Tenant Allowances
Payments made by landlords to the Company as incentives under operating
leases are recorded as liabilities and recognized as reductions of rental
expense ratably over the terms of the leases.
Revenue Recognition
Management fees under an agreement with Sylvan to manage certain computer-
based certification centers are calculated based on a fixed amount per month,
plus an additional fee per test delivered above a specified number of tests
examination. These fees are recognized as revenue upon the delivery of the
examination.
Stock Options Granted to Employees
The Company records compensation expense for all stock-based compensation
plans using the intrinsic value method prescribed by APB Opinion 25,
"Accounting for Stock Issued to Employees". The Financial Accounting Standards
Board Statement No. 123, "Accounting for Stock-Based Compensation" encourages
companies to recognize expense for stock-based awards based on their estimated
value on the date of grant. Statement 123 requires the disclosure of pro forma
income and earnings per share data in the notes to the financial statements if
the fair value method is not elected. The Company accounts for its stock-based
compensation plans using the intrinsic value method, and supplementally
discloses in these financial statements the required pro forma information as
if the fair value method had been elected.
Pending Adoption of New Accounting Pronouncements
In December 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income
("Statement No. 130"), that establishes standards for the reporting and
display of comprehensive income and its components in a full set of general-
purpose financial statements. Statement No. 130 only impacts display as
opposed to actual amounts recorded. Other comprehensive income includes all
non-owner changes in equity that are excluded from net income. This Statement
does not apply to an enterprise that has no items of other comprehensive
income in any period presented. During all years presented, the Company had no
items of other comprehensive income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement No. 131"). Statement No. 131
supercedes Financial Accounting Standards Board Statement No. 14, Financial
Reporting for Segments of a Business Enterprise ("Statement No. 14"), and
establishes new standards for the way that public business enterprises report
selected information about operating segments in annual and interim financial
statements. It also established standards for related disclosures about
products and services, geographical areas, and major customers. Statement No.
131 is effective for financial statements for fiscal years beginning after
December 15, 1997.
The Company has not completed its review of Statement No. 131 to determine
the required disclosures, and intends to adopt the new requirements
retroactively in 1998. Under Statement No. 14, which is effective until the
Company adopts Statements No. 131 in 1998, the Company operates predominately
in a single segment.
F-8
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss per
common share:
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
NOVEMBER 22, 1996 NOVEMBER 22, 1996
(INCEPTION) THROUGH YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1997
------------------- ----------------- -------------------
<S> <C> <C> <C>
Numerator:
Net loss.............. $(1,635,171) $(13,571,135) $(15,206,306)
Preferred stock
dividends............ (199,000) (796,000) (995,000)
----------- ------------ ------------
$(1,834,171) $(14,367,135) $(16,201,306)
=========== ============ ============
Denominator:
Weighted average
number of shares of
common stock
outstanding during
the period........... 8,604,074 8,747,300 8,733,473
Shares of common stock
issued for a nominal
value................ 147,471 147,471 147,471
----------- ------------ ------------
8,751,545 8,894,771 8,880,944
=========== ============ ============
Basic and diluted loss
per common share....... $ (0.21) $ (1.62) $ (1.82)
=========== ============ ============
</TABLE>
Basic loss per share is based upon the average number of shares of Common
Stock outstanding during each period. As required by the Securities and
Exchange Commission in Staff Accounting Bulletin No. 98, all securities issued
by the Company for a nominal value have been included in the computations as
if they were outstanding for all periods presented.
Dilutive loss per common share is equal to basic loss per common share
because if potentially dilutive securities were included in the computation,
the result would be anti-dilutive. These potentially dilutive securities
consist of convertible preferred stock and stock options and warrants, as
described in Notes 7 and 10.
Pro forma basic and diluted loss per common share attributable to common
stockholders is presented to disclose the effect on loss per share of the
assumed conversion of convertible securities which will convert into Common
Stock upon the closing of the proposed initial public offering. For purposes
of the pro forma computation, the convertible securities are assumed to have
been converted on January 1, 1997 or the issuance date, whichever date is
later.
The following table summarizes the computations of pro forma basic and
diluted loss per share presented in the accompanying statements of operations:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Numerator:
Net loss................................................ $(13,571,135)
============
Denominator:
Shares used in historical calculation................... 8,894,771
Add:
Pro forma conversion of Series A Preferred Stock....... 2,442,513
Pro forma conversion of Series B Preferred Stock....... 1,227,393
------------
Denominator for pro forma loss per share............... 12,564,677
============
Pro forma basic and diluted loss per common share......... $ (1.08)
============
</TABLE>
F-9
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 22, 1996
(INCEPTION) THROUGH YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------- -----------------
<S> <C> <C>
Non-cash investing and financing
activities:
Equipment acquired under capital
lease................................. $ -- $3,946,019
Dividends accrued on Series A
Redeemable Convertible Preferred
Stock................................. 199,000 796,000
</TABLE>
4. MANAGEMENT FEE PAYABLE TO SYLVAN
During all periods presented, the Company relied almost entirely on Sylvan's
resources, systems and personnel for administrative, management, accounting
and financial functions. As consideration for these services, Sylvan charged
the Company $2,880,500, which was unpaid at December 31, 1997. This amount
will begin to accrue interest effective January 1, 1999 at the prime rate plus
1%, and is payable in 48 equal monthly installments of principal and interest
also beginning January 1, 1999. Notwithstanding, the management fee payable
and all accrued but unpaid interest is due on demand by Sylvan upon the
closing of an underwritten public offering of the Company's Class A Common
Stock providing at least $15.0 million of net proceeds to the Company at a per
share price of at least $8.19.
The Company has agreed to pay an annual management fee of $2.0 million in
1998 and 1999, due in equal quarterly installments.
5. BORROWINGS FROM SYLVAN
At December 31, 1997, Sylvan had loaned $3.0 million to the Company under a
line of credit that bears interest at 1% above the prime rate as published by
a defined commercial bank.
During the year ended December 31, 1997, the Company recorded interest
expense of $301,784 related to the borrowings from Sylvan.
6. CAPITAL LEASES
MCI, the holder of the 8% Series A Redeemable Convertible Preferred Stock
has agreed to provide an aggregate of $20.0 million in lease financing or
lease guarantees for the purchase of furniture and equipment.
Property and equipment includes the following amounts for leases that have
been capitalized at December 31, 1997:
<TABLE>
<S> <C>
Furniture and fixtures........................................... $ 167,773
Computer equipment and software.................................. 2,133,606
Leasehold improvements........................................... 1,644,640
----------
3,946,019
Less: accumulated amortization................................... (190,866)
----------
$3,755,153
==========
</TABLE>
Amortization of leased assets is included in depreciation and amortization
expense.
F-10
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Future minimum payments under capital lease obligations consist of the
following at December 31, 1997:
<TABLE>
<S> <C>
1998.......................................................... $ 905,603
1999.......................................................... 1,196,046
2000.......................................................... 1,196,046
2001.......................................................... 950,606
2002.......................................................... 428,515
Thereafter.................................................... 366,374
-----------
Total minimum lease payments.................................. 5,043,190
Amounts representing interest................................. (1,010,114)
-----------
Present value of net minimum lease payments (including current
portion of $615,895)......................................... $ 4,033,076
===========
</TABLE>
7. PREFERRED STOCKS AND WARRANT
The Company has authorized the issuance of 2,442,513 shares of 8% Series A
Redeemable Convertible Preferred Stock ("Series A Preferred Stock") and
1,227,393 shares of Series B Redeemable Junior Convertible Preferred Stock
("Series B Preferred Stock"). During the initial development stage period, all
authorized shares of Series A Preferred Stock were purchased by MCI for $10.0
million, and all authorized shares of Series B Preferred Stock were purchased
by Sylvan for $1.3 million. In addition, Sylvan, the purchaser of the Series B
Preferred Stock is required to contribute an additional $8.0 million of cash
as needed by the Company as additional consideration for the Series B
Preferred Stock issued upon formation.
In connection with the issuance of 2,442,513 shares of Series A Preferred
Stock to MCI for $10.0 million, the Company issued to MCI a warrant to
purchase 923,850 shares of Class A Common Stock at an exercise price of $4.094
per share ("the Warrant"), subject to certain antidilution provisions.
Conversion Rights
Each share of Series A Preferred Stock and Series B Preferred Stock will
convert automatically into one share of Class A Common Stock upon the closing
of an underwritten public offering of at least $15.0 million of net proceeds
to the Company with a minimum per share price of $8.19. The conversion ratio
is subject to increase in the event that additional shares of Common Stock are
issued upon the exercise of stock options or the occurrence of other specified
dilutive transactions.
Redemption Rights
The holders of the Series A and B Preferred Stock have the option to require
the Company to redeem at a specified liquidation value all shares of such
stock upon a change of control of the Company or upon sale of the Company, as
defined by the Charter.
In addition, in the event that the Company has not completed an underwritten
public offering of its Class A Common Stock providing at least $15.0 million
of net proceeds to the Company at a per share price of at least $8.19 by May
15, 2001, any holder or holders of the Series A Preferred Stock may elect to
require the Company within 30 days to redeem all of its shares of Series A
Preferred Stock at their liquidation value (as defined by the Company's
Charter) and require the Company to purchase the Warrant (or, if already
exercised, the shares of Class A Common Stock issued upon exercise of the
Warrant) at the then fair market value. In the event that the Company
subsequently completes an initial public offering within twelve months after
it is required to redeem the Series A Preferred Stock, the holders of the
Series A Preferred Stock are entitled to additional consideration for each
redeemed share of Series A Preferred Stock and Class A Common Stock underlying
the Warrant, equal to the difference between 95% of the initial public
offering price and the per share redemption amount.
F-11
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In the event that the Company has not completed an underwritten public
offering of at least $15.0 million at a per share price of at least $8.19
within 12 months of the liquidation or redemption of the Series A Preferred
Stock, any holder or holders of the Series B Preferred Stock or Class A Common
Stock may request an appraisal of the Company by a nationally recognized
investment bank. Upon receiving such appraisal, the holders of the Series B
Preferred Stock have 90 days to elect to purchase all outstanding shares of
Class A Common Stock or to sell all of its Series B Preferred Stock to the
holders of the Class A Common Stock at the appraised fair market value.
Dividend, Liquidation and Voting Rights
The holders of the Series A Convertible Preferred Stock are entitled to
receive, when declared by the Board of Directors, cumulative quarterly
dividends at the annual rate of $0.33 per share. All accrued but unpaid
dividends are payable upon the closing of an underwritten initial public
offering of the Company's Class A Common Stock, providing at least $15.0
million of net proceeds to the Company at a per share price of at least $8.19
by May 15, 2001. At December 31, 1997, cumulative unpaid dividends were
$995,000, or $0.41 per share.
Each share of Series A Preferred Stock has a preference on liquidation equal
to the greater of $4.094 per share or the amount per share the holders are
entitled upon conversion to Class A Common Stock. Each share of Series B
Preferred Stock ranks junior to the Series A Preferred Stock upon liquidation.
The holders of Series A and B Preferred Stock have substantially the same
voting rights as the holders of Class A Common Stock. As long as the shares of
the Series A Preferred Stock represent at least 10% of the total number of
shares of outstanding stock of the Company and until consummation of an
initial public offering, the holders of the Series A Preferred Stock, voting
as a separate class, may elect one member of a seven or fewer member Board of
Directors, or that percentage of the total number of directors of the Company
that equals the percentage of the total number of shares of outstanding stock
then held by the holders of the Series A Preferred Stock of a more than seven
member Board of Directors. Until the consummation of an initial public
offering, the holders of the Series B Preferred Stock along with the holders
of the Class A Common Stock, voting together as a separate class, are entitled
to elect two directors.
8. COMMON STOCK
The Company is authorized to issue 42,800,000 shares of $.01 par value Class
A Common Stock and 5,167,328 million shares of $.01 par value Class B Common
Stock. Each share of Class B Common Stock can be converted at any time, in
whole or in part, into a share of Class A Common Stock, at the option of the
holder. The holders of the Class A and B Common Stock have certain rights as
described below.
Rights of Holders of Class A and B Stock
The holders of the Class A and B Common Stock are entitled to receive
dividends when declared by the Board of Directors.
In the event of liquidation, the holders of the Class A and B Common Stock
are entitled to the remaining net assets of the Company after payment and
provision for payment of the debts and other liabilities of the Company and
the amount to which the holders of the Series A and B Preferred Stock are
entitled.
The holders of Class A Common Stock are entitled to one vote per share and
the holders of Class B Common Stock are entitled to ten votes per share on all
matters upon which stockholders of the Company are entitled to vote. Until the
consummation of an initial public offering, the holders of the Class B Common
Stock, voting as a separate class, are entitled to elect two members of the
Board of Directors. Each share of Class B Common Stock is convertible at any
time into one share of Class A Common Stock.
F-12
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. SHARES RESERVED FOR FUTURE ISSUANCE
The Company as of December 31, 1997 had reserved 5,693,405 shares of Class A
Common Stock for future issuance upon the conversion of the Series A
Redeemable Convertible Preferred Stock, Series B Redeemable Junior Convertible
Preferred Stock, the exercise of all outstanding stock purchase warrants and
the exercise of all outstanding stock options.
10. STOCK COMPENSATION PLAN
Effective April 30, 1997, the Company adopted the Caliber Learning Network,
Inc. 1997 Stock Option Plan which is administered by the Board of Directors.
The Plan provides for the granting of either qualified or non-qualified
options to purchase an aggregate of up to 1,227,400 shares of common stock to
eligible employees, officers, and consultants of the Company.
A summary of the Company's stock option activity, and related information
for the year ended December 31, 1997 follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED-
OF AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding, beginning of year...................... -- $ --
Granted............................................. 1,127,735 1.07
Exercised........................................... -- --
Forfeited........................................... (57,688) 1.02
--------- -----
Outstanding, end of year............................ 1,070,047 1.07
========= =====
Exercisable at end of year.......................... --
=========
Weighted-average grant-date fair value of options
granted during the year............................ $ 0.26
=========
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 ranged from
$1.02 to $1.63. The weighted-average remaining contractual life of those
options is 5.7 years. Options granted through December 31, 1997 generally vest
over a five year period.
For the year ended December 31, 1997, pro forma net loss and loss per share
information required by Statement 123 has been determined using the minimum
value method. The minimum value method calculates the fair value of options as
the excess of the estimated fair value of the underlying stock at the date of
grant over the present value of both the exercise price and the expected
dividend payments, each discounted at the risk-free rate, over the expected
life of the option. In determining the estimated fair value of granted stock
options under the minimum value method, the risk-free interest rate was
assumed to be 5.50%, the dividend yield was estimated to be 0% and the
expected life of granted options was assumed to be five years.
Because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the minimum value method and
other methods prescribed by Statement 123 do not necessarily provide a single
measure of the fair value of its employee stock options.
The weighted-average grant-date fair value of options granted during 1997
using the minimum value method was $0.26. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting periods. The Company's pro forma net loss
attributable to common stockholders and basic and diluted loss per share
attributable to common stockholders is $14.4 million and $(1.62),
respectively, for the year ended December 31, 1997.
F-13
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Series A Redeemable Convertible Preferred Stock and Series B Redeemable
Junior Convertible Preferred Stock will automatically convert into Common
Stock upon the closing of an initial public offering, expected by June 30,
1998. Upon conversion, the securities will not be considered financial
instruments.
12. INCOME TAXES
At December 31, 1997, the Company had net operating loss carryforwards for
income tax purposes of approximately $14,775,459. The net operating loss
carryforwards will expire in 2011 and 2012. Income tax regulations contain
provisions which may limit the net operating loss carryforwards available to
be used in any given year if certain events occur, including changes in
ownership interests.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
--------- -----------
<S> <C> <C>
Net operating loss carryforwards........................ $ 356,556 $ 5,706,282
Start-up costs capitalized for tax purposes............. 267,585 236,367
Other................................................... 4,729 193
--------- -----------
Total deferred tax assets............................. 628,870 5,942,842
Tax over book depreciation.............................. 1,045 73,947
Other................................................... -- 11,075
--------- -----------
Total deferred tax liabilities........................ 1,045 85,022
--------- -----------
Net future income tax benefit........................... 627,825 5,857,820
Valuation allowance for deferred tax assets............. (627,825) (5,857,820)
--------- -----------
Net deferred tax assets................................. $ -- $ --
========= ===========
</TABLE>
The reconciliation of the reported income tax expense to the amount that
would be result by applying the U.S. federal statutory tax rates to income
before income taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
--------- -----------
<S> <C> <C>
Tax expense at U.S. statutory rate..................... $(555,958) $(4,614,186)
Effect of permanent differences........................ 3,678 11,177
State income taxes, net of federal benefit............. (75,545) (626,986)
Increase in valuation allowance........................ 627,825 5,229,995
--------- -----------
Total................................................ $ -- $ --
========= ===========
</TABLE>
13. OPERATING LEASES
The Company conducts all of its operations from leased facilities under
operating leases that have terms of up to seven years and generally contain
renewal options and rental escalation clauses. The rental payments under
certain leases are based on minimum fixed rentals plus a percentage of
revenues earned at the location.
F-14
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Future minimum payments under noncancelable operating leases with initial
terms of one year or more consisted of the following at December 31, 1997:
<TABLE>
<S> <C>
1998............................................................. $ 3,760,610
1999............................................................. 3,432,316
2000............................................................. 3,328,779
2001............................................................. 3,280,319
2002............................................................. 2,700,013
Thereafter....................................................... 3,333,018
-----------
Total.......................................................... $19,835,055
===========
</TABLE>
The Company incurred rent expense of $1,132,320 in 1997.
14. DEFINED CONTRIBUTION RETIREMENT PLAN
Effective December 1, 1996, employees of the Company are eligible to
participate in a defined contribution retirement plan sponsored by Sylvan. The
provisions of the plan allow for voluntary employee contributions, subject to
certain annual limitations, and discretionary contributions by the employer
which are allocated to eligible participants based upon compensation. All
employees are eligible after meeting certain age and service requirements. The
Company made no contributions during the periods ended December 31, 1996 and
1997.
15. PRO FORMA BALANCE SHEET AND RECAPITALIZATION
In March 1998, the Board of Directors approved the filing of a registration
statement for the initial public offering of Common Stock with the Securities
and Exchange Commission that, upon closing of the sale, would meet the
criteria for the automatic conversion of the outstanding Series A Redeemable
Convertible Preferred Stock and Series B Redeemable Junior Convertible
Preferred Stock into Common Stock and the repayment of all accrued and unpaid
dividends on the Series A Redeemable Convertible Preferred Stock and the
payment by Sylvan of the balance of its subscription receivable.
Also in March 1998, the Board of Directors approved a recapitalization of
the Company, effective upon closing of the initial public offering referred to
above. The Company's Charter will be amended so that there will be authorized
a single class of Common Stock, $0.01 par value, for which all shares of Class
A Common Stock will be exchanged on a share for share basis, and a series of
6% Non-Voting Convertible Preferred Stock, for which all shares of Class B
Common Stock will be exchanged on a share-for-share basis.
Each share of the 6% Non-Voting Convertible Preferred Stock is convertible
into one share of Common Stock at the option of the holder at any time after
the second anniversary of its issuance, subject to earlier rights of
conversion under certain circumstances. Dividends of $60,000 per year are
cumulative and first payable in May 1999.
F-15
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the components of the pro forma balance sheet
after giving effect to (1) the conversion of 1,990,000 shares of 8% Series A
Redeemable Convertible Preferred Stock into 2,442,513 shares of Common Stock;
(2) the conversion of 1,000,000 shares of Series B Redeemable Junior
Convertible Preferred Stock into 1,227,393 shares of Common Stock; (3) the
payment by Sylvan of the $5,364,358 balance due on the subscription
receivable; and, (4) the payment by the Company of $995,000 of accrued
dividends (unaudited, in thousands):
<TABLE>
<CAPTION>
HISTORICAL ASSUMED PRO FORMA
DECEMBER 31, CONVERSION AND DECEMBER 31,
1997 RECAPITALIZATION 1997
------------ ---------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 3,850 $ 4,369 $ 8,219
Other current assets............. 2,045 -- 2,045
-------- -------- --------
Total current assets............... 5,895 4,369 10,264
Property and equipment, net........ 8,335 -- 8,335
Other assets....................... 280 -- 280
-------- -------- --------
Total assets....................... $ 14,510 $ 4,369 $ 18,879
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued
expenses........................ $ 2,065 $ -- $ 2,065
Dividends payable................ 995 (995) --
Other current liabilities........ 4,126 -- 4,126
-------- -------- --------
Total current liabilities.......... 7,186 (995) 6,191
Non-current liabilities............ 7,524 -- 7,524
Series A Preferred Stock........... 10,000 (10,000) --
Series B Preferred Stock........... 1,300 (1,300) --
Stockholders' equity (deficit):
Non-Voting Preferred Stock....... -- 52 52
Class A Common Stock............. 38 (38) --
Class B Common Stock............. 52 ( 52) --
Common stock..................... -- 75 75
Additional paid-in capital....... 9,975 11,263 21,238
Subscription receivable.......... (5,364) 5,364 --
Deficit accumulated during
development stage............... (16,201) -- (16,201)
-------- -------- --------
Total stockholders' equity
(deficit)......................... (11,500) 16,664 5,164
-------- -------- --------
Total liabilities and stockholders'
equity (deficit).................. $ 14,510 $ 4,369 $ 18,879
======== ======== ========
</TABLE>
16. SUBSEQUENT EVENT
In April 1998, the Company declared a 1.2274 for 1 stock split of all
classes of common and preferred stock for stockholders of record on April 10,
1998. Accordingly, all share and per share data including stock option,
warrant and earnings per share information have been restated in the financial
statements to retroactively reflect the stock split.
F-16
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No person has been authorized in connection with the offering made hereby to
give any information or to make any representations not contained in this Pro-
spectus and, if given or made, such information or representations must not be
relied upon as having been authorized by the Company or the Underwriters. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any of the securities offered hereby to any person or by anyone in any
jurisdiction in which it is unlawful to make such offer or solicitation. Nei-
ther the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that the information contained
herein is correct as of any date subsequent to the date hereof.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.......................................................... 3
Risk Factors................................................................ 7
Use of Proceeds............................................................. 12
Dividend Policy............................................................. 12
Capitalization.............................................................. 13
Dilution.................................................................... 15
Selected Financial and Operating Data....................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................. 17
Business.................................................................... 20
Management.................................................................. 33
Certain Relationships and Related Transactions.............................. 39
Principal and Selling Stockholders.......................................... 41
Description of Capital Stock................................................ 42
Shares Eligible for Future Sale............................................. 46
Underwriting................................................................ 47
Legal Matters............................................................... 48
Experts..................................................................... 48
Additional Information...................................................... 48
Index to Financial Statements............................................... F-1
</TABLE>
----------------
UNTIL , 1998 (25 DAYS AFTER COMMENCEMENT OF THIS OFFERING) ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,400,000 Shares
[LOGO OF CALIBER(SM) LEARNING NETWORK, INC. APPEARS HERE]
COMMON STOCK
----------------
P R O S P E C T U S
----------------
BT Alex. Brown
NationsBanc Montgomery Securities LLC
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II:
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with this
Registration Statement. The Company will pay all expenses of the offering. All
of such expenses are estimates, other than the filing fees payable to the
Securities and Exchange Commission, NASD and Nasdaq.
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee......................... $25,647
NASD Filing Fee....................................................... 9,194
Nasdaq Listing Fee.................................................... 95,000
Printing Fees and Expenses............................................ 100,000
Legal Fees and Expenses............................................... 250,000
Accounting Fees and Expenses.......................................... 200,000
Miscellaneous......................................................... 20,159
--------
Total............................................................. $700,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Charter provides that, to the fullest extent that limitations
on the liability of directors and officers are permitted by the Maryland
General Corporation Law, no director or officer of the Company shall have any
liability to the Company or its stockholders for monetary damages. The
Maryland General Corporation Law provides that a corporation's charter may
include a provision which restricts or limits the liability of its directors
or officers to the corporation or its stockholders for money damages except:
(1) to the extent that it is provided that the person actually received an
improper benefit or profit in money, property or services, for the amount of
the benefit or profit in money, property or services actually received, or (2)
to the extent that a judgment or other final adjudication adverse to the
person is entered in a proceeding based on a finding in the proceeding that
the person's action, or failure to act, was the result of active and
deliberate dishonesty and was material to the cause of action adjudicated in
the proceeding. The Company's Charter and By-Laws provide that the Company
[shall] indemnify and advance expenses to its currently acting and its former
directors to the fullest extent permitted by the Maryland General Corporation
Law and that the Company shall indemnify and advance expenses to its officers
to the same extent as its directors and to such further extent as is
consistent with law.
The Charter and By-Laws provides that the Company will indemnify its
directors and officers and may indemnify employees or agents of the Company to
the fullest extent permitted by law against liabilities and expenses incurred
in connection with litigation in which they may be involved because of their
offices with the Company. In addition, the Company's Charter provides that its
directors and officers will not be liable to stockholders for money damages,
except in limited instances. However, nothing in the Charter or By-Laws of the
Company protects or indemnifies a director, officer, employee or agent against
any liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. To the extent that a director has been
successful in defense of any proceeding, the Maryland General Corporation Law
provides that he shall be indemnified against reasonable expenses incurred in
connection therewith.
The form of underwriting agreement, filed as Exhibit 1.1 hereto, contains
provisions by which the Underwriters agree to indemnify the Registrant and
each officer, director and controlling person of the Registrant against
certain liabilities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During 1997 and 1998, the Company granted options to purchase a total of
1,156,349 shares of Common Stock in four tranches. The first tranche consisted
of 974,310 options issued at an exercise price of $1.02. The second tranche
consisted of 95,737 options issued at an exercise price of $1.63. The third
tranche consisted of 74,012 options issued at an exercise price of $2.44. The
fourth tranche consisted of 89,484 options issued at an exercise price of
$8.00. The Company believes that these stock option grants were exempt from
registration under the Securities Act by virtue of the exemption provided by
Section 4(2) thereof for transactions not involving a public offering, since
these options were granted to a limited number of executive officers of the
Company who, in each case, has access to financial and other relevant data
concerning the Company, its financial condition, business and assets. In
addition, the Company believes that these stock option grants were exempt from
registration under the Securities Act by virtue of the exemption provided by
Rule 701 under said Act.
On November 11, 1996, the Company issued (i) 2,442,513 shares of 8% Series A
Convertible Preferred Stock and a warrant exercisable for the number of shares
of Class A Common Stock that will equal 7% of the total number of shares to be
outstanding after exercise for $10.0 million in cash and the MCI Lease and
Guarantee Commitment; (ii) Sylvan Learning Systems, Inc. 1,227,393 shares of
Series B Junior Preferred Stock for $1.3 million in cash; (iii) Douglas L.
Becker 1,718,351 shares of Class A Common Stock for $350,000 in cash; (iv) R.
Christopher Hoehn-Saric 1,718,351 shares of Class A Common Stock for $350,000
in cash; and (v) John P. Hill 5,167,328 shares of Class B Common Stock for $1
million in cash. During 1996 and 1997, the Company issued shares of Class A
Common Stock to certain officers of the Company in consideration for cash and
past services rendered. Each of these issuances was exempt from registration
pursuant to Section 4(2) of the Securities Act. Each of these issuances was
exempt from registration pursuant to Section 4(2) of the Securities Act.
On April 30, 1997, the Company issued Chris L. Nguyen 49,155 shares of Class
A Common Stock for $50,062.50 in cash.
On April 30, 1997, the Company issued B. Lee McGee 98,314 shares of Class A
Common Stock for $100,125 in cash.
On April 30, 1997, the Company issued David Dobkin 49,157 shares of Class A
Common Stock in connection with services rendered and 24,578 shares of Class A
Common Stock for $25,031.25 in cash.
On July 24, 1997, the Company issued Bryan Polivka 49,157 shares of Class A
Common Stock in connection with services rendered.
On April 30, 1997, the Company issued J.M. Schapiro 49,157 shares of Class A
Common Stock for $50,062.50 in cash.
On June 19, 1997, the Company issued Brady Locher 49,157 shares of Class A
Common Stock in connection with services rendered and 24,609 shares of Class A
Common Stock for $25,062.50 in cash.
On March 16, 1998, the Company issued Rick Frier 18,750 shares of Class A
Common Stock for $150,000.00 in cash.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
(A) EXHIBIT NO. DESCRIPTION
--------------- -----------
<C> <S>
1.01 Form of Underwriting Agreement
3.01 Articles of Amendment and Restatement of the
Charter, to be effective upon completion of the
offering
3.02 Bylaws
4.01** Specimen Common Stock Certificate
5.01 Opinion of Piper & Marbury L.L.P.
10.01(a)* 1997 Stock Option Plan
10.01(b) 1998 Stock Incentive Plan
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
(A) EXHIBIT NO. DESCRIPTION
--------------- -----------
<C> <S>
10.02* Registration Rights Agreement, dated as of November 22,
1996, among Caliber Learning Network, Inc., Sylvan
Learning Systems, Inc., MCI Telecommunications
Corporation, Douglas L. Becker and R. Christopher Hoehn-
Saric
10.03* Warrant issued to MCI Communications Corporation, dated
as of November 22, 1996 and, as amended.
10.04+* Agreement between Caliber Learning Network, Inc. and The
Johns Hopkins University, dated as of January 29, 1998
10.05+* Agreement between Caliber Learning Network, Inc. and MCI
Systemhouse Corp. dated March 2, 1998
10.06+* Agreement between Caliber Learning Network, Inc. and
Macmillan Computer Publishing USA, dated February 2,
1998
10.07+* Agreement between Caliber Learning Network, Inc. and
Compaq Computer Corporation, dated December 22, 1997
10.08** Letter Agreement and Line of Credit Promissory Note,
dated as of December 1, 1996, between Caliber Learning
Network, Inc. and Sylvan Learning Systems, Inc.
10.09+* Agreement between Caliber Learning Network, Inc. and MCI
Systemhouse Corp., dated July 1, 1997
10.10* Management Agreement between Caliber Learning Network,
Inc. and Sylvan Learning Systems, Inc., dated as of
January 1, 1998
10.11+* Testing Center Management and CBT Services Agreement, as
amended, dated May 1, 1997
10.12 Form of Lock-Up Letter
23.01 Consent of Ernst & Young LLP
23.02 Consent of Piper & Marbury L.L.P. (included in Exhibit
5.01)
24.01 Power of Attorney of Directors and Executive Officers
(included on signature pages hereto)
27.01 Financial Data Schedule
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
+ Filed under confidential treatment request.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
persons of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
II-3
<PAGE>
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN BALTIMORE, MARYLAND
ON THIS 13TH DAY OF APRIL, 1998.
CALIBER LEARNING NETWORK, INC.
By: /s/ Chris L. Nguyen,
---------------------------------
CHRIS L. NGUYEN,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Chris L. Nguyen and Matthew C. Brenneman (with
full power to each of them to act alone) as his or her true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead in any and all capacities to sign any or all
amendments or post-effective amendments to this Registration Statement,
including amendments made pursuant to Rule 462 under the Securities Act of
1933, as amended, and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, to sign any and all applications, registration statements, notices
or other document necessary or advisable to comply with the applicable state
securities laws, and to file the same, together with all other documents in
connection therewith, with the appropriate state securities authorities,
granting unto said attorneys-in-fact and agents or any of them, or their or
his substitute or substitutes, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, thereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the April 13, 1998
- ------------------------------------- Board of Directors
R. CHRISTOPHER HOEHN-SARIC
* Vice Chairman of the April 13, 1998
- ------------------------------------- Board of Directors
DOUGLAS L. BECKER
/s/ Chris L. Nguyen President and Chief April 13, 1998
- ------------------------------------- Executive Officer
CHRIS L. NGUYEN (Principal
Executive Officer)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Rick P. Frier Chief Financial April 13, 1998
- ------------------------------------- Officer (Principal
RICK P. FRIER Financial and
Accounting Officer)
* Director April 13, 1998
- -------------------------------------
SUSAN MAYER
* Director April 13, 1998
- -------------------------------------
JOHN P. HILL
* Director April 13, 1998
- -------------------------------------
JANEEN M. ARMSTRONG
</TABLE>
* Signed by Attorney-in-Fact
/s/ Chris L. Nguyen
- -------------------------------------
CHRIS L. NGUYEN
II-6
<PAGE>
EXHIBIT INDEX
(a)
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO DESCRIPTION PAGE
---------- ----------- ------------
<C> <S> <C>
1.01 Form of Underwriting Agreement
3.01 Articles of Amendment and Restatement of the
Charter, to be effective upon completion of the
Offering
3.02 Bylaws
4.01** Specimen Common Stock Certificate
5.01 Opinion of Piper & Marbury L.L.P.
10.01(a)* 1997 Stock Option Plan
10.01(b) 1998 Stock Incentive Plan
10.02* Registration Rights Agreement dated as of November
22, 1996 among Caliber Learning Network, Inc.,
Sylvan Learning Systems, Inc., MCI Communications
Corporation, Douglas L. Becker and R. Christopher
Hoehn-Saric
10.03* Warrant issued to MCI Communications Corporation,
dated as of November 22, 1996
10.04+* Agreement between Caliber Learning Network, Inc. and
The Johns Hopkins University, dated as of January
29, 1998
10.05+* Agreement between Caliber Learning Network and MCI
Systemhouse Corp. dated March 2, 1998
10.06+* Agreement between Caliber Learning Network, Inc. and
Macmillan Computer Publishing USA, dated February
2, 1998
10.07+* Agreement between Caliber Learning Network, Inc. and
Compaq Computer Corporation, dated December 22,
1997
10.08** Letter Agreement and Line of Credit Promissory Note
dated as of December 1, 1996 between Caliber
Learning Network, Inc. and Sylvan Learning Systems,
Inc.
10.09+* Agreement between Caliber Learning Network, Inc. and
MCI Systemhouse Corp., dated July 1, 1997
10.10* Management Agreement between Caliber Learning
Network, Inc. and Sylvan Learning Systems, Inc.
dated January 1, 1998
10.11+* Testing Center Management and CBT Services
Agreement, as amended, dated May 1, 1997
10.12 Form of Lock-Up Letter
23.01 Consent of Ernst & Young LLP
Consent of Piper & Marbury L.L.P. (included in
23.02 Exhibit 5.01)
24.01 Power of Attorney of Directors and Executive
Officers (included on signature pages hereto)
27.01 Financial Data Schedule
</TABLE>
- --------
*Previously filed.
**To be filed by amendment.
+Filed under confidential treatment request.
<PAGE>
EXHIBIT 1.01
5,400,000 Shares
Caliber Learning Network, Inc.
Common Stock
($0.01 Par Value)
UNDERWRITING AGREEMENT
----------------------
_______________, 1998
BT Alex. Brown Incorporated
NationsBanc Montgomery Securities LLC
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
Gentlemen:
Caliber Learning Network, Inc., a Maryland corporation (the "Company"), and a
certain stockholder of the Company (the "Selling Stockholder") propose to sell
to the several underwriters (the "Underwriters") named in Schedule I hereto for
whom you are acting as representatives (the "Representatives") an aggregate of
5,400,000 shares of the Company's Common Stock, $0.01 par value (the "Firm
Shares"), of which 4,200,000 shares will be sold by the Company and 1,200,000
shares will be sold by the Selling Stockholder. The respective amounts of the
Firm Shares to be so purchased by the several Underwriters are set forth
opposite their names in Schedule I hereto, and the amounts to be sold by the
Selling Stockholder is set forth opposite its name in Schedule II hereto. The
Company and the Selling Stockholder are sometimes referred to herein
collectively as the "Sellers." The Company and the Selling Stockholder also
propose to sell at the Underwriters' option an aggregate of up to 810,000
additional shares of the Company's Common Stock (the "Option Shares") as set
forth below.
As the Representatives, you have advised the Company and the Selling
Stockholder (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers of Firm Shares set
forth opposite their respective names in Schedule I, plus their pro
<PAGE>
rata portion of the Option Shares if you elect to exercise the over-allotment
option in whole or in part for the accounts of the several Underwriters. The
Firm Shares and the Option Shares (to the extent the aforementioned option is
exercised) are herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company and the Selling
-------------------------------------------------------------
Stockholder.
-----------
(a) The Company represents and warrants to each of the Underwriters
as follows:
(i) A registration statement on Form S-1 (File No. 333-47565)
with respect to the Shares has been carefully prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the Rules and Regulations (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission") thereunder and
has been filed with the Commission. Copies of such registration statement,
including any amendments thereto, the preliminary prospectuses (meeting the
requirements of the Rules and Regulations) contained therein and the
exhibits, financial statements and schedules, as finally amended and
revised, have heretofore been delivered by the Company to you. Such
registration statement, together with any registration statement filed by
the Company pursuant to Rule 462(b) of the Act, herein referred to as the
"Registration Statement," which shall be deemed to include all information
omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, has become effective under the Act, and no
post-effective amendment to the Registration Statement has been filed as of
the date of this Agreement. "Prospectus" means (a) the form of prospectus
first filed with the Commission pursuant to Rule 424(b) or (b) the last
preliminary prospectus included in the Registration Statement filed prior
to the time it becomes effective or filed pursuant to Rule 424(a) under the
Act that is delivered by the Company to the Underwriters for delivery to
purchasers of the Shares, together with the term sheet or abbreviated term
sheet filed with the Commission pursuant to Rule 424(b)(7) under the Act.
Each preliminary prospectus included in the Registration Statement prior to
the time it becomes effective is herein referred to as a "Preliminary
Prospectus."
(ii) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Maryland,
with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement. The
Company is duly qualified to transact business in all jurisdictions in
which it owns facilities or operates facilities on behalf of itself, Sylvan
Learning Systems, Inc. or others and in all other jurisdictions where the
conduct of its
- 2 -
<PAGE>
business requires such qualification, except where the failure to do so
would not have a material adverse effect on the Company.
(iii) The outstanding shares of Common Stock of the Company,
including all shares to be sold by the Selling Stockholder, have been duly
authorized and validly issued and are fully paid and non-assessable; the
portion of the Shares to be issued and sold by the Company have been duly
authorized and when issued and paid for as contemplated herein will be
validly issued, fully paid and non-assessable; and no preemptive rights of
stockholders exist with respect to any of the Shares or the issue and sale
thereof. Neither the filing of the Registration Statement nor the offering
or sale of the Shares as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or
relating to the registration of any shares of Common Stock.
(iv) The information set forth under the caption "Capitalization"
in the Prospectus is true and correct. All of the Shares conform to the
description thereof contained in the Registration Statement. The form of
certificates for the Shares conforms to the corporate law of the
jurisdiction of the Company's incorporation.
(v) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of
the Shares nor instituted proceedings for that purpose. The Registration
Statement contains, and the Prospectus and any amendments or supplements
thereto will contain, all statements which are required to be stated
therein by, and will conform, to the requirements of the Act and the Rules
and Regulations. The Registration Statement and any amendment thereto do
not contain, and will not contain, any untrue statement of a material fact
and do not omit, and will not omit, to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading. The Prospectus and any amendments and supplements thereto do
not contain, and will not contain, any untrue statement of material fact;
and do not omit, and will not omit, to state any material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on
behalf of any Underwriter through the Representatives, specifically for use
in the preparation thereof.
(vi) The financial statements of the Company, together with
related notes and schedules as set forth in the Registration Statement,
present fairly the financial position and the results of operations and
cash flows of the Company, at the indicated
- 3 -
<PAGE>
dates and for the indicated periods. Such financial statements and related
schedules have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods
involved, except as disclosed herein, and all adjustments necessary for a
fair presentation of results for such periods have been made. The summary
financial data included in the Registration Statement presents fairly the
information shown therein and such data has been compiled on a basis
consistent with the financial statements presented therein and the books
and records of the company. The pro forma financial statements and other
pro forma financial information included in the Registration Statement and
the Prospectus present fairly the information shown therein, have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements, have been properly compiled on
the pro forma bases described therein, and, in the opinion of the Company,
the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions
or circumstances referred to therein.
(vii) Ernst & Young LLP, who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and
the Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending or,
to the knowledge of the Company, threatened against the Company before any
court or administrative agency or otherwise which if determined adversely
to the Company could reasonably be expected to result in any material
adverse change in the earnings, business, management, properties, assets,
rights, operations, condition (financial or otherwise) or prospects of the
Company or to prevent the consummation of the transactions contemplated
hereby, except as set forth in the Registration Statement.
(ix) The Company has good and marketable title to all of the
properties and assets reflected in the financial statements (or as
described in the Registration Statement) hereinabove described, subject to
no lien, mortgage, pledge, charge or encumbrance of any kind except those
reflected in such financial statements (or as described in the Registration
Statement) or which are not material in amount. The Company occupies its
leased properties under valid and binding leases or subleases conforming in
all material respects to the description thereof set forth in the
Registration Statement.
(x) The Company has filed all Federal, State, local and foreign
income tax returns which have been required to be filed and have paid all
taxes indicated by said returns and all assessments it has received to the
extent that such taxes have become due and are not being contested in good
faith. All tax liabilities have been adequately provided for in the
financial statements of the Company.
- 4 -
<PAGE>
(xi) Since the respective dates as of which information is given
in the Registration Statement, as it may be amended or supplemented, there
has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Company, whether or not occurring in the
ordinary course of business, and there has not been any material
transaction entered into or any material transaction that is probable of
being entered into by the Company, other than transactions in the ordinary
course of business and changes and transactions described in the
Registration Statement, as it may be amended or supplemented. The Company
has no material contingent obligations which are not disclosed in the
Company's financial statements which are included in the Registration
Statement.
(xii) The Company is not, and will not be, with the giving of
notice or lapse of time or both, in violation of or in default under its
Charter or By-Laws or under any agreement, lease, contract, indenture or
other instrument or obligation to which it is a party or by which it, or
any of its properties, is bound and which default is of material
significance in respect of the condition, financial or otherwise of the
Company or the business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company.
The execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof
will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust or other agreement or instrument to which the Company is a party,
or of the Charter or by-laws of the Company or any order, rule or
regulation applicable to the Company of any court or of any regulatory body
or administrative agency or other governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in connection with the
execution and delivery by the Company of this Agreement and the
consummation of the transactions herein contemplated (except such
additional steps as may be required by the Commission, the National
Association of Securities Dealers, Inc. (the "NASD") or such additional
steps as may be necessary to qualify the Shares for public offering by the
Underwriters under state securities or Blue Sky laws) has been obtained or
made and is in full force and effect.
(xiv) The Company holds all material licenses, certificates and
permits from governmental authorities which are necessary to the conduct of
their businesses; and the Company has not infringed any patents, patent
rights, trade names, trademarks or
- 5 -
<PAGE>
copyrights, which infringement is material to the business of the Company
taken as a whole. The Company knows of no material infringement by others
of patents, patent rights, trade names, trademarks or copyrights owned by
or licensed to the Company.
(xv) Neither the Company, nor to the Company's best knowledge,
any of its affiliates, has taken or may take, directly or indirectly, any
action designed to cause or result in, or which has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the
sale or resale of the Shares. The Company acknowledges that the
Underwriters may engage in passive market making transactions in the Shares
on the Nasdaq Stock Market in accordance with Regulation M under the
Exchange Act.
(xvi) The Company is not an "investment company" within the
meaning of such term under the Investment Company Act of 1940 and the rules
and regulations of the Commission thereunder.
(xvii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xviii) The Company carries, or is covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of its
businesses and the value of its properties and as is customary for
companies engaged in similar industries.
(xix) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA
with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has
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occurred, whether by action or by failure to act, which would cause the
loss of such qualification.
(xx) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-
198, An Act Relating to Disclosure of doing Business with Cuba, and the
---------------------------------------------------------
Company further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after
the date the Registration Statement becomes or has become effective with
the Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the
Company's business with Cuba or with any person or affiliate located in
Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to
the Department.
(b) The Selling Stockholder severally represents and warrants as
follows:
(i) The Selling Stockholder now has and at the Closing Date, as
the case may be (as such date is hereinafter defined) will have good and
marketable title to the Firm Shares to be sold by the Selling Stockholder,
free and clear of any liens, encumbrances, equities and claims, and full
right, power and authority to effect the sale and delivery of the Firm
Shares; and upon the delivery of, against payment for, the Firm Shares
pursuant to this Agreement, the Underwriters will acquire good and
marketable title thereto, free and clear of any liens, encumbrances,
equities and claims.
(ii) The Selling Stockholder has full right, power and authority
to execute and deliver this Agreement and to perform its obligations under
this Agreement. The execution and delivery of this Agreement and the
consummation by the Selling Stockholder of the transactions herein
contemplated and the fulfillment by the Selling Stockholder of the terms
hereof will not require any consent, approval, authorization, or other
order of any court, regulatory body, administrative agency or other
governmental body (except as may be required under the Act, state
securities laws or Blue Sky laws) and will not result in a breach of any of
the terms and provisions of, or constitute a default under, organizational
documents of the Selling Stockholder, if not an individual, or any
indenture, mortgage, deed of trust or other agreement or instrument to
which the Selling Stockholder is a party, or of any order, rule or
regulation applicable to such Selling Stockholder of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction.
(iii) The Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to, or which has constituted,
or which might reasonably be
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expected to cause or result in the stabilization or manipulation of the
price of the Common Stock of the Company and, other than as permitted by
the Act, the Selling Stockholder will not distribute any prospectus or
other offering material in connection with the offering of the Shares.
(iv) Without having undertaken to determine independently the
accuracy or completeness of either the representations and warranties of
the Company contained herein or the information contained in the
Registration Statement, the Selling Stockholder has no reason to believe
that the representations and warranties of the Company contained in this
Section 1 are not true and correct, is familiar with the Registration
Statement and has no knowledge of any material fact, condition or
information not disclosed in the Registration Statement which has adversely
affected or may adversely affect the business of the Company; and the sale
of the Firm Shares by the Selling Stockholder pursuant hereto is not
prompted by any information concerning the Company which is not set forth
in the Registration Statement. The information pertaining to the Selling
Stockholder under the caption "Principal and Selling Stockholders" in the
Prospectus is complete and accurate in all material respects.
2. Purchase, Sale and Delivery of the Firm Shares.
----------------------------------------------
(a) On the basis of the representations, warranties and covenants herein
contained, and subject to the conditions herein set forth, the Sellers
agree to sell to the Underwriters and each Underwriter agrees, severally
and not jointly, to purchase, at a price of $_____ [net price] per share,
the number of Firm Shares set forth opposite the name of each Underwriter
in Schedule I hereof, subject to adjustments in accordance with Section 9
hereof. The number of Firm Shares to be purchased by each Underwriter from
each Seller shall be as nearly as practicable in the same proportion to the
total number of Firm Shares being sold by each Seller as the number of Firm
Shares being purchased by each Underwriter bears to the total number of
Firm Shares to be sold hereunder. The obligations of the Company and the
Selling Stockholder shall be several and not joint.
(b) Payment for the Firm Shares to be sold hereunder is to be made in
New York Clearing House funds by wire transfer of immediately available
funds to a bank account designated by the Company for the shares to be sold
by it and by wire transfer of immediately available funds to a bank account
designated by the Selling Stockholder for the shares to be sold by it. Such
payment and delivery are to be made at the offices of BT Alex. Brown
Incorporated, One South Street, Baltimore, Maryland, at 10:00 a.m.,
Baltimore time, on the third business day after the date of this Agreement
or at such other time and date not later than five business days thereafter
as you and the Company shall agree upon, such time and date being herein
referred to as the "Closing Date." (As used herein, "business day" means a
day on which the New York Stock Exchange is open for
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trading and on which banks in New York are open for business and not
permitted by law or executive order to be closed.) The certificates for the
Firm Shares will be delivered in such denominations and in such
registrations as the Representatives request in writing not later than the
second full business day prior to the Closing Date, and will be made
available for inspection by the Representatives at least one business day
prior to the Closing Date.
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth,
the Company and the Selling Stockholder hereby grant an option to the
several Underwriters to purchase the Option Shares at the price per share
as set forth in the first paragraph of this Section 2. The option granted
hereby may be exercised in whole or in part but only once and at any time
upon written notice given within 30 days after the date of this Agreement,
by you, as Representatives of the several Underwriters, to the Company
setting forth the number of Option Shares as to which the several
Underwriters are exercising the option, the names and denominations in
which the Option Shares are to be registered and the time and date at which
such certificates are to be delivered. The time and date at which
certificates for Option Shares are to be delivered shall be determined by
the Representatives but shall not be earlier than three nor later than 10
full business days after the exercise of such option, nor in any event
prior to the Closing Date (such time and date being herein referred to as
the "Option Closing Date"). If the date of exercise of the option is three
or more days before the Closing Date, the notice of exercise shall set the
Closing Date as the Option Closing Date. The number of Option Shares to be
purchased by each Underwriter shall be in the same proportion to the total
number of Option Shares being purchased as the number of Firm Shares being
purchased by such Underwriter bears to the total number of Firm Shares,
adjusted by you in such manner as to avoid fractional shares. The option
with respect to the Option Shares granted hereunder may be exercised only
to cover over-allotments in the sale of the Firm Shares by the
Underwriters. You, as Representatives of the several Underwriters, may
cancel such option at any time prior to its expiration by giving written
notice of such cancellation to the Company. To the extent, if any, that the
option is exercised, payment for the Option Shares shall be made on the
Option Closing Date in New York Clearing House funds by wire transfer of
immediately available funds to a bank account designated by the Company for
the Option Shares to be sold by it against delivery of certificates
therefor at the offices of BT Alex. Brown Incorporated, One South Street,
Baltimore, Maryland.
3. Offering by the Underwriters.
----------------------------
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the
public at the initial public offering price set forth in the
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Prospectus. The Representatives may from time to time thereafter change the
public offering price and other selling terms. To the extent, if at all,
that any Option Shares are purchased pursuant to Section 2 hereof, the
Underwriters will offer them to the public on the foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with
a Master Agreement Among Underwriters entered into by you and the several
other Underwriters.
4. Covenants of the Company and the Selling Stockholder.
----------------------------------------------------
(a) The Company covenants and agrees with the several Underwriters that:
(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule
430A of the Rules and Regulations is followed, to prepare and timely file
with the Commission under Rule 424(b) of the Rules and Regulations a
Prospectus in a form approved by the Representatives containing information
previously omitted at the time of effectiveness of the Registration
Statement in reliance on Rule 430A of the Rules and Regulations and (B) not
file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been
advised and furnished with a copy or to which the Representatives shall
have reasonably objected in writing or which is not in compliance with the
Rules and Regulations.
(ii) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment thereto
shall have become effective, (B) of receipt of any comments from the
Commission, (C) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any
additional information, and (D) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
the use of the Prospectus or of the institution of any proceedings for that
purpose. The Company will use its best efforts to prevent the issuance of
any such stop order preventing or suspending the use of the Prospectus and
to obtain as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of
such jurisdictions as the Representatives may reasonably have designated in
writing and will make such applications, file such documents, and furnish
such information as may be reasonably required for that purpose, provided
the Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction
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<PAGE>
where it is not now so qualified or required to file such a consent. The
Company will, from time to time, prepare and file such statements, reports,
and other documents, as are or may be required to continue such
qualifications in effect for so long a period as the Representatives may
reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company will
deliver to, or upon the order of, the Representatives during the period
when delivery of a Prospectus is required under the Act, as many copies of
the Prospectus in final form, or as thereafter amended or supplemented, as
the Representatives may reasonably request. The Company will deliver to the
Representatives at or before the Closing Date, four signed copies of the
Registration Statement and all amendments thereto including all exhibits
filed therewith, and will deliver to the Representatives such number of
copies of the Registration Statement (including such number of copies of
the exhibits filed therewith that may reasonably be requested), and of all
amendments thereto, as the Representatives may reasonably request.
(v) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934 (the "Exchange Act"),
and the rules and regulations of the Commission thereunder, so as to permit
the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event
shall occur as a result of which, in the judgment of the Company or in the
reasonable opinion of the Underwriters, it becomes necessary to amend or
supplement the Prospectus in order to make the statements therein, in the
light of the circumstances existing at the time the Prospectus is delivered
to a purchaser, not misleading, or, if it is necessary at any time to amend
or supplement the Prospectus to comply with any law, the Company promptly
will prepare and file with the Commission an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the
Prospectus will comply with the law.
(vi) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later
than 15 months after the effective date of the Registration Statement, an
earnings statement (which need not be audited) in reasonable detail,
covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement, which earning statement shall
satisfy the requirements of Section 11(a) of the Act and Rule 158 of the
Rules and
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<PAGE>
Regulations and will advise you in writing when such statement has been so
made available.
(vii) The Company will, for a period of five years from the
Closing Date, deliver to the Representatives copies of annual reports and
copies of all other documents, reports and information furnished by the
Company to its stockholders or filed with any securities exchange pursuant
to the requirements of such exchange or with the Commission pursuant to the
Act or the Securities Exchange Act of 1934, as amended. The Company will
deliver to the Representatives similar reports with respect to significant
subsidiaries, as that term is defined in the Rules and Regulations, which
are not consolidated in the Company's financial statements.
(viii) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible into
or exchangeable or exercisable for shares of Common Stock or derivative of
Common Stock (or agreement for such) will be made for a period of one year
after the date of this Agreement, directly or indirectly, by the Company
otherwise than hereunder or with the prior written consent of BT Alex.
Brown Incorporated.
(ix) The Company will use its best efforts to list, subject to
notice of issuance, the Shares on the Nasdaq Stock Market.
(x) The Company has caused each officer and director and
specified shareholders of the Company to furnish to you, on or prior to the
date of this agreement, a letter or letters, in form and substance
satisfactory to the Underwriters, pursuant to which each such person shall
agree not to offer, sell, sell short or otherwise dispose of any shares of
Common Stock of the Company or other capital stock of the Company, or any
other securities convertible, exchangeable or exercisable for Common Shares
or derivative of Common Shares owned by such person or request the
registration for the offer or sale of any of the foregoing (or as to which
such person has the right to direct the disposition of) for a minimum
period of one year after the date of this Agreement, directly or
indirectly, except with the prior written consent of BT Alex. Brown
Incorporated ("Lockup Agreements").
(xi) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of
the proceeds therefrom as may be required in accordance with Rule 463 under
the Act.
(xii) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as
would require
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<PAGE>
the Company to register as an investment company under the Investment
Company Act of 1940, as amended (the "1940 Act").
(xiii) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a
registrar for the Common Stock.
(xiv) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of
the price of any securities of the Company.
(b) The Selling Stockholder covenants and agrees with the several
Underwriters that:
(i) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other capital stock of the
Company or other securities convertible, exchangeable or exercisable
for Common Stock or derivative of Common Stock owned by the Selling
Shareholder or request the registration for the offer or sale of any
of the foregoing (or as to which the Selling Shareholder has the right
to direct the disposition of) will be made for a minimum period of one
year after the date of this Agreement, directly or indirectly, by such
Selling Shareholder otherwise than hereunder or with the prior written
consent of BT Alex. Brown Incorporated.
(ii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 and the Interest and Dividend Tax
Compliance Act of 1983 with respect to the transactions herein
contemplated, each of the Selling Stockholder agrees to deliver to you
prior to or at the Closing Date a properly completed and executed
United States Treasury Department Form W-9 (or other applicable form
or statement specified by Treasury Department regulations in lieu
thereof).
(iii) Such Selling Shareholder will not take, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any securities of the
Company.
5. Costs and Expenses.
------------------
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement,
including, without limiting the
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<PAGE>
generality of the foregoing, the following: accounting fees of the Company;
the fees and disbursements of counsel for the Company; the cost of printing
and delivering to, or as requested by, the Underwriters copies of the
Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Selling Memorandum, the Underwriters'
Invitation Letter, the Listing Application, the filing fees of the
Commission; the filing fees and expenses (including legal fees and
disbursements) incident to securing any required review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the
sale of the Shares; and the Listing Fee of the Nasdaq Stock Market. To the
extent, if at all, that any of the Selling Stockholder engage special legal
counsel to represent them in connection with this offering, the fees and
expenses of such counsel shall be borne by such Selling Shareholder. Any
transfer taxes imposed on the sale of the Shares to the several
Underwriters will be paid by the Sellers pro rata. The Company agrees to
pay all costs and expenses of the Underwriters, including the fees and
disbursements of counsel for the Underwriters, incident to the offer and
sale of directed shares of the Common Stock by the Underwriters to
employees and persons having business relationships with the Company. The
Company shall not, however, be required to pay for any of the Underwriters
expenses (other than those related to qualification under NASD regulations)
except that, if this Agreement shall not be consummated because the
conditions in Section 6 hereof are not satisfied, or because this Agreement
is terminated by the Representatives pursuant to Section 11 hereof, or by
reason of any failure, refusal or inability on the part of the Company or
the Selling Stockholder to perform any undertaking or satisfy any condition
of this Agreement or to comply with any of the terms hereof on their part
to be performed, unless such failure to satisfy said condition or to comply
with said terms be due to the default or omission of any Underwriter, then
the Company shall reimburse the several Underwriters for reasonable out-of-
pocket expenses, including fees and disbursements of counsel, reasonably
incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations
hereunder; but the Company and the Selling Stockholder shall not in any
event be liable to any of the several Underwriters for damages on account
of loss of anticipated profits from the sale by them of the Shares.
6. Conditions of Obligations of the Underwriters.
---------------------------------------------
The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option
Closing Date are subject to the accuracy, as of the Closing Date or the
Option Closing Date, as the case may be, of the representations and
warranties of the Company and the Selling Stockholder contained herein, and
to the performance by the Company and the Selling Stockholder of their
covenants and obligations hereunder and to the following additional
conditions:
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(a) The Registration Statement and all post-effective amendments thereto
shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any
request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as
amended from time to time, shall have been issued and no proceedings for
that purpose shall have been taken or, to the knowledge of the Company or
the Selling Stockholder, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing
Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Piper & Marbury
L.L.P., counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters (and
stating that it may be relied upon by counsel to the Underwriters) to the
effect that:
(i) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Maryland, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement. The Company is duly qualified to transact business in all
jurisdictions in which it owns facilities or operates facilities on
behalf of itself, Sylvan Learning Systems, Inc. or others and in all
other jurisdictions where the conduct of its business requires such
qualification, except where the failure to do so would not have a
material adverse effect on the Company.
(ii) The Company has authorized and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of the Company's Common Stock have been duly
authorized; the outstanding shares of the Company's Common Stock,
including the Shares to be sold by the Selling Stockholder, have been
duly authorized and validly issued and are fully paid and non-
assessable; all of the Shares conform to the description thereof
contained in the Prospectus; the certificates for the Shares, assuming
they are in the form filed with the Commission, are in due and proper
form; the shares of Common Stock, including the Option Shares, if any,
to be sold by the Company pursuant to this Agreement have been duly
authorized and will be validly issued, fully paid and non-assessable
when issued and paid for as contemplated by this Agreement; and no
preemptive rights of stockholders exist with respect to any of the
Shares or the issue or sale thereof.
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<PAGE>
(iii) Except as described in or contemplated by the Prospectus,
to the knowledge of such counsel, there are no outstanding securities
of the Company convertible or exchangeable into or evidencing the
right to purchase or subscribe for any shares of capital stock of the
Company and there are no outstanding or authorized options, warrants
or rights of any character obligating the Company to issue any shares
of its capital stock or any securities convertible or exchangeable
into or evidencing the right to purchase or subscribe for any shares
of such stock; and except as described in the Prospectus, to the
knowledge of such counsel, no holder of any securities of the Company
or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell
or otherwise issue to them, or to permit them to underwrite the sale
of, any of the Shares or the right to have any shares of Common Stock
or other securities of the Company included in the Registration
Statement or the right, as a result of the filing of the Registration
Statement, to require registration under the Act of any shares of
Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending
or threatened under the Act.
(v) The Registration Statement, the Prospectus and each amendment
or supplement thereto comply as to form in all material respects with
the requirements of the Act and the applicable rules and regulations
thereunder (except that such counsel need express no opinion as to the
financial statements and related schedules.
(vi) The statements under the captions "Risk Factors - Failure to
Obtain State Licenses or Accreditation Organization Approvals," "Risk
Factors- Shares Eligible for Future Sale," "Risk Factors - Certain
Anti-takeover Provisions," "Business - Lifelong Learning Products and
Services," "Business - Corporate Products and Services," "Business -
Government Regulation," "Description of Capital Stock" and "Shares
Eligible for Future Sale" in the Prospectus, insofar as such
statements constitute a summary of documents referred to therein or
matters of law, fairly summarize in all material respects the
information called for with respect to such documents and matters.
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus which are
not so filed or described as
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required, and such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized in all
material respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company except as set
forth in the Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will
not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the Charter or By-Laws
of the Company, or any agreement or instrument known to such counsel
to which the Company is a party or by which the Company may be bound.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution
and delivery of this Agreement and the consummation of the
transactions herein contemplated (other than as may be required by the
NASD or as required by State securities and Blue Sky laws as to which
such counsel need express no opinion) except such as have been
obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and
application of the net proceeds therefrom as described in the
Prospectus, required to register as an investment company under the
1940 Act.
In rendering such opinion Piper & Marbury L.L.P. may rely as to
matters governed by the laws of states other than Maryland or Federal laws
on local counsel in such jurisdictions, provided that in each case Piper &
Marbury L.L.P. shall state that they believe that they and the Underwriters
are justified in relying on such other counsel. In addition to the matters
set forth above, such opinion shall also include a statement to the effect
that nothing has come to the attention of such counsel which leads them to
believe that (i) the Registration Statement, at the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) and as of the
Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (ii) the
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Prospectus, or any supplement thereto, on the date it was filed pursuant to
the Rules and Regulations and as of the Closing Date or the Option Closing
Date, as the case may be, contained an untrue statement of a material fact
or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made,
not misleading (except that such counsel need express no view as to
financial statements, schedules and statistical information therein). With
respect to such statement, Piper & Marbury L.L.P. may state that their
belief is based upon the procedures set forth therein, but is without
independent check and verification.
(c) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of [name of counsel],
counsel for the Selling Stockholder, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters (and
stating that it may be relied upon by counsel to the Underwriters) to the
effect that:
(i) This Agreement has been duly authorized, executed and
delivered on behalf of the Selling Stockholder.
(ii) The Selling Stockholder has full legal right, power and
authority, and any approval required by law (other than as required by
State securities and Blue Sky laws as to which such counsel need
express no opinion), to sell, assign, transfer and deliver the Shares
to be sold by the Selling Stockholder.
(iii) The Underwriters (assuming that they are protected
purchasers within the meaning of the Maryland Uniform Commercial Code)
have acquired good and marketable title to the Shares being sold by
the Selling Stockholder on the Closing Date, free and clear of all
liens, encumbrances, equities and claims.
(d) The Representatives shall have received from Hogan & Hartson
L.L.P., counsel for the Underwriters, an opinion dated the Closing Date or
the Option Closing Date, as the case may be, substantially to the effect
specified in subparagraphs (ii), (iii), (iv), and (x) of Paragraph (b) of
this Section 6, and that the Company is a duly organized and validly
existing corporation under the laws of the State of Maryland. In rendering
such opinion Hogan & Hartson L.L.P. may rely as to all matters governed
other than by the laws of the State of Maryland or Federal laws on the
opinion of counsel referred to in Paragraph (b) of this Section 6. In
addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement, or
any amendment thereto, as of the time it became effective under the Act
(but after giving effect to any modifications incorporated therein pursuant
to Rule 430A under the Act) as of the Closing Date or the Option Closing
Date, as the case may be, contained an untrue
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<PAGE>
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and (ii) the Prospectus, or any supplement thereto, on the date
it was filed pursuant to the Rules and Regulations and as of the Closing
Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact, necessary
in order to make the statements, in the light of the circumstances under
which they are made, not misleading (except that such counsel need express
no view as to financial statements, schedules and statistical information
therein). With respect to such statement, Hogan & Hartson L.L.P. may state
that their belief is based upon the procedures set forth therein, but is
without independent check and verification.
(e) You shall have received, on each of the dates hereof, the Closing
Date and the Option Closing Date, as the case may be, a letter dated the
date hereof, the Closing Date or the Option Closing Date, as the case may
be, in form and substance satisfactory to you, of Ernst & Young LLP
confirming that they are independent public accountants within the meaning
of the Act and the applicable published Rules and Regulations thereunder
and stating that in their opinion the financial statements and schedules
examined by them and included in the Registration Statement comply in form
in all material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations; and containing such
other statements and information as is ordinarily included in accountants'
"comfort letters" to Underwriters with respect to the financial statements
and certain financial and statistical information contained in the
Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company
to the effect that, as of the Closing Date or the Option Closing Date, as
the case may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the
Registrations Statement has been issued, and no proceedings for such
purpose have been taken or are, to his knowledge, contemplated by the
Commission;
(ii) The representations and warranties of the Company contained
in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
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<PAGE>
(iv) He or she has carefully examined the Registration Statement
and the Prospectus and, in his or her opinion, as of the effective
date of the Registration Statement, the statements contained in the
Registration Statement were true and correct in all material respects,
and such Registration Statement and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred which should
have been set forth in a supplement to or an amendment of the
Prospectus which has not been so set forth in such supplement or
amendment; and
(v) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective
material adverse change in or affecting the condition, financial or
otherwise, of the Company or the earnings, business, management,
properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company, whether or not arising in the
ordinary course of business.
(g) The Company and the Selling Stockholder shall have furnished to
the Representatives such further certificates and documents confirming the
representations and warranties, covenants and conditions contained herein
and related matters as the Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on the Nasdaq Stock Market.
(i) The Lockup Agreements described in Section 4(a)(x) are in full
force and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in
all material respects satisfactory to the Representatives and to Hogan &
Hartson L.L.P., counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representatives by notifying the Company and the Selling Stockholder
of such termination in writing or by telegram at or prior to the Closing
Date or the Option Closing Date, as the case may be.
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<PAGE>
In such event, the Selling Stockholder, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. Conditions of the Obligations of the Sellers.
--------------------------------------------
The obligations of the Sellers to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. Indemnification.
---------------
(a) The Company and the Selling Stockholder, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if
any, who controls any Underwriter within the meaning of the Act, against
any losses, claims, damages or liabilities to which such Underwriter or any
such controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto, or (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in the light of
the circumstances under which they were made and will reimburse each
Underwriter and each such controlling person upon demand for any legal or
other expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending any such loss, claim,
damage or liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Shares, whether or not
such Underwriter or controlling person is a party to any action or
proceeding; provided, however, that the Company and the Selling Stockholder
will not be liable (i) in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission made
in the Registration Statement, any Preliminary Prospectus, the Prospectus,
or such amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof or (ii)
with respect to any untrue statement contained in or any omission from a
Preliminary Prospectus if the untrue statement or omission from a
Preliminary Prospectus was corrected in the applicable Prospectus and the
person asserting any loss, liability, claim or damage was not given or sent
a copy of the applicable Prospectus in the manner and at such time as
required by the Act, provided
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<PAGE>
the Company has furnished you with copies of the applicable Prospectus. In
no event, however, shall the liability of the Selling Stockholder for
indemnification under this Section 8(a) exceed the proceeds received by the
Selling Stockholder from the Underwriters in the offering. This indemnity
agreement will be in addition to any liability which the Company or the
Selling Stockholder may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, the Selling Stockholder, and each
person, if any, who controls the Company or the Selling Stockholder within
the meaning of the Act, against any losses, claims, damages or liabilities
to which the Company or any such director, officer, Selling Stockholder or
controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) arise out of or are based upon (i) any untrue statement
or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse any legal or
other expenses reasonably incurred by the Company or any such director,
officer, Selling Stockholder or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action
or proceeding; provided, however, that each Underwriter will be liable in
each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission has been made in the Registration
Statement, any Preliminary Prospectus, the Prospectus or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representatives specifically for
use in the preparation thereof. This indemnity agreement will be in
addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may
be sought pursuant to this Section 8, such person (the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought
(the "indemnifying party") in writing. No indemnification provided for in
Section 8(a) or (b) shall be available to any party who shall fail to give
notice as provided in this Section 8(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related
and was materially prejudiced by the failure to give such notice, but the
failure to give such notice shall not relieve the indemnifying party or
parties from any liability which it or they may have to the indemnified
party for contribution or otherwise than on account of the provisions of
Section 8(a) or (b). In case any such proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
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<PAGE>
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party and shall pay as
incurred (or within 30 days of presentation) the fees and disbursements of
such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel at its own
expense. Notwithstanding the foregoing, the indemnifying party shall pay as
incurred the fees and expenses of the counsel retained by the indemnified
party in the event (i) the indemnifying party and the indemnified party
shall have mutually agreed to the retention of such counsel, (ii) the named
parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them or (iii) the indemnifying party
shall have failed to assume the defense and employ counsel acceptable to
the indemnified party within a reasonable period of time after notice of
commencement of the action. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the reasonable fees and expenses of more
than one separate firm for all such indemnified parties. Such firm shall be
designated in writing by you in the case of parties indemnified pursuant to
Section 8(a) and by the Company and the Selling Stockholder in the case of
parties indemnified pursuant to Section 8(b). The indemnifying party shall
not be liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. In addition, the indemnifying party will not,
without the prior written consent of the indemnified party, settle or
compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding of which indemnification may be
sought hereunder (whether or not any indemnified party is an actual or
potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) in
such proportion as is appropriate to reflect the relative benefits received
by the Company and the Selling Stockholder on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not
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<PAGE>
permitted by applicable law then each indemnifying party shall contribute
to such amount paid or payable by such indemnified party in such proportion
as is appropriate to reflect not only such relative benefits but also the
relative fault of the Company and the Selling Stockholder on the one hand
and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities,
(or actions or proceedings in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Company and the Selling Stockholder on the one hand and the Underwriters on
the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the
Company and the Selling Stockholder bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or the Selling Stockholder on the one hand or the Underwriters on
the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
The Company, the Selling Stockholder and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this
Section 8(d) were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this Section 8(d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) referred to
above in this Section 8(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, and
(ii) no person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation, and (iii)
the Selling Stockholder shall not be required to contribute any amount in
excess of the lesser of (A) that proportion of the total of such losses,
claims, damages or liabilities indemnified or contributed against equal to
the proportion of the total Shares sold hereunder which is being sold by
the Selling Stockholder, or (B) the proceeds received by the Selling
Stockholder from the Underwriters in the offering. The Underwriters'
obligations in this Section 8(d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
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<PAGE>
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this
Section 8 hereby consents to the jurisdiction of any court having
jurisdiction over any other contributing party, agrees that process issuing
from such court may be served upon him or it by any other contributing
party and consents to the service of such process and agrees that any other
contributing party may join him or it as an additional defendant in any
such proceeding in which such other contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement
shall remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A
successor to any Underwriter, or to the Company, its directors or officers,
or any person controlling the Company, shall be entitled to the benefits of
the indemnity, contribution and reimbursement agreements contained in this
Section 8.
9. Default by Underwriters.
-----------------------
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such
date (otherwise than by reason of any default on the part of the Company or
a Selling Shareholder), you, as Representatives of the Underwriters, shall
use your reasonable efforts to procure within 36 hours thereafter one or
more of the other Underwriters, or any others, to purchase from the Company
and the Selling Stockholder such amounts as may be agreed upon and upon the
terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as such Representatives, shall not have procured
such other Underwriters, or any others, to purchase the Firm Shares or
Option Shares, as the case may be, agreed to be purchased by the defaulting
Underwriter or Underwriters, then (a) if the aggregate number of shares
with respect to which such default shall occur does not exceed 10% of the
Firm Shares or Option Shares, as the case may be, covered hereby, the other
Underwriters shall be obligated, severally, in proportion to the respective
numbers of Firm Shares or Option Shares, as the case may be, which they are
obligated to purchase hereunder, to purchase
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<PAGE>
the Firm Shares or Option Shares, as the case may be, which such defaulting
Underwriter or Underwriters failed to purchase, or (b) if the aggregate
number of shares of Firm Shares or Option Shares, as the case may be, with
respect to which such default shall occur exceeds 10% of the Firm Shares or
Option Shares, as the case may be, covered hereby, the Company and the
Selling Stockholder or you as the Representatives of the Underwriters will
have the right, by written notice given within the next 36-hour period to
the parties to this Agreement, to terminate this Agreement without
liability on the part of the non-defaulting Underwriters or of the Company
or of the Selling Stockholder except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as
set forth in this Section 9, the Closing Date or Option Closing Date, as
the case may be, may be postponed for such period, not exceeding seven
days, as you, as Representatives, may determine in order that the required
changes in the Registration Statement or in the Prospectus or in any other
documents or arrangements may be effected. The term "Underwriter" includes
any person substituted for a defaulting Underwriter. Any action taken under
this Section 9 shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
10. Notices.
-------
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to BT Alex.
Brown Incorporated, One South Street, Baltimore, Maryland 21202, Attention:
Scott A. Wieler; with a copy to BT Alex. Brown Incorporated, One South
Street, Baltimore, Maryland 21202. Attention: General Counsel; if to the
Company or the Selling Stockholder, to Piper & Marbury L.L.P., 36 South
Charles Street, Baltimore, Maryland 21201-3018. Attention: Richard C.
Tilghman, Jr., Esq.
11. Termination.
-----------
This Agreement may be terminated by you by notice to the Sellers as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m.
on the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any material adverse
change or any development involving a prospective material adverse change
in or affecting the condition, financial or otherwise,
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<PAGE>
of the Company or the earnings, business, management, properties, assets,
rights, operations, condition (financial or otherwise) or prospects of the
Company, whether or not arising in the ordinary course of business, (ii)
any outbreak or escalation of hostilities or declaration of war or national
emergency or other national or international calamity or crisis or change
in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the
financial markets of the United States would, in your reasonable judgment,
make it impracticable to market the Shares or to enforce contracts for the
sale of the Shares, or (iii) suspension of trading in securities generally
on the New York Stock Exchange or the American Stock Exchange or limitation
on prices (other than limitations on hours or numbers of days of trading)
for securities on either such Exchange, (iv) the enactment, publication,
decree or other promulgation of any statute, regulation, rule or order of
any court or other governmental authority which in your opinion materially
and adversely affects or may materially and adversely affect the business
or operations of the Company, (v) declaration of a banking moratorium by
United States or New York State authorities, (vi) any downgrading in the
rating of the Company's debt securities by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g)
under the Exchange Act); (vii) the suspension of trading of the Company's
common stock by the Commission on the Nasdaq Stock Market or (viii) the
taking of any action by any governmental body or agency in respect of its
monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. Successors.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Selling Stockholder and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person
will have any right or obligation hereunder. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign merely
because of such purchase.
13. Information Provided by Underwriters.
------------------------------------
The Company, the Selling Stockholder and the Underwriters acknowledge
and agree that the only information furnished or to be furnished by any
Underwriter to the Company for inclusion in any Prospectus or the
Registration Statement consists of the information set forth in the last
paragraph on the front cover page (insofar as such information relates to
the Underwriters), legends required by Item 502(d) of Regulation
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<PAGE>
S-K under the Act and the information under the caption "Underwriting" in
the Prospectus.
14. Miscellaneous.
-------------
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation
made by or on behalf of any Underwriter or controlling person thereof, or
by or on behalf of the Company or its directors or officers and (c)
delivery of and payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Stockholder, the
Company and the several Underwriters in accordance with its terms.
Any person executing and delivering this Agreement as Attorney-in-Fact for
the Selling Stockholder represents by so doing that he has been duly appointed
as Attorney-in-Fact by the Selling Stockholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-Fact to take
such action.
Very truly yours,
CALIBER LEARNING NETWORK, INC.
---------------------------------------
By:
Its:
MCI Communications Corp.
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<PAGE>
---------------------------------------
By:
Its:
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
BT ALEX. BROWN INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
As Representatives of the several
Underwriters listed on Schedule I
By: BT Alex. Brown Incorporated
By: ________________________________
Authorized Officer
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<PAGE>
SCHEDULE I
Schedule of Underwriters
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------
BT Alex. Brown Incorporated
NationsBanc Montgomery Securities LLC
__________
Total __________
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<PAGE>
SCHEDULE II
Schedule of Selling Stockholder
Number of Firm Shares
Selling Stockholder to be Sold
------------------- ---------------------
MCI Communications Corp.
__________
Total __________
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<PAGE>
Exhibit 3.01
CALIBER LEARNING NETWORK, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
CALIBER LEARNING NETWORK, INC., a Maryland corporation, having its
principal office in Baltimore, Maryland (which is hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Corporation desires to amend its Charter as currently in
effect and, as so amended, restate its Charter as currently in effect. The
provisions set forth in these Articles of Amendment and Restatement are all the
provisions of the Charter of the Corporation as currently in effect, as so
amended.
SECOND: The Charter of the Corporation is hereby amended by striking each
of the Articles of the existing Charter of the Corporation, and by substituting
in lieu thereof the following:
FIRST: THE UNDERSIGNED, Richard C. Tilghman, whose address is 36 South
Charles Street, Baltimore, Maryland 21201, being at least eighteen years of age,
acting as incorporator, does hereby form a corporation under the General Laws of
the State of Maryland.
SECOND: The name of the corporation (which is hereinafter called the
"Corporation") is:
CALIBER LEARNING NETWORK, INC.
THIRD: (a) The purposes for which and any of which the Corporation is
formed and the business and objects to be carried on and promoted by it are:
(1) To provide educational services; and
(2) To engage in any one or more businesses or transactions,
or to acquire all or any portion of any entity engaged in any one or more
businesses or transactions which the Board of Directors may from time to time
authorize or approve, whether or not related to the business described elsewhere
in this Article or to any other business at the time or theretofore engaged in
by the Corporation.
(b) The foregoing enumerated purposes and objects shall be in no
way limited or restricted by reference to, or inference from, the terms of any
other clause of this or any other Article of the charter of the Corporation, and
each shall be regarded as independent; and they are intended to be and shall be
construed as powers as well as purposes and objects of the Corporation and shall
be in addition to and not in limitation of the general powers of corporations
under the General Laws of the State of Maryland.
- 1 -
<PAGE>
FOURTH: The present address of the principal office of the Corporation in
this State is 3600 Clipper Mill Road, Suite 300, Baltimore, Maryland 21211.
FIFTH: The name and address of the resident agent of the Corporation in
this State are Chris L. Nguyen, Caliber Learning Network, Inc., 3600 Clipper
Mill Road, Suite 300, Baltimore, Maryland 21211. Said resident agent is a
citizen of Maryland who resides in Maryland.
SIXTH: (a) The amount of the total authorized capital stock of the
Corporation is 55,167,328 shares which are divided into classes of shares
designated, respectively, Common Stock, having a par value of $.01 per share
("Common Stock") and 6% Non-Voting Convertible Preferred Stock, having a par
value of $.01 per share, ("Non-Voting Preferred Stock" and together with the
Common Stock, the "Capital Stock"). Subject to the next paragraph of this
Article Sixth (a) the total number of shares of Non-Voting Preferred Stock this
Corporation shall have authority to issue is 5,167,328, and the total number of
shares of Common Stock this Corporation shall have authority to issue is
50,000,000.
The Board of Directors may classify and reclassify any unissued shares of
capital stock by setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of redemption
of such shares of stock.
(b) The following is a description of the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the 6% Non-Voting
Convertible Preferred Stock of the Corporation (the "Non-Voting Stock"):
(1) Designation and Amount. The shares will be designated
----------------------
6% Non-Voting Convertible Preferred Stock (the "Non-Voting Stock"). The total
number of authorized shares of Non-Voting Stock will initially be 5,167,328
shares.
(2) Definitions. For purposes of the Non-Voting Stock, the
-----------
following terms shall have the meanings indicated:
"Board of Directors" shall mean the Board of Directors of
the Corporation or any committee authorized by such Board of Directors to
perform any of its responsibilities with respect to the Non-Voting Stock.
"Business Day" shall mean any day other than a Saturday,
Sunday or a day on which state or federally chartered banking institutions in
Baltimore, Maryland are not required to be open.
"Common Stock" shall mean the common stock of the
Corporation, par value $.01 per share.
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"Constituent Person" shall have the meaning set forth in
Article Sixth paragraph (b)(5)(e) hereof.
"Conversion Rate" shall mean the Conversion Rate per share
of Common Stock for which the Non-Voting Stock is convertible, as such
Conversion Rate may be adjusted from time to time pursuant to Article Sixth
Section (b)(5). The initial conversion rate is one share of Common Stock for
each share of Non-Voting Stock.
"Current Market Price" of publicly traded shares of common
stock or any other class of capital stock or other security of the Corporation
or any other issuer for any day shall mean the last reported sales price,
regular way on such day, or, if no sale takes place on such day, the average of
the reported closing bid and asked prices on such day, regular way, in either
case as reported on the Nasdaq National Market ("Nasdaq") or on the principal
national securities exchange on which such security is listed or admitted for
trading or, if such security is not traded on a national securities exchange and
is not quoted on the Nasdaq National Market, the average of the closing bid and
asked prices on such day in the over-the-counter market as reported by Nasdaq
or, if bid and asked prices for such security on such day shall not have been
reported through Nasdaq, the average of the bid and asked prices on such day as
furnished by any member firm of The New York Stock Exchange Inc. ("NYSE")
regularly making a market in such security selected for such purpose by the
Chief Executive Officer or the Board of Directors.
"Fair Market Value" shall mean the average of the daily
Current Market Prices of a share of Common Stock during the five (5) consecutive
Trading Days selected by the Corporation commencing not more than 20 Trading
Days before, and ending not later than, the earlier of the day in question and
the day before the "ex date" with respect to the issuance or distribution
requiring such computation. The term "'ex date," when used with respect to any
issuance or distribution, means the first day on which the Common Stock trades
regular way, without the right to receive such issuance or distribution, on the
exchange or in the market, as the case may be, used to determine that day's
Current Market Price.
"Issue Date" shall mean the first date on which shares of a
Non-Voting Stock are issued and sold.
"Junior Stock" shall mean the Common Stock and any other
class or series of shares of capital stock of the Corporation constituting
junior stock within the meaning set forth in Article Sixth paragraph (b)(6)(c).
"Non-Electing Share" shall have the meaning set forth in
Article Sixth paragraph (b)(7)(e) hereof.
"Non-Voting Stock" shall have the meaning set forth in
Article Sixth Section 1 hereof.
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"Parity Stock" shall have the meaning set forth in Article
Sixth paragraph (b)(6)(b).
"Person" shall mean any individual, firm, partnership,
corporation or other entity, and shall include any successor (by merger or
otherwise) of such entity.
"Securities" shall have the meaning set forth in Article
Sixth paragraph (b)(5)(d)(iii) hereof.
"set apart for payment" shall be deemed to include, without
any action other than the following, the recording by the Corporation in its
accounting records of any accounting or bookkeeping entry which indicates,
pursuant to a declaration of dividends or other distribution by the Board of
Directors, the allocation of funds to be so paid on any series or class of
capital stock of the Corporation; provided, however, that if any funds for any
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class or series of Junior Stock or any class or series of stock ranking on a
parity with the Non-Voting Stock as to the payment of dividends are placed in a
separate account of the Corporation or delivered to a disbursing, paying or
other similar agent, then "set apart for payment" with respect to the Non-Voting
Stock shall mean placing such funds in a separate account or delivering such
funds to a disbursing, paying or other similar agent.
"Trading Day" shall mean any day on which the securities in
question are traded on the NYSE, or if such securities are not listed or
admitted for trading on the NYSE, on the principal national securities exchange
on which such securities are listed or admitted, or if not listed or admitted
for trading on any national securities exchange, on Nasdaq, or if such
securities are not quoted on Nasdaq, in the applicable securities market in
which the securities are traded.
"Transaction" shall have the meaning set forth in Article
Sixth paragraph (b)(5)(e) hereof.
"Transfer Agent" means State Street Bank and Trust Company,
Boston, Massachusetts, or such other agent or agents of the Corporation as may
be designated by the Board of Directors or their designee as the transfer agent
for the Non-Voting Stock.
(3) Dividends. (a) The holders of shares of the Non-Voting Stock
---------
shall be entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for that purpose, dividends payable in cash at
the rate per annum of $0.0116 per share of Non-Voting Stock, payable on May 31,
1999 and each anniversary thereof or the next Business Day thereafter if such
anniversary is not a Business Day. Such dividends shall be cumulative from the
Issue Date, whether or not there shall be funds of the Corporation legally
available for the payment of such dividends, and shall be payable when, as and
if declared by the Board of Directors, in arrears. Each such dividend shall be
payable in arrears to the holders of records of shares of the Non-Voting Stock,
as they appear on the stock records of the Corporation at the
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close of business on such record dates as shall be fixed by the Board of
Directors, which shall not be more than 45 days or less than 15 days preceding
the payment date thereof.
(b) So long as any shares of the Non-Voting Stock are
outstanding, no dividends, except as described in the immediately following
sentence, shall be declared or paid or set apart for payment on any class or
series of Parity Stock for any period unless full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Non-Voting Stock on or
prior to the dividend payment date on such class or series of Parity Stock. When
dividends are not paid in full or a sum sufficient for such payment is not set
apart, as aforesaid, all dividends declared upon shares of the Non-Voting Stock
and all dividends declared upon any other class or series of Parity Stock shall
be declared ratably in proportion to the respective amounts of dividends
accumulated and unpaid on the Non-Voting Stock and accumulated and unpaid on
such Parity Stock.
(c) So long as any shares of the Non-Voting Stock are
outstanding, no dividends (other than dividends or distributions paid in shares
of, or options, warrants or rights to subscribe for or purchase shares of,
Junior Stock) shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Stock, nor shall any Junior Stock be
redeemed, purchased or otherwise acquired (other than a redemption, purchase or
other acquisition of shares of Common Stock made for purposes of an employee
incentive or benefit plan of the Corporation or any subsidiary) for any
consideration (or any moneys to be paid to or made available for a sinking fund
for the redemption of any shares of such stock) by the Corporation, directly or
indirectly (except by conversion into or exchange for Junior Stock), unless in
each case (i) the full cumulative dividends on all outstanding shares of the
Non-Voting Stock and any other Parity Stock of the Corporation shall have been
paid or set apart for payment and (ii) sufficient funds shall have been paid or
set apart for the payment of the dividend for the current dividend with respect
to the Non-Voting Stock and the current dividend period with respect to such
Parity Stock.
(4) Liquidation Preference. (a) In the event of any liquidation,
----------------------
dissolution or winding up of the Corporation, whether voluntary or involuntary,
before any payment or distribution of the assets of the Corporation (whether
capital or surplus) shall be made to or set apart for the holders of Junior
Stock, the holders of the shares of Non-Voting Stock shall be entitled to
receive $0.194 per share plus an amount equal to all dividends (whether or not
declared) accrued and unpaid thereon to the date of final distribution to such
holder; but such holders shall not be entitled to any further payment. If, upon
any liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the holders of the shares
of Non-Voting Stock shall be insufficient to pay in full the preferential amount
aforesaid and liquidating payments on any other shares of any class or series of
Parity Stock, then such assets, or the proceeds thereof, shall be distributed
among the holders of any shares of Non-Voting Stock and any such other Parity
Stock ratably in accordance with the respective amounts that would be payable on
such shares of Non-Voting Stock and any such other
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Parity Stock if all amounts payable thereon were paid in full. For the purposes
of this Article Sixth Section 4, (i) a consolidation or merger of the
Corporation with one or more corporations, (ii) a sale or transfer of all or
substantially all of the Corporation's assets, or (iii) as statutory share
exchange shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary, of the Corporation.
(b) Subject to the rights of the holders of shares of any
series or class or classes of stock ranking on a parity with or prior to the
Non-Voting Stock upon liquidation, dissolution or winding up, upon any
liquidation, dissolution or winding up of the Corporation, after payment shall
have been made in full to the holders of the Non-Voting Stock, as provided in
this Articles Sixth Section 4, any other series or class or classes of Junior
Stock shall, subject to the respective terms and provisions, (if any) applying
thereto, be entitled to receive any and all assets remaining to be paid or
distributed, and the holders of the Non-Voting Stock shall not be entitled to
share therein.
(5) Conversion.
Holders of shares of Non-Voting Stock shall have the right to convert
all or a portion of such shares into shares of Common Stock, as follows:
(a) Subject to and upon compliance with the provisions of
this Article Sixth Section (b)(5), a holder of shares of Non-Voting Stock shall
have the right, at his or her option, at any time after May 15, 2000 to convert
such shares into the number of fully paid and non-assessable shares of Common
Stock obtained by dividing the number of such shares by the Conversion Rate (as
in effect at the time and on the date provided for in the last paragraph of
Article Sixth paragraph (b)(5)(b)) by surrendering such shares to be converted,
such surrender to be made in the manner provided in Article Sixth paragraph
(b)(5)(b). Notwithstanding the foregoing, a holder of the Non-Voting Stock may
elect to convert such shares into shares of Common Stock prior to May 15, 2000,
in the manner described below: (i) immediately prior to closing on a Qualified
Public Offering but only to the extent of shares of Common Stock issued upon
such conversion that are included by such holder in the Qualified Public
Offering; or (ii) immediately prior to a Change of Control of the Corporation.
For these purposes, a "Qualified Public Offering" means an underwritten public
offering pursuant to a registration statement filed by the Corporation under the
Securities Act which includes shares of Common Stock to be sold by one or more
holders. For these purposes, a "Change of Control" means (i) any person, other
than the Corporation, becomes the beneficial owner, directly or indirectly,
through a purchase or other acquisition transaction or series of transactions
(other than a merger or consolidation with the Corporation), of shares of
capital stock of the Corporation entitling such person to exercise in excess of
50% of the total voting power of all shares of capital stock of the Corporation
entitled to vote generally in the election of directors; (ii) there occurs any
consolidation of the Corporation with, or merger of the Corporation into, any
other person, any merger of another person into the Corporation, or any sale or
transfer of the assets of the Corporation, as an entirety or substantially as an
entirety, to another person; or (iii) a change in the Board of Directors of the
Corporation in
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which the individuals who constituted the Board of Directors of the Corporation
at the beginning of the one-year period immediately preceding such change cease
for any reason to constitute a majority of the directors then in office.
(b) In order to exercise the conversion right, the holder
of each share of Non-Voting Stock to be converted shall surrender the
certificate representing such share, duly endorsed or assigned to the
Corporation or in blank, at the office of the Transfer Agent, accompanied by
written notice to the Corporation that the holder thereof elects to convert such
Non-Voting Stock. Unless the shares issuable on conversion are to be issued in
the same name as the name in which such share of Non-Voting Stock is registered,
each share surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by the holder
or such holder's duly authorized attorney and an amount sufficient to pay any
transfer or similar tax (or evidence reasonably satisfactory to the Corporation
demonstrating that such taxes have been paid).
Holders of shares of Non-Voting Stock at the close of business on a
dividend payment record date shall be entitled to receive the dividend payable
on such shares on the corresponding dividend payment date notwithstanding the
conversion thereof following such dividend payment record date and prior to such
dividend payment date. However, shares of Non-Voting Stock surrendered for
conversion during the period between the close of business on any dividend
payment record date and the opening of business on the corresponding dividend
payment date must be accompanied by payment of an amount equal to the dividend
payable on such shares on such dividend payment date. A holder of shares of
Non-Voting Stock on a dividend payment record date who (or whose transferees)
tenders any such shares for conversion into shares of Common Stock on such
dividend payment date will receive the dividend payable by the Corporation on
such shares of Non-Voting Stock on such date, and the converting holder need not
include payment of the amount of such dividend upon surrender of shares of Non-
Voting Stock for conversion. Except as provided above, the Corporation shall
make no payment or allowance for unpaid dividends, whether or not in arrears, on
converted shares or for dividends on the shares of Common Stock issued upon such
conversion.
As promptly as practicable after the surrender of certificates for shares
of Non-Voting Stock as aforesaid, the Corporation shall issue and shall deliver
at such office to such holder, or on his or her written order, a certificate or
certificates for the number of full shares of Common Stock issuable upon the
conversion of such shares in accordance with provisions of this Article Sixth
Section (b)(5), and any fractional interest in respect of a share of Common
Stock arising upon such conversion shall be settled as provided in Article Sixth
paragraph (b)(5)(b).
Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which the certificates for shares of Non-
Voting Stock shall have been surrendered and such notice (and if applicable,
payment of an amount equal to the dividend payable on such shares) received by
or on behalf of the Corporation as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of Common Stock
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<PAGE>
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares represented thereby at such time on such date
and such conversion shall be at the Conversion Rate in effect at such time and
on such date unless the stock transfer books of the Corporation shall be closed
on that date, in which event such person or persons shall be deemed to have
become such holder or holders of record at the close of business on the next
succeeding day on which such stock transfer books are open, but such conversion
shall be at the Conversion Rate in effect on the date on which such shares shall
have been surrendered and such notice received by the Corporation.
(c) No fractional shares or scrip representing fractions of
shares of Common Stock shall be issued upon conversion of the Non-Voting Stock.
Instead of any fractional interest in a share of Common Stock that would
otherwise be deliverable upon the conversion of a share of Non-Voting Stock, the
Corporation shall pay to the holder of such share an amount in cash based upon
the Current Market Price of Common Stock on the Trading Day immediately
preceding the date of conversion. If more than one share shall be surrendered
for conversion at one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of share of Non-Voting Stocks so surrendered.
(d) The Conversion Rate shall be adjusted from time to time
as follows:
(i) If the Corporation shall after the Issue Date (A)
pay a dividend or make a distribution on its capital stock in shares of its
Common Stock, (B) subdivide its outstanding Common Stock into a greater number
of shares, (C) combine its outstanding Common Stock into a smaller number of
shares or (D) issue any shares of capital stock by reclassification of its
Common Stock, the Conversion Rate in effect at the opening of business on the
day following the date fixed for the determination of stockholders entitled to
receive such dividend or distribution or at the opening of business on the day
following the day on which such subdivision, combination or reclassification
becomes effective, as the case may be, shall be adjusted so that the holder of
any share of Non-Voting Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock that such holder would
have owned or have been entitled to receive after the happening of any of the
events described above had such have been converted immediately prior to the
record date in the case of a dividend or distribution or the effective date in
the case of a subdivision, combination or reclassification. An adjustment made
pursuant to this subparagraph (i) shall become effective immediately after the
opening of business on the day next following the record date (except as
provided in paragraph (h) below) in the case of a dividend or distribution and
shall become effective immediately after the opening of business on the day next
following the effective date in the case of a subdivision, combination or
reclassification.
(ii) If the Corporation shall issue after the date of
issuance of the Non-Voting Stock, rights, options or warrants to all holders of
Common Stock entitling
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them (for a period expiring within 45 days after the record date mentioned
below) to subscribe for or purchase Common Stock at a price per share less than
the Fair Market Value per share of Common Stock on the record date for the
determination of stockholders entitled to receive such rights or warrants, then
the Conversion Rate in effect at the opening of business on the day next
following such record date shall be adjusted to equal the rate determined by
multiplying (I) the Conversion Rate in effect immediately prior to the opening
of business on the day following the date fixed for such determination by (II) a
fraction, the numerator of which shall be the sum of (A) the number of shares of
Common Stock outstanding on the close of business on the date fixed for such
determination and (B) the number of shares that the aggregate proceeds to the
Corporation from the exercise of such rights or warrants for Common Stock would
purchase at such Fair Market Value, and the denominator of which shall be the
sum of (A) the number of shares of Common Stock outstanding on the close of
business on the date fixed for such determination and (B) the number of
additional shares of Common Stock offered for subscription or purchase pursuant
to such rights or warrants. Such adjustment shall become effective immediately
after the opening of business on the day next following such record date (except
as provided in paragraph (h) below). In determining whether any rights or
warrants entitle the holders of Common Stock to subscribe for or purchase shares
of Common Stock at less than such Fair Market Value, there shall be taken into
account any consideration received by the Corporation upon issuance and upon
exercise of such rights or warrants, the value of such consideration, if other
than cash, to be determined by the Chief Executive Officer or the Board of
Directors.
(iii) If the Corporation shall distribute to all
holders of its Common Stock any shares of capital stock of the Corporation
(other than Common Stock) or evidence of its indebtedness or assets (excluding
cash dividends or distributions paid out of the total equity applicable to
Common Stock, including reevaluation equity, less the amount of stated capital
attributable to Common Stock, determined on the basis of most recent annual
consolidated cost basis and current value basis and quarterly consolidated
balance sheets of the Corporation and its consolidated subsidiaries available at
the time of the declaration of the dividend or distribution) or rights or
warrants to subscribe for or purchase any of its securities (excluding those
rights and warrants issued to all holders of Common Stock entitling them for a
period expiring within 45 days after the record date referred to in subparagraph
(ii) above to subscribe for or purchase Common Stock, which rights and warrants
are referred to in and treated under subparagraph (ii) above) (any of the
foregoing being hereinafter in this subparagraph (iii) called the "Securities"),
then in each case the Conversion Rate shall be adjusted so that it shall equal
the rate determined by multiplying (I) the Conversion Rate in effect immediately
prior to the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution by (II) a fraction, the
numerator of which shall be the Fair Market Value per share of the Common Stock
on the record date mentioned below less the then fair market value (as
determined by the Chief Executive Officer or the Board of Directors, whose
determination shall be conclusive), of the portion of the capital stock or
assets or evidences of indebtedness so distributed or of such rights or warrants
applicable to one share of Common Stock, and the denominator of which shall be
the Fair Market Value per share of the Common Stock on the record date mentioned
below. Such adjustment shall become effective immediately at the opening of
business on the Business Day
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next following (except as provided in paragraph (h) below) the record date for
the determination of shareholders entitled to receive such distribution. For the
purposes of this clause (iii), the distribution of a Security, which is
distributed not only to the holders of the Common Stock on the date fixed for
the determination of stockholders entitled to such distribution of such
Security, but also is distributed with each share of Common Stock delivered to a
Person converting a share of Non-Voting Stock after such determination date,
shall not require an adjustment of the Conversion Rate pursuant to this clause
(iii); provided that on the date, if any, on which a person converting a share
--------
of Non-Voting Stock would no longer be entitled to receive such Security with a
share of Common Stock (other than as a result of the termination of all such
Securities), a distribution of such Securities shall be deemed to have occurred
and the Conversion Rate shall be adjusted as provided in this clause (iii) (and
such day shall be deemed to be "the date fixed for the determination of the
stockholders entitled to receive such distribution" and "the record date" within
the meaning of the two preceding sentences).
(iv) No adjustment in the Conversion Rate shall be
required unless such adjustment would require a cumulative increase or decrease
of at least 1% in such price; provided, however, that any adjustments that by
-------- -------
reason of this subparagraph (iv) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment until made; and
provided, further, that any adjustment shall be required and made in accordance
- -------- -------
with the provisions of this Article Sixth Section 5 (other than this
subparagraph (iv)) not later than such time as may be required in order to
preserve the tax-free nature of a distribution to the holders of shares of
Common Stock. Notwithstanding any other provisions of this Article Sixth Section
(b)(5), the Corporation shall not be required to make any adjustment of the
Conversion Rate for the issuance of any shares of Common Stock pursuant to any
plan providing for the reinvestment of dividends or interest payable on
securities of the Corporation and the investment of additional optional amounts
in shares of Common Stock under such plan. All calculations under this Article
Sixth Section (b)(5) shall be made to the nearest cent (with $.005 being rounded
upward) or to the nearest one-tenth of a share (with .05 of a share being
rounded upward), as the case may be. Anything in this paragraph (d) to the
contrary notwithstanding, the Corporation shall be entitled, to the extent
permitted by law, to make such reductions in the Conversion Rate, in addition to
those required by this paragraph (d), as it in its discretion shall determine to
be advisable in order that any stock dividends, subdivision of shares,
reclassification or combination of shares, distribution of rights or warrants to
purchase stock or securities, or a distribution of other assets (other than cash
dividends) hereafter made by the Corporation to its stockholders shall not be
taxable.
(e) If the Corporation shall be a party to any transaction
(including without limitation a merger, consolidation, statutory share exchange,
self tender offer for all or substantially all shares of Common Stock, sale of
all or substantially all of the Corporation's assets or recapitalization of the
Common Stock and excluding any transaction as to which subparagraph (d)(i) of
this Article Sixth Section 5 applies) (each of the foregoing being referred to
herein as a "Transaction"), in each case as a result of which shares of Common
Stock shall be converted into the right to receive stock, securities or other
property (including cash or
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any combination thereof) each share of Non-Voting Stock which is not converted
into the right to receive stock, securities or other property in connection with
such Transaction shall thereafter be convertible into the kind and amount of
shares of stock, securities and other property (including cash or any
combination thereof) receivable upon the consummation of such Transaction by a
holder of that number of shares of Common Stock into which one share of Non-
Voting Stock was convertible immediately prior to such Transaction, assuming
such holder of Common Stock (i) is not a Person with which the Corporation
consolidated or into which the Corporation merged or which merged into the
Corporation or to which such sale or transfer was made, as the case may be
("Constituent Person"), or an affiliate of a Constituent Person and (ii) failed
to exercise his rights of the election, if any, as to the kind or amount of
stock, securities and other property (including cash) receivable upon such
Transaction (provided that if the kind or amount of stock, securities and other
property (including cash) receivable upon such Transaction is not the same for
each share of Common Stock of the Corporation held immediately prior to such
Transaction by other than a Constituent Person or an affiliate thereof and in
respect of which such rights of election shall not have been exercised ("Non-
Electing Share"), then for the purpose of this paragraph (e) the kind and amount
of stock, securities and other property (including cash) receivable upon such
Transaction by each Non-Electing Share shall be deemed to be the kind and amount
so receivable per share by a plurality of the non-electing shares). The
Corporation shall not be a party to any Transaction unless the terms of such
Transaction are consistent with the provisions of this paragraph (e), and it
shall not consent or agree to the occurrence of any Transaction until the
Corporation has entered into an agreement with the successor or purchasing
entity, as the case may be, for the benefit of the holders of the Non-Voting
Stock that will contain provisions enabling the holders of the Non-Voting Stock
that remains outstanding after such Transaction to convert into the
consideration received by holders of Common Stock at the Conversion Rate in
effect immediately prior to such Transaction. The provisions of this paragraph
(e) shall similarly apply to successive Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any
other distribution) on the Common Stock (other than in cash out of the total
equity applicable to Common Stock, including revaluation equity, less the amount
of stated capital attributable to Common Stock, determined on the basis of the
most recent annual consolidated cost basis and current value basis and quarterly
consolidated balance sheets of the Corporation and its consolidated subsidiaries
available at the time of the declaration of the dividend or distribution); or
(ii) the Corporation shall authorize the granting to
the holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of any class or any other rights or warrants; or
(iii) there shall be any reclassification of the
Common Stock (other than an event to which Article Sixth subparagraph
(b)(5)(d)(i) applies) or any consolidation or merger to which the Corporation is
a party and for which approval of any
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stockholders of the Corporation is required, or a statutory share exchange
involving the conversion or exchange of Common Stock into securities or other
property, or a self tender offer by the Company for all or substantially all of
its outstanding shares of Common Stock or the sale or transfer of all or
substantially all of the assets of the Corporation as an entirety and for which
approval of any stockholders of the Corporation is required; or
(iv) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation,
then the Corporation shall cause to be filed with the Transfer Agent and
shall cause to be mailed to the holders of shares of the Non-Voting Stock at
their addresses as shown on the stock records of the Corporation, as promptly as
possible, but at least 15 days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution or rights or warrants, or, if a
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution or rights or warrants are
to be determined or (B) the date on which such reclassification, consolidation,
merger, statutory share exchange, sale, transfer, liquidation, dissolution or
winding up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, statutory share
exchange, sale, transfer, liquidation, dissolution or winding up. Failure to
give or receive such notice or any defect therein shall not affect the legality
or validity of the proceedings described in this Article Sixth paragraph (b)(5).
(g) Whenever the Conversion Rate is adjusted as herein
provided, the Corporation shall promptly file with the Transfer Agent an
officer's certificate setting forth the Conversion Rate after such adjustment
and setting forth a brief statement of the facts requiring such adjustment,
which certificate shall be conclusive evidence of the correctness of such
adjustment absent manifest error. Promptly after delivery of such certificate,
the Corporation shall prepare a notice of such adjustment of the Conversion Rate
setting forth the adjusted Conversion Rate and the effective date of such
adjustment becomes effective and shall mail such notice of such adjustment of
the Conversion Rate to the holder of each share of Non-Voting Stock at such
holder's last address as shown on the stock records of the Corporation.
(h) In any case in which Article Sixth paragraph (b)(5)(d)
provides that an adjustment shall become effective on the day next following the
record date for an event, the Corporation may defer until the occurrence of such
event (A) issuing to the holder of any share of Non-Voting Stock converted after
such record date and before the occurrence of such event the additional shares
of Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon such
conversion before giving effect to such adjustment and (B) paying to such holder
any amount of cash in lieu of any fraction pursuant to Article Sixth paragraph
(b)(5)(c).
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(i) There shall be no adjustment of the Conversion Rate in
case of the issuance of any stock of the Corporation in a reorganization,
acquisition, or other similar transaction except as specifically set forth in
this Article Sixth Section (b)(5). If any action or transaction would require
adjustment of the Conversion Rate pursuant to more than one paragraph of this
Section (b)(5), only one adjustment shall be made, and such adjustment shall be
the amount of adjustment that has the highest absolute value.
(j) If the Corporation shall take any action affecting the
Common Stock, other than action described in this Article Sixth Section (b)(5),
that in the opinion of the Board of Directors would materially adversely affect
the conversion rights of the holders of the shares of Non-Voting Stock, the
Conversion Rate for the Non-Voting Stock may be adjusted, to the extent
permitted by law, in such manner, if any, and at such time, as the Board of
Directors, in its sole discretion, may determine to be equitable in the
circumstances.
(k) The Corporation covenants that it will at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued shares of Common Stock, for the purpose of effecting
conversion of the Non-Voting Stock, the full number of shares of Common Stock
deliverable upon the conversion of all outstanding shares of Non-Voting Stock
not theretofore converted. For purposes of this paragraph (k), the number of
shares of Common Stock that shall be deliverable upon the conversion of all
outstanding shares of Non-Voting Stock shall be computed as if at the time of
computation all such outstanding shares were held by a single holder. The
Corporation covenants that any shares of Common Stock issued upon conversion of
the Non-Voting Stock shall be validly issued, fully paid and non-assessable.
The Corporation shall endeavor to list the shares of Common Stock required
to be delivered upon conversion of the Non-Voting Stock, prior to such delivery,
upon each national securities exchange, if any, upon which the outstanding
Common Stock is listed at the time of such delivery.
Prior to the delivery of any securities that the Corporation shall be
obligated to deliver upon conversion of the Non-Voting Stock, the Corporation
shall endeavor to comply with all federal and state laws and regulations
thereunder requiring the registration of such securities with, or any approval
of or consent to the delivery thereof, by any governmental authority.
(1) The Corporation will pay any and all documentary stamp
or similar issue or transfer taxes payable in respect of the issue or delivery
of shares of Common Stock or other securities or property on conversion of the
Non-Voting Stock pursuant hereto; provided, however, that the Corporation shall
-------- -------
not be required to pay any tax that may be payable in respect of any transfer
involved in the issue or delivery of shares of Common Stock or other securities
or property in a name other than that of the holder of the Non-Voting Stock to
be converted, and no such issue or delivery shall be made unless and until the
person requesting such issue or delivery has paid to the Corporation the amount
of any such tax or established, to the reasonable satisfaction of the
Corporation, that such tax has been paid.
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(6) Ranking. Any class or series of stock of the Corporation
-------
shall be deemed to rank:
(a) prior to the Non-Voting Stock, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in preference or priority to the holders of
Non-Voting Stock;
(b) on a parity with the Non-Voting Stock, as to the
payment of dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend payment
dates or redemption or liquidation prices per share thereof be different from
those of the Non-Voting Stock, if the holders of such class of stock or series
and the Non-Voting Stock shall be entitled to the receipt of dividends and of
amounts distributable upon liquidation, dissolution or winding up in proportion
to their respective amounts of accrued and unpaid dividends per share or
liquidation preferences, without preference or priority one over the other
("Parity Stock"); and
(c) junior to the Non-Voting Stock, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution or
winding up, if such stock or series shall be Common Stock or if the holders of
Non-Voting Stock shall be entitled to receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up, as the case may be,
in preference or priority to the holders of shares of such stock or series.
(7) Voting Rights The holders of Non-Voting Stock shall not have any
-------------
voting rights on any matters other than as required by law; provided however
that so long as any shares of Non-Voting Stock are outstanding, the affirmative
vote of at least a majority of the shares of Non-Voting Stock shall be necessary
for effecting or validating any amendment of any of the provisions of these
Articles Supplementary or the Charter of the Corporation that materially
adversely affects the rights or preferences of the holders of the Non-Voting
Stock. An amendment to the Charter which authorizes, creates or increases the
authorized amount of any class of capital stock shall not be deemed to
materially adversely affect the rights or preferences of the holders of the Non-
Voting Stock.
The following is a description of the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of the Common Stock of the Corporation:
(1) Voting. The holder of each outstanding share of Common
------
Stock be entitled to one vote per share on all matters upon which the
stockholders of the Corporation are entitled to vote.
(2) Dividends, etc. Subject to the provisions of law,
---------------
the preferences of the Non-Voting Preferred Stock and any preferences of any
class or series of stock
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<PAGE>
hereafter classified or reclassified, dividends, including dividends payable in
shares of another class or series of the Corporation's stock, may be paid on the
Common Stock of the Corporation at such time and in such amounts as the Board of
Directors may deem advisable; provided, however, that the Corporation shall not
subdivide or combine the outstanding Common Stock into a smaller or greater
number of shares of Common Stock or declare or pay any dividend, however
payable, on one class of Common Stock without simultaneously taking the
identical action on the other class of Common Stock.
(3) Liquidation. In the event of any liquidation,
-----------
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of the Common Stock shall be entitled, after payment or provision
for payment of the debts and other liabilities of the Corporation and the amount
to which the holders of the Non-Voting Stock and the holders of any class of
stock hereafter classified or reclassified having a preference on distributions
in the liquidation, dissolution or winding up of the Corporation shall be
entitled, together with the holders of any other class of stock hereafter
classified or reclassified not having a preference on distributions in the
liquidation, dissolution or winding up of the Corporation, to share ratably in
the remaining net assets of the Corporation. If no Non-Voting Stock is
outstanding, a consolidation, merger or reorganization of the Corporation with
any other corporation or corporations, or a sale of all or substantially all of
the assets of the Corporation shall not be considered a Liquidating Event of the
Corporation within the meaning of these provisions.
(d) Subject to the foregoing, the power of the Board of
Directors to classify and reclassify any of the shares of capital stock shall
include, without limitation, subject to the provisions of the charter, authority
to classify or reclassify any unissued shares of such stock into a class or
classes of preferred stock, preference stock, special stock or other stock, and
to divide and classify shares of any class into one or more series of such
class, by determining, fixing, or altering one or more of the following:
(1) The distinctive designation of such class or
series and the number of shares to constitute such class or series; provided
that, unless otherwise prohibited by the terms of such or any other class or
series, the number of shares of any class or series may be decreased by the
Board of Directors in connection with any classification or reclassification of
unissued shares and the number of shares of such class or series may be
increased by the Board of Directors in connection with any such classification
or reclassification, and any shares of any class or series which have been
redeemed, purchased, otherwise acquired or converted into shares of Common Stock
or any other class or series shall become part of the authorized capital stock
and be subject to classification and reclassification as provided in this sub-
paragraph.
(2) Whether or not and, if so, the rates, amounts and
times at which, and the conditions under which, dividends shall be payable on
shares of such class or series, whether any such dividends shall rank senior or
junior to or on a parity with the dividends payable on any other class or series
of stock, and the status of any such dividends as cumulative, cumulative to a
limited extent or non-cumulative and as participating or non-participating.
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<PAGE>
(3) Whether or not shares of such class or series
shall have voting rights, in addition to any voting rights provided by law and,
if so, the terms of such voting rights.
(4) Whether or not shares of such class or series
shall have conversion or exchange privileges and, if so, the terms and
conditions thereof, including provision for adjustment of the conversion or
exchange rate in such events or at such times as the Board of Directors shall
determine.
(5) Whether or not shares of such class or series
shall be subject to redemption and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which they shall be
redeemable and the amount per share payable in case of redemption, which amount
may vary under different conditions and at different redemption dates; and
whether or not there shall be any sinking fund or purchase account in respect
thereof, and if so, the terms thereof.
(6) The rights of the holders of shares of such class
or series upon the liquidation, dissolution or winding up of the affairs of, or
upon any distribution of the assets of, the Corporation, which rights may vary
depending upon whether such liquidation, dissolution or winding up is voluntary
or involuntary and, if voluntary, may vary at different dates, and whether such
rights shall rank senior or junior to or on a parity with such rights of any
other class or series of stock.
(7) Whether or not there shall be any limitations
applicable, while shares of such class or series are outstanding, upon the
payment of dividends or making of distributions on, or the acquisition of, or
the use of moneys for purchase or redemption of, any stock of the Corporation,
or upon any other action of the Corporation, including action under this sub-
paragraph, and, if so, the terms and conditions thereof.
(8) Any other preferences, rights, restrictions,
including restrictions on transferability, and qualifications of shares of such
class or series, not inconsistent with law and the charter of the Corporation.
(e) For the purposes hereof and of any articles
supplementary to the charter providing for the classification or
reclassification of any shares of capital stock or of any other charter document
of the Corporation (unless otherwise provided in any such articles or document),
any class or series of stock of the Corporation shall be deemed to rank:
(1) prior to another class or series either as to
dividends or upon liquidation, if the holders of such class or series shall be
entitled to the receipt of dividends or of amounts distributable on liquidation,
dissolution or winding up, as the case may be, in preference or priority to
holders of such other class or series;
(2) on a parity with another class or series either as
to dividends or upon liquidation, whether or not the dividend rates, dividend
payment dates or redemption or
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<PAGE>
liquidation price per share thereof be different from those of such others, if
the holders of such class or series of stock shall be entitled to receipt of
dividends or amounts distributable upon liquidation, dissolution or winding up,
as the case may be, in proportion to their respective dividend rates or
redemption or liquidation prices, without preference or priority over the
holders of such other class or series; and
(3) junior to another class or series either as to
dividends or upon liquidation, if the rights of the holders of such class or
series shall be subject or subordinate to the rights of the holders of such
other class or series in respect of the receipt of dividends or the amounts
distributable upon liquidation, dissolution or winding up, as the case may be.
SEVENTH: (a) The current number of directors of the Corporation is five
(5), which number may be increased or decreased pursuant to the By-Laws of the
Corporation, but shall never be less than the minimum number permitted by the
General Laws of the State of Maryland now or hereafter in force.
(b) Subject to the rights of the holders of any class of
Preferred Stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies on the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office, or other cause shall be filled by the required vote of the
stockholders or the directors then in office. A director so chosen by the
stockholders shall hold office for the balance of the term then remaining. A
director so chosen by the remaining directors shall hold office until the next
annual meeting of stockholders, at which time the stockholders shall elect a
director to hold office for the balance of the term then remaining. No decrease
in the number of directors constituting the Board of Directors shall affect the
tenure of office of any director.
(c) Whenever the holders of any one or more series of
Preferred Stock of the Corporation shall have the right, voting separately as a
class, to elect one or more directors of the Corporation, the Board of Directors
shall consist of said directors so elected in addition to the number of
directors fixed as provided above in paragraph (a) of this Article SEVENTH or in
the By-Laws. Notwithstanding the foregoing, and except as otherwise may be
required by law, whenever the holders of any one or more series of Preferred
Stock of the Corporation shall have the right, voting separately as a class, to
elect one or more directors of the Corporation, the terms of the director or
directors elected by such holders shall expire at the next succeeding annual
meeting of stockholders.
(d) Subject to the rights of the holders of any class
separately entitled to elect one or more directors, any director, or the entire
Board of Directors, may be removed from office at any time, but only for cause
and then only by the affirmative vote of the holders of at least 80% of the
combined voting power of all classes of shares of capital stock entitled to vote
in the election for directors voting together as a single class.
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<PAGE>
(e) The board of directors shall be divided into three
classes. The names of the current directors and their classes are as follows:
Director Class
-------- -----
Janeen M. Armstrong I
John P. Hill II
R. Christopher Hoehn-Saric II
Douglas L. Becker III
Susan Mayer III
(f) (1) The term of office of Class I shall be until the
1999 annual meeting of stockholders and until their successors shall be elected
and have qualified and thereafter shall be for three years and until their
successors shall be elected and have qualified; (2) the term of office of Class
II shall be until the 2000 annual meeting of stockholders and until their
successors shall be elected and have qualified and thereafter shall be for three
years and until their successors shall be elected and have qualified; and (3)
the term of office of Class III shall be until the 2001 annual meeting of
stockholders and until their successors shall be elected and have qualified and
thereafter shall be for three years and until their successors shall be elected
and have qualified.
EIGHTH: (a) The following provisions are hereby adopted for the purpose
of defining, limiting, and regulating the powers of the Corporation and of the
directors and stockholders:
(1) The Board of Directors is hereby empowered to authorize
the issuance from time to time of shares of its stock of any class, whether now
or hereafter authorized, or securities convertible into shares of its stock of
any class or classes, whether now or hereafter authorized, for such
consideration as may be deemed advisable by the Board of Directors and without
any action by the stockholders.
(2) No holder of any stock or any other securities of the
Corporation, whether now or hereafter authorized, shall have any preemptive
right to subscribe for or purchase any stock or any other securities of the
Corporation other than such, if any, as the Board of Directors, in its sole
discretion, may determine and at such price or prices and upon such other terms
as the Board of Directors, in its sole discretion, may fix; and any stock or
other securities which the Board of Directors may determine to offer for
subscription may, as the Board of Directors in its sole discretion shall
determine, be offered to the holders of any class, series or type of stock or
other securities at the time outstanding to the exclusion of the holders of any
or all other classes, series or types of stock or other securities at the time
outstanding.
(3) The Board of Directors of the Corporation shall,
consistent with applicable law, have power in its sole discretion:
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<PAGE>
(A) to determine from time to time in accordance with sound
accounting practice or other reasonable valuation methods what constitutes
annual or other net profits, earnings, surplus, or net assets in excess of
capital;
(B) to fix and vary from time to time the amount to be
reserved as working capital, or determine that retained earnings or surplus
shall remain in the hands of the Corporation;
(C) to set apart out of any funds of the Corporation such
reserve or reserves in such amount or amounts and for such proper purpose or
purposes as it shall determine and to abolish any such reserve or any part
thereof;
(D) to distribute and pay distributions or dividends in
stock, cash or other securities or property, out of surplus or any other funds
or amounts legally available therefor, at such times and to the stockholders of
record on such dates as it may, from time to time, determine; and
(E) to determine whether and to what extent and at what
times and places and under what conditions and regulations the books, accounts
and documents of the Corporation, or any of them, shall be open to the
inspection of stockholders, except as otherwise provided by statute or by the
By-Laws, and, except as so provided, no stockholder shall have any right to
inspect any book, account or document of the Corporation unless authorized so to
do by resolution of the Board of Directors.
(4) Notwithstanding any provision of law requiring the
authorization of any action by a greater proportion than a majority of the total
number of shares of all classes of capital stock or of the total number of
shares of any class of capital stock, such action shall be valid and effective
if authorized by the affirmative vote of the holders of a majority of the total
number of shares of all classes outstanding and entitled to vote thereon, except
as otherwise provided in the charter.
(5) The Corporation shall indemnify (A) its directors and
officers, whether serving the Corporation or at its request any other entity, to
the full extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of expenses under the
procedures and to the full extent permitted by law and (B) other employees and
agents to such extent as shall be authorized by the Board of Directors or the
Corporation's By-Laws and be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such by-laws,
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. No amendment of the
charter of the Corporation or repeal of any of its provisions shall limit or
eliminate the right to indemnification provided hereunder with respect to acts
or omissions occurring prior to such amendment or repeal.
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<PAGE>
(6) To the fullest extent permitted by Maryland statutory
or decisional law, as amended or interpreted, no director or officer of this
Corporation shall be personally liable to the Corporation or its stockholders
for money damages. No amendment of the charter of the Corporation or repeal of
any of its provisions shall limit or eliminate the limitation on liability
provided to directors and officers hereunder with respect to any act or omission
occurring prior to such amendment or repeal.
(7) The Corporation reserves the right from time to time to
make any amendments of its charter which may now or hereafter be authorized by
law, including any amendments changing the terms or contract rights, as
expressly set forth in its charter, of any of its outstanding stock by
classification, reclassification or otherwise.
(b) The enumeration and definition of particular powers of
the Board of Directors included in the foregoing shall in no way be limited or
restricted by reference to or inference from the terms of any other clause of
this or any other Article of the charter of the Corporation, or construed as or
deemed by inference or otherwise in any manner to exclude or limit any powers
conferred upon the Board of Directors under the General Laws of the State of
Maryland now or hereafter in force.
NINTH: The duration of the Corporation shall be perpetual.
THIRD: The amendment does not increase the authorized stock of the
Corporation.
FOURTH: The foregoing amendment and restatement of the Charter of the
Corporation has been advised by the Board of Directors and adopted by the
stockholders of the Corporation.
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<PAGE>
IN WITNESS WHEREOF, Caliber Learning Network, Inc. has caused these
presents to be signed in its name and on behalf of its President and witnessed
by its Assistant Secretary on May __, 1998.
WITNESS: CALIBER LEARNING NETWORK, INC.
By:
- ------------------------------ ---------------------------------
B. Lee McGee, Assistant Secretary Chris L. Nguyen, President
THE UNDERSIGNED, President of Caliber Learning Network, Inc., who executed
on behalf of the Corporation the foregoing Articles of Amendment and Restatement
of which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles of Amendment and Restatement
to be the corporate act of said Corporation and hereby certifies that to the
best of his knowledge, information and belief the matters and facts set forth
therein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
------------------------
President
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<PAGE>
Exhibit 3.02
CALIBER LEARNING NETWORK, INC.
BY-LAWS
ARTICLE I.
STOCKHOLDERS
SECTION 1.01. Annual Meeting. The Corporation shall hold an annual
meeting of its stockholders to elect directors and transact any other business
within its powers, either at 9:00 a.m. on the fifteenth of March in each year if
not a legal holiday, or at such other time on such other day falling on or
before the 30th day thereafter as shall be set by the Board of Directors.
Except as the Charter or statute provides otherwise, any business may be
considered at an annual meeting without the purpose of the meeting having been
specified in the notice. Failure to hold an annual meeting does not invalidate
the Corporation's existence or affect any otherwise valid corporate acts.
SECTION 1.02. Special Meeting. At any time in the interval between
annual meetings, a special meeting of the stockholders may be called by the
President or by the Board of Directors or on the written request (addressed to
the Secretary of the Corporation) of stockholders entitled to cast at least 25
percent of all the votes entitled to be cast at the meeting.
SECTION 1.03. Place of Meetings. Meetings of stockholders shall be held
at such place in the United States as is set from time to time by the Board of
Directors.
SECTION 1.04. Notice of Meetings; Waiver of Notice. Not less than ten
nor more than 90 days before each stockholders' meeting, the Secretary shall
give written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The
notice shall state the time and place of the meeting and, if the meeting is a
special meeting or notice of the purpose is required by statute, the purpose of
the meeting. Notice is given to a stockholder when it is personally delivered
to him, left at his residence or usual place of business, or mailed to him at
his address as it appears on the records of the Corporation. Notwithstanding
the foregoing provisions, each person who is entitled to notice waives notice if
he before or after the meeting signs a waiver of the notice which is filed with
the records of stockholders' meetings, or is present at the meeting in person or
by proxy.
SECTION 1.05. Quorum; Voting. Unless statute or the Charter provides
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting constitutes a quorum, and a majority of all the votes cast at a
meeting at which a quorum is present is sufficient to approve any matter which
properly comes before the meeting, except that a plurality of all the votes cast
at a meeting at which a quorum is present is sufficient to elect a director.
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<PAGE>
SECTION 1.06. Adjournments. Whether or not a quorum is present, a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time without further notice by a majority vote of the
stockholders present in person or by proxy to a date not more than 120 days
after the original record date. Any business which might have been transacted at
the meeting as originally notified may be deferred and transacted at any such
adjourned meeting at which a quorum shall be present.
SECTION 1.07. General Right to Vote; Proxies. Unless the Charter
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class, is entitled
to one vote on each matter submitted to a vote at a meeting of stockholders. In
all elections for directors, each share of stock may be voted for as many
individuals as there are directors to be elected and for whose election the
share is entitled to be voted. A stockholder may vote the stock he owns of
record either in person or by written proxy signed by the stockholder or by his
duly authorized attorney in fact. Unless a proxy provides otherwise, it is not
valid more than 11 months after its date.
SECTION 1.08. Conduct and Business of Voting. At all meetings of
stockholders the proxies and ballots shall be received, and all questions
touching the qualification of voters and the validity of proxies, the acceptance
or rejection of votes and procedures for the conduct of business not otherwise
specified by these By-Laws, the Charter or law, shall be decided or determined
by the chairman of the meeting.
SECTION 1.09. Informal Action by Stockholders. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders meetings an unanimous
written consent which sets forth the action and is signed by each stockholder
entitled to vote on the matter and a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote at it.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.01. Function of Directors. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the Charter or By-Laws.
SECTION 2.02. Number of Directors. The Corporation shall have at least
three directors at all times. The Corporation shall have the number of
directors provided in the Charter until changed as herein provided. A majority
of the entire Board of Directors may alter the number of directors set by the
Charter to not exceeding 25 nor less than three directors, but the action may
not affect the tenure of office of any director, except as provided in Section
2.04.
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<PAGE>
SECTION 2.03. Election and Tenure of Directors. At each annual meeting,
the stockholders shall elect directors to hold office until the next annual
meeting and until their successors are elected and qualify.
SECTION 2.04. Removal of Director. Unless statute or the Charter
provides otherwise, the stockholders may remove any director, with or without
cause, by the affirmative vote of a majority of all the votes entitled to be
cast for the election of directors.
SECTION 2.05. Vacancy on Board. The stockholders may elect a successor
to fill a vacancy on the Board of Directors.
SECTION 2.06. Regular Meetings. Any regular meeting of the Board of
Directors shall be held on such date and at any place as may be designated from
time to time by the Board of Directors.
SECTION 2.07. Special Meetings. Special meetings of the Board of
Directors may be called at any time by the President or in writing with or
without a meeting. A special meeting of the Board of Directors shall be held on
such date and at any place as may be designated from time to time by the Board
of Directors. In the absence of designation such meeting shall be held at such
place as may be designated in the call.
SECTION 2.08. Notice of Meeting. The Secretary shall give notice to
each director of each regular and special meeting of the Board of Directors.
The notice shall state the time and place of the meeting. Notice is given to a
director when it is delivered personally to him, left at his residence or usual
place of business, or sent by telegraph, facsimile transmission or telephone, at
least 24 hours before the time of the meeting or, in the alternative by mail to
his address as it shall appear on the records of the Corporation, at least 72
hours before the time of the meeting. Unless the By-Laws or a resolution of the
Board of Directors provides otherwise, the notice need not state the business to
be transacted at or the purposes of any regular or special meeting of the Board
of Directors. No notice of any meeting of the Board of Directors need be given
to any director who attends, or to any director who, in writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Any meeting of the Board of Directors, regular or
special, may adjourn from time to time to reconvene at the same or some other
place, and no notice need be given of any such adjourned meeting other than by
announcement.
SECTION 2.09. Action by Directors. Unless statute or the Charter or By-
Laws requires a greater proportion, the action of a majority of the directors
present at a meeting at which a quorum is present is action of the Board of
Directors. A majority of the entire Board of Directors shall constitute a
quorum for the transaction of business. In the absence of a quorum, the
directors present by majority vote and without notice other than by announcement
may adjourn the meeting from time to time until a quorum shall attend. At any
such adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified. Any action required or permitted to be
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<PAGE>
taken at a meeting of the Board of Directors may be taken without a meeting, if
an unanimous written consent which sets forth the action is signed by each
member of the Board and filed with the minutes of proceedings of the Board.
SECTION 2.10. Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting.
SECTION 2.11. Compensation. By resolution of the Board of Directors a
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors, and other compensation for their services as
such, may be paid to directors. Directors who are full-time employees of the
Corporation need not be paid for attendance at meetings of the board for which
fees are paid to other directors. A director who serves the Corporation in any
other capacity also may receive compensation for such other services, pursuant
to a resolution of the directors.
ARTICLE III.
OFFICERS
SECTION 3.01. Executive Officers. The Corporation shall have a
President, a Secretary and a Treasurer. It may also have one or more Vice-
Presidents, one or more Assistant Vice-Presidents, one or more Assistant
Secretaries and one or more Assistant Treasurers. A person may hold more than
one office in the Corporation but may not serve concurrently as both President
and Vice-President of the Corporation.
SECTION 3.02. President. The President shall preside at all meetings of
the stockholders and of the Board of Directors at which he shall be present; he
shall have general charge and supervision of the assets and affairs of the
Corporation; he may sign and execute, in the name of the Corporation, all
authorized deeds, mortgages, bonds, contracts or other instruments, except in
cases in which the signing and execution thereof shall have been expressly
delegated to some other officer or agent of the Corporation; and, in general, he
shall perform all duties incident to the office of a president of a corporation,
and such other duties as are from time to time assigned to him by the Board of
Directors.
SECTION 3.03. Vice-Presidents. The Vice-President or Vice-Presidents,
at the request of the President or in his absence or during his inability to
act, shall perform the duties and exercise the functions of the President, and
when so acting shall have the powers of the President. If there be more than
one Vice-President, the Board of Directors may determine which one or more of
the Vice-Presidents shall perform any of such duties or exercise any of such
functions, or if such determination is not made by the Board of Directors, the
President may
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make such determination; otherwise any of the Vice-Presidents may perform any of
such duties or exercise any of such functions. The Vice-President or Vice-
Presidents shall have such other powers and perform such other duties, and have
such additional descriptive designations in their titles (if any), as are from
time to time assigned to them by the Board of Directors or the President.
SECTION 3.04. Secretary. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees,
in books provided for the purpose; he shall see that all notices are duly given
in accordance with the provisions of the By-Laws or as required by law; he shall
be custodian of the records of the Corporation; he may witness any document on
behalf of the Corporation, the execution of which is duly authorized, see that
the corporate seal is affixed where such document is required or desired to be
under its seal, and, when so affixed, may attest the same; and, in general, he
shall perform all duties incident to the office of a secretary of a corporation,
and such other duties as are from time to time assigned to him by the Board of
Directors or the President.
SECTION 3.05. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by the Board of
Directors; he shall render to the President and to the Board of Directors,
whenever requested, an account of the financial condition of the Corporation;
and, in general, he shall perform all the duties incident to the office of a
treasurer of a corporation, and such other duties as are from time to time
assigned to him by the Board of Directors or the President.
SECTION 3.06. Assistant and Subordinate Officers. The assistant and
subordinate officers of the Corporation are all officers below the office of
Vice-President, Secretary, or Treasurer. The assistant or subordinate officers
shall have such duties as are from time to time assigned to them by the Board of
Directors or the President.
SECTION 3.07. Election, Tenure and Removal of Officers. The Board of
Directors shall elect the officers. The Board of Directors may from time to
time authorize any committee or officer to appoint assistant and subordinate
officers. Election or appointment of an officer, employee or agent shall not of
itself create contract rights. All officers shall be appointed to hold their
offices, respectively, during the pleasure of the Board. The Board of Directors
(or, as to any assistant or subordinate officer, any committee or officer
authorized by the Board) may remove an officer at any time. The removal of an
officer does not prejudice any of his contract rights. The Board of Directors
(or, as to any assistant or subordinate officer, any committee or officer
authorized by the Board) may fill a vacancy which occurs in any office for the
unexpired portion of the term.
SECTION 3.08. Compensation. The Board of Directors shall have power to
fix the salaries and other compensation and remuneration, of whatever kind, of
all officers of the Corporation. No officer shall be prevented from receiving
such salary by reason of the fact that
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he is also a director of the Corporation. The Board of Directors may authorize
any committee or officer, upon whom the power of appointing assistant and
subordinate officers may have been conferred, to fix the salaries, compensation
and remuneration of such assistant and subordinate officers.
ARTICLE IV.
STOCK
SECTION 4.01. Certificates for Stock. Each stockholder is entitled to
certificates which represent and certify the shares of stock he holds in the
Corporation. Each stock certificate shall include on its face the name of the
Corporation, the name of the stockholder or other person to whom it is issued,
and the class of stock and number of shares it represents. It shall be in such
form, not inconsistent with law or with the Charter. Each stock certificate
shall be signed by the President and countersigned by the Secretary. Each
certificate may be sealed with the actual corporate seal or a facsimile of it or
in any other form and the signatures may be either manual or facsimile
signatures. A certificate is valid and may be issued whether or not an officer
who signed it is still an officer when it is issued.
SECTION 4.02. Transfers. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates of stock.
SECTION 4.03. Record Dates and Closing of Transfer Books. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted other
rights. The record date may not be prior to the close of business on the day
the record date is fixed nor, subject to Section 1.06, more than 90 days before
the date on which the action requiring the determination will be taken; the
transfer books may not be closed for a period longer than 20 days; and, in the
case of a meeting of stockholders, the record date or the closing of the
transfer books shall be at least ten days before the date of the meeting.
SECTION 4.04. Stock Ledger. The Corporation shall maintain a stock
ledger which contains the name and address of each stockholder and the number of
shares of stock of each class which the stockholder holds. The stock ledger may
be in written form or in any other form which can be converted within a
reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the principal office in the State
of Maryland or the principal executive offices of the Corporation.
SECTION 4.05. Lost Stock Certificates. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen, or destroyed.
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ARTICLE V.
FINANCE
SECTION 5.01. Checks, Drafts, Etc. All checks, drafts and orders for
the payment of money, notes and other evidences of indebtedness, issued in the
name of the Corporation, shall, unless otherwise provided by resolution of the
Board of Directors, be signed by the President, a Vice-President or an Assistant
Vice-President and countersigned by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary.
SECTION 5.02. Annual Statement of Affairs. The President or chief
accounting officer shall prepare annually a full and correct statement of the
affairs of the Corporation, to include a balance sheet and a financial statement
of operations for the preceding fiscal year. The statement of affairs shall be
submitted at the annual meeting of the stockholders and, within 20 days after
the meeting, placed on file at the Corporation's principal office.
SECTION 5.03. Fiscal Year. The fiscal year of the Corporation shall be
the twelve calendar months period ending December 31 in each year, unless
otherwise provided by the Board of Directors.
SECTION 5.04. Dividends. If declared by the Board of Directors at any
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the Charter.
ARTICLE VI.
SUNDRY PROVISIONS
SECTION 6.01. Books and Records. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors.
The books and records of a Corporation may be in written form or in any other
form which can be converted within a reasonable time into written form for
visual inspection. Minutes shall be recorded in written form but may be
maintained in the form of a reproduction. The original or a certified copy of
the By-Laws shall be kept at the principal office of the Corporation.
SECTION 6.02. Corporate Seal. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the charge
of the Secretary. The Board of Directors may authorize one or more duplicate
seals and provide for the custody thereof. If the Corporation is required to
place its corporate seal to a document, it is sufficient to meet the requirement
of any law, rule, or regulation relating to a corporate seal to place the word
"Seal" adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
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<PAGE>
SECTION 6.03. Bonds. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more sureties
and in such amount as may be satisfactory to the Board of Directors.
SECTION 6.04. Voting Upon Shares in Other Corporations. Stock of other
corporations or associations, registered in the name of the Corporation, may be
voted by the President, a Vice-President, or a proxy appointed by either of
them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.
SECTION 6.05. Mail. Any notice or other document which is required by
these By-Laws to be mailed shall be deposited in the United States mails,
postage prepaid.
SECTION 6.06. Execution of Documents. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
SECTION 6.07. Amendments. Any and all provisions of these By-Laws may
be altered or repealed and new by-laws may be adopted at any annual meeting of
the stockholders, or at any special meeting called for that purpose, and the
Board of Directors shall have the power, at any regular or special meeting
thereof, to make and adopt new by-laws, or to amend, alter or repeal any of the
By-Laws of the Corporation.
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Exhibit 5.01
PIPER & MARBURY
L.L.P.
CHARLES CENTER SOUTH
36 SOUTH CHARLES STREET
BALTIMORE, MARYLAND 21201-3018
410-539-2530
FAX: 410-539-0489 WASHINGTON
NEW YORK
PHILADELPHIA
EASTON
April 13, 1998
Caliber Learning Network, Inc.
3600 Clipper Mill Road
Suite 300
Baltimore, Maryland 21211
Re: Registration Statement on Form S-1
----------------------------------
Dear Sirs:
We have acted as counsel to Caliber Learning Network, Inc., a Maryland
corporation (the "Company"), in connection with the Company's Registration with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Act"). The Registration Statement relates to up
to 6,210,000 shares of the Company's Common Stock, par value $.01 per share, up
to 4,430,000 of which will be newly issued by the Company (the "Company
Shares") and up to 1,780,000 of which were previously issued by the Company and
are being sold for the account of the holder, thereof (the "Stockholder" and,
together with the Company Shares, the "Shares").
In this capacity, we have examined the Company's Charter and By-Laws, the
proceedings of the Board of Directors of the Company relating to the issuance of
the Company Shares and the Stockholder Shares and such other documents,
instruments and matters of law as we have deemed necessary to the rendering of
this opinion. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity with originals of all documents submitted to us as copies.
Based upon the foregoing , we are of the opinion and advise you that (i)
each of the Company Shares described in the Registration Statement has been duly
authorized and, upon sale of such Company Shares as contemplated by the
Registration Statement, will be validly issued, fully paid and nonassessable;
and (ii) each of the Stockholder Shares described in the Registration Statement
has been duly authorized and is validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving our consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Act of the Rules and Regulations of the Commission thereunder.
Very truly yours,
/s/ Piper & Marbury L.L.P.
<PAGE>
Exhibit 10.01(b)
CALIBER LEARNING NETWORK, INC.
1998 STOCK INCENTIVE PLAN
1. ESTABLISHMENT, PURPOSE AND TYPES OF AWARDS
Caliber Learning Network, Inc. hereby establishes the Caliber Learning
Network, Inc. 1998 Stock Incentive Plan (the "Plan"). The purpose of the Plan
is to promote the long-term growth and profitability of Caliber Learning
Network, Inc. (the "Corporation") by (i) providing its employees, directors and
other service providers with incentives to improve stockholder value and to
contribute to the growth and financial success of the Corporation, and (ii)
enabling the Corporation to attract, retain and reward the best-available
persons.
The Plan permits the granting of stock options (including incentive
stock options qualifying under Code section 422 and nonqualified stock options),
stock appreciation rights, restricted or unrestricted stock awards, phantom
stock, performance awards, convertible debentures or any combination of the
foregoing. The Plan is not intended to affect any stock options or other
equity-based compensation or benefits granted by the Corporation that are
outstanding on the date of adoption of this Plan.
2. DEFINITIONS
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "Affiliate" shall mean any entity, whether now or hereafter
existing, which controls, is controlled by, or is under common control with, the
Corporation (including, but not limited to, joint ventures, limited liability
companies, and partnerships). For this purpose, "control" shall mean ownership
of 50% or more of the total combined voting power or value of all classes of
stock or interests of the entity.
(b) "Award" shall mean any stock option, stock appreciation right,
stock award, phantom stock award, convertible debenture, or performance award.
(c) "Board" shall mean the Board of Directors of the Corporation.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and any regulations promulgated thereunder.
(e) "Common Stock" shall mean shares of Class A Common Stock of the
Corporation, par value of one cent ($0.01) per share.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "Fair Market Value" of a share of the Corporation's Common Stock
for any purpose on a particular date shall be determined in a manner such as the
Administrator shall in good faith determine to be appropriate; provided that in
the event the Common Stock shall become registered under Section 12 of the
Exchange Act, then thereafter the Fair Market Value of the Corporation's Common
Stock for any purpose on a particular date shall mean the last reported sale
price per share of Common Stock, regular way, on such date or, in case no such
sale takes place on such date, on the last date preceding such date on which a
sale was reported, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on a national securities exchange or included for quotation on the
Nasdaq-National Market, or if the Common Stock is not so listed or admitted to
trading or included for quotation, the last quoted price, or if the Common Stock
is not so quoted, the average of the high bid and low asked prices, regular way,
in the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated
<PAGE>
Quotation System or, if such system is no longer in use, the principal other
automated quotations system that may then be in use or, if the Common Stock is
not quoted by any such organization, the average of the closing bid and asked
prices, regular way, as furnished by a professional market maker making a market
in the Common Stock as selected in good faith by the Administrator or by such
other source or sources as shall be selected in good faith by the Administrator.
If, as the case may be, the relevant date is not a trading day, the
determination shall be made as of the next preceding trading day. As used
herein, the term "trading day" shall mean a day on which public trading of
securities occurs and is reported in the principal consolidated reporting system
referred to above, or if the Common Stock is not listed or admitted to trading
on a national securities exchange or included for quotation on the Nasdaq-
National Market, any business day.
(h) "Grant Agreement" shall mean a written document memorializing the
terms and conditions of an Award granted pursuant to the Plan and shall
incorporate the terms of the Plan.
(i) "Parent" shall mean a corporation, whether now or hereafter
existing, within the meaning of the definition of "parent corporation" provided
in Code section 424(e), or any successor thereto.
(j) "Subsidiary" and "subsidiaries" shall mean only a corporation or
corporations, whether now or hereafter existing, within the meaning of the
definition of "subsidiary corporation" provided in Section 424(f) of the Code,
or any successor thereto.
3. ADMINISTRATION
(a) Administration of the Plan. The Plan shall be administered by the
Board or by such committee or committees as may be appointed by the Board from
time to time (the Board, committee or committees hereinafter referred to as the
"Administrator").
(b) Powers of the Administrator. The Administrator shall have all the
powers vested in it by the terms of the Plan, such powers to include authority,
in its sole and absolute discretion, to grant Awards under the Plan, prescribe
Grant Agreements evidencing such Awards and establish programs for granting
Awards. It is contemplated that Awards granted pursuant to the Plan may be
recommended, from time to time, by the management of the Corporation to the
Administrator, and that the Administrator will determine whether to accept the
recommendations of the management of the Corporation.
The Administrator shall have full power and authority to take all
other actions necessary to carry out the purpose and intent of the Plan,
including, but not limited to, the authority to: (i) determine the eligible
persons to whom, and the time or times at which Awards shall be granted; (ii)
determine the types of Awards to be granted; (iii) determine the number of
shares to be covered by or used for reference purposes for each Award; (iv)
impose such terms, limitations, restrictions and conditions upon any such Award
as the Administrator shall deem appropriate; (v) modify, amend, extend or renew
outstanding Awards, or accept the surrender of outstanding Awards and substitute
new Awards (provided however, that, except as provided in Section 7(d) of the
Plan, any modification that would materially adversely affect any outstanding
Award shall not be made without the consent of the holder); (vi) accelerate or
otherwise change the time in which an Award may be exercised or becomes payable
and to waive or accelerate the lapse, in whole or in part, of any restriction or
condition with respect to such Award, including, but not limited to, any
restriction or condition with respect to the vesting or exercisability of an
Award following termination of any grantee's employment; and (vii) establish
objectives and conditions, if any, for earning Awards and determining whether
Awards will be paid after the end of a performance period.
The Administrator shall have full power and authority, in its sole and
absolute discretion, to administer and interpret the Plan and to adopt and
interpret such rules, regulations, agreements, guidelines and instruments
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for the administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.
(c) Non-Uniform Determinations. The Administrator's determinations
under the Plan (including without limitation, determinations of the persons to
receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the Grant Agreements evidencing such Awards) need
not be uniform and may be made by the Administrator selectively among persons
who receive, or are eligible to receive, Awards under the Plan, whether or not
such persons are similarly situated.
(d) Limited Liability. To the maximum extent permitted by law, no
member of the Administrator shall be liable for any action taken or decision
made in good faith relating to the Plan or any Award thereunder.
(e) Indemnification. To the maximum extent permitted by law and by
the Corporation's charter and by-laws, the members of the Administrator shall be
indemnified by the Corporation in respect of all their activities under the
Plan.
(f) Effect of Administrator's Decision. All actions taken and
decisions and determinations made by the Administrator on all matters relating
to the Plan pursuant to the powers vested in it hereunder shall be in the
Administrator's sole and absolute discretion and shall be conclusive and binding
on all parties concerned, including the Corporation, its stockholders, any
participants in the Plan and any other employee of the Corporation, and their
respective successors in interest.
4. SHARES AVAILABLE FOR THE PLAN; MAXIMUM AWARDS
Subject to adjustments as provided in Section 7(d) of the Plan, the
shares of Common Stock that may be issued with respect to Awards granted under
the Plan shall not exceed an aggregate of 850,000 shares of Common Stock. The
Corporation shall reserve such number of shares for Awards under the Plan,
subject to adjustments as provided in Section 7(d) of the Plan. If any Award,
or portion of an Award, under the Plan expires or terminates unexercised,
becomes unexercisable or is forfeited or otherwise terminated, surrendered or
canceled as to any shares, or if any shares of Common Stock are surrendered to
the Corporation in connection with any Award (whether or not such surrendered
shares were acquired pursuant to any Award), the shares subject to such Award
and the surrendered shares shall thereafter be available for further Awards
under the Plan; provided, however, that any such shares that are surrendered to
the Corporation in connection with any Award or that are otherwise forfeited
after issuance shall not be available for purchase pursuant to incentive stock
options intended to qualify under Code section 422.
5. PARTICIPATION
Participation in the Plan shall be open to all employees, officers,
and directors of, and non-employee consultants providing bona fide services to
or for, the Corporation, or of any Affiliate of the Corporation, as may be
selected by the Administrator from time to time.
6. AWARDS
The Administrator, in its sole discretion, establishes the terms of
all Awards granted under the Plan. Awards may be granted individually or in
tandem with other types of Awards. All Awards are subject to the terms and
conditions provided in the Grant Agreement.
(a) Stock Options. The Administrator may from time to time grant to
eligible participants Awards of incentive stock options as that term is defined
in Code section 422 or nonqualified stock options; provided, however, that
Awards of incentive stock options shall be limited to employees of the
Corporation or of any
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Parent or Subsidiary of the Corporation. Options intended to qualify as
incentive stock options under Code section 422 must have an exercise price at
least equal to Fair Market Value on the date of grant, but nonqualified stock
options may be granted with an exercise price less than Fair Market Value. No
stock option shall be an incentive stock option unless so designated by the
Administrator at the time of grant or in the Grant Agreement evidencing such
stock option.
(b) Stock Appreciation Rights. The Administrator may from time to
time grant to eligible participants Awards of Stock Appreciation Rights ("SAR").
An SAR entitles the grantee to receive, subject to the provisions of the Plan
and the Grant Agreement, a payment having an aggregate value equal to the
product of (i) the excess of (A) the Fair Market Value on the exercise date of
one share of Common Stock over (B) the base price per share specified in the
Grant Agreement, times (ii) the number of shares specified by the SAR, or
portion thereof, which is exercised. Payment by the Corporation of the amount
receivable upon any exercise of an SAR may be made by the delivery of Common
Stock or cash, or any combination of Common Stock and cash, as determined in the
sole discretion of the Administrator. If upon settlement of the exercise of an
SAR a grantee is to receive a portion of such payment in shares of Common Stock,
the number of shares shall be determined by dividing such portion by the Fair
Market Value of a share of Common Stock on the exercise date. No fractional
shares shall be used for such payment and the Administrator shall determine
whether cash shall be given in lieu of such fractional shares or whether such
fractional shares shall be eliminated.
(c) Stock Awards and Convertible Debentures. The Administrator may
from time to time grant restricted or unrestricted stock Awards or debentures
convertible into Common Stock to eligible participants in such amounts, on such
terms and conditions, and for such consideration, including no consideration or
such minimum consideration as may be required by law, as it shall determine. A
stock Award may be paid in Common Stock, in cash, or in a combination of Common
Stock and cash, as determined in the sole discretion of the Administrator.
(d) Phantom Stock. The Administrator may from time to time grant
Awards to eligible participants denominated in stock-equivalent units ("phantom
stock") in such amounts and on such terms and conditions as it shall determine.
Phantom stock units granted to a participant shall be credited to a bookkeeping
reserve account solely for accounting purposes and shall not require a
segregation of any of the Corporation's assets. An Award of phantom stock may
be settled in Common Stock, in cash, or in a combination of Common Stock and
cash, as determined in the sole discretion of the Administrator. Except as
otherwise provided in the applicable Grant Agreement, the grantee shall not have
the rights of a stockholder with respect to any shares of Common Stock
represented by a phantom stock unit solely as a result of the grant of a phantom
stock unit to the grantee.
(e) Performance Awards. The Administrator may, in its discretion,
grant performance awards which become payable on account of attainment of one or
more performance goals established by the Administrator. Performance awards may
be paid by the delivery of Common Stock or cash, or any combination of Common
Stock and cash, as determined in the sole discretion of the Administrator.
Performance goals established by the Administrator may be based on the
Corporation's or an Affiliate's operating income or one or more other business
criteria selected by the Administrator that apply to an individual or group of
individuals, a business unit, or the Corporation or an Affiliate as a whole,
over such performance period as the Administrator may designate.
7. MISCELLANEOUS
(a) Withholding of Taxes. Grantees and holders of Awards shall pay to
the Corporation, or make provision satisfactory to the Administrator for payment
of, any taxes required to be withheld in respect of Awards under the Plan no
later than the date of the event creating the tax liability. The Corporation
may, to the extent permitted by law, deduct any such tax obligations from any
payment of any kind otherwise due to the
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grantee or holder of an Award. In the event that payment to the Corporation of
such tax obligations is made in shares of Common Stock, such shares shall be
valued at Fair Market Value on the applicable date for such purposes.
(b) Loans. The Corporation may make or guarantee loans to grantees to
assist grantees in exercising Awards and satisfying any withholding tax
obligations.
(c) Transferability. Except as otherwise determined by the
Administrator, and in any event in the case of an incentive stock option or a
stock appreciation right granted with respect to an incentive stock option, no
Award granted under the Plan shall be transferable by a grantee otherwise than
by will or the laws of descent and distribution. Unless otherwise determined by
the Administrator in accord with the provisions of the immediately preceding
sentence, an Award may be exercised during the lifetime of the grantee, only by
the grantee or, during the period the grantee is under a legal disability, by
the grantee's guardian or legal representative.
(d) Adjustments; Business Combinations. In the event of changes in the
Common Stock of the Corporation by reason of any stock dividend, split-up,
recapitalization, merger, consolidation, business combination or exchange of
shares and the like, the Administrator shall make appropriate adjustments to the
maximum number and kind of shares reserved for issuance or with respect to which
Awards may be granted under the Plan as provided in Section 4 of the Plan and to
the number, kind and price of shares covered by outstanding Awards, and shall,
in its discretion and without the consent of holders of Awards, make any other
adjustments in outstanding Awards, including but not limited to reducing the
number of shares subject to Awards or providing or mandating alternative
settlement methods such as settlement of the Awards in cash or in shares of
Common Stock or other securities of the Corporation or of any other entity, or
in any other matters which relate to Awards as the Administrator shall, in its
sole discretion, determine to be necessary or appropriate.
Notwithstanding anything in the Plan to the contrary and without the
consent of holders of Awards, the Administrator, in its sole discretion, may
make any modifications to any Awards, including but not limited to cancellation,
forfeiture, surrender or other termination of the Awards in whole or in part
regardless of the vested status of the Award, in order to facilitate any
business combination that is authorized by the Board to comply with requirements
for treatment as a pooling of interests transaction for accounting purposes
under generally accepted accounting principles.
The Administrator is authorized to make, in its discretion and without
the consent of holders of Awards, adjustments in the terms and conditions of,
and the criteria included in, Awards in recognition of unusual or nonrecurring
events affecting the Corporation, or the financial statements of the Corporation
or any Subsidiary, or of changes in applicable laws, regulations, or accounting
principles, whenever the Administrator determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
(e) Substitution of Awards in Mergers and Acquisitions. Awards may be
granted under the Plan from time to time in substitution for Awards held by
employees or directors of entities who become or are about to become employees
or directors of the Corporation or an Affiliate as the result of a merger or
consolidation of the employing entity with the Corporation or an Affiliate, or
the acquisition by the Corporation or an Affiliate of the assets or stock of the
employing entity. The terms and conditions of any substitute Awards so granted
may vary from the terms and conditions set forth herein to the extent that the
Administrator deems appropriate at the time of grant to conform the substitute
Awards to the provisions of the awards for which they are substituted.
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(f) Termination, Amendment and Modification of the Plan. The Board
may terminate, amend or modify the Plan or any portion thereof at any time.
(g) Non-Guarantee of Employment or Service. Nothing in the Plan or in
any Grant Agreement thereunder shall confer any right on an individual to
continue in the service of the Corporation or shall interfere in any way with
the right of the Corporation to terminate such service at any time.
(h) No Trust or Fund Created. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Corporation and a grantee or any other
person. To the extent that any grantee or other person acquires a right to
receive payments from the Corporation pursuant to an Award, such right shall be
no greater than the right of any unsecured general creditor of the Corporation.
(i) Governing Law. The validity, construction and effect of the Plan,
of Grant Agreements entered into pursuant to the Plan, and of any rules,
regulations, determinations or decisions made by the Administrator relating to
the Plan or such Grant Agreements, and the rights of any and all persons having
or claiming to have any interest therein or thereunder, shall be determined
exclusively in accordance with applicable federal laws and the laws of the State
of Maryland, without regard to its conflict of laws principles.
(j) Effective Date; Termination Date. The Plan is effective as of the
date on which the Plan was adopted by the Board, subject to approval of the
stockholders within twelve months before or after such date. No Award shall be
granted under the Plan after the close of business on the day immediately
preceding the tenth anniversary of the effective date of the Plan. Subject to
other applicable provisions of the Plan, all Awards made under the Plan prior to
such termination of the Plan shall remain in effect until such Awards have been
satisfied or terminated in accordance with the Plan and the terms of such
Awards.
-6-
<PAGE>
EXHIBIT 10.12
[Date]
BT ALEX. BROWN INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES
AS REPRESENTATIVES OF THE SEVERAL UNDERWRITERS
C/O BT ALEX. BROWN INCORPORATED
ONE SOUTH STREET
BALTIMORE, MD 21202
LADIES AND GENTLEMEN:
The undersigned understands that Caliber Learning Network, Inc. (the
"Company"), and BT Alex. Brown Incorporated and NationsBanc Montgomery
Securities, as representatives (the "Representatives"), propose to enter into an
underwriting agreement (the "Underwriting Agreement") pursuant to which such
Representatives will act as representatives of a group of underwriters (the
"Underwriters") in a proposed initial public offering of Common Stock of the
Company. This letter is delivered by the undersigned to the Representatives
pursuant to Section 4(j) of the proposed Underwriting Agreement.
As an inducement to the Underwriters to execute, deliver and perform
their obligations under the Underwriting Agreement, the undersigned hereby
agrees that beginning the date hereof and ending on the date that is one year
following the date on which the Underwriting Agreement is executed and
delivered, the undersigned shall not, without the prior written consent of BT
Alex. Brown, directly or indirectly, sell, offer to sell, sell short, grant any
option for the sale of, or otherwise dispose of, any shares of Common Stock (as
defined in the Underwriting Agreement) or any securities convertible into, or
exchangeable or exercisable for, any shares of Common Stock or any derivative of
the Common Stock; currently held or hereinafter acquired, provided, however,
that the foregoing agreement shall terminate if the Underwriting Agreement is
not executed on or before July 1, 1998; and provided further that the foregoing
agreement shall not apply to charitable contributions or transfers without
consideration to immediate family members, in the case where the undersigned is
an individual, or transfers without consideration
<PAGE>
BT ALEX. BROWN INCORPORATED
MONTGOMERY SECURITIES
SMITH BARNEY INC.
January 21, 1998
Page 2
to affiliates, (as that term is defined in Rule 405 under the Securities Act of
1933, as amended) of the undersigned, in the case where the undersigned is not
an individual, if the recipient of such gift or contribution or if the
transferee agrees to be bound by the terms hereof and evidences such agreement
by executing a counterpart to this letter. If for any reason the Underwriting
Agreement is terminated prior to the Closing Date (as defined in the
Underwriting Agreement), the agreement set forth above will likewise terminate.
Very truly yours,
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
<PAGE>
EXHIBIT 23.1
------------
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------------------------------------
We consent to the reference to our firm under the caption "Selected Financial
Data" and "Experts" and to the use of our report dated March 5, 1998 in the
Registration Statement (Form S-1 No. 333-_______) and related Prospectus of
Caliber Learning Network, Inc.
/s/ ERNST & YOUNG LLP
Baltimore, MD
March 5, 1998
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