<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1998
REGISTRATION NO. 333-47565
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
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 (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION) 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) Previously paid.
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.
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- -------------------------------------------------------------------------------
<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
5,400,000 Shares APRIL 29, 1998
[LOGO OF CALIBER 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.
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<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......................... $ $ $ $
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Total(2).......................... $ $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(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."
j 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
10
<PAGE>
conversion by Sylvan of the 6% Non-Voting Convertible Preferred Stock. The
5,400,000 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 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;
2,442,513 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; 1,227,393 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
[PICTURE OF FLOORPLAN APPEARS HERE]
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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 program in April 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. Caliber has a five-year contract with Wharton to begin a
series of middle management programs in September 1998. 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. In addition to its traditional degree programs, Wharton
has offered non-degree courses targeted toward business executives. Through
Wharton's Executive Education program, 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 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 and
Wharton will deliver the first program in September 1998. Wharton has agreed
to introduce new programs beginning in January 1999. Caliber does not expect
that revenues from its agreement with Wharton will be material in 1998 or
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.
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<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.
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<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. On March 16, 1998,
Caliber sold Rick Frier 18,750 shares of Common Stock for $8.00 per share.
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.
43
<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 2,442,513 shares of 8% Series A
Redeemable Convertible Preferred Stock into 2,442,513 shares of Common Stock;
(2) the conversion of 1,227,393 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 LEARNING NETWORK 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
10.13+ Agreement between Caliber Learning Network, Inc. and the
Trustees of the University of Pennsylvania acting
through the Arresty Institute of Executive Education at
the Wharton School, dated March 26, 1998
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.
+ 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.
II-3
<PAGE>
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.
(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 29TH DAY OF APRIL, 1998.
CALIBER LEARNING NETWORK, INC.
By: *
-----------------------------------
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
- ------------------------------------- Board of Directors April 29, 1998
R. CHRISTOPHER HOEHN-SARIC
* Vice Chairman of the
- ------------------------------------- Board of Directors April 29, 1998
DOUGLAS L. BECKER
President and Chief
* Executive Officer April 29, 1998
- ------------------------------------- (Principal
CHRIS L. NGUYEN Executive Officer)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chief Financial
* Officer (Principal April 29, 1998
- ------------------------------------- Financial and
RICK P. FRIER Accounting Officer)
* Director
- ------------------------------------- April 29, 1998
SUSAN MAYER
* Director
- ------------------------------------- April 29, 1998
JOHN P. HILL
* Director
- ------------------------------------- April 29, 1998
JANEEN M. ARMSTRONG
</TABLE>
* Signed by Attorney-in-Fact
/s/ Matthew C. Brenneman
- -------------------------------------
MATTHEW C. BRENNEMAN
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
10.13+ Agreement between Caliber Learning Network, Inc. and
the Trustees of The University of Pennsylvania
acting through the Arresty Institute of Executive
Education at the Wharton School, dated March 26,
1998
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.
+Filed under confidential treatment request.
<PAGE>
Exhibit 4.01
CALIBER LEARNING NETWORK, INC.(SM)
COMMON STOCK COMMON STOCK
$.01 PAR VALUE $.01 PAR VALUE
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
THIS CERTIFIES that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK $.01 VALUE PER SHARE OF
CALIBER LEARNING NETWORK, INC. (the "Corporation") transferable on the books of
the Corporation by the owner hereof in person or by duly authorized attorney
upon surrender of this Certificate properly endorsed.
This Certificate and the shares represented hereby, are issued and shall
be held subject to all the provisions of the articles of incorporation of the
Corporation, and any amendments thereto.
Each share of the common stock shall have equal rights, privileges and
preferences and shall be entitled to one vote per share. This Certificate is not
valid until countersigned and registered by the Transfer Agent and Registrar.
IN WITHNESS WHEREOF, the Corporation has caused this Certificate to be
executed by the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
Secretary
Chairman/CEO
COUNTERSIGNED AND REGISTERED:
State Street Bank and Trust
TRANSFER AGENT
AND REGISTRAR
AUTHORIZED
OFFICER
<PAGE>
The following abbreviation, when used in the inscription on the face of
this certificate shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of suvivorship
and not as tenants in common
UNIF GIFT MIN ACT - Under the ___________________ Uniform Gifts
to Minors Act _______________ as
custodian for _______________
Additional abbreviations may also be used though not in the above list.
For value received, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Shares of the Common Stock represented by the within Certificate, and do hereby
irrevocably consitute and appoint
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated, _______________________________ _______________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
Exhibit 10.04
CALIBER LEARNING NETWORK, INC.
PROGRAM DEVELOPMENT AGREEMENT
THIS PROGRAM DEVELOPMENT AGREEMENT ("Agreement") is dated as of this 29th
day of January, 1998 (the "Effective Date") and is by and between CALIBER
LEARNING NETWORK, INC. ("Caliber"), a Maryland corporation, with its principal
place of business at 1000 Lancaster Street, Baltimore, Maryland 21202, and THE
JOHNS HOPKINS UNIVERSITY ("JHU"), with its principal place of business at 3400
North Charles Street, Shaffer Hall, Baltimore, Maryland 21218.
RECITALS
1. Caliber is in the process of establishing a nationwide network of
facilities and a distance learning infrastructure that enable it to provide
educational, training and other distance learning services.
2. JHU has developed and will continue to develop educational courses
that it wishes to offer to an increased number of participants at various
geographical locations.
3. Caliber and JHU desire to jointly develop distance learning programs
that Caliber can deliver to JHU students through its distance learning
infrastructure.
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
1. "HBOM Program" means the Hopkins Business of Medicine/SM/ program,
which comprises the following Courses: Managed-Care: Perspectives and Practices;
Accounting for Decision-Making in Medicine; Managerial Finance for Medical
Services; Leadership and Organizational Behavior in Medical Settings, and any
other Course that may later be identified in the "Course Plan" that are jointly
developed by JHU and Caliber for use within the Caliber Learning Network. This
includes any derivative works such as video tape versions, CD-ROM versions,
Internet versions, etc.
2. "JHU Course Content" means any lecture, Course or series of Courses
developed solely by JHU that has been used or is intended to be used as the
original intellectual property for its own academic purposes and usages or for
the development of a HBOM Program. JHU will retain all rights and ownership of
any JHU Course Content that is not used in the HBOM Program, and there will be
no restrictions on JHU's right to use or license such JHU course content for any
other purpose, including offering other distance learning projects.
3. "Course" means any course offered in the HBOM Program, which will
consist of 10 (ten) classes.
-1-
<PAGE>
4. "Caliber Programming" means any programming or technical information
that Caliber contributes to the HBOM Program or any Course used in the HBOM
Program.
5. "Course Plan" means an addendum that shall be added to this Agreement
for each Course in the HBOM Program to be delivered under this Agreement that
sets forth the specifics of that Course which will include, without limitation,
a description of the Course, the instructor(s) for the Course, the frequency,
dates and times at which the Course will be offered, the Caliber sites and other
locations that will offer the Course, tuition for the course, Caliber's
marketing plan for each Course in every market, and the method of registration,
enrollment, and financial projections and Direct Expenses. Each Course offered
in the HBOM Program and corresponding Course Plan shall be labeled with course
and section numbers created by JHU and approved by Caliber.
6. "Course Offering" means each new offering of a specific Course. For
example, a Course may be offered in September, January, and the following
September, with each start referred to as a Course Offering.
7. For the purposes of this Contract, JHU will mean The Johns Hopkins
University School of Medicine and The School of Continuing Studies.
TERMS AND CONDITIONS
In consideration of the mutual covenants and conditions set forth this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Caliber and JHU agree as follows:
1. TERM.
----
This Agreement commences with the Effective Date and shall expire upon the
completion of the HBOM Program delivered unless earlier terminated by either
party pursuant to Section 9.0 hereunder. The HBOM Program shall have a term of
five (5) years, unless terminated earlier by either party pursuant to Section
9.0.
2. DEVELOPMENT OF JHU COURSE CONTENT.
---------------------------------
JHU will develop JHU Course Content to be used in each Course in the HBOM
Program that will be delivered through the Caliber Learning Centers. JHU will
have sole responsibility for the JHU Course Content, including, without
limitation, curriculum and instructional Course development, applicable
diagnostic or evaluation procedures, instructor selection and training, and
development of related text materials including applicable copyright consents,
admission/enrollment decisions, grading, payment and collections process,
financial aid, transcripts and management of student files. JHU will retain all
rights in any JHU Course content that is not used in the HBOM Program, and JHU
will be entitled to use such JHU Course Content without any limitations or
restrictions, including offering such JHU Course Content in other distance
learning projects. JHU Course Content used in the HBOM Program will continue
-2-
<PAGE>
to be owned by JHU but JHU's right to use such JHU Course Content will be
subject to Paragraph 4.2.
3. DEVELOPMENT AND DELIVERY OF HBOM PROGRAM.
----------------------------------------
3.1 Format. Caliber will be responsible for formatting and adapting
------
each JHU Course Content used in the HBOM Program so that it is suitable for
distance learning delivery as a Course in the HBOM Program. JHU shall cooperate
with Caliber and provide such assistance as Caliber may reasonably require for
this purpose. Caliber will supply to JHU, for its approval, which approval shall
not be unreasonably withheld, a final version of each JHU course Content used in
the HBOM Program that has been formatted. JHU will within 10 (ten) days give
either written approval or disapproval of the formatting. If JHU disapproves of
the formatting as not being suitable for distance learning delivery as a Course
in the HBOM Program, Caliber will be entitled to a reasonable opportunity to
address JHU's concerns.
3.2 Course Delivery. Courses in the HBOM Program will be offered and
delivered at those Caliber Learning Centers and other locations as set forth in
the Course Plan and agreed to by JHU. The method or system by which each Course
in the HBOM Program is to be delivered will be mutually established by Caliber
and JHU, and based on the ongoing reviews of the HBOM Program.
3.2.1 Caliber will provide the software and computer programs,
including, without limitation, class interaction support software, necessary to
deliver each Course in the HBOM Program.
3.2.2 Caliber will provide the hardware components necessary to
deliver each Course of the HBOM Program and create a two-way audio and video
environment, including, without limitation, satellite dish and integrated
receiver decoder to receive the video and audio signals at each Caliber Learning
Center, and workstations, cameras, video monitors and related components
necessary to return audio and video signals from each Caliber Learning Center.
3.2.3 Caliber will provide maintenance and related support
services necessary to maintain the software and computer programs and the
hardware components required for delivery of each Course in the HBOM Program.
3.2.4 Through each Course in the HBOM Program, Caliber will have
a Caliber employee available at those locations participating in that HBOM
Program to provide technical and administrative assistance to participating
students.
3.2.5 The four courses in the first offering of the "Hopkins
Business of Medicine" program are scheduled to begin in April, September, and
November of 1998 and January 1999. A second offering of the program will begin
in September 1998 and conclude within twelve months. From September 1998 on,
each of the four courses in the "Hopkins
-3-
<PAGE>
Business of Medicine" program will be offered twice during a twelve month
period, for a total of eight courses each twelve months.
3.3 Marketing. Caliber, with the approval of JHU, which approval
---------
shall not be unreasonably withheld, will use its best efforts to promote each
Course in the HBOM Program through advertising and public relations activities
designated to reach as wide a market as possible, and for this purpose, Caliber
may schedule "open house" meetings with groups of potential HBOM Program
attendees and develop brochures and other marketing materials. JHU agrees to
assist Caliber in such efforts by publicizing Courses in the HBOM Program in JHU
catalogues, magazines, newsletters, brochures, and another publications
distributed by JHU to students, alumni and others, and providing such additional
assistance as Caliber may reasonably request. Caliber will include as part of
its Course Plan a mutually approved and detailed marketing plan setting forth
how each Course in the HBOM Program will be advertised and marketed in each
market where a class is offered.
3.4 Evaluation. JHU and Caliber will develop a process to define,
----------
implement and evaluate each Course in the HBOM Program under this Agreement,
that will also include the development of continuous and ongoing mechanisms for
monitoring and ensuring quality control.
3.5 Implementation and Evaluation Audits. JHU shall have the right to
------------------------------------
observe the delivery of any Course in the HBOM Program at all Caliber sites and
other locations offering such HBOM Program.
3.6 Enrollment Fees and Revenue Collections. All tuition funds and
---------------------------------------
all other revenues from whatever source derived, including but not limited to
revenues from sponsorship and collateral materials, for each Course in the HBOM
Program operated under this Agreement shall be collected by JHU. Both parties
shall receive a copy of deposits of such collected tuition funds.
3.7 Sponsorship revenues must be reviewed and approved by JHU.
3.8 Refund by Caliber. In the event any student enrolled in a Course
-----------------
in the HBOM Program withdraws from such Course due to repeated and material
technical failures in the distance learning infrastructure of Caliber and such
student is then entitled to a refund of the tuition for the Course, in whole or
in part, under the course withdrawal and refund policy of JHU, /*/.
________________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
-4-
<PAGE>
3.9 Caliber agrees to use its best efforts to assist JHU in any way
necessary to comply with any state requirements for obtaining or maintaining
authorization or approval to offer the HBOM program in that state.
4. OWNERSHIP AND USE.
-----------------
4.1 Ownership. The parties understand and agree that JHU will retain
---------
ownership of all JHU Course Content including the JHU Course Content and the
underlying material contributed by JHU in the HBOM Program, while Caliber will
retain ownership of all Caliber Programming and underlying programming and
technical information it contributed to the delivery of the HBOM Program. JHU
understands and agrees that Caliber is not granting JHU any ownership rights in
any Caliber Learning Center or in an equipment, property, systems, software,
know-how, or technical or operational information or other materials used by
Caliber to deliver Courses in the HBOM Program. Caliber understands and agrees
that JHU is not granting Caliber any ownership rights in any content provided in
the Courses in the HBOM Program. Ownership as used in this Section 4.1 shall
mean all proprietary rights, including, without limitation, copyright, trade
secrets and patents.
4.2 Exclusive Use. Other than as necessary to perform its obligations
-------------
under this Agreement, neither party during the term of this Agreement shall
license, use or permit any use of any Course of the HBOM Program or portion
thereof, including, without limitation, any derivative works, or Internet
product, by any person or entity, without the express prior written consent and
approval of the other party. Once a JHU Course Content has been formatted,
adapted, and mutually approved for delivery as a Course in the HBOM Program, the
parties acknowledge and agree that during the term of this Agreement they will
not use, license, or permit any use of that JHU Course Content that would be
directly competitive in any way to the related HBOM Program, including but not
limited to any distance learning or Internet application without the express
written consent of the other party. Notwithstanding the foregoing, JHU is
entitled to offer the HBOM Program in a traditional classroom setting with live
face-to-face instruction in the Baltimore and Washington metropolitan areas, and
Caliber agrees that it will not, without JHU's prior written consent, offer or
deliver any Course of the HBOM Program in such locations; provided, however, JHU
agrees that Caliber may offer the HBOM Program at its site in Tysons Corner,
Virginia.
4.3 Applications and Filings. JHU and Caliber shall cooperate in good
------------------------
faith with one another to make all necessary applications and filings, including
patent and copyright registration and other legal protections, both U.S. and
foreign, to protect the interests of the parties, or either of them, in the HBOM
Program.
4.4 Confidentiality.
---------------
-5-
<PAGE>
4.4.1 Caliber and JHU shall take reasonable and necessary
precautions to prevent the unauthorized copying, removal, alteration,
disclosure, use, loss of or improper access to the HBOM Program and JHU Course
Content.
4.4.2 JHU acknowledges that, during the term of this Agreement
and in the course of performing its obligations hereunder, it may be the
recipient of or become exposed to proprietary and confidential information of
("Caliber Confidential Information") including, but not limited to, customers or
active prospects, strategic plans and materials, marketing strategies, business
data, financial information, distance learning systems, and software. JHU
acknowledges and agrees that such Caliber Confidential Information shall remain
the exclusive property of Caliber, and that JHU shall not disclose, use, copy,
or make available such Caliber Confidential Information to anyone, except as may
be required in the Course of performing its obligations hereunder. JHU agrees to
only make such Caliber Confidential Information available to employees on a
need-to-know basis.
4.4.3 Caliber acknowledges that, during the term of this
Agreement and in the Course of performing its obligations hereunder, it may be
the recipient of or become exposed to proprietary and confidential information
of ("JHU Confidential Information") including, but not limited to, customers or
active prospects, strategic plans and materials, marketing strategies, business
data, financial information, and software. Caliber acknowledges and agrees that
such JHU Confidential Information shall remain the exclusive property of JHU,
and that Caliber shall not disclose, use, copy, or make available such
Confidential Information to anyone, except as may be required the Course of
performing its obligations hereunder. Caliber agrees to only make such JHU
Confidential Information available to employees on a need-to-know basis.
4.4.4 It is agreed that information received by one party from
the other party as a result of this Agreement shall not be considered
confidential, and neither party shall be limited in disclosing or using the same
if and to the extent that:
(i) the information was already known to the receiving
party at the time of its receipt fro the other party, or
(ii) The information is, or becomes through no fault of
the receiving party, in the public domain.
4.4.5 Caliber and JHU agree that money damages would not be a
sufficient remedy for any breach of this Section 4.0 and that, in addition to
all other remedies, both parties shall be entitled to specific performance and
injunctive and equitable relief as a remedy for any such breach. Caliber and JHU
agree to be responsible for any breach of this Section 4 by any of its
employees, officers, directors or agents.
4.5 Protections.
-----------
-6-
<PAGE>
4.5.1 JHU agrees that all of the covenants in this Section 4 are
reasonable in light of the substantial investment to be made by Caliber in the
development and promotion of the HBOM Program during the term of this Agreement,
and that Caliber's exclusive right to offer the HBOM Program in Caliber
locations is a substantial and essential benefit of this Agreement, specifically
bargained for. Further, JHU acknowledges that during the term of this Agreement
any loss of such exclusivity suffered with the assistance or aid of JHU would
constitute a material breach hereof and cause immeasurable damage to Caliber.
Accordingly, JHU agrees that if it violates any of the covenants of this Section
4, Caliber may immediately seek injunctive relief to enjoin the violation and
restore Caliber's exclusive status.
4.5.2 Caliber agrees that all of the covenants in this Section 4
are reasonable in light of the substantial investment to be made by JHU in the
development and promotion of JHU Course Content during the term of this
Agreement, and that JHU's development of JHU Course Content is a substantial and
essential benefit of this Agreement, specifically bargained for, and any use
thereof in violation of the terms of this Agreement would constitute a material
breach hereof and cause immeasurable damage to JHU. Accordingly, Caliber agrees
that if it violates any of the covenants of this Section 4, JHU may immediately
seek injunctive relief to enjoin the violation and restore JHU's rights
hereunder.
5. COMPENSATION.
------------
5.1 Allocation. For and in consideration of the mutual promises and
----------
covenants made herein by the parties, the parties agree that all tuition,
sponsorship revenues, collateral material sales proceeds, and any other revenue
derived from whatever source in connection with the HBOM Program, including any
derivative works, (collectively, "Revenues") shall be collected by JHU and
allocated between the parties as follows:
5.1.1 Initial Managed-Care Course. All Revenues derived from or
---------------------------
in connection with the initial Managed-Care Course offering (4/8/98) will be
/*/.
5.1.2 Subsequent Revenues. All Revenues derived from or in
-------------------
connection with the HBOM Program after completion of the initial Managed-Care
Course will be /*/.
5.2 Direct Expenses. The parties agree that, with respect to any
---------------
Course offered in the HBOM Program, each party's expense items, up to but not to
exceed any maximum amounts, as specified in each Course Plan for that Course,
will constitute Direct
__________________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
-7-
<PAGE>
Expenses for which either or both parties shall be entitled to reimbursement
hereunder. Each parties' expense items identified in the Course Plan must be
pre-approved by the other party.
5.3 Carryover Expenses. Each party shall be entitled to carryover in
------------------
the accounting of any subsequent Course in the HBOM Program any of its
unreimbursed Direct Expenses from any previous Course until such party has
received payment in full of its Direct Expenses.
5.4 Revenue Distribution. Once all tuition funds for a specific
--------------------
Course Offering have been deposited, Caliber and JHU shall prepare a
distribution of funds which will be based on the /*/. Funds shall be
distributed within thirty (30) days of the conclusion of the refund period for
each Course Offering, so that each arty receives /*/.
5.5 Reconciliation. A final reconciliation of all actual revenues and
Direct Expenses shall occur within ninety (90) days after the conclusion of a
Course Offering.
5.6 Audit. Each party shall have the right to audit, review and copy
-----
at its sole expense, the financial accounts and records maintained by the other
party related to performance and other activities under this Agreement.
6. JHU AND CALIBER MARKS.
---------------------
6.1 JHU Marks. Caliber acknowledges that JHU possesses various
---------
registered and unregistered trademarks and service marks ("JHU Marks") and JHU
hereby grants to Caliber the non-exclusive, limited right and license to use
those JHU Marks and logos as are set forth in Exhibit I hereto, as such Exhibit
may from time to time be amended by the parties hereto, for an during the term
of this Agreement solely in connection with the offer, promotion, marketing,
implementation and delivery of the HBOM Program. Caliber expressly acknowledges
JHU's rights in and to the JHU Marks and agrees not to represent in any manner
that Caliber has acquired any ownership rights in the JHU Marks. The HBOM
Program and all courses in the HBOM Program shall be offered under JHU's
trademarks.
6.2 Caliber Marks. "Caliber," "Caliber Learning Network," Caliber
-------------
Learning Center and the Caliber logo ("Caliber Marks") are the trademarks and/or
service marks, as the case may be, of Caliber and Caliber hereby grants to JHU
the non-exclusive, limited right and license to use the Caliber Marks during the
term of this Agreement solely in connection with promotion and solicitation for
the HBOM Program. JHU expressly acknowledges Caliber's
_____________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
-8-
<PAGE>
rights in and to the Caliber Marks and agrees not to represent in any manner
that JHU has acquired any ownership rights in the Caliber Marks.
6.3 Misuse of Marks. Each party understands and agrees that any use of
---------------
the other party's marks, other than as expressly authorized by this Agreement,
without the other party's prior written consent, is an infringement of such
other party's rights in and to its marks and that the right granted herein to
use the other party's marks does not extend beyond the termination or expiration
of this Agreement. Each party expressly covenants that, during the term of this
Agreement and thereafter, such party shall not, directly or indirectly, commit
any act of infringement or contest or aid others in contesting the validity of
such other party's right to use its marks to take any other action in derogation
thereof.
6.4 Monitoring. Each party acknowledges an obligation to monitor its own
----------
use of the other party's marks and agrees to do so. Each party shall notify the
other of any claim demand, cause of action that the other party may have based
upon or arising from any unauthorized attempt by any person or entity to use
such other party's marks, any colorable proprietary interest and shall assist
such other party, upon it request and at such other party's expense, in taking
action including legal action, if any, as such other party may deem appropriate
to halt such activities, but shall take no action nor incur any expenses on such
other party's behalf without such other party's approval.
6.5 Requirements. Each party further agrees and covenants to use the
------------
other party's marks solely in the manner prescribed by such other party, to
observe all laws with respect to the registration of trade name and assumed or
fictitious names, to include in any application therefor a statement that such
party's use of the other party's marks is limited by the terms of this
Agreement, and to provide such other party with a copy of any such application
and other registrations and copyright notices as the other party may, from time
to time, require, including, without limitation, affixing "/SM/," "/TM/" or (R)
adjacent to such other party's marks.
6.6 Guidelines. Each party shall from time to time provide written
----------
guidelines to the other party regarding the proper depiction of the party's
marks. Press released, catalog copy, coy and graphics for print and electronic
promotion and advertising, information booklets, and promotional literature that
a party proposes to use in conjunction with a Course in the HBOM Program shall
be submitted to the other party for review, editing and comment, at least ten
(10) days prior to intended use or reproduction (whichever is to occur first).
If not responded to within (10) days of presentation, the material shall be
deemed approved. Component or advertisements previously approved may be used
subsequently without further need for submission and approval. Each party shall
designate for the other party's contact a person on their respective staffs who
shall have responsibility for the review and response procedures describe in
this paragraph.
7. COOPERATION.
-----------
-9-
<PAGE>
Upon execution of this Agreement, JHU and Caliber shall identify a
sufficient number of qualified persons from their respective organizations who
will be responsible for the coordination, design, development and implementation
of each Course in the HBOM Program under this Agreement.
8. PARTICIPANT NAMES.
-----------------
During the term of this Agreement, Caliber will have access to the names of
all HBOM Program participants, and with the prior approval of JHU, not to be
unreasonably denied, Caliber during the term of this Agreement and thereafter
may use those names in mailings and other marketing related activities provided
such mailings and activities are noncompetititve with JHU. This access to names
is for Caliber's use only. Such names will not be sold, leased, or otherwise
transferred to third parties. JHU and Caliber endorse federal privacy standards
required by FERPA and all use of HBOM Program participant information will be
consistent with those requirements.
9. DEFAULT AND TERMINATION.
-----------------------
9.1 Prior to the Initial Managed-Care Course. Prior to the
----------------------------------------
commencement of the delivery of the Initial Managed-Care Course (4/8/98), either
party may terminate this Agreement for whatever reason, in its sole discretion.
Upon such termination, the terminating party shall:
9.1.1 transfer and assign all ownership rights in and to the
Managed-Care Course, any Course materials and all other related materials the
non-terminating party who may then use them free of any obligation or
restriction for the remaining term of this Agreement other than the prohibition
of using the terminating party's name and marks in any manner whatsoever in
connection with the Managed-Care Course; or in the alternative at the
terminating party's option;
9.1.2 pay to the non-terminating party a sum of money equal to
all Direct Expenses incurred by the non-terminating party pursuant to this
Agreement through the effective date of termination, which costs have not
already been reimbursed or paid to the non-terminating party by the terminating
party.
9.2 After the Initial Managed-Care Course/Notice of Default and
-----------------------------------------------------------
Termination. After commencement of delivery of the Initial Managed-Care Course,
- -----------
this Agreement may be terminated by either party if the other party is in breach
of any material provision of this Agreement, but only after written Notice of
Default and opportunity to cure has been given to the
-10-
<PAGE>
breaching party. With respect to a monetary default, the notice of default must
provide for an opportunity to cure of at least twenty (20) days following
receipt of the notice. With respect to a non-monetary default, the notice of
default must provide for an opportunity to cure of at least thirty (30) days
following receipt of the notice. If the party receiving the notice has not cured
the breach before the cure date started in the notice, the party giving notice
may terminate this Agreement by giving the breaching party a written Notice of
Termination, stating the date on which the termination is to be effective. With
respect to breaches stated herein or otherwise determined to be incurable, a
period of cure does not have to be provided.
Notwithstanding the delivery of a Notice of Default or Notice of
Termination by either party to the other, all obligations to perform services
shall continue in effect and be duly observed and complied with by both parties
until the effective date of any termination.
9.3 Material Breaches That May be Cured. The following types of
-----------------------------------
activity are acknowledged by the parties to jeopardize the offering of the HBOM
Program under this Agreement, and shall, unless cured as provided herein, be
cause for termination by the non-breaching party:
9.3.1 The failure of either party to adhere to any material
provision of this Agreement.
9.3.2 The failure of Caliber to provide quality and timely
deliver of any individual class session offered in a Course in the HBOM Program
at a particular site, which failure is not caused by JHU or any instructor under
contract with JHU. For any class that is not delivered by Caliber or begins more
than twenty minutes late, due to failure not caused by JHU or any instructor
under contract with JHU, Caliber will provide each student a copy of the missed
or late class on video tape and such default thereupon shall be deemed cured for
purposes of this Section 9.3. Caliber will also immediately alert JHU in writing
of any class that is not delivered by Caliber or begins more than twenty minutes
late.
9.3.3 To fail to provide necessary materials and updated content
for any Course in the HBOM Program.
9.4 Material Breaches That Cannot Be Cured. The following types of
--------------------------------------
activity are acknowledged by the parties to be incurable, material breaches and
are cause of immediate termination by the non-breaching party effective upon
delivery of written Notice of Termination:
9.4.1 Any willful breach by either party of such party's
confidentiality obligations under this Agreement.
9.4.2 Any act of theft or embezzlement by either party.
9.4.3 Any breach by either party of such party's exclusivity
obligations under Section 4.2 of this Agreement.
-11-
<PAGE>
9.4.4 The withdrawal of /*/ of the total number of students over
the course of a HBOM Program.
9.5 Individual Course Termination.
-----------------------------
9.5.1 Each course in the HBOM Program may be terminated upon
mutual agreement of the parties.
9.5.2 Upon termination of this Agreement, every Course in the
HBOM Program currently being operated or offered pursuant to this Agreement and
a Course Plan shall be terminated. However, upon such termination, each party
agrees that it will fulfill its obligations under this Agreement and all Course
Plans for the Courses then being offered, and shall complete each such Course
Offering.
9.5.3 Either party may decide, in its sole discretion, to cease
offering any individual Course in the HBOM Program being operated or offered
pursuant to this Agreement and Course Plan if the Course is /*/.
9.6 Ownership After Termination. Upon expiration or termination of
---------------------------
this Agreement, all intellectual property contributed by each party in the HBOM
Program will continue to be solely owned by the contributing party.
Specifically, JHU will retain all ownership in the JHU Course Content and any
material it contributed in the HBOM Program and will be entitled to offer the
material in a subsequent distance learning project in any territory, while
Caliber will retain all ownership in the Caliber Programming and all underlying
programming and technical information it contributed in the HBOM Program and
will be entitled to use such programming and technical information in a
subsequent distance learning project in any territory. Neither party will be
entitled to use the HBOM Program without the other party's consent, and all
rights to use and promote those existing Courses in the HBOM Program in
conjunction with the other party's marks shall immediately cease. The parties
may mutually agree to renew this Agreement upon its expiration.
10. NOTICES.
-------
Any notice of other communications required or which may be given by either
party to the other party under this Agreement shall be in writing and may be
sent by facsimile. However, the original shall be sent either by overnight
courier, with a verified receipt, or by certified mail, return receipt
requested, postage prepaid and addressed to and at the address stated below or
to
______________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
-12-
<PAGE>
such other address as the parties shall subsequently designate to each other
by notice given in accordance with this Section. Such notice shall be deemed to
be sufficiently given when the original is received by the receiving party.
FOR JHU:
The Johns Hopkins University
Attn: Estelle Fishbein, Vice President and General Counsel
Garland Hall, 3400 North Charles Street
Baltimore, Maryland 21218
(Fax No. 410-516-5448)
WITH A COPY TO:
Elizabeth Mayotte
Assistant Dean
School of Continuing Studies
203A Shaffer, 3400 North Charles Street
Baltimore, Maryland 21218
(Fax No. 410-516-7704)
FOR CALIBER:
Caliber Learning Network, Inc.
Attn: Chris Nguyen
1000 Lancaster Street
Baltimore, Maryland 21202
(e-mail: [email protected])
with a copy to O. Steven Jones, General Counsel
Fax: 410-843-8059
11. INDEPENDENT CONTRACTORS.
-----------------------
Under this Agreement, each party agrees that it will perform as an
independent contractor and not as an agent or employee of the other party.
12. APPLICABLE LAW.
--------------
This Agreement shall be deemed to have been made in the State of Maryland
and shall be construed and enforced in accordance with, and the validity and
performance hereof shall be governed by, the laws of the State of Maryland,
without regard to conflict of laws principles. Judicial proceedings regarding
any matter arising under the terms of this Agreement shall be brought solely in
the federal or local courts of the State of Maryland.
13. FORCE MAJEURE.
-------------
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<PAGE>
Neither party shall be liable for delay or failure in performance of any of
its obligations under this Agreement when such delay or failure arises from
events or circumstances beyond the reasonable control of such party (including,
without limitation, acts of God, fire, flood, war, explosion, sabotage,
terrorism, embargo, civil commotion, acts or omissions of any government entity,
supplier delays, communications or power failure, equipment or software
malfunction, or labor disputes).
14. WAIVER.
------
No failure on the party of either party to exercise, no delay in
exercising, and no course of dealing with respect to any right, power or
privilege under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.
15. ASSIGNMENT.
----------
Neither party may assign this Agreement, or any part thereof, without the
prior written approval of the other party, which approval shall not be
unreasonably withheld.
16. SURVIVAL BEYOND TERMINATION.
---------------------------
It is mutually greed that any and all obligations arising under Section 4.1
Ownership, 4.4 Confidentiality, and 4.5 Protections shall survive any
termination expiration of this Agreement.
17. INDEMNIFICATION.
---------------
Caliber shall indemnify and hold harmless JHU from and against any and all
loss, damage, injury, liability or suit incurred by JHU as a result of or
arising from any HBOM Program participant's claim of personal injury or property
damage while attending a Course at a Caliber facility.
JHU shall indemnify and hold harmless Caliber from and against any and all
loss, damage, injury, liability or suit incurred by JHU as a result of or
arising from the development of any JHU Course Content or any course content and
material provided by JHU to Caliber, including, without limitation, any claims
that any Course in the HBOM Program infringes or otherwise violates any patent,
copyright, trade secret or other proprietary right.
18. GENERAL.
-------
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and may only be changed or modified in
writing signed by both parties. If any provision of this Agreement is held
invalid, the validity of the remainder of this Agreement shall not be affected.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
"CALIBER"
CALIBER LEARNING NETWORK, INC.
By:________________________________
Chris Nguyen
Title: Chief Operating Officer
"JHU"
THE JOHNS HOPKINS UNIVERSITY
By:________________________________
Steven Knapp
Title: Provost and Vice President for Academic
Affairs
By:________________________________
Edward D. Miller, Jr.
Title: Vice President for Medicine and Dean of
the Medical Faculty, School of Medicine
AND
By:________________________________
Stanley C. Gabor, J.D.
Title: Dean, School of Continuing Studies
-15-
<PAGE>
EXHIBIT 10.05
* Certain information has been omitted in reliance on a confidential treatment
request.
MCI SYSTEMHOUSE CORP./CALIBER LEARNING NETWORK, INC.
ALLIANCE FOR DISTANCE LEARNING
PROGRAM DEVELOPMENT AGREEMENT
THIS PROGRAM DEVELOPMENT AGREEMENT (this "AGREEMENT") is made and entered into
as of the 2nd day of March, 1998 (the "EFFECTIVE DATE"), by and between CALIBER
LEARNING NETWORK, INC. ("CALIBER"), a Maryland corporation with its principal
place of business at 1000 Lancaster Street, Baltimore, Maryland 21202, and MCI
SYSTEMHOUSE CORP. ("MCIS"), A DELAWARE CORPORATION WITH OFFICES AT THREE RAVINIA
DRIVE, ATLANTA, GEORGIA 30346-2102.
RECITALS
A. Caliber is the owner of a network of professional classroom facilities
linked by a proprietary distance learning infrastructure integrating state-
of-the-art satellite transmission, two-way video conferencing, wide-area
network computing and Internet technologies (the "CALIBER LEARNING NETWORK"
or the "NETWORK"). Caliber's classroom facilities are grouped into campuses
("CALIBER CAMPUSES") partitioned into classrooms each with a capacity of
approximately 24 students ("CLASSROOMS").
B. MCIS has organized a professional development institute known as the MCI
Systemhouse Institute (the "INSTITUTE"). In connection with the Institute,
MCIS desires to offer one or more of the following courses of instruction
or seminar events ("COURSES") through the Alliance, utilizing the Caliber
Learning Network: (a) internally targeted LEAD courses, technology
courses, and/or new strategic skills courses designed to build the
intellectual capital of MCIS, enhance recruiting, and improve employee
retention; and (b) client-targeted technology seminars showcasing MCIS's
products and services.
TERMS AND CONDITIONS
In consideration of the mutual covenants and conditions set forth in this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Caliber and MCIS agree as follows:
1. DEFINITIONS
1.1. As used in this Agreement, the following terms shall have the
following meanings:
"APPROVED LOCATION" means any location selected by MCIS at its sole
discretion, but after consultation with Caliber, provided in any
event that such location shall be available for lease by Caliber; and
provided, further, that such location shall not be subject to any
zoning, building, or other similar law, code, regulation, or
ordinance prohibiting the use of such location as a Caliber Campus.
"COMPETITIVE COURSE" means any distance learning course or program directly
or indirectly competitive with any Course offered by MCIS through the
Network during the Term.
"DERIVATIVE WORK" means the adaptation and formatting of the MCIS Course
Content for delivery through the Network, including but not limited
to video tape versions, CD-ROM versions, Internet versions, Power
Point(TM) or similar presentations, and other derivative works.
"MCIS COURSE CONTENT" means presentations, texts and other tangible
expressions of the original intellectual, marketing, or other content
of a Course.
"NETWORK RENTAL DAY" means usage of the Network in any day for more than
four (4) hours of broadcast time but not exceeding eight (8) hours of
broadcast time; and "PARTIAL NETWORK RENTAL DAY" means usage of the
Network in any day for less than four (4) hours of broadcast time.
"NEW CALIBER CAMPUS" means a Caliber Campus not listed on Schedule D
----------
hereto, such schedule being a list of Caliber Campuses which are
operational or under construction as of the Effective Date.
1
<PAGE>
A "TRANSMISSION FAILURE" in a Classroom means, with respect to any Course
offering, the failure or material disruption of Network audio, video,
or internet/intranet transmissions or connectivity such that, in
MCIS' sole judgment, the participants taking the Course in that
Classroom cannot complete the Course as originally designed and
intended.
1.2. The following capitalized terms are defined in the following sections
of this Agreement:
"Advisory Committee" Section 10.2
"Agreement" Preamble
"Alliance" Section 10.1
"Caliber" Preamble
"Caliber Marks" Section 13.2
"Caliber Representative" Section 7.2
"Cancellation Fee" Section 3.3
"Confidential Information Section 12.4.2
"Course Delivery Fees" Section 7.1
"Course Schedule" Section 3.1
"Course Procurement Notice" Section 3.2
"Effective Date" Preamble
"Maximum Design Full Day Course" Section 7.1.1
"Maximum Design Half Day Course" Section 7.1.3
"MCIS" Preamble
"MCIS Marks" Section 13.1
"MCIS Representative" Section 7.2
"Minimum Volume Commitment" Section 8
"Minimum Design Full Day Course" Section 7.1.2
"Minimum Design Half Day Course" Section 7.1.4
"New Campus Specifications" Section 9.1.1
"Notice of Cancellation" Section 3.3
"Program Management Fee Section 7.2
"Program Management Services Section 6
"Term" Section 2
"Two Day Maximum Design Course" Section 7.1.5
"Work Product" Section 12.1
2. TERM
This term of this Agreement shall be one (1) year commencing on the Effective
Date, subject to the right of either party to terminate this Agreement
earlier as provided herein. Upon the expiration of the initial one-year
term, this Agreement may be renewed by the parties upon such terms and
conditions as the parties may agree in writing. The period of
effectiveness of this Agreement is hereinafter referred to as the "TERM."
3. COURSE IDENTIFICATION AND SCHEDULING
3.1. Attached hereto as SCHEDULE A is preliminary list of Courses that may
be offered through the Network under this Agreement (the "COURSE
SCHEDULE") subject to the issuance of Course Procurement Notices as
provided herein. The Course Schedule may
2
<PAGE>
be modified (i.e. any Course listed therein may be rescheduled,
added, or deleted) by MCIS upon written notice to Caliber from time
to time.
3.2. Unless the parties mutually agree to a shorter time period in
relation to any Course(s), at least sixty (60) days prior to the
desired delivery of any Course, MCIS will notify Caliber by separate
written purchase order or other writing (a "COURSE PROCUREMENT
NOTICE"), which Notice shall be final and binding on MCIS,
identifying: (i) the type of Course to be offered, (ii) the length of
the Course; (iii) enrollment and participation fees, and (iv) the
locations, dates, times required by MCIS for the offering. Caliber
shall use its best efforts to accommodate MCIS's preferences
concerning locations, dates, and times, and any changes thereto, but
it is understood and agreed by MCIS that final scheduling shall be
jointly determined by the parties based on Network availability.
Caliber shall give priority status to MCIS's requests for bookings on
any given date, unless a firm booking of the Network has already been
made.
3.3. After a Course Procurement Notice is issued, MCIS may cancel or
reschedule the Course upon written notice to Caliber ("NOTICE OF
CANCELLATION"), subject to the payment of the
cancellation/rescheduling fee, if any, specified in this Section 3.3
(the "CANCELLATION FEE").
3.3.1. If MCIS gives Notice of Cancellation at least forty-five (45)
days prior to the date scheduled for delivery of the Course,
MCIS may cancel or reschedule the Course /*/.
3.3.2. If MCIS gives Notice of Cancellation less than forty-five
(45) days but at least thirty (30) days prior to the
scheduled delivery of the Course, MCIS shall /*/.
3.3.3. If MCIS gives Notice of Cancellation less than thirty (30)
days but at least fifteen (15) days prior to the scheduled
delivery of the Course, MCIS shall /*/.
3.3.4. If MCIS gives Notice of Cancellation less than fifteen (15)
days prior to the scheduled delivery of the Course, MCIS
shall /*/.
3.4. Upon receipt of a Notice of Cancellation, Caliber agrees to use its
reasonable best efforts to procure the use of the Network and/or the
Classrooms at Caliber's usual rates by alternate, third party end-
users for the canceled Network Rental Days or Partial Network
____________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
3
<PAGE>
Rental Days, as the case may be; and, to the extent Caliber is
successful in doing so, the cancellation/rescheduling fee otherwise
paid or payable by MCIS under Section 3.3. shall be /*/.
4. FORMATTING OF COURSE CONTENT
Upon receipt of a Course Procurement Notice for any Course, Caliber will be
responsible for formatting and adapting the underlying MCIS Course Content
as necessary so that the Course is suitable for delivery over the Caliber
Learning Network. MCIS shall cooperate with Caliber and provide such
reasonable assistance as Caliber may require for this purpose.
5. DELIVERY OF COURSE OFFERINGS
5.1. Course Delivery. Caliber will deliver each Course identified in a
---------------
Course Procurement Notice through the Caliber Learning Network on
such dates and times and at such locations as the parties may agree.
In connection with the delivery of each Course, Caliber will:
5.1.1. Provide the software and computer programs, including,
without limitation, class interaction support software,
necessary to deliver the Course.
5.1.2. Provide the hardware components necessary to deliver the
Course and create a two-way audio and video environment,
including, without limitation, a satellite dish and
integrated receiver-decoder to receive the video and audio
signals at each Caliber Campus, and workstations, cameras,
video monitors and related components necessary to return
audio and video signals from each such Campus.
5.1.3. Provide maintenance and related support services necessary to
maintain the software and computer programs and the hardware
components required for delivery of the Course.
5.1.4. Have at least one (1) Caliber employee during the Course
session available at each Caliber Campus where the Course is
being offered to provide assistance to Course participants.
5.1.5. Provide the Course design, management for delivery of that
Course, and the necessary rehearsal time of no less than one
full day for each day the Course is delivered.
5.2. Network Performance. Caliber agrees that it is responsible for the
-------------------
direction of high quality video and audio transmission of each Course
and responsible for directing the presentation of each Course
instructor and the interaction of all participants during each
_____________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
4
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Course. Caliber agrees to use its best efforts to simulate the
interaction between instructor and participants possible in one-to-one
student-instructor classes. Caliber also agrees to manage the
transmission of all internet/intranet content during the Course. If a
Transmission Failure occurs in any Classroom or Classrooms booked for
a Course offering, Caliber shall /*/. Notwithstanding the foregoing,
if a Transmission Failure occurs in /*/ or more of the total number of
Classrooms booked for a Course, Caliber (a) shall /*/ or (b) if MCIS
so elects, shall /*/. Except as provided in this Section, Caliber
makes no warranty, express or implied, concerning the performance of
the Network or any component thereof.
6. PROGRAM MANAGEMENT SERVICES
In connection with each Course offering and the overall implementation of the
Alliance established hereby, Caliber shall provide to MCIS the services
identified on SCHEDULE B hereto ("PROGRAM MANAGEMENT SERVICES").
7. FEES AND PAYMENT
7.1. Course Delivery Fee. For each Course delivered by Caliber hereunder,
-------------------
MCIS agrees to pay to Caliber the following delivery fees ("COURSE
DELIVERY FEES"), or such other fees as the parties may mutually agree
upon from time to time, but in any case not to exceed:
7.1.1. /*/ for Maximum Design Full Day Courses, which amount will be
broken down as /*/ for Course formatting and design, and /*/
for Course delivery as described in Section 5.1. "MAXIMUM
DESIGN FULL DAY COURSES" will include: (i) one full day of
class (assume 6-7 hours of class and 1-2 hours of set up and
tear down); (ii) 40 hours of instructional design, at /*/
(amounting to the /*/ total noted above); (iii) one full day
of rehearsal (8 hours); and (iv) up to 50 Classrooms.
___________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
5
<PAGE>
7.1.2. /*/ for Minimum Design Full Day Courses, which amount will be
broken down as /*/ for Course formatting and design, and /*/
for Course delivery as described in Section 5.1. "MINIMUM
DESIGN FULL DAY COURSES" will include: (i) one full day of
class (assume 6-7 hours of class and 1-2 hours of set up and
tear down); (ii) one full day of rehearsal (8 hours); and
(iii) up to 50 Classrooms.
7.1.3. /*/ for Maximum Design Half Day Courses, which amount will be
broken down as /*/ for Course formatting and design, and /*/
for Course delivery as described in Section 5.1. "MAXIMUM
DESIGN HALF DAY COURSES" will include: (i) one half day of
class (assume 3-3.5 hours of class and .5 - 1 hour of set up
and tear down); (ii) 20 hours of instructional design, at /*/
(amounting to the /*/ total noted above); (iii) one half day
of rehearsal (4 hours); and (iv) up to 50 Classrooms.
7.1.4. /*/ for Minimum Design Half Day Courses, which amount will be
broken down as /*/ for Course formatting and design, and /*/
for Course delivery as described in Section 5.1. "MINIMUM
DESIGN HALF DAY COURSES" will include: (i) one half day of
class (assume 3-3.5 hours of class and .5 - 1 hour of set up
and tear down); (ii) one half day of rehearsal (4 hours); and
(iii) up to 50 Classrooms.
____________________
(Footnote continued from previous page)
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
6
<PAGE>
7.1.5. /*/ for Two Day Maximum Design Courses, which amount will be
broken down as /*/ for Course formatting and design, and /*/
for Course delivery as described in Section 5.1. "TWO DAY
MAXIMUM DESIGN COURSES" will include: (i) two full days of
class (assume 6-7 hours of class and 1-2 hours of set up and
tear down per day); (ii) 48 hours of instructional design;
(iii) two full days of rehearsal (16 hours); and (iv) up to
50 Classrooms.
7.1.6. The parties will establish mutually agreeable guidelines
pursuant to which Course Delivery Fees will be reduced
whenever and wherever circumstances warrant. Course Delivery
Fees shall be payable in accordance with Caliber invoices
issued pursuant to this Agreement from time to time as and
when the underlying services are rendered. Such invoices are
due and payable within thirty (30) days of receipt thereof by
MCIS.
7.2. Program Management Fee. Caliber shall appoint a single
----------------------
representative to act as MCIS's prime point of contact under this
Agreement, with responsibility for management of Caliber's
involvement in the Alliance (the "CALIBER REPRESENTATIVE"). In
consideration of the Program Management Services provided by Caliber
hereunder, and the appointment of the Caliber Representative, MCIS
agrees to pay to Caliber a monthly management fee of /*/ and agrees
to reimburse Caliber for pre-approved (by the MCIS Representative),
reasonable travel expenses of the Caliber Representative related to
this Agreement (the "PROGRAM MANAGEMENT FEE"). Except as expressly
noted in this Section, Caliber shall be responsible for the costs of
all its own personnel pursuant to this Agreement. The Program
Management Fee due in any given month shall be invoiced and shall be
payable within thirty (30) days of receipt thereof by MCIS. MCIS
shall appoint a single representative to act as Caliber's prime point
of contact under this Agreement, with responsibility for management
of MCIS's involvement in the Alliance (the "MCIS REPRESENTATIVE").
MCIS shall be responsible for the costs of its own personnel pursuant
to this Agreement, including the MCIS Representative.
7.3. Additional Classrooms. It is understood and agreed by MCIS that the
---------------------
Course Delivery Fees set forth in this Section shall apply to Course
offerings delivered to a maximum of (50) Classrooms. In the event, at
MCIS's request, a Course is delivered to more than fifty (50)
Classrooms:
________________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
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<PAGE>
7.3.1. The Course Delivery Fee otherwise payable under Sections
7.1.1, 7.1.2 or 7.1.5 shall be increased by /*/ for each
Classroom in excess of the fifty (50) Classroom maximum; and
7.3.2. The Course Delivery Fee otherwise payable under Section 7.1.3
or 7.1.4 shall be increased by /*/ for each Classroom in
excess of the fifty (50) Classroom maximum.
8. MINIMUM VOLUME COMMITMENT
In consideration of the preferential pricing set forth in the preceding section,
MCIS hereby agrees that it shall pay Caliber at least /*/ (herein referred
to as the "MINIMUM VOLUME COMMITMENT") during the Term for the activities
contemplated herein, which sum shall include the cumulative amounts paid to
Caliber for: (a) Course Delivery Fees; (b) the Program Management Fee; and
(c) funding for Broadcast `98.
9. EXPANSION OF RELATIONSHIP; PREFERRED PARTNER COVENANTS
9.1. Construction of Additional Campuses.
-----------------------------------
9.1.1. /*/ Threshold. At such time, if any, as MCIS shall have
---------
delivered or, as evidenced by Course Procurement Notices,
committed to deliver through the Network during the Term that
number of Course Offerings as shall have generated or will
generate fees to Caliber under this Agreement equal to or
exceeding /*/ over and above the Minimum Volume Commitment,
including the Program Management Fee and funding for
Broadcast '98, Caliber shall construct one (1) New Caliber
Campus in Canada at an Approved Location and meeting the
general specifications set forth on SCHEDULE C hereto (the
"NEW CAMPUS SPECIFICATIONS").
9.1.2. /*/ Threshold. At such time, if any, as MCIS shall have
---------
delivered or, as evidenced by Course Procurement Notices,
committed to deliver through the Network
_____________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
8
<PAGE>
during the Term that number of Course Offerings as shall have
generated or will generate fees to Caliber under this
Agreement equal to or exceeding /*/ over and above the Minimum
Volume Commitment, including the Program Management Fee and
funding for Broadcast '98, Caliber shall construct a second
New Caliber Campus in Canada at an Approved Location meeting
the New Campus Specifications.
9.1.3. /*/ Threshold. At such time, if any, as MCIS shall have
---------
delivered or, as evidenced by Course Procurement Notices,
committed to deliver through the Network during the Term that
number of Course Offerings as shall have generated or will
generate fees to Caliber under this Agreement equal to or
exceeding /*/ over and above the Minimum Volume Commitment,
including the Program Management Fee and funding for Broadcast
'98, Caliber shall construct a third New Caliber Campus in
Canada at an Approved Location meeting the New Campus
Specifications.
9.1.4. Waiver of Conditions. Caliber in its sole and absolute
--------------------
discretion may elect to waive the minimum volume thresholds
set forth in Sections 9.1.1 through 9.1.3 and to construct or
commence the construction of the New Caliber Campuses
contemplated by this section at an Approved Location
notwithstanding the failure of MCIS to meet such minimum
thresholds.
9.1.5. Time. Caliber agrees that each New Caliber Campus it is
----
required to construct under this Section 9.1 shall be fully
operational not later than one hundred twenty (120) days
following the later of (a) the achievement of the minimum
volume thresholds associated with such New Caliber Campus
under Section 9.1 or (b) the identification by MCIS of the
Approved Location for such New Caliber Campus.
9.2. Use of Canadian Sites Pending Construction. Until such time as New
------------------------------------------
Caliber Campuses are constructed by Caliber in Canada pursuant to this
Agreement, Caliber's existing facilities in Montreal, Toronto and
Vancouver, with each location having twelve (12) desktops able to
accommodate 2 students each, for a total of twenty-four (24) students
per location, will be utilized; and, should MCIS require additional
classroom space in Canada for the delivery of any Course, Caliber
shall procure such additional classroom space from a third-party
provider, in which event MCIS shall pay to Caliber a classroom
_______________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
9
<PAGE>
procurement fee equal to /*/, or such other fee as the parties may
agree upon in writing in advance, which fee shall be in addition to
any Course Delivery Fees and any other fees otherwise payable by MCIS
hereunder in connection with the Course. Notwithstanding the
foregoing, MCIS shall not be obligated to pay any classroom
procurement fee under this section if and to the extent the need for
such alternate classroom space is attributable to the failure of
Caliber to construct any New Caliber Campus within the one hundred
twenty (120) day period contemplated by Section 9.1.5, it being
understood and agreed by the parties that, without limiting MCIS's
other rights and remedies as provided in this Agreement, the waiver
of such fee shall be Caliber's sole and exclusive liability for
breach of such section.
9.3. Preferred Partner. During the Term, Caliber shall not offer, develop,
-----------------
or assist in the development of any Competitive Course for or in
conjunction with the following systems integration or
telecommunications competitors of MCIS, including their affiliates:
Electronic Data Systems
Sprint
AT&T
Andersen Consulting
IBM/ISSC/ISM
CSC
9.4. Most Favored Customer. MCIS shall have the right to enroll its
---------------------
employees in any Caliber IT course offered during the Term at the
lowest prices for such course which Caliber offers to its best
customers, inclusive of any special discount or volume rebate. MCIS
enrollees may select from the full syllabus of Caliber courses, and,
if the parties mutually determine that there is sufficient volume of
such enrollees, Caliber shall customize the course offering for those
enrollees, in which event such customization shall be an additional
service under Section 11, subject in any event to the consent of
Caliber's content partner.
10. ALLIANCE ADMINISTRATION
10.1. Name. The joint distance learning initiative of the parties
----
evidenced by this Agreement shall be known and referred to by the
parties in public announcements of the same as the Alliance for
Distance Learning (the "ALLIANCE").
10.2. Advisory Committee. The parties agree to constitute an advisory
------------------
committee which shall have general oversight authority over the
administration of Course offerings and for the direction of the
Alliance generally (the "ADVISORY COMMITTEE"). The Advisory
_________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
10
<PAGE>
Committee shall meet not less frequently than quarterly in accordance
with such by-laws or other rules of order as the parties may
establish. Membership on the Advisory Committee will be composed of
three MCIS appointees and two Caliber appointees. Decisions will be
reached on a majority vote basis. The Chair of the Advisory Committee
shall be an MCIS nominee. The Caliber Representative will provide
quarterly reports to the Advisory Committee.
10.3. Performance Criteria. Through the Advisory Committee, the parties
--------------------
will jointly develop a set of performance criteria to evaluate the
Courses and on the basis of such criteria shall review the
performance of the Alliance from time to time and in any event at
least sixty (60) days prior to the expiration of the initial one-year
Term in order to assist the parties in their respective
determinations whether to renew this Agreement or otherwise continue
the Alliance.
10.4. Implementation Audits. MCIS shall have the right to observe the
---------------------
delivery of each Course at all Caliber Campuses and other locations
authorized by MCIS offering the Course and to request reasonable
changes in the implementation or delivery of the Course to address
any problems identified by MCIS.
11
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11. ADDITIONAL SERVICES
11.1. Types of Services. Notwithstanding the fact that some or all of the
-----------------
services listed below may be part of the Course development and
delivery hereunder, Caliber shall use its best efforts on a case by
case basis to provide additional services outside the scope of this
Agreement at MCIS's request, which services may include, but shall
not be limited to, one or more of the following as the parties may
agree:
11.1.1. Classroom and equipment rental.
11.1.2. Video roll-ins, enhanced video production, additional power
points, slides, animation, voice-overs, software demos,
creation of software labs, the loading of specialized
software on file servers, or creation, loading and
maintenance of software which is not a part of the Caliber
platform.
11.1.3. Coordinating student registration and enrollment using
inbound toll-free numbers, web-based registration, or other
methodologies.
11.1.4. Collection and disbursement of participant enrollment fees
and other revenues derived from course offerings.
11.1.5. Development and implementation of marketing plans and
strategies.
11.2. Pricing. Such additional services are not included in the Program
-------
Management Fee or Course Delivery Fees and shall be provided to
MCIS, if at all, at such prices as the parties may agree; provided,
however, that such additional services shall be provided to MCIS at
the lowest price which Caliber offers to its best customers,
inclusive of special discounts and volume rebates.
11.3. Multi-Point Video Conferencing Facilities. MCIS may obtain multi-
-----------------------------------------
point video conferencing facilities from Caliber at a rate of /*/
for a full day (consisting of more than four (4) hours of use not to
exceed a maximum of eight (8) hours of use) and /*/ per partial day
(consisting of less than four (4) hours of use). It is understood
that such rate includes only the use of video conferencing
facilities and does not include studio facilities, program
management, facilitators, instructional design, and the like.
11.4. Alliance Revenues and Income. Any revenue generated through the
----------------------------
delivery of Courses to the public by the Alliance shall, subject to
the payment by MCIS of Course Delivery Fees, Program Management
Fees, and any other fees payable by MCIS under this
____________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
12
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Agreement, be for MCIS's benefit and MCIS shall be responsible for
the administration, including invoicing, collection, and audit, of
such MCIS revenue.
13
<PAGE>
12. OWNERSHIP AND USE
12.1. Ownership. Except as otherwise expressly agreed to by the parties in
---------
this Agreement or otherwise in writing after the Effective Date
hereof, MCIS and Caliber shall be under no obligations to develop a
particular product or service jointly or through the initiatives set
forth in this Agreement. If a feature, function, innovation,
product, offering, or other original literary, artistic, technical,
or other material (herein, a "WORK PRODUCT") is developed by MCIS
alone, or in collaboration with Caliber or a third party, MCIS shall
obtain and retain all intellectual property rights arising therefrom
and shall have the sole right to obtain and to hold in its own name
copyrights, registrations, patents, or other such protection,
including any extensions or renewals thereof, as may be appropriate
to this Work Product, and Caliber shall have no right, title or
interest therein. Subject to Section 12.2, MCIS shall have the full,
sole, and continuous right (without any payments or liabilities to
any person) to use, publish, perform, reproduce and distribute
throughout the world any or all portions of this Work Product,
either as a complete unit or in segments in any way MCIS sees fit
and for any purpose whatsoever. Caliber hereby waives, and shall
secure a waiver by its employees or agents of, moral rights in and
to the Work Product. Nothing herein is intended to give either party
any title to the other party's pre-existing intellectual property
rights. The parties understand and agree that MCIS will retain
ownership of the Courses, MCIS Course Content and all Derivative
Work. MCIS understands and agrees that Caliber is not granting MCIS
any ownership rights in any Caliber Learning Campus or in any
equipment, property, systems, software, know-how, or technical or
operational information or other materials used by Caliber to
deliver the Courses. "Ownership," as used in this section, shall
mean all proprietary rights, including, without limitation,
copyright, trade secrets and patents.
12.2. Use Restrictions.
----------------
12.2.1. Other than as necessary to perform its obligations under
this Agreement, Caliber shall not license, use or permit
any use of the Derivative Work without the express prior
written consent and approval of MCIS.
12.2.2. Any provision of this Agreement to the contrary
notwithstanding, following the delivery and broadcast of a
Course over the Network, MCIS agrees that, notwithstanding
Section 12.1, MCIS shall not re-broadcast, re-transmit, or
otherwise use or license others to use any videotape of
such broadcast other than for internal training and/or
communications, except with Caliber's prior written
consent, which consent shall not be unreasonably withheld.
12.3. Applications and Filings. MCIS and Caliber shall cooperate in good
------------------------
faith with one another, at their own expense, to make all necessary
applications and filings, including patent and copyright
registration and other legal protections, both U.S. and foreign, to
protect the interests of the parties, or either of them, in the
Courses and the Derivative Work, as provided in this Agreement.
14
<PAGE>
12.4. Confidentiality.
---------------
12.4.1. Caliber shall take reasonable and necessary precautions to
prevent the unauthorized copying, removal, alteration,
disclosure, use, loss of or improper access to the MCIS
Course Content, the Derivative Work, and the Courses.
12.4.2. MCIS acknowledges that, during the Term and in the course
of performing its obligations hereunder, it may be the
recipient of or become exposed to proprietary and
confidential information of Caliber in written or other
tangible form (including on magnetic media) or by oral,
visual, or other means, including, but not limited to,
information marked or otherwise identified as confidential
or proprietary, customers or active prospects, strategic
plans and materials, marketing strategies, business data,
financial information, distance learning systems, and
software (such information of either party being
collectively referred to as "CONFIDENTIAL INFORMATION").
MCIS acknowledges and agrees that such Confidential
Information disclosed by Caliber shall remain the exclusive
property of Caliber, and that MCIS shall not disclose, use,
copy, or make available such Confidential Information to
anyone, except as may be required in the course of
performing its obligations hereunder. MCIS agrees to only
make such Confidential Information available to employees
on a need-to-know basis.
12.4.3. Caliber acknowledges that, during the Term and in the
course of performing its obligations hereunder, it may be
the recipient of or become exposed to Confidential
Information of MCIS. Caliber acknowledges and agrees that
such Confidential Information disclosed by MCIS shall
remain the exclusive property of MCIS, and that Caliber
shall not disclose, use, copy, or make available such
Confidential Information to anyone, except as may be
required in the course of performing its obligations
hereunder. Caliber agrees to only make such Confidential
Information available to employees on a need-to-know basis.
12.4.4. Caliber and MCIS agree Confidential Information is unique
and valuable, and that money damages would not be a
sufficient remedy for any breach of this Section 12.4 and
that, in addition to all other remedies, both parties shall
be entitled to specific performance and injunctive and
equitable relief as a remedy for any such breach. Caliber
and MCIS agree to be responsible for any breach of this
Section 12.4 by any of its employees, officers, directors
or agents and also agrees to pay any and all reasonable
attorney's fees incurred by either party in enforcing the
provisions of this Section 12.4.
12.4.5. Each party shall protect the Confidential Information of
the other party from disclosure contrary to the terms of
this Section 12.4 using the same degree of care used to
protect its own confidential or proprietary information,
but in any case using no less than a reasonable degree of
care.
12.4.6. The restrictions of this Agreement on use and disclosure of
Confidential Information shall not apply to information
that:
15
<PAGE>
12.4.6.1. Was publicly known at the time of the disclosing
party's communication thereof to the receiving
party;
12.4.6.2. Becomes publicly known through no fault of the
receiving party subsequent to the time of the
disclosing party's communication thereof to the
receiving party;
12.4.6.3. Was in the receiving party's possession free of
any obligation of confidence at the time of the
disclosing party's communication thereof to the
receiving party;
12.4.6.4. Is developed by the receiving party
independently of and without reference to any of
the disclosing party's Confidential Information
or other information that the disclosing party
disclosed in confidence to any third party;
12.4.6.5. Is rightfully obtained by the receiving party
without burden of confidentiality from third
parties authorized to make such disclosure
without restriction; or
12.4.6.6. Is identified by the disclosing party as no
longer proprietary or confidential.
12.4.7. In the event the receiving party is required by law,
regulation or court order to disclose any of the disclosing
party's Confidential Information, the receiving party will,
to the extent permitted by law, promptly notify the
disclosing party in writing prior to making any such
disclosure in order to facilitate the disclosing party
seeking a protective order or other appropriate remedy from
the proper authority. The receiving party agrees to
cooperate with the disclosing party in seeking such order
or other remedy. The receiving party further agrees that if
the disclosing party is not successful in precluding the
requesting legal body from requiring the disclosure of the
Confidential Information, it will furnish only that portion
of the Confidential Information which is legally required
and will exercise all reasonable efforts to obtain reliable
assurances that confidential treatment will be accorded the
Confidential Information.
12.4.8. All Confidential Information disclosed under this Agreement
(including information in computer software or held in
electronic storage media) shall be and remain the property
of the disclosing party. All such information in tangible
form shall be returned to the disclosing party promptly
upon written request or the termination or expiration of
this Agreement, and shall not thereafter be retained in any
form by the receiving party.
12.4.9. The disclosing party shall not have any liability or
responsibility for errors or omissions in, or any decisions
made by the receiving party in reliance on, any
Confidential Information disclosed under this Agreement.
16
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13. MCIS AND CALIBER MARKS
13.1. MCIS Marks. Caliber acknowledges that MCIS owns, is licensed to
----------
use, or otherwise possesses various registered and unregistered
trademarks and service marks ("MCIS MARKS"). MCIS may, from time to
time in writing, grant to Caliber the non-exclusive, limited right
and license to use designated MCIS Marks for and during the Term in
connection with the implementation of the Alliance and the delivery
of Courses hereunder. Caliber expressly acknowledges MCIS's rights
in and to the MCIS Marks and agrees not to represent in any manner
that Caliber has acquired any ownership rights in the MCIS Marks.
13.2. Caliber Marks. MCIS acknowledges that Caliber possesses various
-------------
registered and unregistered trademarks and service marks, including
but not limited to "Caliber", "Caliber Learning Network," "Caliber
Learning Campus," and the Caliber mountain peak logo ("CALIBER
MARKS"). Caliber may, from time to time in writing, grant to MCIS
the non-exclusive, limited right and license to use the Caliber
Marks for and during the Term in connection with the implementation
of the Alliance and the delivery of Courses hereunder. MCIS
expressly acknowledges Caliber's rights in and to the Caliber Marks
and agrees not to represent in any manner that MCIS has acquired
any ownership rights in the Caliber Marks.
13.3. Misuse of Marks. Each party understands and agrees that any use of
---------------
the other party's marks, other than as expressly authorized by this
Agreement, without the other party's prior written consent, is an
infringement of such other party's rights in and to its marks and
that the right granted herein to use the other party's marks does
not extend beyond the termination or expiration of this Agreement.
Each party expressly covenants that, during the term of this
Agreement and thereafter, such party shall not, directly or
indirectly, commit any act of infringement or contest or aid others
in contesting the validity of such other party's right to use its
marks or take any other action in derogation thereof.
13.4. Monitoring. Each party acknowledges an obligation to monitor its
----------
own use of the other party's marks and agrees to do so. Each party
shall notify the other of any claim, demand, cause of action of
which it becomes aware that the other party may have based upon or
arising from any unauthorized attempt by any person or entity to
use such other party's marks, any colorable variation thereof, or
any other mark, name or indicia in which such other party has or
claims a proprietary interest and shall assist such other party,
upon its request and at such other party's expense, in taking
action including legal action, if any, as such other party may deem
appropriate to halt such activities, but shall take no action nor
incur any expenses on such other party's behalf without such other
party's prior written approval.
13.5. Requirements. Each party further agrees and covenants to use the
------------
other party's marks solely in the manner prescribed by such other
party, to observe all laws with respect to the registration of
trade names and assumed or fictitious names, to include in any
application therefor a statement that such party's use of the other
party's marks is limited by the terms of this Agreement, and to
provide such other party with a copy of any such application and
other registration document(s); and to observe such requirements
with
17
<PAGE>
respect to trademark and service mark registrations and copyright
notices as the other party may, from time to time, require,
including, without limitation, affixing "SM," "/TM/", or "(R)"
adjacent to such other party's marks.
13.6. Guidelines. Each party shall from time to time provide written
----------
guidelines to the other party, regarding the proper depiction of
the party's marks. Public announcements, press releases, catalog
copy, copy and graphics for print advertising, information
booklets, and promotional literature that a party proposes to use
in conjunction with this Agreement or any Course shall be submitted
to the other party for review, editing and comment, at least thirty
(30) days prior to intended use or reproduction (whichever is to
occur first). Until such time, if any, as approval is received, the
material shall not be used by the party requesting approval..
Components or advertisements previously approved require re-
submission and re-approval before they may be used subsequently.
Each party shall designate for the other party's contact a person
on their respective staffs who shall have responsibility for the
review and response procedures described in this paragraph. Each
party shall provide the other party with its then current published
materials relating to products and services relevant to this
Agreement from time to time. Neither party shall make any
representations or warranties to others concerning the products or
services of the other party that are inconsistent with those made
by the other party in the most current published materials provided
by such other party in accordance with the above.
14. COOPERATION
Upon execution of this Agreement, MCIS and Caliber each shall identify a
sufficient number of qualified persons from their respective organizations
who will be responsible for the coordination, design, development and
implementation of the Alliance under this Agreement.
15. PARTICIPANT NAMES
Each party will have access to the names of all Course participants, and with
the prior approval of the other party, which approval shall not be
unreasonably withheld, such party may use those names in its mailings and
other marketing-related activities. Without limiting the generality of the
foregoing, registration forms for Courses shall enable Course participants
to indicate their willingness or unwillingness to receive such materials.
16. DEFAULT AND TERMINATION
16.1. Notice and Cure. This Agreement may be terminated by either party
---------------
if the other party is in breach of any material provision of this
Agreement, but only after written Notice of Default and opportunity
to cure as provided herein has been given to the breaching party.
With respect to a monetary default, the notice of default must
provide for an opportunity to cure of at least twenty (20) days
following receipt of the notice. With respect to a non-monetary
default, the notice of default must provide for an opportunity to
cure of at least thirty (30) days following receipt of the notice.
If the party receiving the notice has not cured the breach before
the cure date stated in the notice, the party giving notice may
terminate this Agreement by giving the breaching party a written
Notice of Termination, stating the date on which the termination is
to be effective. Breaches by Caliber would include, but are not
limited to, a material technical inability by Caliber to deliver
the Courses over the Network, or an inability on a material and/or
continuing basis to meet
18
<PAGE>
MCIS' scheduling requirements. With respect to incurable breaches
described in Section 16.2, a period of cure does not have to be
provided. Notwithstanding the delivery of a Notice of Default or
Notice of Termination by either party to the other, all obligations
to perform services shall continue in effect and be duly observed
and complied with by both parties until the effective date of any
termination. Upon the effective date of termination of this
Agreement for any reason, any outstanding Course Procurement
Notices shall be deemed to be cancelled without any further
obligation, penalty or charge to either party.
16.2. Material Breaches That Cannot Be Cured. The following types of
--------------------------------------
activity are acknowledged by the parties to be incurable, material
breaches and are cause for immediate termination by the non-
breaching party effective upon delivery of written Notice of
Termination:
16.2.1. Any willful breach by either party of such party's
confidentiality obligations under this Agreement.
16.2.2. Any act of theft or embezzlement by either party.
16.2.3. Any breach by either party of such party's obligations
under Section 12.2, Use Restrictions, of this Agreement.
----------------
16.3. Use of Marks After Termination. Upon termination of this Agreement
------------------------------
for any reason, all rights to use and promote the Courses in
conjunction with the other party's marks or otherwise shall
immediately cease.
16.4. Dispute Resolution. The parties hereto agree to attempt to settle
------------------
any dispute, controversy or difference which may arise between or
among them in connection with this Agreement or any Schedule
attached hereto by good faith discussions between or among the
Caliber Representative and MCIS Representative. If resolution
cannot be achieved by such representatives within ten business days
of referral to them, the dispute will be referred to the Advisory
Committee. If the Advisory Committee is unable to resolve the
dispute by a unanimous decision within thirty days of referral to
it, either party may pursue whatever remedies are available to it
under this Agreement, at law, or in equity.
17. NOTICES
Any notices or other communications required or which may be given by either
party to the other party under this Agreement shall be in writing and may
be sent by facsimile. However, the original shall be sent either by
overnight courier, with a verified receipt, or by certified mail, return
receipt requested, postage prepaid and addressed to and at the address
stated below or to such other address as the parties shall subsequently
designate to each other by notice given in accordance with this Section.
Such notice shall be deemed to be sufficiently given when the original is
received by the receiving party.
19
<PAGE>
FOR MCIS:
SHL Systemhouse Co.
Att'n: Richard Bertrand
Vice President Marketing
50 O'Connor Street
Suite 501
Ottawa, Ontario
K1P 6L2
(e-mail:[email protected])
Fax: 613/236-8984
with a copy to: John LaCalamita, Vice President, Chief Legal Counsel and
Secretary
Fax: 416/813-1399
FOR CALIBER:
Caliber Learning Network, Inc.
Attn: Chris Nguyen
1000 Lancaster Street
Baltimore, Maryland 21202
(e-mail: [email protected])
with a copy to: O. Steven Jones, General Counsel
Fax: 410/843-8059
18. INDEPENDENT CONTRACTORS
Under this Agreement, each party agrees that it will perform as an independent
contractor and not as an agent or employee of the other party. Nothing in
this Agreement is intended to or shall be deemed to create a partnership or
joint venture of any kind. Neither party shall have the authority to, or
shall attempt to, bind or commit the other party for any purpose except as
expressly provided herein.
19. APPLICABLE LAW
This Agreement shall be deemed to have been made in the State of New York and
shall be construed and enforced in accordance with, and the validity and
performance hereof shall be governed by, the laws of the State of New York,
without regard to conflict of laws principles. Judicial proceedings
regarding any matter arising under the terms of this Agreement shall be
brought solely in the federal or local courts of the State of New York.
20. FORCE MAJEURE
Neither party shall be liable for delay or failure in performance of any of
its obligations under this Agreement when such delay or failure arises from
events or circumstances beyond the reasonable control of such party
(including, without limitation, acts of God, fire, flood, war, explosion,
sabotage, terrorism, embargo, civil commotion, acts or omissions of any
government entity, or labor disputes).
20
<PAGE>
21. WAIVER
No failure on the part of either party to exercise, no delay in exercising,
and no course of dealing with respect to any right, power or privilege
under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or privilege preclude
any other or further exercise thereof or the exercise of any other right,
power or privilege.
22. ASSIGNMENT
Caliber may not assign this Agreement, or any part thereof, without the prior
written approval of MCIS, which approval shall not be unreasonably
withheld. MCIS may assign this Agreement at any time upon notice to
Caliber, provided that such assignment shall not relieve MCIS of its
obligations hereunder.
23. SURVIVAL BEYOND TERMINATION
23.1. The parties' obligations arising under Sections 12.1, Ownership,
---------
12.2, Use Restrictions, 12.4, Confidentiality, 24, Indemnification,
---------------- --------------- ---------------
shall survive the expiration or termination of this Agreement.
23.2. Any Courses scheduled for delivery after termination or expiration
of this Agreement shall be automatically cancelled without penalty
or charge of any kind to MCIS unless the parties otherwise mutually
agree in writing.
24. INDEMNIFICATION
24.1. Caliber shall indemnify and hold harmless MCIS from and against any
and all loss, damage, injury, liability or suit incurred by MCIS as
a result of or arising from (i) any Course participant's claim of
personal injury or property damage while attending a Course at a
Caliber Campus and (ii) the development of the Courses or any MCIS
Course Content or any other software, products or services provided
by Caliber to MCIS, including, without limitation, any claims that
any of the above infringe or otherwise violate any patent,
copyright, trade secret or other proprietary right.
24.2. MCIS shall indemnify and hold harmless Caliber from and against any
and all loss, damage, injury, liability or suit incurred by Caliber
as a result of or arising from the development of the Courses or
any MCIS Course Content provided by MCIS to Caliber, including,
without limitation, any claims that such Content infringes or
otherwise violates any patent, copyright, trade secret or other
proprietary right.
25. GENERAL
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and all previous agreements or
discussions between the parties relating to the subject matter hereof,
written or oral, will be terminated and/or superseded by this Agreement;
however, this Agreement shall not supersede or in any way affect the
validity or enforceability of MCIS purchase orders with respect to the
subject matter hereof outstanding on the Effective Date. Payment of any
amounts due pursuant to such purchase orders shall be credited toward the
Minimum Volume Commitment. Any representation, warranty or condition,
written or
21
<PAGE>
otherwise, not expressly contained in this Agreement or in an authorized
written amendment thereto shall not be relied upon by either party. Each of
the parties acknowledge that it has not been induced to enter into this
Agreement by any representation not specifically stated herein. This
Agreement may only be changed or modified in writing signed by both
parties. If any provision of this Agreement is held invalid, the validity
of the remainder of this Agreement shall not be affected. Each party agrees
not to directly solicit or hire any employee of the other during the Term,
and for a period of one year after the termination or expiration of this
Agreement, without the other party's prior written permission. This
Agreement may be executed simultaneously 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. The parties agree and confirm that
the provisions of Section 9.3, 9.4, and 11.2 are fair and reasonable in the
commercial circumstances of this Agreement, protect the legitimate business
interests of the parties, and do not constitute any undue restraint of
trade, and that the consideration provided under this Agreement adequately
and fairly compensates the parties in connection with such designations,
which have been an inducement to enter into this Agreement.
26. LIMITATION OF LIABILITY
NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY INCIDENTAL,
CONSEQUENTIAL, SPECIAL, OR PUNITIVE DAMAGES OR LOST OR IMPUTED PROFITS OR
ROYALTIES ARISING OUT OF THIS AGREEMENT OR ITS TERMINATION, WHETHER FOR
BREACH OF WARRANTY OR ANY OBLIGATION ARISING THEREFROM OR OTHERWISE,
WHETHER LIABILITY IS ASSERTED IN CONTRACT OR TORT (INCLUDING NEGLIGENCE AND
STRICT PRODUCT LIABILITY) AND IRRESPECTIVE OF WHETHER THE PARTY HAS ADVISED
OR HAS BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE. EACH
PARTY HEREBY WAIVES ANY CLAIMS THAT THESE EXCLUSIONS DEPRIVE SUCH PARTY OF
AN ADEQUATE REMEDY.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as at
the day and year first above written.
CALIBER LEARNING NETWORK, INC. MCI SYSTEMHOUSE CORP.
By:___________________________ By_____________________________
Chris L. Nguyen, President
Name:__________________________
Title:_________________________
22
<PAGE>
SCHEDULE A
TO MCIS/CALIBER PROGRAM DEVELOPMENT AGREEMENT
AVAILABLE COURSE SCHEDULE
-------------------------
THE FOLLOWING IS A LIST OF AVAILABLE DATES FOR COURSES AND DOES NOT CONSTITUTE A
COMMITMENT OR PROMISE TO ENGAGE IN SUCH TRAINING AT THE TIMES LISTED OR
OTHERWISE. NO COMMITMENT TO OBTAIN COURSES BY MCIS SHALL BE MADE EXCEPT IN
ACCORDANCE WITH DULY ISSUED COURSE PROCUREMENT NOTICES, WHICH COURSES MAY BE
CANCELLED OR RESCHEDULED IN ACCORDANCE WITH THE AGREEMENT.
PROFESSIONAL DEVELOPMENT COURSES
- --------------------------------
<TABLE>
<S> <C> <C>
April 7-8 Project Management 2 full days of training
April 29 Go to Market Strategy session 1 full day of training
and SHL Win
May 5-6 SHL Transform 1 full day of training
May 19-20 Protrack 2 full days of training
May 28 Behavioral Interviewing 1 full day of training
June 17-18 Project Management 2 full days of training
June 22 Orientation 1 full day of training
July 21-23 Successfully Managing People 2 full days of training
September 9 Orientation (Repeated from 6/22/98) 1 full day of training
September 23-24 EPM/Career Coaching 2 full days of training
November 18 Orientation (Repeated from 6/3/98) 1 full day of training
</TABLE>
EXTERNAL SEMINARS
- -----------------
<TABLE>
<S> <C> <C>
May Seminar I 1 half day (4 hrs)
June Seminar II 1 half day (4 hrs)
September Seminar III 1 half day (4 hrs)
October Seminar IV 1 half day (4 hrs)
</TABLE>
<PAGE>
SCHEDULE B
TO MCIS/CALIBER PROGRAM DEVELOPMENT AGREEMENT
PROGRAM MANAGEMENT SERVICES
---------------------------
1. Development and implementation of a rolling three year strategic plan,
should the parties agree to extend the Term beyond the initial one year
period for current and future Alliance activities
2. Quarterly reporting to MCIS on mutually agreed upon performance metrics,
potentially to include some or all of the following: Level I Course
Evaluation, Level II Knowledge based testing, Level III Impact Level
Analysis (done 3-6 months after training activities), and Level IV Proof
Level Evaluation (performance improvement tied to specific strategic
business objectives)
3. Budget management and control processes
4. Provide limited support to MCIS in the development and definition of an
internal marketing plan, including product positioning and market execution,
for the Alliance's internal professional development activities
5. Provide limited support to MCIS in the development and definition of a
marketing plan, including product positioning, suggested pricing, and market
execution for the external seminar series
6. Provide limited support to MCIS in the development and creation of all
product marketing (print, web-based, and other medium as desired) to support
the Alliance's activities
7. Overall project management responsibilities to ensure the timely execution
of the strategic plan
DESCRIPTION OF SPECIAL OFFERINGS
The following is a description of the purpose and intent behind some of the
activities referenced in the Agreement.
1. Broadcast '98
-------------
This one-hour event ("Broadcast '98") is currently scheduled for March, 1998.
The purpose of the event is to communicate internally the new strategic
directions for MCIS. Scott Ross and other key executives will present their key
initiatives to as many MCIS employees as possible. All sites that coincide with
MCIS employee locations will be used; the cost of ad hoc sites will be provided
to MCIS and billed separately.
2. Thought Leadership Seminar Series
---------------------------------
The Alliance may design and deliver a series of client-centered technology
forums/seminars that showcase MCIS's products and services. The first of these
programs may be held in May 1998. All intellectual property rights associated
with this deliverable shall vest in MCIS in accordance with section
<PAGE>
12.1 of the Agreement.. The purpose of the series is to provide a platform for
'MCIS Thought Leaders' to demonstrate their leadership on topics of interest to
CIOs and other key decision-makers among the broad audience of MCIS clients and
prospects. Other targeted audiences may include students on campus (as part of
regular recruiting initiatives) and MCIS's employees, as well as the clients and
employees of MCIS affiliates (including other MCI Communications Corporation
companies), WorldCom, Inc. clients and employees, and MCIS's strategic alliance
and joint venture partners.
<PAGE>
SCHEDULE C
TO MCIS/CALIBER PROGRAM DEVELOPMENT AGREEMENT
NEW CAMPUS SPECIFICIATIONS
--------------------------
1. 4500 square feet.
2. 45 workstations
3. Comparable design and functionality to existing Caliber Campuses.
<PAGE>
SCHEDULE D
TO MCIS/CALIBER PROGRAM DEVELOPMENT AGREEMENT
CALIBER CAMPUSES OPEN OR UNDER CONSTRUCTION
-------------------------------------------
<TABLE>
<CAPTION>
NO. LOCATION
<C> <S>
1 Atlanta
2 Raleigh
3 Charlotte
4 New York (Broad St.)
5 Jacksonville
6 Philadelphia
7 Orlando
8 Nashville
9 Baltimore
10 Austin
11 Houston
12 Cincinnati
13 Paramus
14 Washington, D.C.
15 New Orleans
16 Richmond
17 Detroit
18 San Diego
19 Milwaukee
20 Chicago
21 Salt Lake City
22 Dallas
23 Denver
24 Kansas City
25 Tampa
26 Oklahoma City
27 Sacramento
28 Portland
29 Cleveland
30 Minneapolis
31 Rochester
32 Boston
33 Seattle
34 Montreal
35 Vancouver
36 Toronto
37 New York
38 Culver City
39 Santa Ana
40 Pittsburgh
41 San Francisco
42 New York - Park Avenue
43 Los Angeles
44 Long Island
45 St. Louis
46 Phoenix
47 San Jose
48 Miami
49 Indianapolis
50 Palo Alto - Cybersmith
51 Memphis
</TABLE>
<PAGE>
EXHIBIT 10.06
CALIBER LEARNING NETWORK, INC.
PROGRAM DEVELOPMENT AGREEMENT
THIS PROGRAM DEVELOPMENT AGREEMENT ("Agreement") is dated as of this 2nd
day of February, 1998 (the "Effective Date") and is by and between CALIBER
LEARNING NETWORK, INC. ("Caliber"), a Maryland corporation, with its principal
place of business at 1000 Lancaster Street, Baltimore, Maryland 21202, and
MACMILLAN COMPUTER PUBLISHING USA ("MCP"), a division of Simon & Schuster, Inc.,
with its principal place of business at 210 West 103rd Street, Indianapolis, IN
46290.
RECITALS:
1. MCP is a publishing firm and provider of educational products to the
computer industry principally through its Que, SAMS, New Riders and Waite Group
Press imprints.
2. Caliber is developing a network of nationwide facilities and a
distance learning infrastructure that will enable it to provide educational,
training and other distance learning services.
3. Caliber and MCP desire to jointly develop and distribute training
courses for distribution in a distance learning format.
TERMS AND CONDITIONS
In consideration of the mutual covenants and conditions set forth in this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Caliber and MCP agree as follows:
1. TERM AND RENEWAL.
----------------
1.1 This Agreement commences with the Effective Date and will
continue for three (3) years from the Effective Date (the "Expiration Date"),
unless terminated earlier as provided in Section 7 ("Termination").
2. PREFERRED PARTNER.
------------------
2.1 In consideration of the minimum commitments set forth in section
6.2 and so long as MCP complies in all material respects with all the terms and
conditions of this
-1-
<PAGE>
Agreement, Caliber will consider MCP a Preferred Partner and shall not /*/.
MCP's IT training business shall mean those IT training courses developed by MCP
for delivery in Caliber Learning Centers.
3. DEVELOPMENT, MARKETING, AND SELLING OF COURSES.
-----------------------------------------------
3.1 Content: Subject to the terms and conditions of this Agreement,
-------
MCP will develop computer training Courses (hereinafter "Courses") consisting of
the following two components: (i) an instructor-led training (ILT) module
offering MCP content to be delivered via The Caliber Learning Network; and (ii)
and web-based module offering MCP content deemed necessary to support the ILT
module. Each ILT module will consist of two sessions, one session per day, with
each session ranging in length from two (2) hours up to seven (7). A list of the
Initial Courses is provided in Attachment A attached hereto and may be modified
(i.e. rescheduled, added, or deleted) by MCP within thirty (30) days following
"Effective Date." Thereafter the list of Courses may be modified at least one
hundred and twenty days (120) prior to the delivery of a Course. At least one-
hundred twenty (120) days prior to the delivery of each Course, MCP will notify
Caliber of (i) the type of Course to be offered, (ii) the length of the Course
and dates and times the Course will be offered, (iii) the locations at which the
Course will be offered, (iv) the enrollment and participation fees, (v) the
related Course materials to be developed, MCP will be responsible for developing
all content of such Course, selecting and training instructors, and developing
(and distributing to all Caliber sites) and all of the supporting materials.
3.2 Program Management. For each Course, Caliber shall provide
------------------
Program Management, which shall consist of the following activities: (i) Develop
and/or define a marketing plan, including product positioning, suggested pricing
and market execution, including recommendations on which Caliber sites and the
number of sites to reserve for a particular Course; (ii) Coordinate and develop
all product marketing (print, web based, and other mediums) and coordinate and
develop all public relations activities necessary to enroll students and collect
revenues; (iii) Assist with instructional design between MCP content developers
and Caliber's Instructional Design team, including the development of a Course
Template for each Course, which will enable an Instructor to provide stand-up
Instruction; (iv) Provide sales training to all Channel Partners and designated
MCP sales persons, including certain training materials; and (v) Coordinate
student registration via Inbound toll-free numbers and web-based registration
site; (vi) Manage all sales training, sales strategies, and sales activities of
the Caliber channel sales force. Caliber agrees that through Program Management
all marketing and sales training will be conducted by Caliber staff, Caliber
agrees that the staff of five (5) will be dedicated full-time to the execution
of the marketing and sales programs for MCP Courses. Such activity will include,
_________________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
-2-
<PAGE>
but not be limited to, conducting market research and developing and executing
the direct mail campaigns necessary to drive Course registrations.
Caliber shall use its best efforts to provide additional services at MCP's
request, including but not limited to video roll-ins, enhanced video production,
additional power points, slides, animation, voice-overs, software demos,
creation of software labs, the loading of specialized software on file servers,
or creation, loading and maintenance of software not which is not a part of the
Caliber platform. Such additional services that are not included in Program
Management shall be agreed upon by MCP and be performed on a work-for-hire basis
and shall be invoiced to MCP at a mutually agreed price.
Under Program Management, Caliber and MCP agree that MCP's primary
responsibility will be the selection and development of Courses offered through
the Caliber network.
3.3 Format. Caliber shall format each Course so that it is suitable
------
for distance learning delivery via the Caliber network. MCP agrees to cooperate
with Caliber and provide such assistance as Caliber may request for this
purpose, including but not limited to timely providing of instructors at
broadcast locations for training.
Caliber agrees that it is responsible for the direction of high quality
video and audio transmission of each Course and responsible for directing the
presentation of each Course instructor and the interaction of all participants
during each Course. Caliber agrees to make its best efforts to simulate the
interaction between instructor and participants possible in one-to-one student-
Instructor classes. Caliber also agrees to manage the transmission of all
internet/intranet content during the Course. Caliber agrees that if audio,
video, or internet/intranet transmission fail at anytime during the Course, so
as to prevent the complete presentation of the Course, /*/
3.4 Instructor Training. MCP shall select instructors, provide
-------------------
training, and will to its best ability develop Courses in a consistent style and
approach. Caliber shall make available to each instructor a room at the
Baltimore Caliber Learning Center for one (1) day of training and will provide
assistance in such 1-day training. Such room rental will be invoiced to MCP at
Caliber's standard daily rate, and MCP shall also be solely responsible for any
charges incurred by its use of studio time. Should MCP have a need for
additional rehearsal time for instructor training, Caliber will use its best
efforts to provide such facilities, and shall invoice MCP for additional
facilities at a mutually agreed upon price.
3.5 Marketing. Within thirty (30) days of the Effective Date, the
---------
parties shall mutually agree on a six (6) month Marketing plan, that shall
include the Courses to be offered
________________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
-3-
<PAGE>
during the following six (6) month period and the marketing activities necessary
to support such Courses. The parties shall conduct a post-course audit for each
Course to determine whether the Course met mutually established performance
benchmarks.
MCP agrees to support the marketing of each Course each year of this
Agreement. Such support may include Direct Response Advertising, placement of
advertising in MCP books, and reprinting of book covers to include the Caliber
logo. All MCP marketing efforts are at the direction of MCP. Caliber agrees
that under Program Management it is responsible for the direction and
development of all marketing programs and MCP is responsible only for the
execution of marketing promotions related directly to MCP book and software
products and online services.
Caliber agrees to provide the marketing activities set forth in Section 3.2
above, and MCP agrees to cooperate as necessary to assist Caliber with such
activities, including, but not limited to providing speaker/instructor
biographies and Course outlines one hundred and twenty (120) days prior to each
Course's start date.
4. DELIVERY OF COURSES.
--------------------
4.1 Courses will be offered and delivered at those Caliber Learning
Centers and other Caliber-authorized locations as the parties may mutually
agree. The method or system by which Courses are to be delivered will be
established by Caliber and for that purpose:
A. Caliber will provide the software, including, without limitation,
class interaction support software, necessary to deliver each Course.
B. Caliber will provide the hardware components necessary to deliver each
Course and create a two-way audio and video environment, including,
without limitation, a satellite dish and integrated receiver decoder
to receive the video and audio signals for each Course broadcast, and
workstations, cameras, video monitors and related components necessary
to support the terrestrial based return audio and video signals for
each Course.
C. Caliber will provide maintenance and related support services
necessary to maintain the software and hardware components required
for delivery of each Course.
D. For delivery of each Course, Caliber will arrange to have a Caliber
employee present at those locations offering that course. Such
employees will be trained facilitators who will assist with Course
delivery.
E. MCP shall provide one instructor per Course broadcast and when MCP
determines necessary provide sufficient subject matter experts who
shall be proficient in the relevant subject matter and who can answer
student questions via a help-desk format or e-mail format.
-4-
<PAGE>
F. Caliber will collect an evaluation from each participant at the end of
each Course that (i) evaluates the MCP instruction and Course quality
and (ii) describes all Caliber deliverables. Caliber will provide a
summary and all original evaluations to MCP. MCP reserves the right
to make changes to a Course as it deems necessary through information
collected from Course evaluations.
G. Caliber will provide its Broadcast Origination Equipment at one or
more Caliber-compliant production studios. If MCP elects to use one
of these studios, it shall only pay for the studio fees. If MCP
elects to use a non Caliber-compliant studio, then it agrees to pay
all Caliber's set up costs, daily studio fees, and the reasonable pre-
approved travel expenses of Caliber personnel upon submission of
adequate documentation evidencing the occurrence of such expenses.
H. MCP shall make available electronic course content through its
website, which shall be linked to the Caliber web site. All access to
Course content will require use of a password, provided by MCP to
Course attendees, provided to Course participants through payment of
the total Course fee which shall include payment for the two-day
Caliber sessions. Course book, and on-line access. The development
and maintenance of the MCP web site shall be MCP's responsibility.
4.2 Enrollment. Caliber shall be responsible for implementing an
----------
inbound toll-free registration process for each Course, and shall provide a web-
based registration site by March 31, 1998. Caliber shall also be responsible for
collecting all applicable Course fees, and shall deposit all collected Course
fees in an interest-bearing account, with all interest earnings thereon /*/ .
Caliber agrees to provide MCP once a week a report indicating the number of paid
registrations per Caliber site where a Course is scheduled to be offered. If and
when a scheduled site becomes full, Caliber agrees to notify MCP within forty-
eight (48) hours. Caliber agrees to provide monthly to MCP a database of all
participant information, including but not limited to names, addresses, phone,
e-mail addresses, and positions. If MCP requests or Caliber conducts as a part
of its obligations for Program Management market research to its list of
participants, Caliber agrees to provide MCP with all information obtained
through such research. Such participant and market research information shall be
solely owned by MCP and shall be considered "Confidential Information" as
defined in this Agreement.
4.3 Additional Caliber Services. MCP may request certain other
---------------------------
services to be provided by Caliber, including catering, additional production,
enhanced production, and
_________________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
-5-
<PAGE>
additional assistance. Upon MCP's written request, Caliber shall provide an
estimate of rates (based upon Caliber's standard rates) for all such requested
services.
5. OWNERSHIP AND USE.
------------------
5.1 MCP Ownership. Each Course in all media, all content developed by
-------------
MCP in all forms originally developed by MCP and/or subsequently placed
including any derivative works, and all proprietary rights therein, including,
without limitation, copyright, trade secrets and patents, shall be owned by MCP.
MCP understands and agrees that Caliber is not granting to MCP any proprietary
rights in any Caliber Learning Center or any equipment, property, information or
other materials used by Caliber to deliver each Course. Notwithstanding the
foregoing, Caliber shall not have any ownership rights of any MCP materials used
as content for a Course. Caliber hereby assigns to MCP the right to use without
additional compensation in such MCP developed works or derivative works any
content provided by or developed by Caliber.
5.2 Exclusive Use. Except as provided herein, neither party shall
-------------
license, use or permit any use of any distance learning session produced through
Caliber Learning Network pursuant to this Agreement and broadcast to Caliber
Learning Network centers or portion thereof, including, without limitation, any
derivative works (e.g. videotapes, CD-ROMS, Web/Internet products and/or sites),
by any person or entity, without the express prior written consent and approval
of the other party and if approved, any such use shall be on the terms and
conditions and with the payments agreed to by the parties. Notwithstanding the
foregoing, MCP maintains exclusive rights to its materials and property that are
used as content for a Course, including, but not limited to, scripts written by
the instructor to present the Course, printed materials, software, internet
applications, and books related to the Course, and MCP can use all such
materials in any manner, including for distance learning, provided that MCP
cannot use the name Caliber on said materials without the express prior written
consent of Caliber.
5.3 Applications and Filings. MCP and Caliber may at their own
------------------------
expense make all necessary applications and filings, including patent and
copyright registration and other legal protections, both U.S. and foreign, to
protect their respective interests in the Courses.
5.4 Confidentiality. (a) each party hereto (the "Disclosing Party")
---------------
will disclose to the other party ("Recipient") information in connection with
the performance of this Agreement. All information disclosed by the Disclosing
Party to the Recipient during the term of this Agreement, including but not
limited to technical and business information relating to Disclosing Party's
products, research and development, production, costs, engineering processes,
profit or margin information, finances, customers, marketing and future business
plans, shall be deemed "Confidential Information." All Confidential Information
shall remain the sole property of Disclosing Party and Recipient shall have no
rights to or in the Confidential Information. Recipient agrees that it shall
hold the Confidential Information in strict confidence. Recipient further agrees
that it shall not make any disclosure of the Confidential Information (including
methods or concepts utilized in the Confidential Information) to anyone without
the express
-6-
<PAGE>
written consent of Disclosing Party, except to employees, consults or agents to
whom disclosure is necessary to the performance of this Agreement and who shall
be bound by the terms hereof, or to the extent it is required to disclose such
information in the context of any administrative or judicial proceeding;
provided that prior written notice of such required disclosure and an
opportunity to oppose or limit disclosure is given to Disclosing Party.
(b) Return of Information. After termination of this Agreement,
---------------------
upon written request, Recipient shall return within ten (10) business days all
originals and copies thereof of any requested Confidential Information disclosed
by Disclosing Party which has been fixed in any tangible means of expression.
(c) Exceptions. Notwithstanding the other provisions of this
----------
Agreement, nothing received by Recipient shall be considered to be Confidential
Information of the other, if: (i) it has been published or is otherwise readily
available to the public other than by a breach of this Agreement; (ii) it has
been rightfully received by Recipient from a third party without confidentiality
limitations; or(iii) it was known to Recipient prior to its first receipt by
Recipient, as shown by files existing at the time of initial disclosure.
(d) No Disclosure of Terms of this Agreement. Each party agrees
----------------------------------------
that, without the prior written consent of the other party, it will not disclose
to any third party the material terms of this Agreement, except as required by
law or regulatory body.
6. FEES/PAYMENT.
-------------
6.1 Course Delivery Fee. MCP agrees to pay Caliber a non-refundable,
-------------------
non-cancelable, except as set forth herein, Course Delivery Fee of /*/, to
cover Caliber's allocated network costs ("Delivery Fee"). For the purposes of
this Agreement, a "Network Rental Day" shall be defined as rental of up to
thirty (30) classrooms in a CLC for seven (7) network hours. Network hours shall
be defined as that time during which actual audio-video broadcast of Course
content takes place. If an unanticipated event occurs within thirty (30) days of
delivery of the Course for either party, either party reserves the right to
reschedule the "Network Rental Days" within sixty (60) days of the time the
course was originally offered for no extra charge. In the event that Course
demand exceeds thirty rooms per day or MCP desires to schedule additional
capacity, it is agreed that Caliber will use its best efforts to provide such
capacity at a rate of /*/ per additional classroom. Course Delivery Fees shall
be payable sixty (60) days following the completion of a Course session.
____________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
-7-
<PAGE>
6.2 Minimum Volume Commitment: MCP agrees to develop a minimum of
-------------------------
eight (8) Courses, during the first (1st) nine months of this Agreement. Such
eight (8) courses shall be offered by MCP in any combination MCP decides upon so
that MCP utilizes no less than forty (40) Network Rental Days during the first
(1st) nine (9) months of the Term. MCP understands and agrees that the minimum
volume commitment for the first (1st) nine (9) months of the Agreement is to
forty (40) Network Rental Days, but reserves the right to use the forty (40)
Network Rental Days for any proportion of the eight (8) Courses developed. MCP
shall give Caliber one-hundred twenty (120) days prior written notice regarding
which Courses will be offered, desired date, locations, and specific number of
classrooms. Caliber shall reserve such dates and locations, which will not be
subject to scheduling preemption, except as set forth herein. In the event
market demand warrants additional classrooms, Caliber will use best efforts to
make available at a pro-rated rate.
At the end of years one and two of this Agreement, the parties will
mutually agree to minimum volume commitments for years two and three,
respectively, if any, which in no event shall be less than the minimum volume
commitment applicable for the prior nine (9) months.
MCP reserves the right to sublicense its network time to its customers or
to any affiliates. In the event MCP exercises its option to sublicense network
time, Caliber reserves the right to adjust network pricing to its standard
commercial rate.
If MCP does not materially achieve the revenue targets projected in
Attachment B, MCP reserves the right to terminate this Agreement, effective as
of the end of the first (1st) nine (9) months of the term of this Agreement,
with no further obligation to develop Course content for the Caliber Learning
Network and/or to fulfill the terms of this Agreement. In addition, after the
first (1st) nine (9) months of this Agreement, MCP also reserves the right to
terminate this Agreement with ninety (90) days notice to Caliber with no further
obligation to develop Course content for the Caliber Learning Network and/or to
fulfill the terms of this Agreement. If MCP does not materially achieve the
revenue targets projected in attachment B.
6.3 Program Management Fee. For each Course, MCP shall pre-pay
----------------------
Caliber a Program Management Fee of /*/ per Course. Such fee will be pro-rated
throughout the calendar year and shall be payable monthly according to the pro-
rated amount.
6.4 Audit. Caliber and MCP shall each have reasonable rights during
-----
normal business hours and upon reasonable prior notice to inspect, copy and
audit the records of the other party concerning the Courses and other activities
under this Agreement. In the event that the reviewing party discovers a
discrepancy in excess of five percent (5%) between the revenues
___________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
-8-
<PAGE>
or Additional Revenues actually paid to or collected by such party and the
amount earned by such party, the other party shall pay any such difference;
provided, however, that if such party disagrees with the reviewing party's
determination, such party shall be entitled to engage an Independent firm of
certified public accountants of national standing to perform an audit ("CPA
Audit"). If the results of the CPA Audit confirm the discrepancy in excess of
five percent (5%), payment to the aggrieved party shall be made as herein above
set forth. Otherwise, no payments shall be made and the parties shall jointly
bear the cost of the CPA Audit.
6.5 Net Revenue/Income Distribution. The parties mutually agree that
-------------------------------
Caliber shall receive a /*/ ("Income Distribution") as defined in Table 1.1
below in consideration for its filling seventy-five Percent (75%) or more of the
seats available for any single Course session with paid participants. Net
Revenues shall be defined as gross revenues less and except commissions paid to
channel partners, other discounts and promotions, and less the percent of gross
revenues calculated according to the schedule in Table 1.1.
Table 1.1
<TABLE>
<CAPTION>
Percent of Total Paid Participants
Attending Courses Sessions Income Distribution
<S> <C>
75% /*/
80% /*/
85% /*/
90% /*/
95% /*/
100% /*/
</TABLE>
_____________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
-9-
<PAGE>
One hundred percent (100%) shall mean /*/ paid participants and use of
thirty (30) Caliber classrooms for every Course session during years one and two
of this Agreement and shall mean /*/ paid participants and use of forty (40)
classrooms for every Course session during year three of this Agreement. If
Course pricing is discounted below /*/ per Course, MCP reserves the right to
adjust the Income Distribution paid to Caliber accordingly, proportional to any
retail adjustment.
Caliber will collect all enrollment fees, will make required disbursements
of fees and payments to third parties (e.g., book wholesalers), and then shall
deduct and retain its enrollment fee of /*/ per enrollee. The remaining
revenues shall be forwarded to MCP prior to MCP's fiscal month and close for the
month when enrollment fees are collected. A schedule of MCP's 1998 month-end
close dates is provided in Attachment C. Schedules for 1999 and 2000 fiscal
month end dates will be provided in January of each respective year. When
Caliber submits revenue to MCP, it shall provide a report indicating the exact
calculation of net revenues including only those deductions allowed herein.
6.6 Reselling MCP Books. Both parties agree that for each Course offered,
-------------------
all Course participants are required to purchase the relevant MCP Course book.
Caliber shall be responsible for collecting all payment for and distributing all
Course books to attendees of MCP-Caliber Courses and responsible for returning
to MCP or a distributor chosen by MCP any Course books remaining after a Course
because of cancellations or over shipment. Caliber shall receive the standard
"Retail Discount" for all books distributed to Course attendees. Such titles
shall be sold to Caliber at the "1998" Retailer Terms and Conditions," as such
may be revised from time to time, attached herein.
In addition to the distribution of Course books to all attendees of MCP-
Caliber Courses, Caliber agrees to purchase during the first nine (9) month
period and each twelve (12) month period thereafter of this Agreement no less
than /*/ total Macmillan products per Caliber center for sale in all Caliber-
owned centers operating during each year of this Agreement. Such titles will be
sold to Caliber at the "1998" Retailer Terms and Conditions" attached herein
(Attachment D).
_________________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
-10-
<PAGE>
Caliber agrees to promote the selling of such products in all operating centers
and to restock and stock new products throughout the term of the Agreement.
6.7 Multimedia Product. It is agreed that during the contract the
------------------
parties may choose to jointly create multimedia products ("Multimedia Products")
that augment the Courses and are sold through existing MCP retail channels and
Caliber Learning Centers. The Multimedia Products may consist of a packaged
offering including one or more of the following items: MCP Course book, CD ROMs
and/or videotapes that supplement a Course, a registration tool allowing
purchasers access to MCP's Zone, and assessment tool or access to assessment
tools on-line. Caliber agrees to video tape each session of each MCP Course
offered, to develop and edit all recorded video as directed by MCP, and to
provide MCP with no less than six (6) hours of recorded video of each new Course
offered. MCP agrees to pay Caliber /*/ . If MCP uses /*/ of the video content
from a Course, MCP agrees to pay Caliber a royalty on all net sales for each
Multimedia Product according to the royalty schedule in Table 1.2.
Table 1.2
<TABLE>
<CAPTION>
Net Units Royalty
<S> <C>
1-500 /*/
5001-10,000 /*/
10,001-15,000 /*/
15,001-20,000 /*/
Above 20,001 /*/
</TABLE>
____________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
-11-
<PAGE>
MCP shall determine the appropriate price for each Multimedia Product. MCP
and Caliber shall jointly own the copyright in and to any videotaped material
used a Multimedia Product, and MCP may copy, reproduce, modify, manufacture,
market, advertise, display, publish, distribute, rent, license, sell and use
such Multimedia Products under any and all MCP trademarks, including after
termination or expiration of this Agreement. MCP shall own all rights, title
and interest in and to any Multimedia Product.
6.8 Course Pricing. The parties agree that MCP shall determine all
--------------
Course pricing.
6.9 Channel Partner Commission. The parties agree that Caliber shall
--------------------------
use its best efforts to pay a maximum commission of /*/ of the enrollment fee to
authorized channel partners, who shall be authorized to market to and recruit
potential Course enrollees. Caliber shall pay channel partners /*/ commission
only when the channel partner is directly responsible for closing a paid
registration.
6.10 Payment Terms. MCP shall pay Caliber the Program Management Fees
-------------
sixty (60) days upon receipt of a Caliber invoice according to the pro-rated
schedule as agreed upon in Section 6.3 above, which invoice shall be sent after
Caliber receives the Course Notice described in Section 3.1 herein. Within
fifteen (15) business days of receiving the Course Notice, Caliber shall notify
MCP of any additional pre-approved fees related to the sales and marketing. MCP
reserves the right to approve such services and agrees to pay such additional
fees related to services sixty (60) days from invoicing. Caliber shall invoice
MCP for the Course Delivery Fees upon the conclusion of each Course delivery.
All above invoices shall be paid net sixty (60) days.
6.11 Annual Cost Adjustments. The parties mutually agree that the
-----------------------
costs and fees stated herein shall be annually adjusted to reflect annual
adjustments in the Consumer Price Index (CPI). Such adjustments shall be
effective sixty (60) days after the CPI has been published.
7. TERMINATION.
-----------
7.1 Either party may terminate this Agreement in the event of a
material breach of the Agreement, upon sixty (60) days written notice to the
other party setting forth the details of such material breach, such notice to be
effective only if the party receiving the notice does not cure such breach
within such sixty (60) day notice period.
______________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
-12-
<PAGE>
7.2 In the event either party to this Agreement shall become
insolvent, shall make an assignment for the benefit of creditors, shall have a
trustee on liquidation, appointed for it or a substantial part of its property,
shall file a voluntary petition in bankruptcy, shall be the subject of an
involuntary petition in bankruptcy, this Agreement shall automatically terminate
without notice.
7.3 Notwithstanding anything herein to the contrary, upon termination
of this Agreement MCP shall continue to have the right to manufacture, publish,
duplicate, market, promote, distribute, advertise and sell any Multimedia
Products which have been jointly published or which are in the process of being
jointly published prior to termination or expiration, for the full term of
copyright and any renewals and extensions thereof and shall continue to have the
right to use the Caliber Marks in connection therewith, subject to MCP's
continuing obligation to pay Caliber its share of any royalties due from sales
of the Multimedia Products. Any subsidiary rights Agreements for the Multimedia
Products in force as of the date of termination (including without limitation
foreign rights and translation agreements) shall continue in full force and
effect for their full terms, including any extensions and renewals thereof
(whether or not such extensions or renewals are effected prior or subsequent to
the date of termination), subject to MCP's continuing obligation to pay Caliber
its share of any royalties due from sales of the Multimedia Products.
8. WARRANTIES AND REPRESENTATIONS/INDEMNIFICATION.
-----------------------------------------------
8.1 Caliber warrants and represents that:
(a) Caliber possesses full power and authority to enter into
this Agreement and to fulfill its obligations hereunder and that it is
financially and technically competent to perform its obligations hereunder, and
agrees that any change in such status shall be immediately communicated in
writing to MCP; and that performance of the terms of this Agreement and of
Caliber's obligations hereunder shall not breach Caliber's charter or bylaw or
any separate agreement by which Caliber is bound;
(b) the work and services provided to MCP by Caliber will be its
original work (except for material in the public domain or as to which
permission has been obtained from the copyright owner); and
(c) the Caliber learning Network, Program Management, and the
software provided by Caliber will not contain any libelous or otherwise unlawful
material or infringe any statutory or common law copyright, trademark or
registered U.S. patent or otherwise infringe any personal or proprietary right
of any person or entity.
8.2 MCP warrants and represents that:
(a) MCP possesses full power and authority to enter into this
Agreement and to fulfill its obligations hereunder and that it is financially
and technically
-13-
<PAGE>
competent to perform its obligations hereunder, and agrees that any change in
such status shall be immediately communicated in writing to Caliber; and that
performance of the terms of this Agreement and of MCP's obligations hereunder
shall not breach MCPs charter or bylaw or any separate agreement by which MCP is
bound;
(b) the work and services provided to Caliber by MCP will be its
original work (except for material in the public domain or as to which
permission has been obtained from the copyright owner); and
(c) the Courses, exclusive of any material provided by Caliber,
will not contain any libelous or otherwise unlawful material or infringe any
statutory or common law copyright, trademark or registered U.S. patent or
otherwise infringe any personal or proprietary right of any person or entity.
8.3 Indemnification by Caliber. Caliber shall indemnify, and hold MCP
--------------------------
and its successors, assigns, agents, officers, directors and employees, harmless
from and against any and all third party liabilities, obligations, losses,
claims, damage, cost, charges or other expenses of every kind and character
(including but not limited to reasonable attorneys' fees and court costs) which
arise out of or result from any breach or alleged breach of any representation
or warranty by Caliber hereunder, Caliber shall have the sole right to control
the defense of any such claim and shall consult with MCP prior to settlement
thereof and shall not agree to impose any obligation upon or admit any liability
of the other party's rights without its prior written consent, such consent not
unreasonably to be withheld. MCP agrees to provide reasonable assistance to
Caliber at Caliber's expense, in the defense of same.
8.4 Indemnification by MCP. MCP shall indemnify, and hold Caliber and
----------------------
its successors, assigns, agents, officers, directors and employees, harmless
from and against any and all third party liabilities, obligations, losses,
claims, damage, cost, charges or other expenses of every kind and character
(including but not limited to reasonable attorneys' fees and court costs) which
arise out of or result from a breach or alleged breach of and representation or
warranty by MCP hereunder. MCP shall have the sole right to control the defense
of any such claim and shall consult with Caliber prior to settlement thereof and
shall not agree to impose any obligation upon or admit any liability of the
other party's rights without its prior written consent, such consent not
unreasonably to be withheld. Caliber agrees to provide reasonable assistance to
MCP at MCP's expense, in the defense of same.
8.5 NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY
INCIDENTAL, CONSEQUENTIAL, SPECIAL, OR PUNITIVE DAMAGES OR LOST OR IMPUTED
PROFITS OR ROYALTIES ARISING OUT OF THIS AGREEMENT OR ITS TERMINATION, WHETHER
FOR BREACH OF WARRANTY OR ANY OBLIGATION ARISING THEREFROM OR OTHERWISE, WHETHER
LIABILITY IS ASSERTED IN CONTRACT OR TORT (INCLUDING NEGLIGENCE AND STRICT
PRODUCT LIABILITY) AND IRRESPECTIVE OF WHETHER THE PARTY HAS ADVISED OR HAS BEEN
ADVISED OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE. EACH
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<PAGE>
PARTY HEREBY WAIVES ANY CLAIMS THAT THESE EXCLUSIONS DEPRIVE SUCH PARTY OF AN
ADEQUATE REMEDY.
9. INDEPENDENT CONTRACTORS.
-----------------------
Each party is appointed by the other party only for the purposes and to the
extent set forth in this Agreement, and each party's relation to the other
shall, during the period covered by this Agreement, be that of an independent
contractor, and neither party has and shall not have any power, and neither
party shall represent that such party has any power, to bind the other party, to
assume or to create any obligation or responsibility, express or implied, on
behalf of the other party or in its name. Both parties shall perform all duties
hereunder in good faith, and shall avoid any conflicts of interest in the
performance of their respective obligations hereunder.
10. APPLICABLE LAW.
--------------
This Agreement shall be deemed to have been made in the State of New York
and shall be construed and enforced in accordance with, and the validity and
performance hereof shall be governed by, the laws of the State of New York,
without regard to conflict of laws principles.
11. FORCE MAJEURE.
-------------
Neither party shall be liable for delay or failure in performance of any of
its obligations under this Agreement when such delay or failure arises from
events or circumstances beyond the reasonable control of such party (including,
without limitation, acts of God, fire, flood, war, explosion, sabotage,
terrorism, embargo, civil commotion, acts or omissions of any government entity,
supplier delays, communications or power failure, equipment or software
malfunction, or labor disputes); provided, however, that MCP shall use
reasonable efforts to obtain substitute instructors in the event that the
intended instructor for any Course is, for whatever reason, unable to attend as
originally planned. In the event that a Course is canceled pursuant to the
terms of this Section 11.0, the parties will use their best efforts to
reschedule the Course. Enrollment brochures, forms and other registration
materials will contain a statement to the effect that the subject Course may be
canceled or re-scheduled due to circumstances beyond Caliber's and/or MCP's
reasonable control and, except for a full refund of all amounts paid, neither
Caliber nor MCP will have any liability to any participant. Course participants
will be instructed to contact Caliber at its Web address in order to learn of
any Course cancellations and/or reschedules.
12. WAIVER.
------
No failure on the part of either party to exercise, no delay in exercising,
and no Course of dealing with respect to any right, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
13. ASSIGNMENT.
----------
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<PAGE>
Neither party may assign this Agreement, or any part thereof, without the
prior written approval of the other party, which approval shall not be
unreasonably withheld. Caliber may, without the necessity of obtaining MCP's
consent, assign its rights and obligations under this Agreement to a parent or
wholly-owned subsidiary, provided that MCP is given prompt written notice of
such assignment. Notwithstanding the foregoing, MCP may assign this Agreement
to any MCP affiliate or in connection with a sale or transfer of all or
substantially all of its business or assets.
14. GENERAL.
-------
This Agreement constitutes the entire Agreement between the parties with
respect to the subject matter hereof and may only be changed or modified in
writing signed by both parties. If any provision of this Agreement is held
invalid, the validity of the remainder of this Agreement shall not be affected.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"CALIBER" "MCP"
CALIBER LEARNING NETWORK, INC. MACMILLAN PUBLISHING USA
By:__________________________ By:_______________________________
Title:_______________________ Title:____________________________
-16-
<PAGE>
ATTACHMENT A
1998 MCP-Caliber Suggested Courses
1. Windows Platform Strategy: Planning, Implementation, Support and Training
Issues for Windows 98 and NT 5
2. Upgrading and Supporting PC Hardware
3. Upgrading and Supporting Networks
4. COBOL Programming for the 21st Century: Year 2000 Issues; legacy code
migration, maintenance and integration; client/server COBOL; COBOL database
programming; object-oriented COBOL
5. Building, Upgrading, and Supporting Heterogeneous Networks in the
Enterprise
6. Network and Internet/Intranet Security
7. Introduction to Cisco Routing
8. Windows NT 5: Introduction
Substitutes
- -----------
. Windows NT 5: Domain Naming Services*
. Windows NT 5: Upgrading from Windows NT 4*
. Windows NT 5: Active Directory*
. Cisco Routing and Switching
. Re-engineering Your Web Site: the latest in programming, navigational, and
database tools to give your web site the functionality, design, and
dependability required for your organization
*Pending the release of Windows NT 5, these courses may be scheduled and
delivered in 1998 in place of others or held until 1999.
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<PAGE>
ATTACHMENT B
MCP-CALIBER COURSE
PROJECTED REVENUES
FOR THE TWELVE MONTHS ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan YTD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Enrollment Revenue
Book & /*/
On-Line
Revenue
Returns
TOTAL
</TABLE>
MCP-CALIBER COURSE
PROJECTED REVENUES
FOR THE TWELVE MONTHS ENDED JANUARY 31, 2000
<TABLE>
<CAPTION>
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan YTD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Enrollment Revenue
Book & /*/
On-Line
Revenue
Returns
TOTAL
MCP-CALIBER COURSE
PROJECTED REVENUES
FOR THE TWELVE MONTHS ENDED JANUARY 31, 2001
</TABLE>
__________________________________________
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
-18-
<PAGE>
<TABLE>
<CAPTION>
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan YTD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Enrollment Revenue
Book & /*/
On-Line
Revenue
Returns
TOTAL
</TABLE>
_________________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
-19-
<PAGE>
ATTACHMENT C
1998 MONTH-END CLOSE DATES
<TABLE>
<CAPTION>
Period Month Day # of Weeks
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 JAN 24 4
2 FEB 21 4
3 MAR 28 5
4 APR 25 4
5 MAY 23 4
6 JUN 27 5
7 JUL 25 4
8 AUG 22 4
9 SEP 26 5
10 OCT 24 4
11 NOV 21 4
12 DEC 31 5+
</TABLE>
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<PAGE>
ATTACHMENT D
Macmillan Computer Publishing
Macmillan General Reference
1998 Retailer Terms and Conditions
Discount Schedule:
For Resale Only
Discount is /*/
Macmillan Technical Publishing /*/
FREIGHT
Customers will have the option of choosing pre-paid freight on an annual basis,
which will reduce their discount by up to /*/. Retailers can prepay product
delivery, or returns delivery, or both, calculated at a rate of /*/ for product
delivery in and /*/ for delivery of returns to Macmillan Publishing USA (MP).
The prepaid freight option applies only to ground transportation. To be
eligible, customers must agree to use the MP minimum shipment weight.
ELECTRONIC DISCOUNTS
Electronic discounts will be separated by transaction type.
* Customers submitting purchase orders electronically (EDI transaction type
850 or PUBNET) will receive an additional /*/ discount.
* Customers using electronic invoicing (EDI transaction type 810) will
receive an additional /*/ discount.
_______________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
-21-
<PAGE>
RETAIL DISTRIBUTION CENTER DISCOUNT
An additional /*/ discount may be earned by meeting the following
qualifications:
* Retailer must maintain a distribution center with truck-height loading and
a receiving dock capable of receiving multiple cartons on a skid.
* Retailer must order in carton quantities, and/or allow orders to be rounded
to the carton quantity.
SELL THROUGH INFORMATION DISCOUNT
An additional /*/ discount may be earned by providing Macmillan Computer
Publishing (MCP)/Macmillan General Reference (MGR) sell through information
electronically. For the purpose of qualifying for this discount, acceptable
electronic formats will be defined as electronic spreadsheet or ASCII file
delivered on a 3 1/4" diskette, or EDI transaction type 852. This information
must be provided on a monthly basis by ISBN for all MCP and MGR titles, with
remaining in-field inventory levels.
DIRECT FULFILLMENT GUIDELINES
These Terms and Conditions apply to customers who meet the MCP/MGR Direct
Fulfillment Guidelines. A copy of the Direct Fulfillment Guidelines are
available from your MCP or MGR sales representative.
RETURNS POLICY
Address for Returns
4430 Airport Expressway
Suite B
Indianapolis, IN 46241
Products returned to a MP or Simon & Schuster/Prentice Hall facility other than
the above address risk being destroyed without credit to the retailer's account.
LTL and full truck shipments will be refused without dock appointment.
_________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
-22-
<PAGE>
All products returned are at account's risk and expense, unless the customer has
chosen to trade /*/ of discount for pre-paid return freight as defined above.
product must be in resaleable condition, free of markings, labels, and security
tags.
Any and all product which is not published by MP and is shipped by the customer
to MP for any reason (including but limited to misdirected returns of other
publishers' product) is subject to destruction by MP without notice and without
any credit to the customer's account with MP. Notwithstanding the foregoing, MP
may contact the customer to arrange for the prompt shipment to the customer of
such non-MP product, in which case the customer shall bear and pay all risk of
loss or damage and all expenses relating to any such shipment (including but not
limited to the cost of freight and charges by MP for processing and handling
such shipments).
CREDIT FOR RETURNS
Credits will be issued for product only - no cash refunds.
The bookseller will be credited for returns using the average discount given for
MCP/MGR product purchases shipped during the previous year. This discount
information will be available to the retailer by January 15 of each year until
such time as the MCP/MGR Retailer Terms & Conditions state otherwise. The
retailer may contact MP's Customer Service Department at 800-858-7674 for
average discount information. MP will not give credit to dealers for MCP/MGR
books purchased through distributors.
PERIOD OF ELIGIBILITY FOR RETURNS
New titles, not before 120 days from publication date; backlist, not before 90
days from invoice date.
STRIP COVER RETURNS
Strip covers are accepted for the following:
Arco All Product
Lasser All Product
Frommers Titles declared OP only
Both front and back covers of the product are required for customer credit.
___________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
-23-
<PAGE>
If the customer receives damaged or defective goods from MP, the retailer should
contact MP Customer Service or the MCP or MGR Sales Representative.
PACKAGING AND SHIPPING GUIDELINES
Additional information regarding the handling, packaging, and shipping
requirements for returning product to MP is published in a document titled
"Macmillan Computer Publishing, Macmillan General Reference Packaging and
Shipping Guidelines for Customer Returns." Please contact MP Customer Service or
a MCP or MGR Sales Representative if a copy of these guidelines is required.
TERMS
Net 30 days, F.O.B. point of shipment. Payment terms based on a customer receipt
are standard terms reduced by 15 days.
-24-
<PAGE>
Macmillan Computer Publishing
Macmillan General Reference
Packaging and Shipping Guidelines For
Customer Returns
The following is a guide for preparing documents and products returned to
Macmillan Publishing USA (MP).
SHIPPING METHOD
LTL and full truck shipments require carriers to obtain dock appointments.
Shipments without appointments will be refused. Appointments are obtained by
calling (317) 705-6370 or (317) 705-6380. Small package returns do not require
appointments.
ADDRESS
Returns must be sent to the following address:
4430 Airport Expressway
Suite B
Indianapolis, IN 46241
Products returned to a MP or Simon & Schuster/Prentice Hall facility other than
the above address risk being destroyed without credit to the customer's account.
REQUIRED DOCUMENTS
* Standard Bill of Lading which includes skid count, carton count, weight of
shipment, shipper name and address and customer reference number.
* Standard Packing Slip which includes carrier, customer name and
address, customer reference number, customer original PO#, MP invoice #,
carton count information, ISBN #, ISBN description, quantity per ISBN,
retail price per ISBN, customer cost per ISBN, extended dollar value of
ISBN, total quantity returning, and total dollars of return.
* Special Handling: Please make sure when returning bundled product you use
the bundle ISBN and the quantity of one unit per bundle.
REQUIRED PACKAGING
All material must be packaged on corrugated cartons. Carton size should be
fitted for product size. Packing material should be used to secure product from
movement within the carton.
All cartons should be labeled or identified with the customer name and
reference/credit number. If more than one carton, all cartons should be labeled
with corresponding 1 of X information.
Shipments requiring pallet loading should use a standard 40 X 48 pallet. All
pallet and gaylord shipments must be clearly marked with pallet/gaylord tags as
to reference/credit number. The reference/credit number is crucial for correct
posting to accounts.
-25-
<PAGE>
A carton, pallet or gaylord must not contain multiple reference/credit numbers.
NON-CONFORMING PRODUCT
MCP/MGR product not conforming to these return guidelines will be shipped back
to the customer at the customer's expense or destroyed at the customer's
request. Any and all product which is not published by MP and is shipped by the
customer to MP for any reason (including but not limited to misdirected returns
of other publishers' product) is shipped to destruction by MP without notice and
without any credit to the customer's account with MP. Notwithstanding the
foregoing, MP may contact the customer to arrange for the prompt shipment to the
customer of such non-MP product, in which case the customer shall bear and pay
all risk of loss or damage and all expenses relating to any such shipment
(including but not limited to the cost of freight and charges by MP for
processing and handling such shipments).
-26-
<PAGE>
EXHIBIT 10.07
*Certain information has been omitted in reliance on a confidential treatment
request.
CALIBER LEARNING NETWORK, INC.
NETWORK RENTAL AGREEMENT
THIS NETWORK RENTAL AGREEMENT (Agreement) is dated as of December 22, 1997 (the
Effective Date) and is by and between CALIBER LEARNING NETWORK, INC. (Caliber),
a Maryland corporation, with its principal place of business at 1000 Lancaster
Street, Baltimore, Maryland 21202, and COMPAQ COMPUTER CORPORATION (User), a
Delaware corporation, with a place of business at 13401 North Freeway, Mail Stop
580203, Houston, Texas 77086.
RECITALS
1. Caliber is developing a network of nationwide facilities and a
communication infrastructure that enables it to provide educational,
training and other distance learning services.
2. User provides training seminars and other informational programs for its
employees and other interested persons who may be located in different
locations.
3. User wishes to use Caliber's facilities and communication services in order
to communicate simultaneously with individuals at various locations.
TERMS AND CONDITIONS
In consideration of the mutual covenants and conditions set forth in this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Caliber and User agree as follows:
1.0 Term. This Agreement shall commence on the Effective Date set forth above
----
and expire on the third (3/rd/) anniversary thereof (the Expiration Date).
Prior to or upon expiration, the parties may mutually agree to renew this
Agreement on the same or different terms.
2.0 Facilities and Services. Subject to the terms and conditions hereof,
-----------------------
during the term of this Agreement, Caliber agrees to provide, and User
agrees to rent, on a non-exclusive basis as to either party, the facilities
and services listed in Appendix 1 hereof (Facilities and Services) for
programs to be offered at Caliber facilities by User (hereinafter
"Programs"), on the dates and at the times set forth in Appendix 1 (it
being understood that a separate Appendix 1 shall be completed for
Program). Compaq agrees to use its best efforts to offer a minimum of
twenty (20) Programs per year for the term of this Agreement, but in no
event shall offer less than fifteen Programs per year
1
<PAGE>
under this Agreement. The parties agree that in the event User fails to
offer a minimum of fifteen (15) Programs for any year under this Agreement,
because of User's reduced need to offer distance-based training and other
programs, User shall pay Caliber a fee equal to /*/ , to reimburse Caliber
for its lost opportunity as Caliber's sole and exclusive remedy. Compaq
retains the right to exit the Agreement at the end of Year Two based on new
technology availability not provided by Caliber, or based on a material
change in Compaq's use of distance learning solutions resulting in
reduction or cessation of the current satellite-delivered education and
training programs. For the purposes of this Agreement, Year One shall
commence with the Effective Date and conclude on the first anniversary
thereof, Year Two shall commence immediately thereafter and conclude on the
second anniversary of the Effective Date, and Year Three shall commence
immediately thereafter and shall conclude on the third anniversary of the
Effective Date.
User agrees to cooperate with Caliber and provide Caliber reasonable access
to User's information, staff and resources as necessary to provide the
Facilities and Services. User understands that Caliber may assign, reassign
and/or substitute its personnel at any time and may provide the same or
similar facilities and services to other clients.
3.0 Pricing: The parties agree that Program pricing shall be as follows:
-------
A. For calendar year 1997:
2-Hour Program Fee - /*/ per each additional room over forty-five (45)
---------------------
rooms. /*/ for each additional hour of on air broadcast time, plus /*/ .
5-Hour Program Fee - /*/ per each additional room over forty-five (45)
---------------------
rooms. /*/ for each additional hour of on air broadcast time, plus /*/ .
B. 1998-2000
________________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
2
<PAGE>
2-Hour Program Fee - /*/ per each additional room over fifty (50) rooms.
---------------------
/*/ for each additional hour of on air broadcast time, plus /*/ .
5-Hour Program Fee - /*/ per each additional room over fifty (50) rooms.
---------------------
/*/ for each additional hour of on air broadcast time, plus /*/ .
A discount may be made available for the above prices if Caliber
specifies, in its sole discretion, the date and time of day of the Program.
4.0 Pilot Programs. Caliber agrees to provide the Facilities and Services
--------------
listed in Appendix 1 to User for two (2) Pilot Programs, each five hours in
length and delivered to a minimum of 7 classrooms. The parties shall
mutually agree on the dates and times of such Pilot Programs, within the
scope of Caliber's current network capabilities. The Pilot Program
broadcasts shall originate from a production provider selected by User.
Caliber and User agree to /*/ , provided, however, that in no event shall
/*/ (for both pilot programs, in the aggregate) without User's prior
written consent. There shall be /*/ for the use of Caliber's Facilities and
Services for the Pilot Programs.
5.0 Payment. Caliber will invoice User for the Facilities and Services as the
-------
same are provided, unless otherwise set forth in the applicable Appendix
for that program. User shall pay within thirty (30) days of invoice date.
Caliber, at its option, may impose a late payment charge equal (i) /*/
month, or (ii) to the maximum rate allowed by law, whichever is less. In
addition to the charges specified for the Facilities and Services for each
program, User shall pay (i) /*/ incurred by Caliber
__________________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
3
<PAGE>
personnel; and (ii) Caliber's /*/ which are provided at User's written
request and any tax (other taxes based on income) imposed on Caliber as a
result of the Facilities and Services provided under this Agreement.
6.0 Caliber Operations. The parties understand and agree that Caliber is
------------------
currently developing its network and delivery system, and that there may be
some operational delays, but the parties do not expect such delays to
extend beyond October 31, 1997. In the event Caliber software and systems
are not fully functional and operational, and Caliber is not able to
deliver, upon User's request, any of User's Program(s) to User's
satisfaction, between October 31, 1997 and December 31, 1997, then user may
terminate this Agreement without further liability to Caliber.
7.0 Intended Use. User understands and agrees that its use of Caliber's
------------
facilities, equipment and other property shall be solely for training,
instructional and/or other business-related purposes and User shall be
solely responsible for any damage to or destruction of any or all of
Caliber's facilities, equipment or other property to the extent caused by
User's (or any of User's attendees) use or misuse of the same.
8.0 Technical Support. Except as provided in the applicable Appendix 1 for
-----------------
each program, User will provide any and all technical or other support
services that may be necessary or required by User in its use of the
Facilities and Services.
9.0 Video Footage. For each Program, Caliber will retain all video footage,
-------------
animation, camera and edited masters (collectively, "Property") until the
terms of this Agreement have been fulfilled with respect to each Program.
Notwithstanding the foregoing, the Property shall belong exclusively to
User; Caliber shall make no use of the Property without the prior written
consent of User.
Caliber and Compaq acknowledge that the Property is being created under the
direction and control of Compaq, and agree that the property shall be
deemed a work made for hire by an independent contractor under the United
States Copyright Law (17 U.S.C. 101) and, by virtue of this Agreement, is
the sole Property of Compaq free and clear from all claims of any nature
relating to Caliber's contributions and other efforts, including the right
to copyright the work in the name of Compaq as author and proprietor
thereof and any termination rights thereto. Caliber understands and agrees
that Compaq owns all right, title, and interest in the Property and has the
right to register all copyrights therein in its own name, as author, in the
United Sates of America and in all foreign countries.
The parties to this Agreement intend that Compaq shall have full ownership
of the Property with no rights of ownership in Caliber. Caliber agrees that
in the event this Agreement is determined by a court of competent
jurisdiction not to be a work made for hire under the federal copyright
laws, this
______________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
4
<PAGE>
Agreement shall operate as an irrevocable assignment by Caliber to Compaq
of the copyright in the Property, including all rights thereunder in
perpetuity.
10.0 Confidentiality. User acknowledges that, during the term of this
---------------
Agreement and in the course of performing its obligations hereunder, it may
be the recipient of or become exposed to proprietary and confidential
information of Caliber ("Confidential Information") including, but not
limited to, customers or active prospects, strategic plans and materials,
marketing strategies, business data, financial information, distance
learning systems, and software. User acknowledges and agrees that such
Confidential Information shall remain the exclusive property of Caliber,
and that User shall not disclose, use, copy, or make available such
Confidential Information to anyone, except as may be required in the course
of performing its obligations hereunder. User agrees to only make such
Confidential Information available to employees on a need-to-know basis.
Caliber acknowledges that, during the term of this Agreement and in the
course of performing its obligations hereunder, it may be the recipient of
or become exposed to proprietary and confidential information of User
("Confidential Information") including, but not limited to, training or
educational materials, strategic plans and materials, marketing strategies,
business data, financial information, and software. Caliber acknowledges
and agrees that such Confidential Information shall remain the exclusive
property of User, and that Caliber shall not disclose, use, copy, or make
available such Confidential Information to anyone, except as may be
required in the course of performing its obligations hereunder. Caliber
agrees to only make such Confidential Information available to employees on
a need-to-know basis.
5
<PAGE>
Caliber and User agree that money damages would not be a sufficient remedy
for any breach of this Section 10.0 and that, in addition to all other
remedies, both parties shall be entitled to specific performance and
injunctive and equitable relief as a remedy for any such breach. Caliber
and User agree to be responsible for any breach of this Section 10.0 by any
of its employees, officers, directors or agents and also agrees to pay any
and all reasonable attorney's fees incurred by either party in enforcing
the provisions of this Section 10.0.
11.0 Exclusion of Warranties. In the event of a general failure in Caliber's
-----------------------
network configuration that prevents User from using the Facilities and
Services, Caliber shall compensate User by providing those Facilities and
Services, at no additional cost, on such date and at such time as mutually
agreed upon by the parties. Caliber's liability, if any, to User for
damages or losses arising out of or in any way related to Caliber's
performance or nonperformance of its obligations hereunder shall not exceed
the total amount paid by User to Caliber hereunder. Caliber makes no
warranty, express or implied, concerning the Facilities and Services. Both
parties shall have no liability to each other for any incidental,
consequential, special or indirect damages, including, without limitation,
any of lost profits.
12.0 Indemnification. User will indemnify and hold harmless Caliber and its
---------------
parent companies and their respective officers and employees from and
against any and all loss, damage, injury, liability or suit incurred by or
asserted against Caliber to the extent caused by User's use of the
Facilities hereunder.
13.0 Assignment. Each party shall not assign or transfer its rights or
----------
obligations under this Agreement without the other party's prior written
consent. Any assignment or transfer without such consent shall be null and
void.
14.0 Force Majeure. Neither party will be liable to the other party hereunder
-------------
or in default under this Agreement for failures of performance resulting
from acts or events beyond the reasonable control of such party, including,
by way of example and not limitation, acts of God, civil or military
authority, civil disturbance, war, strikes. In such event, Caliber and User
will use their best efforts to reschedule the date and/or time of User's
use of Caliber's Services and Facilities. If in the reasonable opinion of
the party not claiming force majeure such rescheduling is not practical,
that party may terminate this Agreement without further obligation to the
other party.
15.0 Notices. Any notices or other communications required or which may be given
-------
by either party to the other party under this Agreement shall be in writing
and may be sent by facsimile. However, the original shall be sent either by
overnight courier, with a verified receipt, or by certified mail, return
receipt requested, postage prepaid and addressed to and at the address
stated below or to such other address as the parties shall subsequently
designate to each other by notice given in accordance with this Section.
Such notice shall be deemed to be sufficiently given when the original is
received by the receiving party.
6
<PAGE>
FOR USER:
Compaq Computer Corporation
Attn.:
Houston, Texas
(e-mail: )
FOR CALIBER:
Caliber Learning Network, Inc.
Attn.: Chris Nguyen
1000 Lancaster Street
Baltimore, Maryland 21202
(e-mail: Caliber@educate .com)
with a copy to: O. Steven Jones
General Counsel
Fax: 410/843-8059
16.0 Entire Agreement. This Agreement supercedes that certain Letter of
----------------
Agreement between the parties dated July 21, 1997 and constitutes the
entire agreement between the parties with respect to the subject matter
hereof and may only be changed or modified in a writing signed by both
parties. If any provision of this Agreement is held to be invalid, the
validity of the remainder of this Agreement shall not be affected.
17.0 Applicable Law. This Agreement shall be deemed to have been made in the
--------------
State of Maryland and shall be construed and enforced in accordance with,
and the validity and performance hereof shall be governed by, the laws of
the State of Maryland, without regard to conflict of laws principles.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CALIBER USER
CALIBER LEARNING NETWORK, INC. COMPAQ COMPUTER
COPRORATION
By:___________________________ By:_____________________________
Title:________________________ Title: _________________________
7
<PAGE>
APPENDIX 1
FACILITIES AND SERVICES
1. 1998-2000 Basic Package Pricing and Components
The basic package is as follows:
Price per 5 hour broadcast at up to 50 sites: /*/
Price per 2 hour broadcast at up to 50 sites: /*/
Price per additional Caliber site: /*/ per additional room over /*/
Price per additional hour of broadcast: /*/
Components of the Package:
. Training on the use of instruction design templates
. Conversion of content to Caliber format
. BOSS System
. Installation at the studio
. 1 instructor interface
. 1 technical coordinator interface
. 3 teaching assistant interfaces
. 1 server
. Video conferencing
. ISDN access router
. Hub
. UPS
. Audio/video equipment
. Program manager support during the rehearsal and the event
. Reserving training sites
. Staffing training sites
. Training site facilitators
. Import of roster data in standard format
. Caliber created web site
___________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
8
<PAGE>
. Standard reporting
. Facilitation of event
. Distribution of class materials
. Check-in students
. Support students during broadcast
. Returning materials to client
. Use of the Caliber application
. Testing
. Incorporating tests into student application
. Administering tests and return raw student data
2. Additional Services
The following services are not included in the basic package.
2.1 Additional Testing
. Caliber site facilitators proctoring the test Cost per site /*/
. Scoring of tests Cost *TBD
2.2 Studio and BOSS System
. Caliber provided technical coordinator
Cost - /*/
(includes expenses)
. Additional PictureTel units beyond two units currently provided
Cost - /*/
. Reconfiguring of the current BOSS system at Compac's request
Cost - *TBD based on request
. Additional build-out for Caliber production equipment or BOSS at
TPC studio
Cost - *TBD
. Cost incurred for Compaq requested change of studio location
Cost - *TBD
________________________
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
9
<PAGE>
Exhibit 10.08
December 1, 1996
Caliber Learning Network, Inc.
1000 Lancaster Street
Baltimore, Maryland 21202
Re: $3,000,000 Revolving Line of Credit
-----------------------------------
Gentlemen:
Subject to the terms and conditions of this agreement and your execution and
delivery of the Line of Credit Promissory Note in the form attached hereto (the
"Note"), Sylvan Learning Systems, Inc. ("Sylvan") is pleased to confirm its
agreement to make loans to Caliber Learning Network, Inc. ("Caliber" or "you")
for working capital ("Revolving Loans") from time to time in an aggregate
principal amount outstanding at any time not to exceed three million dollars
($3,000,000) (the "Line of Credit"). The Line of Credit is being made available
to you pursuant to and as permitted by Section 1.2 of the Stockholders'
Agreement dated November 22, 1996, by and among Caliber, Sylvan, MCI
Communications Corporation, Douglas L. Becker, R. Christopher Hoehn-Saric, and
John P. Hill (the "Stockholders' Agreement") in connection with the initial
capitalization of Caliber.
Sylvan shall make Revolving Loans to Caliber under the Line of Credit from time
to time upon request by Caliber, provided that each Revolving Loan shall be in
an amount not less than five hundred thousand dollars ($500,000) or an integral
multiple thereof.
Subject to and as more specifically provided in the Note:
a. Term. Caliber shall be entitled to draw upon the Line of Credit from
----
time to time until December 31, 1998 (the "Loan Expiration Date). The
outstanding principal balance of the Revolving Loans, together with
accrued and unpaid interest therein, shall be due and payable in full
in a single payment of principal plus accrued interest on December 31,
2000 (the "Loan Maturity Date").
b. Interest. The unpaid principal balance of the Revolving Loans
--------
outstanding from time to time shall bear interest at a fluctuating
rate equal to one
<PAGE>
percent (1%) above the prime rate as published by NationsBank, N.A.,
in Baltimore, Maryland, on the last business day of each calendar
quarter during which there were principal amounts outstanding.
c. Optional Prepayment. The Note may be prepaid at any time, in whole or
-------------------
in part, without penalty.
d. Mandatory Prepayment. At Sylvan's request, the principal amount of
--------------------
any and all Revolving Loans then outstanding, together with accrued
and unpaid interest thereon, shall be due and payable in full upon the
closing, if any, of an Initial Public Offering by Caliber. As used
herein, the term "Initial Public Offering" shall have the same
meaning as the meaning ascribed to such term in Section 4.1 of the
Stockholders' Agreement.
e. Right to Re-borrow. Any optional or mandatory prepayment of principal
------------------
prior to the Loan Expiration Date shall entitle Caliber to re-borrow
the entire amount or any portion thereof, subject to the terms and
conditions herein described.
Sincerely,
SYLVAN LEARNING SYSTEMS, INC.
By:_____________________________
Douglas L. Becker
President
<PAGE>
READ AND AGREED
as of the 1/st/ day of December, 1996.
CALIBER LEARNING NETWORK, INC.
By:________________________________
R. Christopher Hoehn-Saric
Chairman
Attachment - Line of Credit Promissory Note
<PAGE>
LINE OF CREDIT PROMISSORY NOTE
$3,000,000.00 December 1, 1996
FOR VALUE RECEIVED, CALIBER LEARNING NETWORK, INC., a Maryland corporation
("Borrower"), promises to pay to the order of SYLVAN LEARNING SYSTEMS, INC., a
Maryland corporation (together with its successors, endorsees and assigns,
"Lender") on December 31, 2000, the principal amount of all Revolving Loans then
outstanding pursuant to and as such capitalized term is defined in that certain
letter agreement between Borrower and Lender dated the date first written above
and relating to the subject matter hereof, together with all accrued and unpaid
interest thereon at the rate hereinafter provided.
The terms and conditions of this Note, in addition to those set forth
above, are as follows:
1. Interest. The unpaid principal amount of the Revolving Loans
--------
outstanding from time to time shall bear interest at a fluctuating rate equal to
one percent (1%) above the prime rate as published by NationsBank, N.A., in
Baltimore, Maryland, on the last business day of each calendar quarter during
which there were principal amounts outstanding.
2. Optional Prepayment. This Note may be prepaid at any time, in whole or
-------------------
in part, without penalty.
3. Mandatory Prepayment. At Lender's request, the principal amount of the
--------------------
Revolving Loans then outstanding, if any, together with accrued and unpaid
interest thereon, shall be due and payable in full upon the closing, if any, of
an Initial Public Offering by Borrower. As used herein, the term "Initial Public
Offering" shall have the same meaning as the meaning ascribed to such term in
Section 4.1 of the Stockholders' Agreement dated November 22, 1996, by and among
Borrower, Lender, MCI Communications Corporation, Douglas L. Becker, R.
Christopher Hoehn-Saric, and John P. Hill.
4. Application of Payments, Etc. All payments made on account of this
----------------------------
Note shall be applied first to accrued and unpaid interest and then to the
principal amount of the Revolving Loans then outstanding. All payments on
account of this Note shall be paid in lawful money of the United States of
America in immediately available funds.
5. No Waiver. No failure or delay by Lender to insist upon the strict
---------
performance of any term, condition, covenant, or agreement of this Note or to
exercise any right, power, or remedy consequent upon a breach thereof, shall
constitute a waiver of any such term, condition, covenant, or agreement of any
such breach, or preclude Lender from exercising any such right, power, or remedy
at a later time or times. By accepting partial payment or payment after the due
date of any amount payable under the terms of this Note, Lender shall not be
deemed to waive the right either to require prompt payment when due of all other
amounts payable under the terms of this Note.
<PAGE>
6. Amendment. This Note may not be changed orally, but only by an
---------
agreement in writing signed by the party or parties against whom enforcement of
any waiver, change, modification or discharge is sought.
7. Governing Law. The provisions of this Note shall be construed,
-------------
interpreted and enforced in accordance with the laws of the State of Maryland.
IN WITNESS WHEREOF, Borrower has executed this Note as of the date first
written above.
ATTEST: CALIBER LEARNING NETWORK,
INC.
_______________________________ By:_________________________________
O. Steven Jones R. Christopher Hoehn-Saric
Assistant Secretary Chairman
<PAGE>
EXHIBIT 10.09
NETWORKMCI ENTERPRISE MANAGEMENT (NEM) AGREEMENT
THIS AGREEMENT (hereinafter "Agreement") is made and entered into this 1st
day of July, 1997 (the "Effective Date") by and between CALIBER LEARNING
NETWORK, INC. having its principal place of business at 1000 Lancaster St,
Baltimore, Maryland 21202 (hereinafter "Customer") and MCI SYSTEMHOUSE CORP.,
with offices located at 3 Ravinia Drive, Atlanta, Georgia 30346 (hereinafter
"MCIS").
WHEREAS, MCIS wishes to provide to the Customer and the Customer wishes to
obtain from MCIS the Services (as herein below defined), subject to and in
accordance with the provisions of this Agreement;
NOW THEREFORE in consideration of the foregoing and the covenants and
conditions set forth herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
ARTICLE 1 - DEFINITIONS
1.1 In this Agreement, the following terms shall have the following respective
meanings:
"ACT OF INSOLVENCY" means that a Party:
(i) institutes proceedings for its winding up (except for
reorganization), liquidation, or dissolution or consents to the
filing of any petition with respect thereto or files a petition
seeking reorganization, readjustment, arrangements, composition
or similar relief under any United States or other applicable
law or consents to the filing of any such petition or to the
appointment of a receiver, liquidator, trustee or similar
officer of itself or any part of its property or makes an
assignment for the benefit of creditors or is unable, or admits
in writing its inability, to pay its debts as they become due
or otherwise acknowledges its insolvency or is deemed for the
purposes of any applicable law to be insolvent or voluntarily
suspends transaction of its usual business or any action is
taken by such party in furtherance of any of the aforesaid
purposes, or
(ii) if a court having jurisdiction enters a decree or order for its
winding up, liquidation or dissolution or adjudges it to be
insolvent or enters a decree or order which remains in force,
undischarged or unstayed, for a period of 15 days or more
approving, as properly filed, a petition seeking
reorganization, readjustment, arrangement, composition or
similar relief for any such party under any applicable law, or
the appointment of any receiver, liquidator, trustee or similar
officer of any such party or all or any part of its property,
or
(iii) if any application is made with respect to it under applicable
insolvency or replacement legislation or if a proceeding is
instituted for its winding up or a petition in bankruptcy is
presented against it under a bankruptcy or similar act and such
application, proceeding or petition is not dismissed, stayed or
<PAGE>
withdrawn within 15 days after such party has notice or
knowledge of the institution thereof; or
(iv) if a party otherwise ceases doing business as a going concern
for 5 or more Business Days.
"ADDITIONAL SERVICES" means services to be provided by MCIS to Customer
which are not included in the Services.
"AFFILIATE" and "SUBSIDIARY", when used with reference to MCIS or
Customer, respectively, a person or entity (i) that at such time owns
directly or indirectly, more than 50% of the capital stock (or other
ownership interest, if not a corporation) of such party ordinarily having
voting rights, or (ii) more than 50% of whose capital stock (or other
ownership interest, if not a corporation) ordinarily having voting rights
at such time is owned, directly or indirectly, by such party, or (iii) more
than 50% of whose capital stock (or other ownership interest, if not a
corporation) ordinarily having voting rights at such time is owned,
directly or indirectly, by another person or entity that at such time owns,
directly or indirectly, more than 50% of the capital stock (or other
ownership interest, if not a corporation) of such party ordinarily having
voting rights, or (iv) is otherwise, directly or indirectly, under common
ownership, management or control with either party.
"AGREEMENT" means this agreement, any Schedule annexed thereto and all
Modifications.
"BUSINESS DAY" means any day other than a Saturday, Sunday, statutory
holiday or other holiday observed by MCIS in the United States.
"CHANGE ORDER REQUEST" and "CHANGE ORDER PROPOSAL" mean the respective
documents used by a party to request a change to the Services. The general
forms are attached as Exhibits 1 and 2 of Schedule G.
"COMMENCEMENT DATE" means for each Customer Location, the date upon which
MCIS commences providing the Services.
"CONFIDENTIAL INFORMATION" means all data, information and materials
relating to the business and management of each party respectively, which
is disclosed to the other party pursuant to this Agreement and/or in
respect of the Services including all input data, output data, programs and
documentation information relating thereto; any information concerning
systems; any business, financial marketing and technological information of
either party; proprietary and trade secrets; technical drawings, designs
and concepts; technology and accounting, financial and personnel records of
such party; each party's software programs, routines, formulae and concepts
and documentation information relating thereto; production plans, designs,
layouts and schedules; marketing analyses, plans, customer data and
surveys; and, in the case of Customer, all Customer Data; however
Confidential Information shall not include any data or information which:
(i) is available to the public or becomes generally available to
the public through no fault of the receiving party;
MCIS Confidential
2
<PAGE>
(ii) subsequently becomes available to the public through no fault
of the receiving party and through means other than by
disclosure by the receiving party;
(iii) is received by the receiving party from a third party who was
lawfully in possession of such information free of any
obligation of confidence;
(iv) was already in the possession of the receiving party before it
was disclosed to that party by the other party and the
receiving party has documentary evidence of that possession;
(v) is disclosed by the receiving party with the prior written
consent of the disclosing party; or
(vi) must be disclosed as required by law, provided, however, that
the receiving party shall first have given prompt notice to the
disclosing party in order to permit the disclosing party a
reasonable opportunity to interpose an objection or obtain a
protective order to protect the confidentiality of such
information.
"CONTRACT MONTH" means any calendar month of a Contract Year.
"CONTRACT YEAR" means the 12-month period beginning on July 1 and ending on
June 30 of each calendar year during the Term, and any subsequent 12-month
periods thereafter for so long as this Agreement is in effect.
"CUSTOMER DATA" means (a) all information in the form provided to MCIS by
Customer and (b) all information generated and/or stored by the Services
excluding the associated database rules, classification systems,
organization systems or other MCIS proprietary methodology and all other
proprietary data of MCIS or third parties.
"CUSTOMER LOCATIONS" means the Customer locations in which WAN/LAN
Environment computer hardware, other equipment and associated software are
located, whether owned or operated by Customer, Customer's agents or
franchisees or clients of Customer, and includes the initial Customer
Locations identified in Schedule "B".
"CUSTOMER SOFTWARE" means those software programs including all related
documentation and media, which are owned or licensed by or are proprietary
to Customer, including third party software, which are required to perform
the Services.
"DISCLOSING PARTY" means the Party furnishing Confidential Information and
"RECEIVING PARTY" means the Party receiving Confidential Information;
"END USERS" means the Customer's users of the Services who are located at
the Customer Locations identified in Schedule "B".
"END-USER DEVICE" means the Customer workstations or LAN-attached printers
used by the End User.
3
<PAGE>
"EQUIPMENT" means the terminal hardware and firmware and all other
equipment acquired in respect thereto by Customer and listed at Schedule C
hereof including, without limitation, routers, switches, servers, desktops
and LAN printers.
"MANAGED NETWORK ELEMENT" means the Equipment necessary for MCIS to
provide the Services to the End-User Devices, including routers, switches,
hubs, and servers.
"NETWORK" means the MCI bandwidth services acquired from MCI by the
Customer which are connected to the Managed Network Elements.
"LAN" means Local Area Network.
"MASTER LEASE AGREEMENT" means the agreement governing SHL Financial
Services lease to Customer of machines, furniture, equipment, services and
features as described therein. To the extent that there is a conflict
between the terms of this Agreement and the Master Lease Agreement, the
terms of the Master Lease Agreement shall take precedence over those of the
Agreement.
"MATERIALS" means the part of any tangible media upon or within which any
part of the Confidential Information is recorded or reproduced in any form
and shall exclude any storage device which forms a part of computer
hardware.
"MODIFICATION" means (a) a written amendment to the Agreement signed by all
parties, or (b) a Change Order Request or Change Order Proposal signed by
all parties.
"PARTIES" means the parties to this Agreement and "Party" means either one
of them.
"PERSON" means an individual, partnership, corporation (including business
trust), joint stock company, trust, unincorporated association, joint
venture or other entity or a government or any agency, department or
instrumentality thereof or vice versa, howsoever designated or constituted.
"REQUIRED CONSENTS" means, collectively, all consents required to be
obtained for MCIS third party access to or use of applicable software.
"SCHEDULE(S)" means attachments to this Agreement, as the parties may agree
to amend same from time to time. The terms and conditions of any Schedule
are in addition to the terms and conditions set forth in this Agreement,
except where such terms and conditions of any Schedule conflict or are
inconsistent with the terms and conditions of the main body of this
Agreement, in which case the terms and conditions of the main body shall
prevail.
"SERVICES" means those services to be provided to Customer by MCIS, its
agents or representatives under this Agreement and as set out herein and in
Schedule "A" attached hereto.
"SERVICE LEVEL" means the standard of the service delivery system which
must be attained or exceeded and is expressed in Schedule "F".
4
<PAGE>
"SOFTWARE" means computer programs, regardless of format or medium, their
documentation and specifications.
"SUBCONTRACTOR" means any third party having an agreement with MCIS for the
execution or supply of all or any portion of the Services.
"TERM" shall mean the Initial Term and any renewal period or subsequent
Contract Year.
"WORK PRODUCT" means all original written material made, prepared,
developed or produced by either party in the performance of its obligations
pursuant to this Agreement including source code and object code ("CODE")
but excluding ideas, concepts, know-how or techniques.
1.2 Schedules. The following Schedules are annexed hereto and form part
----------
hereof:
Schedule "A" - Description of Services
Schedule "B" - Customer Locations
Schedule "C" - Equipment to be purchased by Customer - per site
Schedule "D" - Minimum Configurations
Schedule "E" - Pricing
Schedule "F" - Service Levels
Schedule "G" - Change Order Procedures
1.3 Headings. The division of this Agreement into Sections and the
---------
insertion of recitals and headings are for convenience of reference only and
shall not affect the construction or interpretation hereof.
1.4 Singular, Plural, Gender. Wherever in this Agreement the context so
-------------------------
requires, the singular number shall include the plural number and vice versa and
any gender herein used shall be deemed to include the feminine, masculine or
neuter gender.
1.5 Agreement. The terms "hereof," "hereto," "herein," "hereunder" and
---------
similar expressions refer to this Agreement and not to any particular Section or
other portion hereof and include any agreement supplemental hereto.
1.6 Entire Agreement. The Parties agree that this Agreement constitutes
-----------------
the complete and exclusive statement of the terms and conditions between them
covering the performance thereof and cannot be altered, amended or modified
except in writing executed by both parties hereto. Any representation, warranty
or condition, written or otherwise, not expressly contained in this Agreement or
in an authorized written amendment thereto shall not be enforceable by either
Party. Each of the Parties acknowledge that it has not been induced to enter
into this Agreement by any representation not specifically stated herein.
1.7 Severability. If any of the provisions contained in this Agreement
-------------
is found by a court of competent jurisdiction to be invalid, illegal or
unenforceable in any respect, the validity, legality or unenforceability of the
remaining provisions contained herein shall not be in any way affected or
impaired thereby.
5
<PAGE>
1.8 Governing Law. This Agreement and its application and interpretation
-------------
will be governed exclusively by the laws prevailing in the State of New York,
and the federal laws of the United States of America applicable therein
(excluding any conflict of laws rule or principle that might refer such
construction to the laws of another jurisdiction).
1.9 Date for Action. In the event that any date on which any action is
---------------
required to be taken hereunder by any of the parties on a Business Day is not a
Business Day, such action shall be required to be taken on the next succeeding
day which is a Business Day unless otherwise provided in this Agreement. For
greater certainty, this Section 1.9 shall not apply to Service Levels set forth
in Schedule "F".
ARTICLE 2 - TERM AND RENEWAL
2.1 This Agreement shall commence as of 12:01 a.m. on the Effective Date
and shall continue for a period of four (4) years ending on June 30, 2001 unless
sooner terminated pursuant to the terms herein ("Initial Term").
2.2 Where, at least six (6) months prior to the expiry of the Initial Term
or any subsequent 12-month period thereafter (each a "CONTRACT YEAR"), the
parties have failed to reach agreement in writing upon the terms and conditions
for renewal of this Agreement, the party which intends to terminate this
Agreement shall give written notice to the other party of its intention to
terminate this Agreement. Notice must be received between 6 months and 30 days
before expiry. Where no notice hereunder is received by either party within
thirty (30) days prior to the expiry of the Initial Term or any subsequent
Contract Year, this Agreement shall be automatically extended upon the same
terms and conditions set forth herein on a month-to-month basis and continue
until either party terminates in writing on 60 days notice to the other.
ARTICLE 3 - SERVICES
3.1 General. MCIS shall provide Customer with the Services described in
-------
Schedule "A." The Services shall be performed at the Customer Locations.
3.2 Upon written authorization from the Customer on at least 30 days' prior
notice and in accordance with a mutually agreed roll-out schedule, MCIS shall
begin the implementation of the Services at the specified Location as set forth
in Schedule "B." MCIS and the Customer shall mutually agree on the date upon
which implementation shall begin for any site not included in the roll-out
schedule
3.3 For installation and service implementations that must be performed on
less than 30 days notice to MCIS in writing, Customer shall have the right to
retain third parties or perform the work itself for implementation delivery,
only whenever MCIS has declined in writing or has not responded in a reasonable
manner to provide such services for the applicable charges set forth in this
Agreement, and MCIS shall not be responsible for any loss or claim resulting
directly or indirectly from the acts or omissions of such third party.
ARTICLE 4 - PRICING
6
<PAGE>
4.1 Service Charges. For the Services to be provided by MCIS to Customer
---------------
under this Agreement MCIS shall charge and Customer shall pay the rates and
charges set forth on Schedule "E" (the "Service Charges"). If the Services or
Customer Locations change during the Term of this Agreement, the Service Charges
to be paid by Customer to MCIS shall be adjusted upon the mutual agreement of
MCIS and Customer. Service Charges shall not include charges for any Additional
Service. Any estimates made by MCIS for the cost of any Equipment or Additional
Services specified in the Schedules shall be estimates only, unless otherwise
stated in writing by MCIS to Customer.
4.2 Taxes. The prices stated herein are exclusive of Federal, State or
-----
local taxes or any and all duties and taxes, however designated, levied or
based on this Agreement or services delivered hereunder, including any personal
property, retail sales, goods and services, use or value-added taxes and whether
such taxes are now in force or subsequently levied ("Taxes"). Customer agrees
to pay all such Taxes specifically imposed on the purchaser of goods or services
by law, except for taxes on the net income or assets of MCIS and except where
Customer is otherwise exempt and provides MCIS with evidence of such exemption
satisfactory to MCIS, which Taxes shall be invoiced [separately] on the original
and any applicable subsequent invoices. In no event, however, will MCIS be
liable for the payment of any Taxes based on the net income or assets of
Customer or related to the Customer's employment of its own employees, agent or
sub-contractors, including, but not limited to, workers' compensation taxes.
Customer shall promptly reimburse MCIS for any such taxes which MCIS pays
directly.
ARTICLE 5 - PAYMENT
5.1 Payment. The Customer shall pay the Service Charges and any other
--------
charges payable hereunder within 30 days of the date of invoice at the place and
in the manner specified by MCIS in the applicable invoice, or otherwise as MCIS
shall direct.] Invoicing, payment, late payment or overdue interest charge
terms and conditions which may be contained in any collateral finance document,
including the Master Lease Agreement between Customer and SHL Financial Services
Ltd. dated April 14, 1997, ("Master Lease Agreement") shall govern to the
extent of any inconsistency with this Article 5. Leasing payments are subject
to the terms and conditions of the Master Lease Agreement.
5.2 Invoicing. MCIS will invoice the Customer on a monthly basis for the
----------
Service Charges and any other applicable charges or fees. Each invoice will
state separately applicable Taxes owed by the Customer, if any, detailed by tax
jurisdiction, as well as segregate services delivered across all Customer
Locations, and per Customer Location services. For lease invoicing, SHL
Financial Services shall invoice Customer as set forth in the Master Lease
Agreement. MCIS shall reasonably provide explanation and detailed backup for
Invoice line items.
5.3 Late Payment Charge. Without prejudice to any other rights, remedies
--------------------
or recourses available to MCIS under this Agreement, at law or in equity, should
Customer fail to pay any amount required to be
7
<PAGE>
paid by Customer to MCIS hereunder, Customer shall pay to MCIS /*/ . Late
payments set off conditions and security interest are subject to the terms and
conditions of the Master Lease Agreement.
5.4 No Set-Off or Withholding. Subject to Section 6.2, the right of MCIS
---------------------------
to any payment provided for under this Agreement shall not be subject to any
abatement, reduction, set-off, defense, counterclaim or recoupment of any amount
due or alleged to be due by reason of any past, present or future claims of the
Customer against MCIS save and except that Customer may, upon notice to MCIS,
withhold /*/ , for any bona fide disputed amount provided that withholding of
such amounts shall be subject to the dispute resolution provisions in Article
13.
ARTICLE 6 - MCIS RESPONSIBILITIES
6.1 Client Services Representative (CSR). Upon execution of this
------------------------------------
Agreement, MCIS shall designate a person to whom all communications from the
Customer shall be addressed and who has the authority to act for MCIS in
connection with all operational aspects of this Agreement only ("CSR"). MCIS
may replace the MCIS CSR at any time during the Term upon reasonable prior
written notice to the Customer. MCIS will replace the MCIS CSR upon reasonable
notice from Customer.
6.2 Services and Service Levels. MCIS shall provide the Services as set out in
---------------------------
Schedule "A" hereto. MCIS shall meet or exceed each of the applicable Service
Levels as identified in Schedule F, however Service Levels are not guarantees of
performance, and, subject to Article 10, Service Level credits may be set off
against monthly invoice payment, are Customer's sole remedy.
6.3 Project Management. Upon execution of this Agreement, MCIS shall
------------------
designate a implementation Project Manager who has the responsibility of
networkMCI Enterprise Management implementation of Customer Locations. Once
implementations are complete, MCIS shall designate a CSR as defined in Section
6.1 who will act as the Customers single point of contact for on-going service
delivery.
6.4 Subcontractors. MCIS hereby reserves and the Customer acknowledges MCIS'
--------------
right to obtain, contract for or otherwise acquire the services of
Subcontractors or agents in order to perform its obligations hereunder, provided
that MCIS' use or reliance upon any such Subcontractor shall not relieve MCIS of
its obligations under this Agreement. Customer acknowledges MCI
Telecommunications Corporation and its Affiliates as approved subcontractors. To
the extent that such third parties provide warranties to MCIS and to the extent
that they permit the transfer of such warranties to the Customer, MCIS will pass
such warranties through to the Customer.
ARTICLE 7 - CUSTOMER RESPONSIBILITIES
- -------------------------
/*/ Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
8
<PAGE>
7.1 Upon execution of this Agreement, Customer shall designate a person at each
Customer Location to accept the delivery of the Services for that Customer
Location (the "Site Manager"). All communications from MCIS concerning the
Services to be provided to that Customer Location shall be addressed to the Site
Manager as necessary and the Site Manager shall have the authority to act on
behalf of the Customer in all matters relating to the Services provided to the
Site Manager's Customer Location . Customer will provide MCIS with prompt
notice of any change of Site Manager. Customer will also designate a central
project manager authorized by Customer to act in its behalf on all matters
relating to this Agreement, including, without limitation, Customer
responsibilities related to performance by MCIS of the Services, Service Level
matters and co-ordination with MCIS personnel ("Project Manager").
7.2 The Site Manager or immediate supervisor shall be the point of contact,
without limitation, for the following at his Customer Location:
(a) Escalation and after business hours contact
(b) Authorization of all security and service requests
(c) Application support
(d) Change notification
(e) Miscellaneous faults.
7.3 Customer's Site Manager will provide the site information containing the
supported site, associated users, phone number, and location.
7.4 Customer will agree with and adhere to MCIS standards for the Services
outlined in Schedule D. The standards address hardware and software
configurations, End-User profiles and other elements of the environment.
7.5 Customer will be responsible for selecting, obtaining or developing all
applications and shall be responsible for maintaining applications software the
Customer has developed that execute on the LAN Environment. MCIS will maintain
the systems software that executes on the LAN infrastructure.
7.6 Customer will make available to MCIS, for the sole purpose of providing the
Services, the Customer's Software used by the Customer in Customer Locations and
the Customer shall obtain, with the non-financial assistance of MCIS, where
practicable, all Required Consents. If any Required Consent is withheld, the
Parties will cooperate with each other in achieving reasonable alternative
arrangements to providing MCIS access to the Customer Software as needed by MCIS
in order to perform the Services for the Customer.
7.7 The Customer shall provide:
(a) controlled-access equipment room which conforms to the requirements
identified by MCIS per Schedule D;
(b) physical access to Customer premises 24 hours per day, 7 days per
week;
(c) sufficient heating, ventilation and air conditioning to maintain
temperature in equipment room to manufacturer recommended
specifications.;
(d) one direct dial analog phone line;
9
<PAGE>
(e) appropriate electrical power;
(f) appropriate working space for onsite and dispatched MCIS staff; and
(g) during implementation, (1) physical access to Customer premises 24
hours per day, 7 days per week; (2) supervisory access on servers;
access to all desktops (i.e. no power-on passwords); (3) access to
site personnel as needed; (4) access to infrastructure topology
diagrams; (5) when performing inventory, users must make available all
devices currently not on premises; (6) an existing inventory list for
reconciliation (if available); (7) current organizational charts; (8)
written concurrence from the Site Manager, upon Customer request, that
there will be no Change Order during implementation; and (9)
appropriate working space.
7.8 Customer shall permit MCIS to install (and update as needed) Software or
software agents enabling MCIS to provide the Services under this Agreement. As a
precondition to the provision of Services by MCIS, Customer shall upgrade and
maintain its equipment required for and subject to the Services to the minimum
standards as set forth on Schedule "D" (the "Minimum Configurations").
7.9 Customer agrees to accurately complete a monthly electronic update for
their inventory profile. MCIS will provide the capability to enable Customer to
update their user profiles on a monthly basis. MCIS shall not be liable for any
reliance by any other Person on the accuracy of such updates.
7.10 Each party shall notify the other in the event of virus detection or
infections. MCIS shall use commercially available software at the server level
to monitor and remove virus infections; however MCIS shall not be liable for the
effect of any virus introduced by Customer or any third party on the Services.
MCIS shall use reasonable efforts to remove any virus which is introduced in the
Managed Network Elements (7.19). Customer will designate administrative
person(s) to support tape mounting and off site storage and retrieval.
7.11 Customer, when contacting the Help Desk, will provide the following
information:
(a) End-User name and telephone number
(b) Location
(c) MCIS equipment identifier/tag number
(d) Nature of problem or request.
7.12 Standard of Care. The parties shall perform their responsibilities
----------------
hereunder in a professional, competent and workmanlike manner. The Customer or
its agents, employees or representatives shall not commit any act or cause any
act to be committed or provide any services which will conflict with or effect
in any way the provision of Services by MCIS or its Subcontractors or Affiliates
hereunder. In the event that the Customer or its agents or employees violates
this Section (7.12) the Customer shall be liable for all additional costs,
liabilities and expenses incurred by MCIS in ensuring that Service Levels
continue to be met. The Customer will permit or will arrange unrestricted access
for MCIS to the site premises for the purpose of performing its obligations
hereunder, subject only to the Customer's normal security procedures and
requirements.
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<PAGE>
7.13 Access. Customer shall provide MCIS and its Subcontractors, at no
-------
charge, sufficient working and storage space, when needed at Customer Locations
to provide the Services at the Service Levels, the use of any necessary
equipment or facilities, including without limitation, reasonable sized work
areas, phones, fax machines, supplies as well as such access to Customer's
personnel, files and equipment at the Customer's facilities as MCIS reasonably
deems necessary for its employees and Subcontractors in connection with
providing the Services. Work space shall be of the quality and kind furnished by
Customer to its own employees.
7.14 Decisions Requests. MCIS may make written requests for approvals,
-------------------
decisions or other actions by Customer relating to the Services ("Decision
Request"). Each Decision Request shall set forth the additional cost to the
Customer and effect upon the delivery of Services, if any, of the proposed
Decision Request, shall require a response from the Customer during a
reasonable and specified period of time not to exceed ten (10) Business Days.
In the event no written response is received from the Customer by the specified
deadline, MCIS shall be entitled to act as if Customer had responded by
approving the action contemplated by the Decision Request and such approval
shall be deemed given, unless a decision request will or is likely to include
additional direct cost to Customer, in which case, written Customer consent
shall be required, and not deemed given, and Customer shall respond to such
request for consent in a timely manner. Where Customer withholds its consent,
MCIS shall not be liable for any loss, claim or effect in performance arising
directly or indirectly from Customer's failure to approve a Decision Request.
7.15 Change Control Procedures.
--------------------------
(a) Change Control Procedures will govern all requests for changes to the
Services, provision of Additional Services or any material Equipment change or
change to a delivery schedule in connection therewith. All requests by Customer
or MCIS for any non-administrative change or addition to the Services, Service
Levels or any other item provided for in this Agreement, are subject to the
procedures concerning Change Orders, Change Order Requests and Change Order
Proposals and this Section 7.15 hereof ("Change Control Procedures" Schedule G).
-------------------------
Customer may at any time during the Term request that the Services or Service
Levels be revised to accommodate Customer's business requirements. MCIS may at
any time propose changes through a Change Order, as provided in Section 7.15(b).
(b) To respond to a change requested by Customer, or to offer any change,
MCIS will prepare at its expense (and within ten (10) days of any Customer
request, where commercially reasonable) a "Change Control Document" (Change
-----------------------
Order Request or Change Order Proposal, as appropriate) describing the change,
the price of the change, any effect the change may have on such Service Levels
or on any implementation or other schedules between MCIS and Customer and any
other particulars.
(c) The Change Control Document from MCIS shall constitute an offer by
MCIS to Customer to deliver the requested services with the associated changes
to price, payment terms, delivery schedules and related areas as set forth in
the Change Control Document. Such offer shall be irrevocable for the period
stated therein or if none is stated, for a period of thirty (30) days.
(d) Customer may choose whether to accept the offer in MCIS' Change
Control Document. Customer and MCIS shall promptly discuss in good faith such
Change Control Document. If Customer accepts such offer by signing the Change
Control Document, such agreement shall constitute a
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<PAGE>
"Change Order" and the Schedules affected by the change shall be formally
- -------------
amended to incorporate such Change Order.
(e) Customer shall in all cases request a Change Control Document from
MCIS before seeking a proposal for such change from another supplier. If MCIS
and Customer are unable to agree on a change, Customer may obtain such change
from another supplier (after giving MCI a first refusal opportunity to match the
terms offered by the other supplier(s) where reasonably possible). In no event
shall MCIS be deemed responsible for work or services performed by any other
supplier, excluding any of MCIS subcontractors, or for the effect such work or
services may have on applicable Service Levels.
7.16 Costs of Delay. In the event that Customer fails to fulfill any of
--------------
its responsibilities under this Agreement and the Schedules in a proper and
timely manner and such failure causes a delay in the provision of the Equipment
or other Services or results in additional costs to MCIS, MCIS shall take such
action as it deems reasonably prudent and shall provide Customer with a written
specification of such delay and the resultant costs. Customer shall pay these
costs to MCIS at the then-current standard MCIS rates for the Equipment or
Services involved. Customer shall pay such costs and the time limits for MCIS's
performance, if any, shall be extended by a period of time at least equal to the
duration of the Customer's delay. In the event MCIS is directly and solely
responsible for failure to meet the deliverable timelines in this agreement MCIS
shall be responsible for reasonable costs related to such delay.
7.17 Substitute Providers.
--------------------
(a) If twenty-four (24) hours after commencement of a force majeure event,
which event causes a problem with any Services provided to Customer, MCIS
does not cure such problem or provide the notifier with a good-faith
proposal to effect such repair in a timely manner that is reasonably
acceptable to Customer, then Customer may, using reasonable efforts to
coordinate with MCIS, (i) repair such Equipment itself at its own expense,
or (ii) engage the services of another vendor or independent contractor at
its own expense to repair or service such Equipment or provide a
substitute for such Service. MCIS shall at all times have the option to
replace any substitute vendor's equipment in such a manner as to meet the
applicable Service Level. In no event shall MCIS be deemed responsible for
work or services performed by any other vendor or independent contractor
or for the effect such work or services may have on applicable Service
Levels.
(b) In the event Customer requires an installation to be performed which is
not set forth in Schedule "B" and MCIS determines that it cannot fulfill the
requested installation time frame, Customer may engage a third party, provided
that Customer shall be required by MCIS to have such installation re-certified.
7.18 Correction of Inaccurate Data. Customer agrees that MCIS shall not be
------------------------------
responsible for the accuracy of any Customer Data input to the system or the
effect such inaccurate Customer Data may have on performance of the Services. .
7.19 Managed Network Elements. During the Term, the Customer will arrange with
-------------------------
MCIS for the supply, installation and maintenance (including any associated
software upgrades) of the Managed Network Elements and all associated Software
through MCIS or its designated subcontractors or Affiliates exclusively or as
otherwise specified in this contract. This requirement includes those items
listed at Schedule C. The Customer will ensure at all times that the Managed
Network Elements and any other equipment in respect of its Network shall be
stored, maintained and operated by the Customer in an
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<PAGE>
environment which conforms to the manufacturer's specifications. The Customer
will provide all necessary infrastructure, including, without limitation, power
outlets, grounding and anti-static environments required for the safe and
efficient operation and maintenance of the Managed Network Elements in
accordance with all specifications or regulations as provided to Customer in
advance. The Customer will designate such number of its employees, as the
parties shall agree are necessary to supply first line support for the Managed
Network Elements, other equipment and Services, and such designees will each
constitute contact points for MCIS for the Services hereunder.
7.20 No Resale or Access Rights to Third Parties. Except for Customer's,
-------------------------------------------
franchisees and affiliates of Customer, the Customer will not share or resell
the Services with or to any other Person. The Services shall (i) remain
physically separate; (ii) not be used jointly by Customer with any other and
(iii) originate and terminate on Customer's premises. Breach by Customer of this
Section 7.20 shall be a Material Breach entitling MCIS to terminate this
Agreement pursuant to Section 14.1 hereof.
ARTICLE 8 - INSPECTION AND TESTING
MCIS or MCIS's designated representatives shall be authorized to visit any
Customer site(s) to review MCIS work in progress with appropriate Customer
personnel as reasonably required. MCIS agrees to abide by all security
regulations in effect at such sites. Such security regulations must be provided
to MCIS in writing at the site.
ARTICLE 9 - INTELLECTUAL PROPERTY AND CONFIDENTIALITY
9.1 Subject to any right, title or interest expressly granted by this
Agreement, neither party shall acquire any right, title, or interest in or to
any intellectual property rights or Confidential Information (including without
limitation patents, copyright and trade secrets) of the other party.
9.2 Rights, Restrictions and Obligations of the Receiving Party
-----------------------------------------------------------
(a) Except as otherwise specifically stated in this Agreement, the
Receiving Party shall not during the Term and after expiration or
termination hereof:
(i) disclose, in whole or in part, any Confidential Information
received directly or indirectly from the Disclosing Party; or
(ii) sell, rent, lease, transfer, encumber, pledge, reproduce,
publish, transmit, translate, modify, reverse engineer, compile,
disassemble or otherwise use the Confidential Information in whole
or in part.
(b) The Receiving Party acknowledges that:
(i) the Disclosing Party possesses and will continue to possess
Confidential Information that has been created, discovered or
developed by or on behalf of the Disclosing Party or otherwise
provided to the Disclosing Party by third parties, which
information has commercial value and is not in the public domain;
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(ii) unauthorized use or disclosure of Confidential Information
is likely to cause injury not readily measurable in monetary
damages, and therefore is irreparable;
(iii) in the event of an unauthorized use or disclosure, the
Disclosing Party shall be entitled, without waiving any other
rights or remedies, to such injunctive or equitable relief as may
be deemed proper by a court of competent jurisdiction;
(iv) subject to the rights expressly granted to the Receiving
Party in this Agreement, the Disclosing Party and its licensors
retain all right, title and interest in and to its proprietary
Confidential Information, including without limiting the generality
of the foregoing, title to all Materials regardless of whether
provided by or on behalf of the Disclosing party; and
(v) any disclosure by the subcontractors, agents,
representatives, advisors, directors, officers, employees and
Affiliates of the Receiving Party and, where applicable, their
directors, officers and employees shall be deemed to be disclosure
by the Receiving Party and the Receiving Party shall indemnify and
hold harmless the Disclosing Party from any losses, claims or
damages incurred as a result of such breach.
9.3 Rights and Remedies of the Disclosing Party
-------------------------------------------
(a) Immediately upon the Disclosing Party's request or the expiration
or termination of this Agreement, the Receiving Party shall:
(i) return all Materials, including, without limiting the
generality of the foregoing, all originals, copies, reproductions
and summaries of Confidential Information; and
(ii) destroy all copies of Confidential Information in its
possession, power or control, which are present on magnetic media,
optical disk, volatile memory or other storage device, in such a
manner as ensures that the Confidential Information is rendered
unrecoverable.
Upon completion of the foregoing an officer of the Receiving Party
shall provide written confirmation to the Disclosing Party that the
Receiving party has complied with the requirements of this
Paragraph.
(b) The Disclosing Party may visit the Receiving Party's premises, upon
reasonable prior notice and during normal business hours, to review the
Receiving Party's compliance with the terms of this Paragraph.
9.4 Data Security MCIS shall not be responsible for the corruption of data or
-------------
for the security of data during transmission via public telecommunications
facilities or shipped via commercial carriers. MCIS will provide a separate
Frame Relay Permanent Virtual Circuit (PVC) over Customer's existing network
circuit to provide remote management and monitoring services to the Customer's
locations. This PVC will be used for management purposes only and MCIS will
prevent all Customer's network data from passing across this PVC. MCIS will
provide commercially reasonable security for analog dial-in lines used for
management purposes and LAN/WAN infrastructure and a secure environment for
areas within its exclusive control MCIS and Customer shall cooperate fully in
efforts to prevent and cure
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unauthorized use of Services by implementing commercially available and
reasonable security measures and by promptly informing Customer when MCIS is
aware of suspected abuse of Services and, when known, the identity of the
responsible individuals. MCIS will assist Customer, upon request, to minimize
fraud or abuse through timely reconfiguration of the Services and limitations on
their use. Except for the Equipment, Customer is responsible for the Customer-
premises equipment it uses with the Services and shall not connect to the
Services any Customer-premises equipment which would harm the Managed Network
Elements. Customer and MCIS shall each maintain the security of any information
that they respectively control involving passwords, access codes or other
identification of Customer employees or other authorized users, and each party
shall reasonably assist the other in meeting its responsibilities under this
Section 9.4.
9.5 Data Ownership and Access. All Customer Data shall be and remain the
-------------------------
property of Customer or its suppliers, licensors or third parties.
9.6 Work Product Ownership. Except as otherwise specifically provided in
----------------------
this Agreement or in a Modification, all rights, title and interest in and to
all processes and methodologies and other intellectual property created solely
by Customer or those for whom Customer is responsible at law in respect of the
Services shall be owned by Customer. Title to and ownership of all systems,
software, documentation, utilities, tools, methodologies, specifications,
techniques and other materials, know-how and hardware owned by each Party or in
the possession of such Party prior to the Effective Date of this Agreement and
used by that Party in connection with providing the Equipment and Services,
together with all intellectual property rights therein, shall remain with that
Party whether or not they are specifically adapted by that Party for use by
Customer. The rights, title and interest in and to all jointly-created
intellectual property created or developed in the course of performance of the
Services shall be negotiated on a case-by-case basis.
9.7 No Title. Notwithstanding anything to the contrary in this Agreement,
--------
nothing in this Agreement shall, directly or indirectly, confer any title in any
Party's existing intellectual property or in any Modification thereto to the
other Party or anyone operating under such other Party.
9.8 Patent, Copyright. Any ownership or license rights herein granted to
-----------------
either party are limited by and subject to any patents and copyrights held by,
and terms and conditions of any license agreements with, applicable third party
software vendors.
9.9 Further Assurances. To the extent any of the Work Product may not, by
------------------
operation of law, be owned by the Party to which ownership has been granted (as
described in this Article 9), each Party agrees to assign and hereby assigns,
without further consideration, the ownership of all right, title and interest in
all United States and foreign copyrights and mask work rights (if any) in such
Work Product to the other Party, and such assignee Party shall have the right to
obtain and hold in its own name copyrights, registrations, renewals and all
other rights relating or pertinent thereto.
9.10 Legends. The Parties agree to reproduce copyright legends which
--------
appear on any portion of the Work Product which may be owned by third parties.
9.11 Competitive Development. This Agreement shall not preclude the Parties
-----------------------
from developing materials or providing services which are competitive to the
Work Product irrespective of their similarity to computer programming code,
documentation or other materials or services which might be delivered pursuant
to this Agreement, except to the extent any of same may involve disclosure of
the
15
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other Party's Confidential Information or may infringe any of the other
Party's or its subcontractor's patent, copyright or other proprietary rights.
9.12 Know-How, etc. Nothing contained in this Agreement shall restrict
-------------
either Party from the use of any ideas, concepts, know-how or techniques
relating to data processing or network management which either party
individually or jointly develops or discloses under this Agreement, except to
the extent such use involves disclosure of either party's Confidential
Information or infringes any of either Party's patent copyright or other
proprietary rights. Neither this Agreement nor any disclosure made hereunder
grants any license to either party under any patents or copyrights of the other
Party. Each Party shall be responsible for abiding by the terms and conditions
of any agreement in force between that Party and any third party with respect to
the subject matter hereof.
ARTICLE 10 - WARRANTY AND LIMITATION OF LIABILITY
10.1 Warranty MCIS warrants that the Services shall be performed to the
--------
levels as set forth in Schedule "F", attached hereto and incorporated
herein. Other than as may be specifically set forth in this Agreement,
MCIS MAKES NO OTHER WARRANTIES OR CONDITIONS AND EXPLICITLY DISCLAIMS ALL
OTHER WARRANTIES AND CONDITIONS WHETHER EXPRESS OR IMPLIED BY LAW, USAGE
OF TRADE, COURSE OF DEALING OR OTHERWISE, INCLUDING WITHOUT LIMITATION
ANY IMPLIED WARRANTIES AND CONDITIONS OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE.
10.2 Disclaimers
-----------
(a) MCIS does not warrant the accuracy of any advice, report, data or
other product delivered to the Customer which is produced with or from
data or software provided by the Customer to the extent that the accuracy
is affected directly or indirectly by an error in such data or software.
(b) Subject to the provisions of this Agreement, MCIS does not warrant
uninterrupted or error-free operation of the Services.
(c) To the extent that MCIS agrees to sell and deliver to the Customer
any items of hardware or licenses for third party software pursuant to
this agreement ("third-party materials"), MCIS agrees to pass on to the
Customer the manufacturer's or supplier's warranties to the extent MCIS
is contractually able to do so. The warranties given by the manufacturer
or supplier of the respective third party materials are the exclusive
remedies of the Customer with respect to the third party materials. these
warranties are the only warranties with respect to the third party
materials and MCIS makes no representations or warranties with respect to
third party materials except as set out above. All other warranties,
express or implied, including without limitation the implied warranties
of merchantability and fitness for any particular purpose with respect to
third party materials, are hereby expressly excluded.
10.3 Limitation of Liability
-----------------------
(a) NOTHWITHSTANDING ANY OTHER TERM OR CONDITION OF THIS AGREEMENT, THE
ENTIRE LIABILITY OF MCIS, ITS DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
AND CUSTOMER'S EXCLUSIVE REMEDY WITH RESPECT
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TO ANY CLAIM CONCERNING MCIS' PERFORMANCE OR NON-PERFORMANCE OF THE TERMS
OF THIS AGREEMENT OR ANY CLAIM FOR BREACH OR DEFAULT OR FOR ANY OTHER
CLAIM ARISING UNDER OR RELATED IN ANY WAY TO THIS AGREEMENT SHALL ONLY BE
FOR CUSTOMER'S ACTUAL AND PROVABLE DIRECT DAMAGES AND CUSTOMER'S EXPENSES
RELATED THERETO AND THEN ONLY TO THE LIMITS SET FORTH IN THIS SECTION
10.3.
(b) THE MAXIMUM CUMULATIVE AND AGGREGATE LIABILITY OF MCIS FOR ALL
CLAIMS ARISING UNDER OR RELATED IN ANY WAY TO THIS AGREEMENT SHALL IN NO
EVENT EXCEED THE TOTAL AMOUNT PAID TO MCIS HEREUNDER BY CUSTOMER,
EXCLUSIVE OF PASS-THROUGH AMOUNTS, IN THE SIX (6) MONTH PERIOD
IMMEDIATELY PRECEDING THE DATE OF THE EVENTS GIVING RISE TO THE CLAIM
PROVIDED THAT THIS SUBSECTION 10.3(B) SHALL NOT APPLY TO CLAIMS IN
RESPECT OF:
(i) GROSS NEGLIGENCE OR WILLFUL MISCONDUCT;
(ii) PERSONAL INJURY OR DEATH OR LOSSES TO TANGIBLE PERSONAL PROPERTY;
OR
(iii) BREACHES OF ARTICLE 9 HEREOF.
(c) NOTWITHSTANDING ANYOTHER TERM OR CONDITION OF THIS AGREEMENT, IN NO
EVENT SHALL MCIS BE LIABLE FOR ANY INDIRECT, CONSEQUENTIAL, INCIDENTAL,
SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES (INCLUDING WITHOUT LIMITATION LOSS
OF PROFITS, REVENUES, CUSTOMERS OR CONTRACTS; LOSS OF USE OF EQUIPMENT;
LOSS OF DATA; BUSINESS INTERRUPTION; AND/OR FAILURE TO REALIZE EXPECTED
COST SAVINGS), HOWSOEVER CAUSED OR ARISING, INCURRED BY CUSTOMER OR ANY
OTHER PERSON EVEN IF MCIS HAS BEEN ADVISED OF THE POSSIBILITY OF SAME OR
EVEN IF SAME WERE REASONABLY FORESEEABLE.
(D) THE PROVISIONS OF THIS SUBPARAGRAPH SHALL APPLY WHETHER THE CLAIM
ARISES AS A RESULT OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR ANY OTHER
STATUTORY, LEGAL OR EQUITABLE GROUNDS.
(E) IN NO EVENT WILL MCIS OR ITS SUBCONTRACTORS BE LIABLE FOR ANY
DAMAGES IF AND TO THE EXTENT CAUSED BY CUSTOMER'S FAILURE TO PERFORM ITS
RESPONSIBILITIES NOR SHALL CUSTOMER BE LIABLE FOR ANY DAMAGES IF AND TO
THE EXTENT CAUSED BY ANY FAILURE BY MCIS OR ITS SUBCONTRACTORS TO PERFORM
HEREUNDER.
(F) WHERE ANY OF MCIS'S EMPLOYEES ARE ADMITTED TO CUSTOMER'S PREMISES
PURSUANT TO THIS AGREEMENT, CUSTOMER SHALL TAKE SUCH MEASURES AS ARE
REASONABLE TO ENSURE THAT THE CONDITION AND OPERATION OF ITS PREMISES AND
ANY PLANT, EQUIPMENT OR SUBSTANCE IN SUCH PREMISES COMPLY WITH ALL
APPLICABLE LAWS AND REGULATIONS. CUSTOMER SHALL INDEMNIFY MCIS AGAINST
THE CONSEQUENCES OF ITS FAILURE SO TO ENSURE SUCH SAFETY AND FREEDOM FROM
RISKS TO HEALTH AND AGAINST ALL CLAIMS BY THIRD PARTIES AND ANY OTHER
CLAIMS AT COMMON LAW OR BY STATUTE ARISING OUT OF SUCH FAILURE.
(H) NOTWITHSTANDING THE FOREGOING, MCIS SHALL NOT BE LIABLE WITH
RESPECT TO:
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(i) ACTS OR OMISSIONS OF THE CUSTOMER, ITS AGENTS, CONTRACTORS WHICH
MATERIALLY INTERFERE WITH PERFORMANCE BY MCIS, NOTWITHSTANDING MCIS'S
REASONABLE EFFORT TO MITIGATE THE CONSEQUENCES OF SUCH ACTS OR OMISSION;
(ii) FAILURE(S) ATTRIBUTABLE TO CUSTOMER INITIATIVES OR INITIATIVES OF
CUSTOMER'S OTHER CONTRACTORS AND SYSTEMS WHICH MATERIALLY INTERFERE WITH
PERFORMANCE BY MCIS;
(iii) FORCE MAJEURE;
(iv) FAILURE OF CUSTOMER OR THIRD PARTY EQUIPMENT NOT UNDER THE DIRECT
CONTROL OF MCIS WHICH MATERIALLY INTERFERES WITH PERFORMANCE BY MCIS;
(v) CUSTOMER OR CUSTOMER-DIRECTED THIRD-PARTY CHANGES IN EQUIPMENT OR
SOFTWARE ENVIRONMENTS, UNLESS AUTHORIZED AND COORDINATED WITH MCIS
HOWEVER, MCIS SHALL PROMPTLY NOTIFY CUSTOMER OF SAME; OR
(vi) SPIKES IN SERVICE VOLUMES, WHERE INCREASES ABOVE A MUTUALLY AGREED
TO THRESHOLD OCCURS WITHOUT REASONABLY SUFFICIENT ADVANCE NOTICE TO MCIS
SO AS TO ALLOW MCIS TO PLAN SERVICE DELIVERY ACCORDINGLY.
10.4 CUSTOMER WARRANTY. IN ADDITION TO THE REPRESENTATIONS, WARRANTIES AND
-----------------
LIABILITIES SET FORTH ELSEWHERE IN THIS AGREEMENT, CUSTOMER REPRESENTS AND
WARRANTS THAT IT HAS THE AUTHORITY TO PERMIT MCIS TO RUN CUSTOMER SOFTWARE
SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT.
10.5 ACCURACY OF DATA. EACH PARTY WARRANTS TO THE OTHER THAT ALL INFORMATION
-----------------
AND DATA PROVIDED BY IT TO THE OTHER IN RESPECT OF THIS AGREEMENT AND IN THE
COURSE OF ITS PERFORMANCE UNDER THIS AGREEMENT SHALL BE ACCURATE. THE RECIPIENT
SHALL BE ENTITLED TO RELY UPON SUCH INFORMATION IN ITS PERFORMANCE OF THIS
AGREEMENT.
ARTICLE 11 - CONFIGURATION CONTROL
11.1 CUSTOMER SHALL NEITHER MAKE NOR INCORPORATE ANY CHANGE TO ANY EQUIPMENT,
NETWORKS OR OTHERWISE WHICH AFFECT THE SERVICES TO BE PERFORMED HEREUNDER
WITHOUT THE PRIOR EXPRESS WRITTEN APPROVAL OF MCIS. ANY SUCH CHANGES THAT ARE
MADE WITHOUT MCIS'S PRIOR WRITTEN APPROVAL WHICH ADVERSELY AFFECTS THE ABILITY
OF MCIS TO MEET A PARTICULAR SERVICE LEVEL SHALL RELIEVE MCIS OF THE OBLIGATION
OF MEETING ANY SERVICE LEVELS OR OTHER PERFORMANCE GUARANTEES SET FORTH IN THIS
AGREEMENT. SUBJECT TO SECTION 7.17, IF CUSTOMER'S BUSINESS NEEDS REQUIRE A
CHANGE IN ANY EQUIPMENT, NETWORKS, OPERATING SYSTEMS OR OTHERWISE, MCIS WILL
WORK WITH CUSTOMER IN GOOD FAITH TO EFFECT SUCH CHANGES IN A TIMELY MANNER,
BASED ON CUSTOMER'S BUSINESS PRIORITIES. SUBJECT TO SECTION 11.2, CHANGES NOT
AFFECTING ANY EQUIPMENT, NETWORKS, OR THE SERVICES MAY BE MADE AND INCORPORATED
BY CUSTOMER. EACH PARTY SHALL PROVIDE ADVANCE WRITTEN NOTICE TO THE OTHER OF
SUCH CHANGES AS SOON AS REASONABLY POSSIBLE.
11.2 ALL CHANGES MUST BE COMPATIBLE WITH ALL EQUIPMENT PROVIDED HEREUNDER OR
PREVIOUSLY PROVIDED BY MCIS. IN THE EVENT THAT SUCH CHANGES ARE NOT COMPATIBLE
WITH SUCH EQUIPMENT, CUSTOMER MUST PAY MCIS, AT MCIS'S STANDARD RATES, TO (I)
MAKE SUCH EQUIPMENT COMPATIBLE OR (II) REPLACE SUCH EQUIPMENT WITH COMPATIBLE
EQUIPMENT. IN THE EVENT CUSTOMER DOES NOT PERFORM (I) OR (II) ABOVE, MCIS SHALL
NOT BE RESPONSIBLE FOR MEETING THE SERVICE LEVELS AS SET FORTH ON SCHEDULE "F".
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ARTICLE 12 - FORCE MAJEURE
NEITHER PARTY SHALL BE LIABLE FOR ANY LOSS OR DAMAGE OR FOR ANY DELAY OR
FAILURE IN PERFORMANCE DUE TO ACTS BEYOND THE CONTROL OF SUCH PARTY WHICH IT
COULD NOT REASONABLY ANTICIPATE AND TAKE ACTION TO AVOID OR MITIGATE. SUCH ACTS
SHALL INCLUDE, BY WAY OF EXAMPLE BUT NOT BY WAY OF LIMITATION, ACTS OF GOD, WAR
(INCLUDING CIVIL WAR), ACTS OF ANY STATE OR FEDERAL GOVERNMENT, UTILITY
FAILURES, FIRES, FLOODS, EXPLOSIONS, THE ELEMENTS, EPIDEMICS, QUARANTINE
RESTRICTIONS, LOCKOUTS, STRIKES, BLACKOUTS, PLANT SHUTDOWNS, MATERIAL SHORTAGES
DUE TO PETROLEUM AND NATURAL GAS SHORTAGES, EMBARGOES, DELAYS IN TRANSPORTATION
OR DELAYS OF SUPPLIES OR SUBCONTRACTORS FOR LIKE CAUSES, OR REGULATIONS,
ORDINANCES, OR OTHER REGULATORY, ADMINISTRATIVE OR GOVERNMENT ACTS OR MEASURES
WHICH HEREINAFTER PRESCRIBE OR SUBSTANTIALLY RESTRICT THE LAWFUL PERFORMANCE OF
DUTIES AND OBLIGATIONS ARISING UNDER THIS AGREEMENT. IN THE EVENT OF ANY SUCH
CAUSES, THE AFFECTED PARTY WILL IMMEDIATELY INFORM THE OTHER PARTY OF THE
CIRCUMSTANCES CREATING THE DELAY OR EXPECTED TO CREATE THE DELAY AND PROVIDE A
STATEMENT OF IMPACT. IN SUCH EVENT, THE NON-PERFORMING PARTY WILL BE EXCUSED
FROM ANY FURTHER PERFORMANCE OR OBSERVANCE OF THE DUTIES, OBLIGATIONS AND
RESPONSIBILITIES SO AFFECTED FOR AS LONG AS SUCH CIRCUMSTANCES PREVAIL AND SUCH
PARTY CONTINUES TO USE ITS REASONABLE COMMERCIAL EFFORTS TO RECOMMENCE
PERFORMANCE OR OBSERVANCE WHENEVER AND TO WHATEVER EXTENT POSSIBLE WITHOUT
DELAY. ANY PARTY SO DELAYED IN ITS PERFORMANCE WILL IMMEDIATELY NOTIFY THE
OTHER BY TELEPHONE (TO BE CONFIRMED IN WRITING WITHIN FIVE (5) BUSINESS DAYS OF
THE INCEPTION OF SUCH DELAY) AND DESCRIBE AT A REASONABLE LEVEL OF DETAIL THE
CIRCUMSTANCES CAUSING SUCH DELAY.
ARTICLE 13 - ARBITRATION
ANY DISPUTE OR DISAGREEMENT ARISING BETWEEN THE PARTIES IN CONNECTION WITH
THIS AGREEMENT, WHICH IS NOT SETTLED BY THE PARTIES' RESPECTIVE DESIGNATED
REPRESENTATIVES TO THE MUTUAL SATISFACTION OF THE PARTIES WITHIN THIRTY (30)
DAYS (OR SUCH LONGER PERIOD AS MAY BE MUTUALLY AGREED UPON) FROM THE DATE THAT
THE DISPUTE AROSE SHALL BE SETTLED BY ARBITRATION IN ACCORDANCE WITH THE
J.A.M.S./ENDISPUTE ARBITRATION RULES AND PROCEDURES, AS AMENDED BY THIS
AGREEMENT. THE COST OF THE ARBITRATION, INCLUDING THE FEES AND EXPENSES OF THE
ARBITRATOR(S), WILL BE SHARED EQUALLY BY THE PARTIES UNLESS THE AWARD OTHERWISE
PROVIDES. EACH PARTY SHALL BEAR THE COST OF PREPARING AND PRESENTING ITS CASE.
THE PARTIES AGREE THAT THIS PROVISION AND THE ARBITRATOR'S AUTHORITY TO GRANT
RELIEF SHALL BE SUBJECT TO THE UNITED STATES ARBITRATION ACT, 9 U.S.C. 1-16 ET
SEQ. ("USAA"), THE PROVISIONS OF THIS AGREEMENT, AND THE ABA-AAA CODE OF ETHICS
FOR ARBITRATORS IN COMMERCIAL DISPUTES. THE PARTIES AGREE THAT THE
ARBITRATOR(S)) SHALL HAVE NO POWER OR AUTHORITY TO MAKE AWARDS OR ISSUE ORDERS
OF ANY KIND EXCEPT AS EXPRESSLY PERMITTED BY THIS AGREEMENT, AND IN NO EVENT
SHALL THE ARBITRATOR(S) HAVE THE AUTHORITY TO MAKE ANY AWARD THAT PROVIDES FOR
PUNITIVE OR EXEMPLARY DAMAGES. THE DECISION OF THE ARBITRATOR(S) SHALL FOLLOW
THE PLAIN MEANING OF THE RELEVANT DOCUMENTS, AND SHALL BE FINAL AND BINDING UPON
THE PARTIES. THE AWARD MAY BE CONFIRMED AND ENFORCED IN ANY COURT OF COMPETENT
JURISDICTION. ALL POST-AWARD PROCEEDINGS SHALL BE GOVERNED BY THE USAA.
NOTWITHSTANDING THE FOREGOING, ANY DISPUTE INVOLVING (A) ANY DECISION TO
TERMINATE THIS AGREEMENT; (B) BREACH OR ALLEGED BREACH OF CONFIDENTIALITY
PROVISIONS; OR (C) INFRINGEMENT OR ALLEGED INFRINGEMENT OF INTELLECTUAL PROPERTY
RIGHTS SHALL NOT BE SUBJECT TO ARBITRATION PURSUANT TO THIS ARTICLE 13.
ARTICLE 14 - TERMINATION
14.1 TERMINATION FOR CAUSE
---------------------
(a) IN THE EVENT THAT EITHER PARTY:
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(i) MATERIALLY BREACHES OR DEFAULTS ON ANY OF ITS MATERIAL
OBLIGATIONS HEREUNDER AND SUCH BREACH OR DEFAULT IS NOT CURED
OR A PLAN TO CURE PRESENTED AND AGREED UPON, WITHIN FIFTEEN
(15) DAYS (OR SUCH OTHER MUTUALLY AGREED-UPON PERIOD) AFTER
WRITTEN NOTICE IS GIVEN TO THE BREACHING PARTY SPECIFYING THE
BREACH OR DEFAULT; OR
(ii) IN THE CASE OF MCIS, AFTER THE FIRST SIX (6) MONTHS FROM THE
COMMENCEMENT DATE, FAILS TO MEET CRITICAL SERVICE LEVELS (AS
DEFINED IN SCHEDULE "F" HEREOF) AT THE AGGREGATE ENTERPRISE
LEVEL ACROSS ALL CUSTOMER LOCATIONS IN ANY THREE (3) MONTHS IN
ANY 12 CONSECUTIVE MONTH PERIOD ("UNACCEPTABLE SERVICE"); OR
(iii) COMMITS AN ACT OF INSOLVENCY;
THE OTHER PARTY, AS THE CASE MAY BE, MAY, BY GIVING WRITTEN NOTICE
OF THE BREACH (UPON 30 DAYS' PRIOR WRITTEN NOTICE) OR ACT OF
INSOLVENCY (UPON IMMEDIATE WRITTEN NOTICE) TO THE OTHER PARTY, AND
WITHOUT PREJUDICE TO ANY OTHER RIGHTS, REMEDIES OR RECOURSES IT MAY
HAVE UNDER THIS AGREEMENT, AT LAW OR IN EQUITY, TERMINATE THIS
AGREEMENT AS OF THE DATE SPECIFIED IN SUCH NOTICE OF TERMINATION.
NOTWITHSTANDING THE FOREGOING AND ANYTHING ELSE CONTAINED IN THIS
AGREEMENT, NEITHER PARTY MAY TERMINATE THIS AGREEMENT DURING THE
FIRST SIX (6) MONTHS OF THE TERM (THE "RAMP PERIOD") EXCEPT FOR NON-
PAYMENT OF AMOUNTS DUE. PAYMENT OF AMOUNT DUE.
(b) FOR THE PURPOSES OF THIS SECTION 14.1, A PARTY SHALL BE DEEMED NOT TO
HAVE MATERIALLY BREACHED OR DEFAULTED ITS MATERIAL OBLIGATIONS
HEREUNDER IF THE BREACH OR DEFAULT IS DUE TO THE OTHER PARTY'S FAILURE
TO PERFORM ITS OBLIGATIONS AS SET FORTH IN THIS AGREEMENT.(B)
14.2 TERMINATION FOR NON-PAYMENT. IF THE CUSTOMER FAILS TO MAKE ANY PAYMENT
---------------------------
REQUIRED TO BE MADE HEREUNDER, THEN MCIS MAY TERMINATE THIS AGREEMENT NO EARLIER
THAN FIFTEEN DAYS FOLLOWING THE DATE OF ITS NOTICE OF INTENTION TO TERMINATE
FOR NON-PAYMENT AS OF THE DATE SPECIFIED IN SUCH NOTICE, WITHOUT PREJUDICE TO
ANY OTHER RIGHTS, RECOURSES OR REMEDIES IT MAY HAVE UNDER THIS AGREEMENT, AT LAW
OR IN EQUITY.
14.3 EQUIPMENT LEASES. NOTWITHSTANDING THE EXPIRATION OR TERMINATION OF THIS
----------------
AGREEMENT OR ANY OTHER TERM OR CONDITION HEREINCONTAINED, THE TERMS AND
CONDITIONS OF THE MASTER LEASE AGREEMENT AND EQUIPMENT LEASE SCHEDULES BETWEEN
THE PARTIES SHALL REMAIN IN FULL FORCE AND EFFECT UNAMENDED AFTER TERMINATION OR
EXPIRATION OF THIS AGREEMENT, IN ACCORDANCE WITH THEIR RESPECTIVE TERMS.
14.4 SERVICES AFTER TERMINATION. UPON THE TERMINATION OF THIS AGREEMENT FOR
--------------------------
ANY REASON, MCIS WILL COOPERATE WITH CUSTOMER TO EFFECT AN ORDERLY TRANSITION TO
A SUCCESSOR SERVICE PROVIDER OR OTHERWISE (AS DEFINED BELOW, "TERMINATION
-----------
ASSISTANCE"). MCIS SHALL PROVIDE TERMINATION ASSISTANCE, AT CUSTOMER'S REQUEST,
- ----------
FOR A PERIOD OF UP TO THREE (3) MONTHS BEGINNING ON THE DATE OF THE NOTICE OF
EXPIRATION IN SECTION 2.2 OR NOTICE OF EARLY TERMINATION OF THIS AGREEMENT,
PROVIDED THAT IN NO EVENT SHALL MCIS BE OBLIGATED TO PROVIDE TERMINATION
ASSISTANCE (AT THE RATES FOR SERVICES SET FORTH IN THIS AGREEMENT) BEYOND SUCH
PERIOD. THEREAFTER, CUSTOMER SHALL PAY MCIS' THEN-CURRENT RATES FOR SUCH
SERVICES, PROVIDED THAT MCIS SHALL NOT BE OBLIGATED TO PROVIDE TERMINATION
ASSISTANCE BEYOND SIX (6) MONTHS FROM THE TERMINATION DATE OF THIS AGREEMENT.
IF MCIS TERMINATES THIS AGREEMENT FOR NONPAYMENT BY CUSTOMER PURSUANT TO SECTION
14.2, MCIS MAY, AT ITS OPTION, CONDITION THE PROVISION OF TERMINATION ASSISTANCE
UPON MONTHLY ADVANCE PAYMENT OF REASONABLE ESTIMATED MONTHLY CHARGES. FOR THE
PURPOSES OF THIS SECTION 14.4, "TERMINATION ASSISTANCE" SHALL INCLUDE (i)
----------------------
PROVIDING SERVICES AND EQUIPMENT FOR WHICH
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CUSTOMER WILL PAY MCIS IN ACCORDANCE TO THE RATES SET FORTH IN SCHEDULE E, (ii)
PROVIDING AN INVENTORY OF EQUIPMENT; (iii) PROVIDING NON-FINANCIAL ASSISTANCE IN
THE PHYSICAL MIGRATION OF SOFTWARE SYSTEMS AND CUSTOMER DATA TO CUSTOMER OR
CUSTOMER'S SUPPLIER AND; (iv) PROVIDING CUSTOMER INFORMATION TO CUSTOMER OR
CUSTOMER'S SUPPLIER WHICH HAS NOT BEEN IDENTIFIED AS CONFIDENTIAL INFORMATION IN
NATURE.
ARTICLE 15 - NOTICES
15.1 ANY NOTICES, REQUEST, DEMANDS OR COMMUNICATIONS REQUIRED OR PERMITTED
HEREUNDER BY EITHER PARTY SHALL BE IN WRITING, DELIVERED PERSONALLY OR BY TELEX,
TELEGRAM OR CERTIFIED REGISTERED OR EXPRESS MAIL AT THE RESPECTIVE ADDRESSES SET
FORTH BELOW (OR AT SUCH OTHER ADDRESSES AS SHALL BE GIVEN IN WRITING BY EITHER
PARTY TO THE OTHER). ALL NOTICES, REQUESTS, DEMANDS OR COMMUNICATIONS SHALL BE
DEEMED EFFECTIVE UPON PERSONAL DELIVERY, ON THE CALENDAR DAY FOLLOWING THE DATE
OF THE TELEX, TELEGRAM OR MCIS MAIL, OR WHEN RECEIVED IF SENT BY CERTIFIED,
REGISTERED OR EXPRESS MAIL.
IF TO MCIS:
WITH A COPY TO: MCI SYSTEMHOUSE CORP.
1768 BUSINESS CENTER DRIVE
RESTON, VIRGINIA
ATTN: CORPORATE COUNSEL
IF TO CUSTOMER: CALIBER LEARNING NETWORK, INC.
1000 LANCASTER STREET
BALTIMORE, MARYLAND 21202
ATTN: CORPORATE COUNSEL
ARTICLE 16 - GENERAL PROVISIONS
16.1 Relationship of Parties
-----------------------
(a) Nothing in this Agreement shall be deemed or construed as creating a
joint venture or partnership between the parties. Neither party is by
virtue of this Agreement authorized as an agent, employee or legal
representative of the other. Neither party shall have the power or
authority to bind or commit the other to control the activities and
operations of the other and their status is, and at all times will continue
to be, that of independent contractors.
(b) Customer recognizes that MCIS personnel providing Services to the
Customer under this Agreement may perform similar services from time to
time for other persons, and this Agreement shall not prevent MCIS from
using the personnel and equipment used by MCIS to provide Services to the
Customer under this Agreement for the purpose of performing such similar
services for such other persons, including, without limitation, the
personnel and equipment of the Network Systems Management Center.
(c) MCIS may delegate performance of any of its duties, obligations and
responsibilities hereunder to any of its Affiliates or to any MCIS-selected
independent contractor provided,
21
<PAGE>
however, that MCIS shall not be relieved of any of its duties, obligations
or responsibilities hereunder by use of such Affiliates or independent
contractors.
(d) For the term of this Agreement and for a period of one (1) year
thereafter, no Party will recruit, hire as an independent contractor of
offer employment to any employee of another Party who is or was involved in
the delivery of Services without the prior written consent of the other
party. In the event of a breach of this Section 16.1(d), the offending
Party shall offer the non-offending Party as liquidated damages and not as
a penalty an amount equal to twice the employee's base annual salary as at
the date of termination of employment with the non-offending Party.
(e) It is understood that the receipt of Confidential Information under
this Agreement will not limit or restrict assignment or reassignment of
employees of MCIS and Customer within or between the respective Parties
and their Affiliates and Subsidiaries.
16.2 Assignment of Agreement
-----------------------
(a) Except as expressly permitted in this Agreement, neither Party shall
assign or delegate this Agreement or any of its rights, duties or
obligations to any Person or entity without the prior written consent of
the other Party, whose consent shall not be unreasonably withheld, provided
that MCIS may assign this Agreement to an Affiliate.
(b) This Agreement shall be binding upon and shall inure to the benefit of
the Parties hereto and their respective successors and assigns.
16.3 Non-Waiver No waiver of any term or provision hereof, or any breach or
----------
default hereunder, shall be valid unless in writing and signed by the party
giving such waiver, and no such waiver shall be deemed a waiver of any other
term or provision of any subsequent breach or default of the same or similar
nature.
16.4 Order of Precedence In the event of any inconsistency between provisions
-------------------
of this Agreement and any Purchase Order issued against the Agreement that
inconsistency shall be resolved by giving in the following order:
a. Agreement
b. Schedules
c. Purchase Order issued in accordance with this Agreement.
16.5 Examination and Entirety of Agreement
-------------------------------------
(a) By executing this Agreement each party represents that it has thoroughly
examined this Agreement and believes it to be complete consistent and
accurate.
(b) This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all other
contemporaneous or prior agreements and understandings, whether written or
oral, between the parties relating hereto. This Agreement may not be
22
<PAGE>
modified, amended or terminated except by a written instrument signed by
duly authorized signatories of the parties hereto.
16.6 Publicity. Each Party agrees to submit to the other for prior written
----------
approval all advertising, sales promotion and other publicity matter relating to
this Agreement wherein the other Party's name is mentioned or language used from
which the connection of the other Party's name therewith may be inferred or
implied, which approval may not be unreasonably withheld or delayed. Each Party
further agrees not to publish or use any such advertising, sales promotion or
publicity without consent of the other Party.
IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement
to be duly executed as of the date first written above.
MCI SYSTEMHOUSE CORP. CALIBER LEARNING NETWORK, INC.
____________________ ________________________
Signature Signature
____________________ ________________________
Name Name
____________________ ________________________
Title Title
____________________ ________________________
Date Date
23
<PAGE>
SCHEDULE "A"
------------
DESCRIPTION OF SERVICES
-----------------------
I. General Provisions
------------------
A. MCIS will provide Customer with a WAN/LAN infrastructure described
herein. MCIS will provide the Services to Customer twenty-four (24) hours
per day, seven (7) days per week, each day of the year, within the Service
Levels identified in Schedule "F" .
B. Customer will procure the routers, switches, servers, desktops and LAN
printers through MCIS. Procurement Services are further described in
Section II of Schedule "A". Customer will procure additional hardware
and necessary software required to ensure proper operations of the devices
covered under this Agreement limited to Sentry remote power control
system, ACP 9 call distribution system, modems and remote management
software. In addition, MCIS will provide a single toll-free number to
support End Users.
C. The Services include the following products and services at each
Customer Location being managed by MCIS:
(i) Desktop/Printers: Remote over the shoulder support, field service
dispatch, help desk services and maintenance for all pre-approved End-
User Device environments.
(ii) Servers: The hardware platform, the Network Operating Systems
(NOS), server administration, file backup and recovery, tape
management, virus detection, gold disk(s) management, printer queue
management, configuration management, fault management, performance
management, maintenance and help desk service.
(iii) Routers/Hubs/LAN Switches: The routers, hubs and LAN switches
required to run the management network while providing configuration
management, fault management, performance management, maintenance and
help desk services.
(iv) Network Components: MCIS will perform management of the
environment over Customer's existing MCI Frame Relay network.
Additionally, MCIS will provide configuration management, fault
management, performance management, maintenance and help desk services.
D. The Services include support and maintenance of all LAN/WAN
infrastructure components such as, but not limited to, the following:
. Catalysts Switches
. Routers
. Servers
. Desktops
. Printers
. Proshare Teamstations (excluding monitors)
. Racks
. Cabling
24
<PAGE>
Customer may request additional component support according to Schedule A,
I,I.
E. The Service delivery shall be tracked and measured by pre-defined
Service Levels. The Service Levels are identified in Schedule "F".
F. MCIS will supply End Users who are temporarily not LAN attached with
remote services which allow the End User to use the Enterprise Help Desk
for problem management and resolution while temporarily away from their
regular Customer Location. This shall be the only support given to such
End Users by MCIS.
G. MCIS and Customer will use a mutually agreed upon regular monthly
maintenance window to implement infrastructure changes of the managed
environment. The Project Manager will receive sufficient prior
notification of the changes to be implemented in the maintenance window per
Section 7.17.
H. MCIS will conduct maintenance of End-User profiles and access rights on
the LAN/WAN infrastructure.
I. In the event Customer desires MCIS to provide Additional Services,
Customer and MCIS shall negotiate in good faith for the provision of such
Additional Services. Customer shall make all request for quote for new
services or major service enhancements through their assigned MCIS Client
Services Representative in accordance to Schedule G.
J. MCIS will provide periodic updates to the managed software. These
updates will be made according to the following provisions, (a) Server
operating system - Major releases will be made available as required to
support nEM customers, (b) Desktop operating system - Updates will be made
per customer request, according to Schedule A, I,I, (c) Desktop
applications - Major releases will be made available as required to support
all nEM customers. Customer may request special releases not limited to
agreed-upon critical enhancements, per Schedule A, I,I. These requests
will be made in accordance with change control procedures and according to
mutually agreed to schedules. MCI will make commercially reasonable
efforts to implement these releases within a six (6) month time frame based
on the stability of the release and availability of appropriate management
tools.
K. MCIS will maintain a centrally administered repository of LAN attached
users, desktops, printers, servers, hubs, router and circuits. Device
information will be gathered electronically through the use of auto-
discovery tools in place within the LAN infrastructure. Customer shall
update all information monthly and provide such updates to MCIS.
L. MCIS will provide the following services to the Customer's Data
Center location:
(i) Server: The hardware platform, the Network Operating Systems
(NOS), server administration, file backup and recovery, tape
management, virus detection, gold disk(s) management, printer queue
management, configuration management, fault management, performance
management, maintenance and help desk service.
25
<PAGE>
(ii) Router/LAN Switches: The router, and LAN switch required to run
the management network while providing configuration management, fault
management, performance management, maintenance and help desk services.
(iii) Network Components: MCIS will perform management of the
environment over Customer's existing MCI Frame Relay network.
Additionally, MCIS will provide configuration management, fault
management, performance management, maintenance and help desk services.
M. MCIS will reasonably assist Customer in reviewing Customer proposed new
technologies and
enhancements to LAN/WAN infrastructure to the extent such technologies
and enhancements do not affect the Services and MCIS obligations under
this Agreement. If Customer wishes to proceed with any such
technologies and enhancements, such decision will be subject to
Section 7.15.
II. PROCUREMENT
MCIS will work with customer to define mutually agreeable procurement
processes and service levels. MCIS will provide procurement services as
described below.
<TABLE>
<CAPTION>
SERVICE LEVEL ITEM SERVICE LEVEL
- ------------------------------------------------------------------------------------------
<S> <C>
4 hours if product ordered off product list
Request for Quote 8 hours if product not ordered off product
list
3 days if no part number is provided and
configuration research is required
- ------------------------------------------------------------------------------------------
Product Ordering 1 business day from the time PO is received
from Customer
- ------------------------------------------------------------------------------------------
Product Delivery 7 business days from the time order is
placed assuming the following:
1. Product is not constrained
2. No staging of equipment
3. Product is not made to built
- ------------------------------------------------------------------------------------------
</TABLE>
MCIS will provide procurement services to Customer at industry Competitive
Rates. All pricing will be mutually reviewed and agreed upon. Competitive
Rates will be established in the following ways:
. Prior Experience: If Customer has recognized the pricing as competitive, no
further review is required.
. Comparable Services: In cases where pricing doe not appear to be in line with
Customer's expectations, MCIS has the option to demonstrate the
competitiveness of the pricing by providing
26
<PAGE>
Customer with documentation showing similar product provided at commensurate
levels at the same price.
. Competitive Services: In cases where Customer further desires that
procurement services be taken to competitive bid, MCIS will assist Customer
with said process and has first right of refusal for providing the
procurement services.
MCIS will pass on applicable price reductions in hardware and software as made
available by respective third party vendors.
PROVISIONING & SHIPPING
. Ordering and acquisition of PC/Server equipment will be as per standard
configuration. The current standard configuration is listed in Schedule C.
. Ordering of furniture equipment is outside the scope of services
. Order tracking and deployment to Unisys Quality Integration Center (QIC)
. If MCIS cannot meet delivery requirements, Customer may elect to provision
equipment through an alternative provider
LEAD TIMES
. It is anticipated that lead times of six (6) weeks will be required to
provision equipment from aggregator, ship to QIC for configuration and
install for a full site implementation.
ORDER PROCESS
. The equipment will be provisioned by MCIS
. SHL Financial Services, will be the leasing company holding the master lease
for all the equipment.
. Ordering and acquisition of PC/Server equipment will be as per standard
configuration is listed in Schedule C or mutually agreed to changes.
III. IMPLEMENTATION
MCIS will implement the WAN/LAN infrastructure components within the Caliber
Learning Centers. Both the Voice and Satellite networks are excluded from the
implementation scope. The scope of implementation is as follows:
. Program management
. Single point of responsibility project planning/coordination
/vendor management
. On-site teams for installation support and acceptance testing
. Staging (Unisys QIC)
. Routers, hubs, servers will be preconfigured at the Unisys
Quality Integration Center
. Warehousing and inventory management of desktops, printers,
Proshare Teamstations
. Implementation
27
<PAGE>
. Cabling
. Necessary Compaq rack and separate generic side rack
. Routers, switches, servers, desktops and printers
. Proshare Teamstations
. WAN (Frame Relay and ISDN)
. Desktop image certification (Gold Disk)
. Inventory/Asset tag all supported equipment
. Preparation of Caliber Help Desk environment
. Development of all support management practices
. Problem/Escalation Management
. Change Management
. Service Order Management
. Data Management
. Security Management
. Disaster Recovery
. Implementation "lessons learned" debriefing after each implementation
. List of Implementation sites is contained in Schedule "B".
IV ENTERPRISE HELP DESK
MCIS WILL PROVIDE THE FOLLOWING ENTERPRISE HELP DESK SERVICES:
. Enterprise Help Desk
- Single point of contact for support
- Toll free telephone access to support resources
- Sophisticated knowledge-base
- Service request initiation and tracking
. Problem Management and Resolution
- Fault logging
- Fault tracking
- Primary fault resolution at level 1 support
- Secondary fault dispatch to Caliber internal/external contacts (Maximum
of ten contacts)
- Assigned MCIS Problem Manager
. Escalation
- Business impacting outages escalated to defined Caliber contacts
- Service provider escalation
. Notification
- IVR based status updates for major outages
- Proactive problem notification to End users
. Remote over-the-shoulder support
IV REPORTING
28
<PAGE>
MCIS will provide a single monthly report outlining service delivery performance
against target service levels, outlined in Schedule "F," which is generated
from the trouble ticket, telephony, inventory and service order databases.
Included within the report is trending of the following:
. Service Delivery
- Delivery summary
- Key indicators
- End-user support
- Enterprise Help Desk call activity
- Incidents by severity
- Incidents by Call Type
- Quality measurements
- Average speed of answers
. Availability
- WAN availability
- LAN availability
. Infrastructure and Network Usage
- Server usage
- Network usage
- Inventory summary
MCIS will continue to improve Customer reporting. Customer may request
customized reporting in accordance with Schedule A, I,I. These requests will be
made in accordance with change control procedures and according to mutually
agreed to schedules.
29
<PAGE>
SCHEDULE "B"
------------
CUSTOMER LOCATIONS
------------------
The following are the Customer Locations as known at the execution of this
contract. Customer may change these locations and must provide MCIS 30 days
notice of any site changes to allow for re-scheduling of implementation
services. Any additional costs and/or changes in the schedule are the
Customer's responsibility.
- - Atlanta, Georgia
- - Cherry Hill, New Jersey
- - Jacksonville, Florida
- - Chicago, Illinois
- - New York (55 Broad Street), New York
- - Tampa, Florida
- - Austin, Texas
- - Milwaukee, Wisconsin
- - Pittsburgh, Pennsylvania
- - Minneapolis, Minnesota
- - Charlotte, North Carolina
- - New Orleans, Louisiana
- - Raleigh, North Carolina
- - Washington DC
- - Dallas, Texas
- - Cleveland, Ohio
- - Los Angeles, California
- - San Jose, California
- - Boston, Massachusetts
- - St. Louis, Missouri
- - Miami, Florida
- - Indianapolis, Indiana
- - Cincinnati, Ohio
- - Memphis, Tennessee
- - New York (Penn Plaza), New York
- - Portland, Oregon
- - Oklahoma City, Oklahoma
- - Orange County, California
- - Salt Lake City, Utah
- - Orlando, Florida
- - Vancouver, Canada
- - Detroit, Michigan
- - Seattle, Washington
- - Nassau, New York
- - Houston, Texas
- - Toronto, Canada
- - San Francisco, California
- - Philadelphia, Pennsylvania
30
<PAGE>
- - Nashville, Tennessee
- - Denver, Colorado
- - Rochester, New York
- - Kansas City, Kansas
- - Montreal, Canada
- - Phoenix, Arizona
- - Baltimore, Maryland
31
<PAGE>
SCHEDULE "C"
-----------
[EQUIPMENT TO BE PURCHASED BY CALIBER - PER SITE
-----------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
DESCRIPTION QTY MANUFACTURER AGGREGATOR SYSTEMHOUSE
PART # PART # EXTENDED
SALES PRICE (INCLUDING
DELIVERY CHARGES)
- -----------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
Catalyst 5000 1 CISCO2524 WS-C5020B *
- -----------------------------------------------------------------------------------------------------------------------
CISCO 2524 Router 1 CISCO2524 CISCO2524 *
- -----------------------------------------------------------------------------------------------------------------------
Built-in 56K-4W DSU 1 SM25-56K4 SM25-56K4 *
- -----------------------------------------------------------------------------------------------------------------------
Built-in ISDN-NT1 1 SM25-BRI-U SM25-BRI-U *
- -----------------------------------------------------------------------------------------------------------------------
8 Mg Flash Upgrade 1 MEM-1X8F MEM-1X8F *
- -----------------------------------------------------------------------------------------------------------------------
IP/IPX IOS V11.1 1 SF25D-11.0.X SF25D-11.0.X *
- -----------------------------------------------------------------------------------------------------------------------
Rack Mount APC UPS 3000 1 SU3000RM SU3000RM *
- -----------------------------------------------------------------------------------------------------------------------
HP Laserjet 5N 1 C3952A *
- -----------------------------------------------------------------------------------------------------------------------
Jet Direct Card for Colorjet 1 J2550A *
- -----------------------------------------------------------------------------------------------------------------------
Deskpro 4000 MT Pent-166, 2.5GB 40.13333 247320-003 915304 *
Hard Drive, 32MB Memory, 256K,
8X CD-ROM, N/Flex-3P, Keyboard
& Mouse
- -----------------------------------------------------------------------------------------------------------------------
Compaq V70 17" Colour Monitor 40.13333 255606-001 915326 *
- -----------------------------------------------------------------------------------------------------------------------
SERVER CONFIGURATION
- -----------------------------------------------------------------------------------------------------------------------
Proliant 2500R PPRO-200 Model 1 271900-001 741722 *
HSYST NO-HD, 32MB ECC
- -----------------------------------------------------------------------------------------------------------------------
SMART-2 Array PCI Controller 1 194753-001 742603 *
- -----------------------------------------------------------------------------------------------------------------------
6/200 Processor CHIP 256K Cache 1 264366-001 741744 *
Model Second Processor for
Proliant 2500
- -----------------------------------------------------------------------------------------------------------------------
32MB DIMM Memory (1x32) 6ONS ECC 1 271907-001 741710 *
Buffered
- -----------------------------------------------------------------------------------------------------------------------
Rack Internal Keyboard For Rack 1 185152-001 741712 *
Mounted Servers
- -----------------------------------------------------------------------------------------------------------------------
4/16-GB Turbo Dat Drive for 1 142181-001 298375 *
Proliant
- -----------------------------------------------------------------------------------------------------------------------
Compaq V70 17" Colour Monitor 1 255606-001 915326 *
- -----------------------------------------------------------------------------------------------------------------------
SERVER OPTIONS
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
32
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
2.1GB-HD Pluggable UWSCSI 1"FF 4 242583-001 741771 *
- -------------------------------------------------------------------------------------------------------------
Total Equipment Costs *
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Prices do not include applicable taxes
** Customer may change equipment components and is responsible for any
applicable associated costs in equipment and support services.
33
<PAGE>
Schedule "D"
-------------
MINIMUM CONFIGURATIONS
----------------------
The Customer must upgrade and maintain its equipment to the minimum
standards which are more fully described as follows:
DESKTOP
MINIMAL ACCEPTABLE CONFIGURATION FOR EXISTING PCS
. Intel 486 based system
. Minimum of 8 Megabytes of RAM (16Mb for Windows '95)
. 200 Megabyte Hard Drive
. Either of:
> DOS 6.22/Windows for Workgroups 3.11
> Windows '95
. LAN connected via 10Base-T or Token Ring
. Acceptable Network Interface Cards are:
> Compaq NetFlex series
> 3COM
> SMC
> Cabletron
> XIRCOM
> IBM
> Megahertz
> Intel Ethernet Express
CABLING INFRASTRUCTURE
. Category 5 Universal Twisted Pair Wiring
EIA/TIA 568A compliant
FACILITIES
. Controlled access equipment room (size 6x8)
. 7x24 MCI accessibility
. Sufficient heating, ventilation and air conditioning according to
manufactur
34
<PAGE>
<TABLE>
<CAPTION>
Schedule "E"
PRICING
I. Payment Schedule
MCI Systemhouse
network Enterprise Management
Caliber - Payment Schedule*
Version 4.3
nEM Services Installation Cabling Equipment Total
<S> <C> <C> <C> <C> <C>
Aug-97 - - - - -
Sep-97 - - - - -
Oct-97 - - - - -
Nov-97 - - - - -
Dec-97 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total 1997 - - - - -
Jan-98 - - - - -
Feb-98
Mar-98
Apr-98
May-98
Jun - Dec 98
- ------------------------------------------------------------------------------------------------------------------------------------
Total 1998
Jan - Dec 99
- ------------------------------------------------------------------------------------------------------------------------------------
Total 1999
Jan - Dec 00
- ------------------------------------------------------------------------------------------------------------------------------------
Total 2000
Jan - Jul 01
</TABLE>
- ---------------------------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
35
<PAGE>
1-Aug - 01
1-Sep - 01
1-Oct - 01
1-Nov - 01
-----------------------------------------------------------
Total 2001
4 year contract
* Pricing includes financing for 6 months nEM services, implementation, cabling
and equipment to be purchased by Caliber
* nEM Management Services are /*/ at a per managed device rate of /*/ . Prices
for services beyond the /*/ will be mutually agreed upon and based on the
initial pricing approach.
Additional Pricing:
Development of Caliber's custom courseware application has not yet been
completed. Hence, it cannot be integrated into Caliber's desktop image (e.g.
gold disk). In order to proceed with implementation for the initial sites, the
nEM implementation team has developed a temporary desktop image. Once
development of the custom application is complete it will need to be integrated
into the temporary image. Due to the unknowns of the custom application, it may
require a second site visit to install the final image. If a second site visit
is required, it is assumed that re-implementation of the desktop image would
require one (1) man-day worth of work. If needed, this re-implementation work
will be billed at a rate of /*/.
The Customer acknowledges that forgoing services are based on the following
service assumptions:
. All fees described in this section assume that MCIS is selected as the single
vendor for all services included, for all geographic areas in scope. Fees for
individual services are not valid on an "unbundled" basis. Prices are valid
for 30 days.
. Pricing is based on anticipated 1998 CLC growth.
- -----------------
/*/ Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
36
<PAGE>
. Pricing is based on a four-year contract term excluding inflation (which
shall be subject to U.S. cost of living ("COLA" adjustments) and any
applicable sales taxes.
. SHL Financial Services will finance all costs (one times and on-going
services).
. MCIS will provide full LAN/WAN network management and monitoring for
Caliber's infrastructure (e.g. Frame Relay, routers, hubs, switches, and
servers).
. Infrastructure (e.g. routers, hubs, switches, servers, desktops) will comply
with standard networkMCI Enterprise Management recommended infrastructure
identified in Schedule D.
. The fees for the services will include protection against inflation at a rate
of /*/ . Caliber will make an additional payment to MCIS in the form of a
COLA surcharge if, in any contract year, actual cumulative inflation exceeds
that rate, as provided below.
. COLA surcharge shall be based upon the Consumer Price Index for labor cost,
published monthly by the Bureau of Labor Statistics of the US Dept. of Labor
or any successor index. If the Bureau of Labor Statistics redefines the base
year, MCIS and Caliber will adjust their calculation by using appropriate
conversion formula.
- ----------------------
/*/ Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
37
<PAGE>
Cabling is based on all classrooms within a CLC being completely cabled. The
following represents a total drop count per CLC. This drop count is based on
an average CLC with three (3) classrooms and thirty-six (36) workstations.
<TABLE>
<CAPTION> Cat 5
Measured PBX Telco Number "Data"
Data ISDN Business Lines Lines Coax Mikes Speakers of Units Total Drops Drops
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Classroom 1
Classroom 2 1 1 1 1 4 1 10 4
Common
Student 1 12 12 12
Workstations
Classroom 2
Classroom 2 1 1 1 1 4 1 10 4
Common
Student 1 12 12 12
Workstations
Classroom 3
Classroom 2 1 1 1 1 4 1 10 4
Common
Student 1 12 12 12
Workstations
Resource Center
Common 1 0 0
RC Workstations 1 4 4 4
Conference Room 1 1 1 2 2
Site Manager 1 1 1 2 2
Receptionist 1 1 1 2 2
Facsimile 1 1 1 1
Network Print 1 1 1 1
Wiring Room 1 1 1 1 3 3
Security System 0 1 0 0
TOTALS 49 5 1 8 3 3 12 81 63
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Some of the information in the table above is out of order and must be
clarified before corrections can be made).
38
<PAGE>
. The lease rates are based upon /*/. As the /*/ fluctuate, so, too, will the
Monthly lease rates until Caliber takes delivery and accepts the equipment,
then the lease rates become fixed for the term of the lease.
. The lease rates are based on MCI guaranteeing the leases.
. Implementation is based on the following number of desktop and printer
devices.
<TABLE>
<CAPTION>
CLC # of Student Site Admin Resource Printers Total device
sites workstations manager workstations Center (per site) count (all sites)
(per site) (per site) workstations (per site) workstations
(per site) (per site)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Small/
Medium 37 36 1 1 0 1 1443
- ----------------------------------------------------------------------------------------------------------------------------
Large 8 48 1 1 0 1 408
- ----------------------------------------------------------------------------------------------------------------------------
Totals 1851
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
. Proshare Teamstation installs will be as follows:
. Large site: 2 Proshare Teamstations will drive four monitors/cameras
. Small/medium site: 2 Proshare Teamstations will drive three
monitors/cameras.
. Over-the-shoulder services are assumed to fall into two categories:
. More frequently for the site manager and administrative desktops
(potentially during class hours)
. On an ad-hoc basis for the actual student workstations mostly during off
class hours (e.g. testing in preparation of a future class).
- ------------------------
*Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
39
<PAGE>
. Maintenance for Caliber's entire LAN/WAN infrastructure hardware (excluding
satellite and voice equipment) will be as referenced in Schedule A.
. A decision on the make/model for the Proshare Teamstation monitors has not
yet been decided. Hence, pricing does not include any maintenance for these
devices.
. The CLC LAN/WAN infrastructure will be managed over the existing MCI Frame
Relay circuit. Pricing excludes a separate 56k MCI Frame Relay circuit for
management.
. Standard networkMCI Enterprise Management Service Level Agreements (SLA)
listed on Schedule F, will be used with the exception of maintenance break/fix
for desktops and Proshare Teamstations. The maintenance for these components
are:
. Desktop: 2 day mean time to repair
. Proshare Teamstation: 1 day mean time to repair.
Response and mean time to repair times will be calculated from the time the
problem ticket is opened.
. Implementation approach is based on the "gold disk" theory (e.g. standard
image(s) for all routers, hubs, switches, servers, workstations).
Configuration change requests to the standard images will be made in
accordance with Change Control Procedures herein and in accordance with
Schedule A, General Provisions, Section I.
. Non-LAN-related equipment (Satellite equipment and voice equipment) will be
installed by other vendors.
. All CLC schematics will be provided ahead of time so infrastructure cabling
plant can be planned and implemented properly.
Delivery/support approach is for following Caliber Sites:
. Full LAN/WAN management: all Caliber Learning Center sites, including
ISDN lines.
. Router, catalyst switch, server management only: Caliber Data Center.
. Prices for implementation and management services for Caliber's ad hoc and
client site locations are not included in the price. Implementation and
management requirements need to be defined by Caliber prior to defining a
price point.
. It is anticipated that the current application software distribution solution
for nEM will not meet all of Caliber's software distribution requirements,
specifically due to frequency of distribution, anticipated file sizes and time
to completion for distribution to all CLC's simultaneously. To that end,
application software distribution is not included in the price. However, MCI
Systemhouse can assist Caliber in the following areas:
. Assist Caliber in any development efforts during their evaluation of
software distribution options
. Provide on-going management of the software distribution solution
Caliber chooses.
Pricing will be dependent on scope of work for each option.
40
<PAGE>
. Pricing for project-related activities and services such as advice and
assistance in product selection, technology policy, network design and
services not specifically quoted in this proposal will be offered on a time
and material basis and is not included in the price.
It is assumed that access to all Caliber facilities will exist as required to
perform agreed-upon services.
41
<PAGE>
SCHEDULE "F"
------------
SERVICE LEVELS
--------------
I. General Provisions
------------------
A. MCIS provides the Services to defined standards (the "Service Levels").
B. The following terms shall have the following respective meanings:
"Severity 1" means a problem with a major system, service or loss of
access to a work group which is critical to Customer's business.
"Severity 2" means a critical service, other than those described in
Severity 1 service, that is unavailable to a large number of End-Users
or performance degradation to a work group.
"Severity 3" means a loss of access or performance degradation to an
individual or a problem that can be handled within the normal problem
management process. No special treatment is required unless Customer
indicates that the problem is critical.
"Excess Outages" means a Severity 1 incident exceeding eight (8) hours
without resolution.
C. Service levels will be measured and reported on a per site basis.
D. Critical Incident, Excess Outage and LAN Availability are identified as
Customer's Critical Service Levels.
II. Problem Resolution Service Level
--------------------------------
A. Severity 1, 2 or 3 problems will be resolved within a mean time
identified respectively in the chart below from the time the initial
call is completed between the End User and the Enterprise Help Desk
dispatcher. The initial call is the first call placed by any Customer
End User to the Enterprise Help Desk to report a problem (the "Initial
Call"). If several Customer End Users call to report the same problem,
the measurement time begins at the completion of the call with the
first End-User who reported the problem. Site Manager may change
severity levels per the normal operational processes in place for the
Services.
B. Problem Resolution Service Level measurement period includes restoring
device operation but does not include the time to restore data from
backup media. File recovery time is variable and is not included in the
service level guarantee. This time is highly dependent on tape handling
and the size of the tape and volume to be restored.
C. Requests by Customer to delay resolution of problems are excluded from
all calculations in determining performance requirements and Service
Levels hereunder.
42
<PAGE>
D. Problem resolution measurement time is committed for locations within
50 miles of major service center. Initial sites as defined in Schedule
B all fall within 50 miles of major service center
E. Measurement for the Problem Resolution Service Level is defined as
follows:
i) All targets are calculated as the mean time to resolution:
1. Sum of resolution time of all Severity 1 incidents / Total
number of Severity 1 incidents
2. Sum of resolution time of all Severity 2/3/4 incidents / Total
number Severity 2/3/4 incidents
ii) Excess Outage is calculated for each Severity 1 incident.
III. Enterprise Help Desk Service Level
----------------------------------
A. For Average Speed of Answer Service Level, mean time begins from the
time the Customer End User places the call to the time the analyst
answers the call. Under normal circumstances, Customer will not
receive busy signals.
B. For Call Dispatch Turnaround, mean time begins upon conclusion of the
Initial Call.
IV. Availability
------------
A. Measurement for this Service Level is defined as follows:
i) WAN availability is calculated as per MCIS normal procedures
for a Frame Relay Customer as set forth in MCIS FCC Tariff No.1.
Refer to Customer FR contract
ii) LAN availability is calculated as a weighted average of the
availability of all servers, hubs, and routers for a client as
follows:
1-(Sum of servers downtime*weight) + ( sum of Hubs
downtime*weight)+(sum of Routers downtime*weight) + sum of switches
downtime * weight)/(Sum of servers total time*weight) +(sum of Hub
total time * weight) + (sum of Routers total time * weight)
. Weights are table maintained. A weight (a number between 0
and 1) is assigned to the categories: hubs, routers and
servers. Weights will be assigned and agreed to by Client
Services Manager and Customer based on the final configuration.
. All times are calculated in minutes.
C. Outages are considered any or all of the following: a) a failure of a
Managed Network Element making it non-useable, b) an unplanned
shutdown of a device, or c) loss of access to a work group.
43
<PAGE>
V. Administration
A. Password and user ID related requests must be made by Customer's Site
Manager prior to commencement of the SLA commitment time.
B. Moves of five (5) or more desktops will be scheduled as a project and
may be subject to additional pricing. A move is identified as when
End-User Devices are moved within the same location from one cable-
ready location to another cable-ready location.
C. MAC volume is expected to be up to /*/ of the total number of desktops
per year. MCIS reserves the right to charge /*/ per MAC beyond the
/*/.
D. Requests by Customer to delay work are excluded from all calculations.
VI. Service Level Credits
---------------------
A. Service Levels are not guarantees of performance and the following Service
Level Credits ("SLCs") shall constitute Customer's sole remedy, subject only
to Section 14.1 hereof, in respect to failure to achieve Service Levels. For
the purposes of SLCs, where Service Levels are missed, Service Credit Points
("SCPs") will be applied as follows:
The aggregate of all points in each monthly reporting period shall be applied to
the following table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Total Service Credit Points Percentage of Monthly Bill
- --------------------------------------------------------------------------------------------
<S> <C>
< 25 Points No credits
25 to 39 Points * credit against Invoice, less taxes and pass-throughs
40 to 50 Points * credit against Invoice, less taxes and pass-throughs
- --------------------------------------------------------------------------------------------
</TABLE>
/*/ Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
44
<PAGE>
> 50 Points * credit against Invoice, less taxes and pass-throughs
- -------------------------------------------------------------------------------
B. SLCs are applied toward desktop fees at the applicable Customer Location.
C. All Service Levels for which SLCs are applicable are based on results at
the end of each reporting period, other than Excess Outages, which are
calculated on a per incident basis.
D. SLCs shall only apply after the end of the Ramp Period.
E. The maximum SLC amount payable in any 12-month period during the Term shall
not, under any circumstances, exceed /*/ in respect of any Customer Location for
which SLCs are payable.
F. Notwithstanding anything else in this Section VI, SLCs shall not apply to:
1. Acts or omissions of Customer, its agent or contractors;
2. Failure attributable to Customer initiatives or contractors or systems
not provided or under MCIS direct control;
3. force majeure events;
4. failure of Customer or third party equipment;
5. any change by Customer or third parties in equipment, Software, Software
environments (unless authorized in writing by MCIS);
6. Spikes in service volumes where material increases occur without
sufficient advance notice in writing to MCIS to permit remedial action;
or
7. failure of Customer to meet its responsibilities under this Agreement.
<TABLE>
<CAPTION>
Service Level Table
- ------------------------------------------------------------------------------
<S> <C> <C>
Service Level Item Measurement Target/SCP
Problem Resolution
Critical Incident
(Severity 1) Mean Time to Resolve 4 Hours / 15
- ------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Regular Incident
(Severity 2 or 3) Mean Time to Resolve 12 Hours / 5
Non-Regular Incident
(Severity 4) Mean Time to Resolve 48 Hours / 5
Excess Outage
(Sev 1 Exceeding 8 Hrs) Per Incident Time to Resolve 0/ 1 per hr.,
max 5 per incident
Enterprise Help Desk
Average Speed of Answer (ASA) Mean Time to talk to Analyst 30 Seconds / 10
Call Dispatch Turnaround Mean Time to dispatch at
completion of call 15 Minutes / 5
Availability
WAN Availability Time Available
(Frame Relay) (Minus planned outages) 99% / 10
LAN Availability Time Available
(Servers, Hubs, Routers) (Minus planned outages) 99% / 10
Administration
Create New User Account Mean Time to complete
(from authorized request) 4 Hours / 5
Reset Password Mean Time to complete
(from authorized request) 1 Hour / 5
Move, Add, Changes Mean Time to complete
(Less < 5 Users) (from authorized request) 7 Days / 5
</TABLE>
COMPONENT HARDWARE BREAK/FIX PROBLEMS FALL WITHIN THE FOLLOWING INCIDENT
CATEGORIES:
Critical incident: routers, servers, switches Proshare Teamstation monitors
Regular Incident: Printers, Proshare Teamstations
Non-Regular Incident: Desktops
Note: The Service Level for laptop break/fix is five (5) business days from
the time of shipment of the defective unit to the depot repair facility.
46
<PAGE>
SCHEDULE "G"
CHANGE ORDER PROCEDURE
ARTICLE 1
INTRODUCTION
OVERVIEW
1.1 The purpose of this Schedule "G" is to detail the mechanism for requesting
changes to the Services.
INTERPRETATION
1.2 References to "Section" refer to Sections in this Schedule "G" unless
otherwise indicated. References to "Exhibits" refer to Exhibits in this
Schedule "G" unless other indicated. The financial responsibility relating to a
particular function lies with the party who has the responsibility of performing
that function unless otherwise indicated in this Agreement.
ARTICLE 2
CUSTOMER-INITIATED CHANGE
2.1 Customer will use the Change Order Request form (Exhibit 1) when notifying
MCIS of a required change.
2.2 MCIS will respond to the Change Order Request within fifteen (15) Business
Days after receipt thereof, identifying the scope of the proposed solution,
expected delivery time frame, implementation approach, and the price
implications, if any. If, in the opinion of MCIS, a Change Order Request could
be implemented in a more cost-effective manner than that described in the Change
Order Request or should, for any reason, be implemented in a different manner
than that described in the Change Order Request, MCIS shall advise Customer in
writing of its recommendations and shall, if requested by Customer, prepare a
written response which reflects its recommendations.
2.3 Customer will respond within fifteen (15) Business Days indicating
acceptance by signing the response or by written communication indicating either
rejection of the response or proposing alternatives for the unacceptable items.
2.4 If Customer has proposed alternatives under Article 2.3, MCIS shall submit
an updated response within fifteen (15) Business Days. Customer reserves the
right to accept or reject any response submitted by MCIS. Decisions made by
Customer in this regard will not be subject to
47
<PAGE>
the dispute resolution process. In the event that Customer and MCIS cannot agree
on the terms and conditions of the updated response, Customer but not MCIS, may
submit the matter to dispute resolution in accordance with Article 7 of the
Agreement.
ARTICLE 3
MCIS-INITIATED CHANGE
3.1 If MCIS wishes to initiate a change, it shall use the Change Order Request.
The Change Order Request shall contain all required technical and financial
information for Customer to assess the proposal.
3.2 Customer will evaluate the Change Order Request to determine the extent of
impact on Customer. Customer will use reasonable effort to accommodate the
MCIS's Change Order Request; however, if, in Customer's view, the effort
required, Customer's costs or the price to be paid to adapt to a proposed change
is significant, Customer retains the right to object to the proposed change or
to delay its implementation for a long as it reasonable takes for Customer to
devote resources to adapt to the change, having regard to its other business
requirements and priorities. If Customer and MCIS cannot agree on the change or
the timing of the change, either of them may refer the matter to dispute
resolution in accordance with Section 20 of the main Agreement, provided that
such a disagreement is excluded from the arbitration process set out in that
Article.
3.3 Customer will respond within thirty (30) Business Days after receipt of a
Change Order Request, either indicating acceptance by signing the Change Order
Request or by identifying where the Change Order Request is unacceptable and
indicating rejection or acceptable alternatives. Decisions made by Customer
with respect to Change Order Request initiated by MCIS will not be subject to
the dispute resolution process.
ARTICLE 4
ANCILLARY AGREEMENTS
ANCILLARY AGREEMENTS
4.1 In each Change Order Request, Customer shall warrant that the only
Ancillary Agreements required are those listed in the Change Order Request.
MCIS shall acquire and pay for any Ancillary Agreements that are not listed in
the Change Order Request. In the event that MCIS believes that one or more of
such Ancillary Agreements could not reasonably have been foreseen by a person
skilled in the provisioning of systems management services or were not
identified because of incomplete or inaccurate information provided by Customer
and provided that MCIS has acquired and paid for such Ancillary Agreements, MCIS
may require Customer to pay for such Ancillary Agreements, to be accompanied by
a written explanation of the reasons for the omission. If Customer refuses to
make payment, MCIS may submit the matter for dispute resolution in accordance
with Section 20 of the Agreement.
48
<PAGE>
EXHIBIT 1
CHANGE ORDER REQUEST
TO: MCI MCIS Corp. ("MCIS")
FROM:
RE: nEM Agreement between MCIS and Customer dated *
________________________________________________________________________________
Change Order Request Number _____________.
This Change Order Request forms part of and is subject to the terms and
conditions in the Agreement and is not binding until Customer and MCIS have
executed and agreed to a Change Order Proposal prepared by MCIS.
1. Statement of Objective
2. Description of Expected Service Change
3. Expected Effect on Existing Services
4. Delivery Schedule
5. Ancillary Agreements Anticipated
6. Expected Effect on Price
Please respond to this Change Order Request on or before _____________________.
Per:________________________________
____________________________________
Name (Print or Type)
____________________________________
Title
_____________________________________
Date
49
<PAGE>
EXHIBIT 2
CHANGE ORDER PROPOSAL
TO:
FROM: MCIS
RE: nEM Agreement between MCIS and Customer dated *
________________________________________________________________________________
Change Order Proposal Number ______.
This Change Order Proposal forms part of and is subject to the terms and
conditions in the Agreement and is not binding until either MCIS or Customer has
executed and agreed to this Change Order Proposal prepared by MCIS.
1. Statement of Objective
2. Description of Expected Service Change
3. Expected Effect on Existing Services
4. Delivery Schedule
5. Ancillary Agreements Anticipated
6. Expected Effect on Price
Please respond to this Change Order Request on or before ________________.
Per:_____________________________
________________________________
Name (Print or Type)
_________________________________
_________________________________
Title
_________________________________
Date
MCIS RESPONSE:
_____________________________________
Title
______________________________________
Date:
50
<PAGE>
Exhibit 10.11
TESTING CENTER MANAGEMENT AND CBT SERVICES AGREEMENT
This Testing Center Management and CBT Services Agreement (this
"Agreement") is made as of May 1, 1997 (the "Effective Date"), and is by and
between SYLVAN LEARNING SYSTEMS, INC. ("Sylvan"), a Maryland Corporation, and
CALIBER LEARNING NETWORK, INC. ("Caliber"), a Maryland corporation.
RECITALS
1. Sylvan utilizes, and owns and operates, a series of locations across the
United States (the "Testing Centers") at which computer-based testing
services are delivered to individuals on behalf of various testing clients
of Sylvan; and
2. Caliber is establishing a network of distance learning centers, in which
testing services utilizing the Sylvan Prometric computer-based testing
system will also be offered and provided; and
3. Caliber desires to assume control of a certain group of Sylvan's locations
for the expansion and establishment of the Caliber network; and
4. In connection with the foregoing, Sylvan and Caliber have agreed that
Caliber will manage the Testing Centers and in connection therewith will
assume certain obligations assets related to the Testing Centers, and
desire to set forth in writing the terms and conditions of their
understanding and agreements.
TERMS AND CONDITIONS
In consideration of the mutual covenants and conditions set forth in this
Agreement and other good and valuable consideration, the sufficiency of which is
hereby acknowledged, Sylvan and Caliber agree as follows:
1.0 MANAGEMENT OF TESTING CENTERS
1.01 From May 1, 1997 (the Effective Date) through and until December 31,
2000, (the "Management Period") Caliber shall assume, pursuant to the
provisions of this Agreement, management and responsibility for all
obligations and operations of the Testing Centers listed on Exhibit A
of this Agreement, including without limitation delivering CBT
services on behalf of Sylvan and its clients in accordance with the
terms of the Agency and Licensing Agreement for Operation of a Sylvan
Technology Center "Services Agreement"(as shown as Exhibit B of this
Agreement), staffing the Testing Centers with adequate qualified
personnel and assuming and satisfying all costs and expenses incurred
as a result of the Testing Centers' operations after the Effective
Date. The costs and expenses incurred as a result of the Testing
Centers operations shall include but are not limited to leases and
other occupancy costs, utilities,
<PAGE>
salaries, data communications, and, in the case of former NASD
centers, all operation costs billed to Sylvan by NASD and paid by
Sylvan pursuant to the Asset Transfer and Management Agreement between
Sylvan and NASD.
1.02 Under this Agreement, Caliber agrees that it will perform as an
independent contractor, and not an agent or employee of Sylvan.
A. Caliber and its personnel (including without limitation personnel
hired by Sylvan under this Agreement), in performance of this
Agreement, are acting as independent contractors and not as employees
of Sylvan. Caliber shall, at its sole cost and expense, for the term
of this Agreement provide all insurance coverage required by
applicable laws, regulations, or employment agreements, including,
without limitation, medical and workers' compensation.
B. Caliber represents and warrants that neither Caliber nor Caliber's
personnel (including without limitation personnel hired by Caliber
under this Agreement) or any individual associated with or performing
services for Caliber shall be an employee of Sylvan for any purpose
whatsoever. Caliber shall be responsible for the payment of all
unemployment, social security and other payroll taxes of all
individuals who are engaged in the performance of the services. If, at
any time, any liability is asserted against Sylvan for unemployment,
social security or any other payroll tax related to Caliber or
Caliber's personnel or any individual or subcontractors associated
with Caliber, then Caliber shall indemnify and hold harmless Sylvan
from any such liability, including, without limitation, any such
taxes, any interest or penalties related thereto, and reasonable
attorney's fees and costs.
1.03 As consideration for all of the services to be performed by Caliber
in its operation of the Testing Centers during the Management Period,
Sylvan shall pay to Caliber the STC commissions monthly (the
"Management Fees"), for the Management Period. The Management Fees
shall be paid in accordance with the terms of the Services Agreement,
provided that Sylvan may deduct as a credit against such Management
Fees an amount equal to any Assumed Direct Cost (as defined below)
that has been paid by Sylvan and by any fees due Sylvan for providing
interim accounting services for Caliber Sylvan shall provide such
interim accounting services for Caliber at no cost through December
31, 1997. Commencing with January 1, 1998, the parties will review
the interim accounting services to be provided by Sylvan to Caliber
and agree on fees for those services at that time.
As additional consideration for all of the services to be
performed by
-2-
<PAGE>
Caliber in its operation of the Testing Centers during the Management
Period, Caliber shall receive fifty (50%) percent of the profits
Sylvan receives from its fingerprint testing services business with
Identix Corporation.
For purposes of this Agreement and except as otherwise expressly
provided herein, the term "Assumed Direct Cost" shall mean any cost,
rental charge or expense arising from the operation, maintenance and
staffing of the Testing Centers during the Management Period, which
cost or expense is assumed by Caliber from Sylvan under this
Agreement, or is of a nature incurred by Sylvan in the operation,
maintenance and staffing of the Testing Centers after the Effective
Date, and includes all costs contemplated by Section 1.01 above.
1.04 During the period commencing with the Effective Date and ending
December 31, 1997, Sylvan will, at Caliber's request, not deduct
credits as described in Section 1.03 above from the Management Fees.
Caliber may defer payment to Sylvan for those credits not deducted
from the Management Fees until December 31, 1997. Those credits not
deducted shall be paid in full, together with four (4%) percent
interest within forty-five (45) days of the end of the deferral period
ending December 31, 1997. After the period ending December 31, 1997,
any credits not deducted from the Management Fees shall be paid by
Caliber to Sylvan on a monthly basis. Following the Management
Period, Caliber shall reimburse Sylvan for any credits attributable to
payments by Sylvan under Section 1.03 but not previously deducted as
credits from the Management Fees pursuant to Section 1.03 and not
otherwise paid by Caliber to Sylvan. Any such reimbursement shall be
paid within forty-five (45) days following presentation by Sylvan to
Caliber of documentation reflecting the amount of any such amounts
paid by Sylvan and the fact of such payment by Sylvan.
1.05 Following the Management Period, Caliber may, but need not, continue
to operate any Testing Center as it determines to be appropriate,
subject to the requirements of the Services Agreement. Certain of the
Testing Centers may be closed (or converted to other, non-STC uses) in
accordance with the schedule of Permitted First Closing Dates shown in
Exhibit A.
1.06 From time to time it may become necessary for Sylvan to open STC's in
locations where no franchisees are available or where franchisees are
unable or unwilling to locate or expand to meet testing demand. In
those circumstances, if Caliber has a Caliber Learning Center located
or plans to locate a Caliber Learning Center in the geographical
region where the STC needs to be located, Sylvan may request and
Caliber shall use reasonable
-3-
<PAGE>
efforts to establish an STC in that location. The ownership,
operation, and management of the STC shall be subject to the terms of
this Agreement. In the event an STC is established pursuant to this
Section 1.06, Sylvan and Caliber shall negotiate in good faith for an
equitable sharing of any additional costs expended by Caliber to
establish and operate the STC.
2.0 TRANSFER OF TESTING CENTER LEASES AND LEASEHOLD IMPROVEMENTS
2.01 From time to time on or after the Effective Date and on or before the
end of the Management Period, Sylvan shall assign to Caliber and
Caliber shall assume from Sylvan, on the terms and conditions set
forth in this Agreement, all of Sylvan's right, title, interest and
obligations as lessee or tenant under the leases shown on the attached
Exhibit A, together with all rights in and to any security deposits
held by landlords under said leases and any leasehold improvements.
Such assignment and assumption shall be effected on a date specified
by Sylvan to occur within ninety (90) days after the Effective Date;
provided, however, that notwithstanding anything to the contrary
herein:
(i) if a lease requires the landlord's consent to an assignment
thereof, Caliber shall use all reasonable efforts to obtain such
consent and Sylvan may delay assigning such lease until such consent
is obtained,
(ii) if and to the extent that a landlord does not consent to the
assignment to Caliber of any lease and does not elect to terminate the
lease, Sylvan agrees to sublet the premises to Caliber on
substantially the same terms and conditions contained in the affected
lease for a term through the end of the Management Period and for such
longer period as Caliber and Sylvan may agree,
(iii) if Sylvan believes that a landlord may elect to terminate a
lease pursuant to the terms thereof instead of consenting to the
assignment to Caliber of such lease, Sylvan shall notify Caliber of
such and may delay attempting to assign such lease to Caliber until a
date not later than the last day of the Management Period,
(iv) Sylvan shall not be obligated to ensure that any of the leases
listed on Exhibit A is assignable and any lease terminated by a
landlord, whether upon notice of Sylvan's assignment of or intent to
assign such lease, or otherwise, shall not be subject to assignment
and assumption under this Agreement, and
(v) Certain of the Testing Centers (as indicated by an asterisk on
Exhibit A) are subject to the prior right of the National Association
-4-
<PAGE>
of Securities Dealers, Inc. ("NASD") to have assigned to it the leases
for same, and the rights to occupy same to the exclusion of Sylvan and
its assigns, under certain conditions, and upon notice per the terms
of that certain CBT Services Master Agreement dated March 1, 1996, to
which reference is made and of which Caliber acknowledges having been
provided a copy. In certain cases the lease for a former NASD site has
not been assigned to Sylvan but Sylvan is subletting the site. Sylvan
will sublet under like terms to Caliber and Caliber shall pay to
Sylvan such lease costs as are assumed by Sylvan for these sites.
2.02 Caliber shall bear and be responsible for all transfer, sales,
recording and filing taxes or fees resulting from the transfer of any
lease hereunder, which amounts are Caliber's sole responsibility.
3.0 USE OF TESTING CENTER ASSETS
3.01 On the Closing Date (as defined in Section 4.01), Sylvan shall provide
and extend to Caliber the exclusive use of the following:
(a) All of the furniture, fixtures, supplies, equipment and other
tangible assets owned by Sylvan that are used or held for use
solely in connection with the operation of the Testing Centers,
shown on the attached Exhibit D, together with all sundry items
of a like character which, although not described on Exhibit D,
are owned by Sylvan and situated on or about the various premises
described in Exhibit A. Collectively, the items described in
this paragraph (a) are referred to as the "Center Assets."
3.02 Nothing in this Agreement shall obligate Sylvan to transfer any
accounts receivable arising with respect to the operation of the
Testing Centers. Nothing in this Agreement shall obligate Caliber to
assume any accounts payable or liabilities, determined in accordance
with generally accepted accounting principles, arising with respect to
the Testing Centers prior to the Effective Date.
3.03 Upon Caliber's cessation of operating an STC in any of the Testing
Center sites, all physical property and equipment in such site that is
owned by Sylvan shall be packed and shipped by Caliber, at Caliber's
expense, to such location(s) as directed by Sylvan.
4.0 CLOSING
4.01 The closing of the transactions contemplated by Section 3 of this
Agreement (the "Closing") shall take place at the offices of Sylvan,
-5-
<PAGE>
1000 Lancaster Street, Baltimore, Maryland 21202, on a date (the
"Closing Date") to be agreed to by the parties, which shall be within
ninety (90) days after the Effective Date, provided that either party
may by advance notice to the other party unilaterally extend the
Closing Date by up to thirty (30) days and the Closing Date and
Closing may occur at such other place and date as the parties may
mutually agree to in writing.
4.02 At the Closing, Sylvan shall execute and/or deliver to Caliber:
(a) Original or photocopies of all books, records, files, documents,
and papers, including commercial vendor contracts and all records
of the accounts used in the operation of or relating exclusively
to the operation or management of the Testing Centers and Center
Assets, provided, however, that the transfer of such books and
records shall be extended to the date on which interim accounts
services are last provided by Sylvan;
(b) Any and all other documents, instruments or agreements reasonably
necessary to fulfill the purposes of this Agreement.
4.03 At the Closing Caliber shall execute and/or deliver to Sylvan:
(a) Assumption agreements relating to the leases assumed by Caliber
pursuant to Section 2.0 of this Agreement;
(b) Any and all other documents, instruments or agreements reasonably
necessary to fulfill the purposes of this Agreement.
5.0 SYLVAN EMPLOYEES
5.01 A complete list of all employees involved in or having duties
associated with the Testing Centers (the "Center Employees"), their
current salary/wage level, date of hire, date of birth, credited years
of service, and position is shown on Exhibit E attached hereto.
Caliber agrees to extend offers to employ as of May 1, 1997 (the
"Transition Date"), or as soon as practicable thereafter, each of the
Center Employees actively employed in a Testing Center immediately
prior to the Transition Date (including Center Employees on leave of
absence or receiving short-term disability or workers compensation)
and to employ as of the Transition Date each Center Employee accepting
such offer.
(a) In every case, an offer of employment shall be on terms that
provide the same salary or wage rate (calculated on an hourly
basis for nonexempt employees), a similar position,
responsibility and employment status (i.e., part or full-time) as
held by the Center
-6-
<PAGE>
Employee immediately prior to the Transition Date. Every Center
Employee accepting employment with Caliber shall receive and be
entitled to benefits at least comparable to those enjoyed by
similarly situated employees of Caliber.
(b) Caliber agrees to permit every Center Employee on leave of
absence who accepts employment with Caliber to continue such
leave on the same terms and conditions, including benefits, as
provided by Sylvan.
(c) The employee incentive plan currently operated by Sylvan for the
benefit of the Center Employees shall not be modified or
terminated by Caliber, but shall be maintained and observed by
Caliber at least through December 31, 1997.
5.02 Every Center Employee accepting employment with Caliber will, for
purposes of any eligibility, vesting or waiting period under any
health, 401k, vacation, severance or other benefit plan, be credited
for the same periods of service credited by Sylvan prior to the
Transition Date.
5.03 Except as expressly provided in this Article 5, nothing in this
Agreement, whether express or implied, shall confer upon any Center
Employee any rights or remedies, including any right to employment, or
continued employment for any specified period, of any nature or kind
whatsoever under or by reason of this Agreement.
5.04 Caliber shall be solely responsible for, and hereby agrees to hold
Sylvan harmless against, any COBRA obligations or liabilities relating
to Center Employees who accept employment with Caliber, or relating to
the qualified beneficiaries of such employees.
6.0 REPRESENTATIONS AND WARRANTIES OF CALIBER
Caliber hereby represents and warrants to Sylvan that:
6.01 Caliber is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland and has the corporate
power to carry on its business as it is now being conducted and to
perform the actions contemplated hereby. Neither the execution and
delivery of this Agreement nor the carrying out of the transactions
contemplated hereby will result in any violation of, or be in conflict
with, Caliber's Charter or By-Laws.
6.02 No litigation, actions or proceedings, legal, equitable,
administrative, through arbitration or otherwise, including but not
limited to lawsuits,
-7-
<PAGE>
claims or disputes with employees, clients and vendors, etc., are
pending or, to the best of Caliber's knowledge, threatened as of the
date this Agreement is executed by Caliber that might affect the
Testing Centers or the consummation of the transactions described in
this Agreement.
6.03 To the best of Caliber's knowledge, neither the execution and delivery
of this Agreement nor the carrying out of the transactions
contemplated hereby will result in any violation, termination or
modification of; or be in conflict with any terms of any contract,
instrument or other agreement to which Caliber is a party or by which
it or any of its properties is bound or affected, or any law, rule,
regulation, license, permit, judgment, decree or order applicable to
Caliber or by which any of its properties or assets are bound or
affected, or result in any breach of or constitute a default (or with
notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or
cancellation, or result in the creation of any lien, charge or
encumbrance upon any of its properties or assets, except where such
event or occurrence would not, singly or in the aggregate, have a
material adverse affect on Caliber.
6.04 Caliber has taken no action which would give rise to a valid claim
against any party hereto for a brokerage commission, finder's fee,
counseling or advisory fee, or like payment.
6.05 The execution, delivery and performance of this Agreement by Caliber
has been duly authorized by its Board of Directors, and this Agreement
is a valid, legally binding and enforceable obligation of Caliber.
7.0 REPRESENTATIONS AND WARRANTIES OF SYLVAN
Sylvan hereby represents and warrants to Caliber that:
7.01 Sylvan is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland, and has the
corporate power and authority to carry on its business as it is now
being conducted and to perform the actions contemplated hereby.
Neither the execution and delivery of this Agreement nor the carrying
out of the transactions contemplated hereby will result in any
violation of; or be in conflict with, Sylvan's Articles of
Incorporation or By-Laws.
7.02 To the best of Sylvan's knowledge, Sylvan possesses sufficient title
to all of the Center Assets to use the Center Assets as they are being
used immediately prior to the Effective Date.
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<PAGE>
7.03 With the exception of 1) the ACT litigation described on Exhibit C
attached to this Agreement, and 2) the rights of NASD referred to in
Section 2.01(v) hereof, no litigation, actions or proceedings, legal,
equitable, administrative, through arbitration or otherwise, including
but not limited to lawsuits, claims or disputes with employees,
clients and vendors, etc., are pending or, to the best of Sylvan's
knowledge, threatened as of the date this Agreement is executed by
Sylvan that might affect the Testing Centers, the assets being
purchased, or the consummation of the transactions described in this
Agreement.
7.04 To the best of Sylvan's knowledge, all of the assets which constitute
furniture, fixtures, supplies, equipment and other tangible assets
sold pursuant to this Agreement are as of the Effective Date in good
condition, except for those the absence of which is not material to
the operation of the Testing Centers.
7.05 To the best of Sylvan's knowledge, Sylvan has fulfilled all of its
obligations under and has complied in all material respects with all
state and federal laws, rules and regulations applicable to the
operation of the Testing Centers, except for any failure which would
not have a material adverse effect on the operation of the Testing
Centers.
7.06 To the best of Sylvan's knowledge, neither the execution and delivery
of this Agreement nor the carrying out of the transactions
contemplated hereby will result in any violation, termination or
modification of, or be in conflict with any terms of any contract,
instrument or other agreement to which Sylvan is a party or by which
it or any of its properties is bound or affected, or any law, rule,
regulation, license, permit, judgment, decree or order applicable to
Sylvan or by which any of its properties or assets are bound or
affected, or result in any breach of or constitute a default (or with
notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or
cancellation, or result in the creation of any lien, charge or
encumbrance upon any of its properties or assets, except where such
event or occurrence would not, singly or in the aggregate, have a
material adverse effect on Sylvan.
7.07 Sylvan has taken no action which would give rise to a valid claim
against any party hereto for a brokerage commission, finder's fee,
counseling or advisory fee, or like payment.
7.08 The execution, delivery and performance of this Agreement by Sylvan
has been duly authorized by its Board of Directors, and this Agreement
is a valid, legally binding and enforceable obligation of Sylvan.
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<PAGE>
8.0 COVENANTS AND AGREEMENTS OF SYLVAN AND CALIBER
8.01 Sylvan hereby covenants and agrees with Sylvan as follows:
(a) Any accounts payable accruing as a result of the operation of the
Testing Centers before the Effective Date shall remain the
responsibility of Sylvan and shall be paid by Sylvan promptly as
they become due and payable.
(b) Prior to the Closing Date and upon reasonable notice, Sylvan
shall make available to Caliber and its authorized agents and
accountants at reasonable times and under reasonable
circumstances the following items with respect to the Testing
Centers: assets, properties, business and financial records,
working papers, files, and memoranda of its public accountants or
auditors, including, without limitation, vendor contracts with
and records of the accounts of vendors used in the operation of
or relating to the Testing Centers, for the purposes of
inspecting, examining and copying the same, as is deemed
necessary or desirable by Caliber.
(c) Sylvan shall use all reasonable efforts to preserve intact the
Centers' organization and personnel and to keep available all of
its employees, agents, independent contractors, and consultants
through the Closing Date.
(d) Sylvan shall use all reasonable efforts to preserve intact the
goodwill of all commercial vendors and others with respect to the
Testing Centers through the Closing Date;
(e) Sylvan shall keep in force through the Closing Date all policies
of insurance covering the Testing Centers and its properties and
assets;
(f) Sylvan shall use reasonable efforts to maintain through the
Closing Date the furniture, fixtures, supplies, equipment and
other tangible assets to be used by Caliber pursuant to this
Agreement in the same condition as they are on the Effective
Date, ordinary wear and tear excepted.
(g) Sylvan shall use all reasonable efforts to cooperate in obtaining
all consents and satisfying all conditions to be obtained or
satisfied on or before the Closing Date.
8.02 Caliber hereby covenants and agrees with Sylvan as follows:
(a) Any accounts payable accruing as a result of the operation of the
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<PAGE>
Testing Centers on or after the Effective Date shall be the
responsibility of Caliber and shall be paid by Caliber promptly
as they become due and payable.
(b) After the Effective Date and upon reasonable notice, Caliber
shall make available to Sylvan and its authorized agents and
accountants at reasonable times and under reasonable
circumstances any books or records relating to the pre-Effective
Date operation of the Testing Centers.
(c) Caliber is to be responsible for all liabilities associated with
the operation of the Testing Centers, including, without
limitation, lease payments, withholding taxes, social security
taxes, unemployment contributions, salaries, and purchases,
incurred after the Effective Date, and Caliber specifically
agrees to assume such liabilities as of the Effective Date.
(d) Caliber shall use all reasonable efforts to cooperate in
obtaining all consents and satisfying all conditions to be
obtained or satisfied on or before the Closing Date.
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<PAGE>
9.0 NONASSUMPTION OF LIABILITIES
9.01 Unless otherwise expressly provided for in this Agreement, the
liabilities and obligations incurred by Sylvan prior to the Effective
Date are not assumed by Caliber but continue as liabilities and
obligations of Sylvan and shall be solely paid by Sylvan. In the event
Caliber is presented with a bill or invoice addressed to it but
relating to operation of the Testing Centers before the Effective
Date, Caliber shall forward such to Sylvan and Sylvan shall pay such
within fifteen days after the latter of its due date and the date it
is forwarded by Caliber, together with any applicable interest or
penalties. If Sylvan disputes any obligation or amount reflected on a
bill or invoice it shall deliver notice of such to the payee within
such fifteen day period and provide a copy of such notice to Caliber,
in which case Caliber shall be indemnified by Sylvan against any
liability for such amount pursuant to Section 10. In the event that
Sylvan neither pays nor delivers notice of dispute of such obligation
or amount within such period of time, Caliber may pay such amount and
shall be entitled to reimbursement of such amount from Sylvan, and
Caliber shall have the right to offset any such amount actually paid
by Caliber against any payment owed to Sylvan by Caliber.
9.02 Unless otherwise expressly provided for in this Agreement, the
liabilities and obligations incurred in the operation of the Testing
Centers after the Effective Date shall not be the responsibility of
Sylvan but shall be liabilities and obligations of Caliber and shall
be solely paid by Caliber. In the event Sylvan is presented with a
bill or invoice addressed to it but relating to operation of the
Testing Centers on or after the Effective Date, Sylvan shall forward
such to Caliber and Caliber shall pay such within fifteen days after
the latter of its due date and the date it is forwarded by Sylvan,
together with any applicable interest or penalties, except that Sylvan
may pay directly any such bill or invoice arising under any agreement
or commitment that has not been signed or transferred to Caliber
hereunder at the time such liability accrued and, unless Sylvan and
Caliber agree otherwise, Sylvan shall be entitled to credit such
amount against any Management Fees thereafter payable under this
Agreement or, after the expiration of the Management Period, against
any amounts payable under the Services Agreement. If Caliber
disputes any obligation or amount reflected on a bill or invoice
forwarded to it by Sylvan, it shall deliver notice of such to the
payee within such fifteen day period and provide a copy of such notice
to Sylvan, in which case Sylvan shall be indemnified by Caliber
against any liability for such amount pursuant to Section 10. In the
event that Caliber neither pays nor delivers notice of dispute of such
obligation or amount within such period of time, Sylvan may pay such
amount and shall be entitled to reimbursement of such amount from
Caliber, and Sylvan shall have the right to offset any such amount
-12-
<PAGE>
actually paid by Sylvan against any payment owed to Caliber by Sylvan.
9.03 Unless otherwise expressly provided for in this Agreement, any bill or
invoice relating to liabilities or obligations incurred with respect
to the Testing Centers over a period of time that begins prior to the
Effective Date and ends after the Effective Date (a "Straddle
Period"), regardless of whether paid before or after the Effective
Date, shall be allocated between Sylvan and Caliber as follows: (i)
Sylvan shall be responsible for that portion of the amount determined
by multiplying the amount of the liability or obligation by a
fraction, the numerator of which shall be the number of days from the
beginning of the Straddle Period until the day before the Effective
Date and the denominator of which shall be the total number of days in
the Straddle Period, and (ii) Caliber shall be responsible for that
portion of the amount determined by multiplying the amount of the
liability or obligation by a fraction, the numerator of which shall be
the number of days from the Effective Date until the end of the
Straddle Period and the denominator of which shall be the total number
of days in the Straddle Period.
10.0 INDEMNIFICATION
10.01 From and after the Effective Date, Caliber shall indemnify, defend
and hold Sylvan, its officers, directors, employees, agents and
permitted assigns and the property of Sylvan free and harmless from
any and all claims, losses, damages, injuries, and liabilities
arising from or in connection with:
(a) any misrepresentation, breach of representation or warranty or
breach or non- fulfillment of any agreement or covenant on the
part of Caliber under this Agreement, or from any inaccuracy or
misrepresentation in or omission from any certificate or other
instrument or document furnished or to be furnished by Caliber
hereunder; and
(b) the operation of the Testing Centers or the ownership, control,
or management of any assets or properties of the Testing Centers
by Caliber after the Effective Date.
10.02 From and after the Effective Date, Sylvan shall indemnify, defend and
hold Caliber, its officers, directors, employees, agents and
permitted assigns and the property of Caliber free and harmless from
any and all claims, losses, damages, injuries, and liabilities
arising from or in connection with:
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<PAGE>
(a) any misrepresentation, breach of representation or warranty or
breach or non-fulfillment of any agreement or covenant on the
part of Sylvan under this Agreement, or from any inaccuracy or
misrepresentation in or omission from any certificate or other
instrument or document furnished or to be furnished by Sylvan
hereunder; and
(b) the operation of the Testing Centers or the ownership, control,
or management of any assets or properties of the Testing Centers
by Sylvan prior to the Effective Date.
10.03 The party claiming indemnification under this Section shall promptly
notify (and, in the case of any action, suit, arbitration, or
judicial or administrative proceeding, shall so notify no later than
fifteen (15) days after the party claiming indemnification has
received notice thereof or has been served with a complaint or other
process) the other party when it has knowledge of circumstances or
the occurrence of any events which are likely to result in an
indemnification obligation under this Agreement or when any action,
suit, arbitration, or judicial or administrative proceeding is
pending or threatened that is covered by this Agreement.
The indemnifying party shall defend the party to be indemnified
through counsel reasonably satisfactory to the party to be
indemnified. Sylvan, as the party to be indemnified, shall have the
right of prior approval over any settlement if such settlement might
directly or indirectly affect, in a materially detrimental way,
Sylvan.
The party claiming indemnification shall cooperate with the other
party in the defense of any such suit or proceeding, and the other
party shall reimburse the party claiming indemnification for its
expenses with respect thereto, including counsel of its choice. Such
cooperation shall include, but not be limited to, the making of
statements and affidavits, attendance at hearings and trials,
production of documents, assistance in securing and giving evidence
and obtaining the attendance of witnesses, provided, however, that in
no event shall either party be required to waive attorney-client or
other applicable privileges.
Failure by the party claiming indemnification to promptly notify the
other party within the time period set forth in the first paragraph
of this Section shall not invalidate any claim or right for
indemnification, unless such failure has a material adverse affect on
the settlement, defense, or compromise of the matter that is the
subject of the claim for indemnification. In addition, the party
claiming indemnification shall be responsible for any claims or
losses which could have been avoided or mitigated by prompt notice as
required by this subsection.
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<PAGE>
11.0 GENERAL AND ADMINISTRATIVE PROVISIONS
11.01 Parties Bound. This Agreement shall be binding upon and inure to the
benefit of the parties to this Agreement and their respective heirs,
executors, administrators, legal representatives, successors and
assigns.
11.02 Assignment. Neither party may assign this Agreement, or any part
thereof, without the prior written approval of the other party, which
approval shall not be unreasonably withheld. Any such request for
approval of a proposed assignment shall be accompanied by a copy of
the proposed contract between the party and the proposed assigned
subcontractor. Caliber may, upon reasonable prior notice to Sylvan,
but without the necessity of Sylvan's consent, assign its rights and
obligations under this Agreement to a parent or wholly owned
subsidiary pursuant to any internal reorganization not involving a
change of control or ownership of Caliber. Any other assignment by
Caliber may be made only with the prior consent and approval of
Sylvan. Sylvan may, upon reasonable prior notice to Caliber, but
without the necessity of Caliber's consent, assign this Agreement and
its rights and obligations hereunder to an entity controlling,
controlled by or under common control with Sylvan. Any other
assignment by Sylvan may be made only with the prior consent and
approval of Caliber.
11.03 Maryland Law. This Agreement shall be subject to, governed by and
construed in accordance with the laws (except for the choice of law
provisions) of the State of Maryland. Any and all obligations or
payments are due and payable in the City of Baltimore, Maryland.
11.04 Severability. If any provision of this Agreement should, for any
reason, be held violative of any applicable law, and so much of this
Agreement be held unenforceable, then the invalidity of such a
specific provision of this Agreement shall not be held to invalidate
any other provisions of this Agreement, which other provisions shall
remain in full force and effect unless removal of the invalid
provisions destroys the legitimate purposes of this Agreement, in
which event this Agreement shall be canceled.
11.05 Entire Agreement. This Agreement and the Services Agreement, together
with all other documents, instruments or agreements executed or
delivered in connection herewith or therewith, collectively represent
the entire understanding of the parties hereto with respect to the
subject matter hereof. There are no oral agreements, understandings,
or representations made by any party to this Agreement that are
outside of this Agreement and the Services Agreement and are not
expressly stated herein or therein. Capitalized terms not defined
herein shall have the meaning set forth in the Services Agreement.
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<PAGE>
11.06 Notices. Any notices or other communications required or which may be
given by either party to the other party under this Agreement, shall
be in writing and may be sent by Fax, however the original shall be
sent either by overnight courier, with a verified receipt, or by
registered or certified mall, postage prepaid and addressed to and at
the address stated below or to such other address as the parties
shall subsequently designate to each other by notice given in
accordance with this Section. Such notice shall be deemed to be
sufficiently given on the earlier of the date when the original is
received by the receiving party and the date that is three (3)
business days after the original is sent or mailed.
FOR SYLVAN: SYLVAN LEARNING SYSTEMS, INC.
Attention: B. Lee McGee
1000 Lancaster Street
Baltimore, Maryland 21202
FOR CALIBER: CALIBER LEARNING NETWORK, INC.
Attention: Christopher Nguyen
1000 Lancaster Street
Baltimore, Maryland 21202
A party may change the address for notice by giving notice of such
change to the other party in writing.
11.07 Amendments & Waivers. This Agreement may be amended only in writing
by the mutual consent of all of the parties hereto. No waiver of any
provision of this Agreement shall arise from any action or inaction
of any party, except an instrument in writing expressly waiving the
provision executed by the party entitled to the benefit of the
provision.
11.08 Survival. All representations, warranties, covenants, and agreements
of the parties contained in this Agreement or contained in any
writing delivered pursuant to this Agreement shall survive the
Closing.
11.09 Expenses. Except as otherwise expressly provided herein, each party
to this Agreement shall pay the fees and expenses incurred by it in
connection with the transactions contemplated by this Agreement. if
any action is brought for breach of this Agreement or to enforce any
provision of this Agreement, the prevailing party shall be entitled
to recover court costs and reasonable attorney's fees.
11.10 Counterparts. This Agreement may be executed in any number of
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<PAGE>
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereunder have executed this Agreement as
of the day and year first above written.
"CALIBER" "SYLVAN"
CALIBER LEARNING NETWORK, INC. SYLVAN LEARNING SYSTEMS, INC.
BY: BY:
---------------------------- ----------------------------
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<PAGE>
AMENDMENT NO. 1 TO
TESTING CENTER MANAGEMENT AND CBT SERVICES AGREEMENT
BETWEEN
SYLVAN LEARNING SYSTEMS, INC.
AND
CALIBER LEARNING NETWORK, INC.
This Amendment No. 1 (this "Amendment") to the Testing Center Management
and CBT Services Agreement (the "Agreement") is made and entered into effective
as of May 2, 1997, by and between SYLVAN LEARNING SYSTEMS, INC. ("Sylvan"), a
Maryland corporation, and CALIBER LEARNING NETWORK, INC. ("Caliber"), a Maryland
corporation.
RECITALS
1. The parties entered into the Agreement on May 1, 1997.
2. This Amendment is entered into to correct certain errors and to clarify
certain obligations of the parties.
TERMS AND CONDITIONS
In consideration of the mutual covenants set forth in the Agreement and this
Amendment, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Sylvan and Caliber amend the
Agreement as follows:
1.0 COMPENSATION
The first sentence of Paragraph 1.03 of the Agreement is hereby deleted and the
following is substituted therefor:
"1.03 As consideration for all of the services to be performed by Caliber in
its operation of the Testing Centers during the Management Period, Sylvan
shall pay the following fees to Caliber (the "Management Fees"), during
the following periods:
From May 1, 1997 through September 30, 1998, a flat fee of * per month
for up to 95,000 Scheduled Hours of Service and, in any month, * for
each Scheduled Hour of Service in such month in excess of 95,000
hours.
From October 1, 1998 through June 30, 1999, a flat fee of * per month
for up to 95,000 Scheduled Hours of Service per month and, in any
month, * for each Scheduled Hour of Service in such month in excess of
95,000 hours.
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<PAGE>
On and after July 1, 1999, * per month for up to 95,000 Scheduled
Hours of Service and, in any month, * for each Scheduled Hour of
Service in such month in excess of 95,000 hours."
2.0 TESTING CENTER SITES
Section 2.0 of the Agreement is hereby deleted in its entirety and the following
is substituted therefor:
"2.0 MANAGEMENT AND USE OF TESTING CENTER LEASEHOLDS
Sylvan represents and warrants that it has obtained any and all landlord
consents required under the leases covering the Testing Centers (the
"Leases") in order for Caliber lawfully to manage and use the leased
premises covered thereby. Caliber shall use and manage the Testing Centers
subject to the terms of this Agreement and the terms of the Leases.
Caliber assumes and agrees to perform and comply with all of the
agreements, covenants and obligations of Sylvan as tenant under the Leases,
the terms and conditions of which being hereby incorporated by reference
herein as if set forth in full; provided, however, that nothing in this
Section 2.0 shall be deemed to constitute any Testing Center landlord a
third party beneficiary of Caliber's covenants hereunder and no such
landlord shall have any right or power to enforce against Caliber any
obligations of Sylvan under any Lease."
3.0 COVERED TESTING CENTERS
Exhibit A to the Agreement is hereby deleted in its entirety and replaced by the
- ---------
substitute Exhibit A attached hereto. For all purposes of the Agreement, the
---------
term "Testing Centers" means those Testing Centers listed on the substitute
Exhibit A attached to this Amendment.
- ---------
4.0 GENERAL
This Amendment constitutes all of the amendments to the Agreement intended by
the parties. Except as modified hereby, all of the other contractual
obligations of the parties under the Agreement shall remain in full force and
effect. In the event of any conflict between the terms of this Amendment and
the terms of the Agreement or any Exhibit thereto, the terms of this Amendment
shall prevail.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and
year first above written.
SYLVAN LEARNING SYSTEMS, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
CALIBER LEARNING NETWORK, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
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EXHIBIT A
TEST CENTERS & PERMITTED FIRST CLOSING DATES
<TABLE>
<CAPTION>
# CITY SEATS PERMITTED FIRST CLOSING DATES
<S> <C> <C> <C> <C>
SITES: 5201 Anchorage, AK 5 N/A#
5202 Dover, DE 5 N/A#
5206 Forest Hills[Queens], NY 28 N/A#
5209 Williston, VT 5 N/A#
5212 Little Rock, AR 15 N/A#
5216 Washington, DC 15 N/A#
5230 Chicago, IL 12 N/A#
5233 Baton Rouge, LA 15 N/A#
5235 Boston, MA 28 N/A#
5237 Morgantown, WV 7 N/A#
5241 Bloomington [Normal], IL 8 N/A#
5242 Concord, NH 8 N/A#
5244 Toledo, OH 11 N/A#
5249 Scranton, PA 9 N/A#
5804 *Atlanta, GA 15 N/A
5807 *Chicago, IL 25 N/A
5811 *Dallas, TX 21 N/A
5812 *Denver, CO 15 N/A
5815 *Glendale [LA], CA 24 N/A
5823 Melville [Long Island], NY 21 N/A#
5832 *NY [Midtown], NY 50 N/A
5833 *NY [Whitehall], NY 50 N/A
5836 *Maitland [Orlando], NY 15 N/A
5849 *San Francisco, CA 26 N/A
5855 *Waltham [Boston], MA 23 N/A
5856 NY [Penn Plaza], NY 44 N/A#
5858 Union [Newark], NJ 22 N/A#
<CAPTION>
CLOSING SITES:
<S> <C> <C> <C> <C>
5802 Albuquerque, NM 4 When alternate sites are operating
5817 Houston, TX 15 When alternate sites are operating
5826 Milwaukee, WI 12 When alternate sites are operating
5831 Norwalk, CT 11 When alternate sites are operating
5854 Tyson's Corner, VA 15 9/1/97
</TABLE>
Other sites in the 52xx series are not included in this list because they are
currently operated by 3/rd/ parties or inside ETS FSOs [Field Service Offices].
. * These sites are designated NASD "Flagship" sites and operate per the
"Flagship" guidelines in the NASD Agreement.
. # These sites have no planned closing date however they could be closed if a
franchise operated STC opened in this market.
- -------------------
* Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
<PAGE>
Exhibit 10.13
MASTER COURSE DEVELOPMENT AGREEMENT
between
CALIBER LEARNING NETWORK, INC.
and
THE TRUSTEES OF THE UNIVERSITY OF PENNSYLVANIA
acting through
THE ARESTY INSTITUTE OF EXECUTIVE EDUCATION AT THE WHARTON SCHOOL
Dated as of: March 26, 1998
THIS MASTER COURSE DEVELOPMENT AGREEMENT (this "Agreement") is dated as of the
26th day of March, 1998 (the "Effective Date") and is by and between CALIBER
LEARNING NETWORK, INC., a Maryland corporation ("Caliber"), with its principal
place of business at 1000 Lancaster Street, Baltimore, Maryland 21202, and THE
TRUSTEES OF THE UNIVERSITY OF PENNSYLVANIA acting through THE ARESTY INSTITUTE
OF EXECUTIVE EDUCATION AT THE WHARTON SCHOOL, a Pennsylvania nonprofit
corporation (collectively referred to as "Wharton"), with its principal place of
business at 255 South 38/th/ Street, Philadelphia, PA 19104-6359.
RECITALS
1. The University of Pennsylvania, including The Wharton School, is a tax
exempt entity formed for educational purposes.
2. Currently, Wharton is engaged primarily in face to face, classroom education
of undergraduate, graduate and executive education students on Wharton's campus.
3. Wharton desires to expand its educational offerings to students who may not
have access to Wharton's campus through, among other things, distance learning
programs.
4. Caliber is in the process of establishing a nationwide network of facilities
and a distance learning infrastructure that enable it to provide educational,
training and other distance learning services (the "Caliber Learning Network").
5. Wharton has developed and will continue to develop educational courses in
business administration and related topics that it wishes to offer to an
increased number of student participants at various geographical locations.
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<PAGE>
6. Wharton desires to develop content and to teach courses in accordance with
Wharton's business education purposes through a distance learning program, which
Caliber can deliver through its distance learning infrastructure.
7. Assuming the success of the initial course offerings, Wharton and Caliber
anticipate Wharton creating additional course offerings from time to time to
fulfill Wharton's academic objectives.
TERMS AND CONDITIONS
In consideration of the mutual covenants and conditions set forth in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound,
Caliber and Wharton agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1. Defined Terms. As used in this Agreement, the
-----------------------------
following terms shall have the following meanings:
"Caliber" is defined in the Preamble.
"Caliber Learning Network" is defined in Recital 1.
"Caliber Marks" is defined in Section 10.2.
"Caliber Site" is defined in Section 2.5.
"Confidential Information" means the oral or written proprietary or
confidential information of a party that is, in the case of written information,
clearly marked as "Confidential" and, in the case of oral information, confirmed
in writing to be confidential within ten (10) days after its initial disclosure
to the other party. Examples of Confidential Information include, but are not
limited to, the identity or personal information of Participants or active
prospects, strategic plans and materials, marketing strategies, business data,
financial information, studies of the effectiveness of distance learning
systems, and software. Confidential Information does not include:
(a) information that is known to the recipient or independently
developed by the recipient prior to the time of disclosure in each case, to the
extent evidenced by
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<PAGE>
written records promptly disclosed to the disclosing party upon receipt of the
Confidential Information;
(b) information disclosed to the recipient by a third party that has a
right to make such disclosure;
(c) information that becomes patented, published or otherwise part of
the public domain as a result of acts by the disclosing party or a third person
obtaining such information as a matter of right; or
(d) information that is required to be disclosed by order of United
States governmental authority or a court of competent jurisdiction; provided
that the recipient notifies the disclosing party so that the disclosing party
may seek to obtain confidential treatment of such information by the agency or
court.
"Course" means any course offering described in one of the
sequentially numbered Exhibit A's to this Agreement.
---------
"Course Content" means any and all lectures, texts and any other
tangible expressions of the intellectual content of a Course.
"Course Schedule" is defined in Section 2.6.
"Derivative Work" means any adaptation or formatting by Caliber and/or
Wharton of the Course Content for delivery through the Caliber Learning Network,
including but not limited to video tape presentations or versions, CD-ROM
versions, Internet courseware or versions, Power PointO or similar
presentations, and any other derivative works of the Course Content.
"Effective Date" is defined in the Preamble.
"EOM" means the title of the initial series of Courses called
"Essentials of Management" or such other title selected by Wharton and approved
by Caliber.
"Essentials of Management Series" means the initial EOM series of
Courses developed by Wharton for delivery through the Caliber Learning Network
pursuant to this Agreement.
"Participant(s)" means student attendee(s) of a Session.
"Revenues" is defined in Section 9.1.
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<PAGE>
"Rights" means all intellectual property or other proprietary rights,
including, without limitation, copyrights, trade secrets, patents and
trademarks.
"Session" means any single broadcast or event (1-3 hours in length)
within a Course that is developed, offered and delivered by Wharton and Caliber
to Participants through the Caliber Learning Network under this Agreement.
"Session Delivery" means the delivery of a Session by Caliber to
Participants under this Agreement.
"Session Delivery Fee" is defined in Section 9.2.
"Taped Session" is a videotaped copy of the broadcast of a Session.
"Trigger Event" means any of the following:
(a) if a party: becomes insolvent, bankrupt or generally fails to pay
its debts as such debts become due; is adjudicated insolvent or bankrupt; admits
in writing its inability to pay its debts; suffers a custodian, receiver or
trustee for it or substantially all of its property to be appointed and, if
appointed without its consent, not be discharged within thirty (30) days; makes
an assignment for the benefit for its creditors; or suffers proceedings under
any law related to bankruptcy, insolvency, liquidation or the reorganization,
readjustment or release of debtors to be instituted against it and, if contested
by it, not dismissed or stayed within ten (10) days;
(b) if proceedings under any law related to bankruptcy, insolvency,
liquidation, or the reorganization, readjustment or release of debtors are
instituted or commenced by a party;
(c) if any order for relief is entered relating to any of the
proceedings described in paragraphs (a) or (b) above;
(d) if a party shall call a meeting of its creditors with a view to
arranging a composition or adjustment of its debts; or
(e) if a party shall by any act or failure to act indicate its consent
to, approval of or acquiescence in any of the proceedings described in
paragraphs (a), (b), (c) or (d) above.
"Wharton" is defined in the Preamble.
"Wharton Marks" is defined in Section 10.1.
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ARTICLE 2
DEVELOPMENT OF COURSES
Section 2.1. Personnel. Upon execution of this Agreement, Wharton
-------------------------
and Caliber each shall identify a sufficient number of qualified persons from
their respective organizations who will be responsible for the design,
development, marketing, coordination and implementation of the Courses
consistent with the parties respective obligations under this Agreement.
Section 2.2. Development. In order to ensure that each Course
---------------------------
meets Wharton's educational objectives, Wharton will have sole responsibility
for developing the Course Content, selecting and training instructors,
developing related text materials to be incorporated into the Course Content and
developing any related computer content or software to be incorporated into the
Course Content.
Section 2.3. Releases. Wharton will be responsible for obtaining
------------------------
copyright and publicity consents with respect to the professors, guest
lecturers, students and authors of any third party sources contributing to the
Course Content or appearing on a Taped Session.
Section 2.4. The Initial Courses. Wharton shall develop initially
-----------------------------------
two (2) Courses that will be suitable for delivery through the Caliber Learning
Network after the formatting and adaptation contemplated by Section 3, all as
further described in Exhibit A-1 and Exhibit A-2 attached hereto and shall offer
----------- -----------
such Courses through the Caliber Learning Network in the Fall of 1998 and the
Winter and Spring of 1999 in accordance with the Course Schedule.
Section 2.5. Additional Courses. The parties may agree from time
----------------------------------
to time to offer additional Courses subject to the following procedure: (a) the
parties shall complete an Additional Course Form, substantially in the form of
Exhibit B, which will become a new sequentially numbered Exhibit A to this
- --------- ---------
Agreement; (b) the parties shall execute a new Exhibit Index indicating that
such Additional Course Form has been incorporated into this Agreement; and (c)
the parties shall attach such Additional Course Form and Exhibit Index to this
Agreement. Each Exhibit A will set forth the parties' preliminary understanding
----------
concerning the specific parameters of the Course, including all of the
following: the frequency, dates and times at which such Course will be offered;
the target total enrollment for the Course; the Caliber Learning Centers that
will offer the Course (each a "Caliber Site"); the minimum and maximum class
size at each room at a Caliber Site; the registration fee for the Course; the
method of registration and enrollment; the target market for the Course; and
financial projections. Each Exhibit A may be amended from time to time in a
---------
writing executed by both parties.
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<PAGE>
Section 2.6. Course Schedule. The parties have developed and will
-------------------------------
continue to refine the initial schedule of Courses (the "Course Schedule"),
which shows: the number and timing of the Courses to be developed and
subsequent Courses that the parties anticipate may be developed; and the number
and timing of the repetitions of each Course. The Course Schedule is attached
hereto as Exhibit C. The Course Schedule may be amended from time to time upon
---------
the agreement of the parties in writing.
ARTICLE 3
FORMATTING AND DELIVERY OF COURSES
Section 3.1. Format. Caliber, in consultation with Wharton, shall
----------------------
be responsible for formatting and adapting the Course Content developed by
Wharton in order for the Course Content to be delivered over the Caliber
Learning Network. Wharton shall cooperate with Caliber and provide such
reasonable assistance as Caliber may require for this purpose. Caliber shall
not format or adapt the Course Content in any way that compromises the
educational value of and academic standards associated with the Course Content.
Caliber will produce at its expense video roll-ins and films to supplement the
Course Content as requested by Wharton from time to time; provided that the
parties both agree in advance on the nature, scope and budget for each such
project; and provided further that Wharton retains control over the content of
each such project.
Section 3.2. Session Delivery. Caliber shall deliver each Session
--------------------------------
at the Caliber Sites set forth on the relevant Exhibit A. Caliber shall ensure
---------
that the Caliber Sites are clean, secure and appropriately equipped for delivery
of the Sessions and present a reasonable learning environment. For example,
each Participant at each Caliber Site shall have individual access at their
desktop to a personal computer that is networked to all of the Participants and
the faculty. In connection with the delivery of each Session, Caliber shall:
3.2.1 provide the software and computer programs, including, without
limitation, Caliber's proprietary class interaction support software, necessary
to deliver the Session;
3.2.2 provide the hardware components necessary to deliver the
Session and create a two-way audio and video environment, including, without
limitation, a satellite dish and integrated receiver decoder to receive the
video and audio signals at each Caliber Site, and workstations, cameras, video
monitors and related components necessary to return audio and video signals from
each Caliber Site;
3.2.3 provide maintenance and related support services necessary to
maintain the software and computer programs and the hardware components required
for delivery of the Session;
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3.2.4 provide a studio facility and trained staff for initiation of
the broadcast reasonably accessible to Wharton;
3.2.5 provide any training reasonably necessary for Wharton's faculty
to utilize effectively the Caliber Learning Network;
3.2.6 have at least one (1) qualified Caliber employee during each
Session available at each Caliber Site participating in the Session to: monitor
attendance (including ensuring that only registered Participants attend a
Session), Participant behavior and performance of technical equipment,
including hardware and software; oversee delivery of the Session; distribute and
collect Participant surveys, as needed; and provide non-academic assistance to
Participants; and
3.2.7 create and maintain in reasonable working order so that it is
responsive to the educational needs of the Courses a password-protected website
or intranet dedicated to the Essentials of Management Series to facilitate
organization of the Courses, distribution of Course materials, and interaction
between and among the Participants and the faculty for the Sessions.
Section 3.3. Quality of Session Delivery. All aspects of the
-------------------------------------------
Session Delivery will be of high quality and will at all times meet or exceed
the standards for two-way audio and video Session delivery in the video-
conferencing industry. In this regard, Caliber represents, warrants and
covenants that the interactive elements of the Session Delivery, including any
software, Internet communication, video and audio transmission, will provide for
substantially simultaneous interaction and that the video and audio transmission
quality will be excellent and any technical problems will be promptly resolved.
Furthermore, during the term of this Agreement, the parties may develop
additional metrics by which to measure the quality of the Session Delivery.
Section 3.4. Taped Session Make-Ups by Participants.
------------------------------------------------------
Notwithstanding Section 8.1, Caliber shall have available at each Caliber Site
copies of the Taped Sessions for each Course. Caliber shall provide on a short
term basis Taped Sessions to any Participants who may have missed the scheduled
broadcast of such Session under such terms as the parties may agree.
Section 3.5. Studio Facility. In preparation for the broadcast of
-------------------------------
the first Session of the initial Course, the parties will cooperate to locate a
studio facility for the initiation of Session broadcasts reasonably accessible
to the campus of The University of Pennsylvania.
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<PAGE>
Section 3.6. Observation Rights. Caliber may permit any
----------------------------------
prospective Participants or their employers to observe at a Caliber Site a
broadcast of a Session; provided that Caliber obtains Wharton's prior written
approval of such prospect, which approval will not be unreasonably withheld; and
provided further that Caliber shall take reasonable steps to avoid any
disruption of the Session.
ARTICLE 4
MARKETING
Section 4.1. Sales Force. Because broad dessemination of
---------------------------
information regarding the Essentials of Management Series will advance Wharton's
educational objectives and opportunities, Caliber shall hire, train and
compensate a sales force for the Essentials of Management Series of at least
four (4) full time equivalent employees of Caliber. Such sales force shall
pursue diligently the objectives of this Agreement. Wharton shall provide
training for the sales force hired by Caliber with respect to the Courses and
the Course Content, including preparing scripts to be used by the sales force.
In the event that Wharton is not satisfied with the performance or conduct of
any member of such sales force, Caliber will replace such member at Wharton's
request.
Section 4.2. Marketing Materials. Wharton shall be responsible for
-----------------------------------
the development and distribution of direct marketing materials and print
advertising in connection with the Courses. Caliber shall assist Wharton in
preparing such materials and advertising by providing information about Caliber
and about the Session Delivery. Wharton shall publicize each Session in such
Wharton newsletters, brochures and other publications distributed by Wharton to
students, alumni and others as are deemed appropriate in the sole discretion of
Wharton.
Section 4.3. Telephone Support. Wharton shall use its in-house
---------------------------------
telemarketing staff to support any incoming calls regarding the Courses.
Wharton shall train such staff to answer questions about the Courses. Wharton
and Caliber will participate in outgoing calls to follow up on leads for
potential Participants and to verify Participant information.
Section 4.4. Internet. Wharton's Executive Education Website
------------------------
shall advertise the EOM Courses. Wharton's website shall be listed with all
major search engines. The parties respective websites will be linked to each
other. Wharton's website shall specifically be designed to provide information
and inquiry response on-line. Caliber's website shall also market the Courses
and include a "virtual tour" of a Caliber Site.
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<PAGE>
Section 4.5. Public Relations. Neither party shall issue a press
--------------------------------
release or other public announcement or call a press conference regarding this
Agreement, the relationship between the parties or the Essentials of Management
Series without the prior written approval of the content of such release,
announcement or conference by the other party. Furthermore, the parties shall
cooperate to promote the Essentials of Management Series to the national
business media, trade and airline publications.
Section 4.6. Trade Shows. In order to increase the public
---------------------------
awareness of the additional educational opportunities presented by the
Essentials of Management Series, Wharton shall promote the Courses at Wharton's
booth at the ASTD conference to be held from May 31, 1998 to June 4, 1998. The
parties shall discuss from time to time any additional appearances at other
trade shows.
ARTICLE 5
REGISTRATION
Section 5.1. Registration and Collections by Wharton. Wharton
-------------------------------------------------------
shall register all Participants for the Courses and collect all registration
fees or other Revenues, prior to the commencement of the initial Session of a
Course.
Section 5.2. Collections by Caliber. Caliber shall collect any
--------------------------------------
registration fees or other Revenues that may be paid by a Participant at a
Caliber Site and shall remit to Wharton within five (5) business days of receipt
all such registration fees, if any, collected by Caliber.
Section 5.3. Admission Standards and Enrollment. In order to
--------------------------------------------------
ensure that the Participants have the appropriate background and experience to
benefit from the Courses, Wharton shall have sole control over the standards of
admission and acceptance of prospective Participants for each Course. Wharton
shall also control the enrollment size for each Caliber Site.
Section 5.4. Enrollment Fees and Revenue Collections. Wharton
-------------------------------------------------------
shall deposit all Revenues in a segregated bank account. Both parties shall
receive a copy of the bank statements with respect to such account.
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ARTICLE 6
MONITORING
Section 6.1. Participants Surveys. Wharton and Caliber will
------------------------------------
jointly develop Participant surveys to evaluate the Sessions, including the
Course Content and Session Delivery, and will otherwise develop a process for
monitoring, evaluating, and modifying as necessary quality control mechanisms.
Notwithstanding the foregoing sentence, Wharton shall be responsible for the
quality of the Course Content and Caliber shall be responsible for the quality
of the Session Delivery.
Section 6.2. Reports. After the commencement of Session Delivery:
-----------------------
6.2.1 on or before the 15th day of each month, Caliber shall provide
to Wharton a report of each Session delivered during the prior month, which
report will identify the locations of the Session and the attendees, will
include a brief description of the overall quality of the Session Delivery, will
include photocopies of all Participant surveys and will include such other
information as the parties may agree from time to time; and
6.2.2 within three (3) days after delivery of a Session during which
there have occurred any significant technical or other disruptions or problems,
Caliber shall provide to Wharton a special report identifying and describing the
nature and extent of such disruption or problems, the source of the disruption
or problems, the corrective measures taken by Caliber, the reaction of the
Participants and any other information reasonably necessary for Wharton to
assess Caliber's compliance with its obligations under this Agreement.
Section 6.3. Implementation Audits. Wharton shall have the right
-------------------------------------
(but not the obligation) to observe the delivery of any Session at any Caliber
Site and to request reasonable changes by Caliber in the implementation or
Session Delivery to address any problems identified by Wharton.
Section 6.4. Reassessment. On or about March 31, 1999, the parties
----------------------------
will meet to discuss and reassess the initial business plan associated with this
Agreement. Such review shall include, but not be limited to, the reassessment
of: nature of the Course Content and any Derivative Works; the quality of the
Session Delivery; the viability of the marketing plan for each Course; the
Revenues produced by each Course; and the results of the Participant surveys for
each Course. On the basis of such reevaluation, the parties may decide to
modify, supplement or delete any aspect of this Agreement, other than Section
9.2, by executing a written amendment or supplement to this Agreement.
-10-
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ARTICLE 7
OWNERSHIP AND LICENSE
Section 7.1. Ownership. The parties understand and agree that
-------------------------
Wharton and Wharton's licensors will retain ownership of all Rights to the
Course Content, the Sessions and all Derivative Works and, subject to Section
8.1, will be able to use the Course Content, the Sessions and all Derivative
Works for Wharton's other purposes. Wharton understands and agrees that Caliber
is not granting Wharton any ownership rights in the Caliber Learning Network or
in any equipment, property, systems, software, know-how, or technical or
operational information or other materials used by Caliber to deliver the
Sessions.
Section 7.2. Assignment. Notwithstanding anything herein to the
--------------------------
contrary, but subject in any event to the second sentence of Section 7.1 and to
Section 10.2, to the extent that any Rights of Caliber (other than any content
that is peculiar to the Caliber Learning Network) are or, during the term of
this Agreement, become embodied in the Course Content, the Sessions or any
Derivative Work, Caliber hereby assigns to Wharton all of Caliber's right, title
and interest in and to the Course Content, the Sessions and/or the Derivative
Works, without further consideration. By way of example, but not by way of
limitation, a set of student instructions on the use of the Caliber Learning
Network would remain the property of Caliber, whereas a video clip produced by
either Caliber or a third party hired by Caliber to supplement the Course
Content as a Derivative Work would be owned by Wharton.
Section 7.3. Caliber's Activities. Caliber represents, warrants
------------------------------------
and covenants that Caliber will perform all of its obligations under this
Agreement by either Caliber employees working within the scope of their
employment or by independent contractors who have assigned to Caliber in writing
and in advance the Rights of such independent contractors, if any, in and to the
Course Content, the Sessions and/or Derivative Works in a form approved by
Wharton in advance.
Section 7.4. Applications and Filings. Wharton and Caliber shall
----------------------------------------
cooperate in good faith with one another to make all necessary applications and
filings, including copyright registrations and other legal protections, both
U.S. and foreign, to protect the interests of Wharton in the Course Content, the
Sessions and the Derivative Works. Wharton shall pay all filing fees and other
direct expenses of such applications and filings.
Section 7.5. Precautions. Caliber shall take all reasonable
---------------------------
precautions to prevent the unauthorized copying, removal, alteration,
disclosure, use, loss of or improper access to the Course Content, the
Derivative Works (including, but not limited to, the Taped Sessions), and the
Sessions. Wharton shall take all reasonable precautions to prevent any copying,
removal, alteration, use, or improper access to the Taped Sessions that is
prohibited by Section 8.1.
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Section 7.6. Use of Course Content by Caliber. Wharton grants to
------------------------------------------------
Caliber a limited, nonexclusive license to copy, transmit, use, and prepare
derivative works of the Course Content as part of the Sessions to the extent
necessary for Caliber to perform its obligations under this Agreement. This
license cannot be assigned or sublicensed by Caliber. This license will expire
upon the termination of this Agreement for any reason.
ARTICLE 8
EXCLUSIVITY AND CONFIDENTIALITY
Section 8.1. Negative Covenants. During and after the term of this
----------------------------------
Agreement, Wharton shall not copy, use, modify or distribute any Taped Sessions
for any purpose, other than in connection with either (a) Wharton's on campus or
residential educational programs or (b) Wharton's custom educational programs in
any location(s) delivered through traditional methods using live classroom
instruction, without Caliber's prior written permission, which consent will not
be unreasonably withheld. During the term of this Agreement, except as
permitted by Section 3.4, Caliber shall not copy, use, modify or distribute any
Taped Sessions for any purpose, without Wharton's prior written permission,
which consent will not be unreasonably withheld. After the term of this
Agreement, Caliber shall not copy, use, modify or distribute any Taped Sessions
for any purpose.
Section 8.2. Right of First Offer. In the event that either party
------------------------------------
desires to produce non-credit, open enrollment courses or for credit, graduate
or undergraduate level courses or a series of such courses via a distance
learning broadcast or network system, other than the Internet, in the field of
business education, then both parties shall discuss such opportunity and, if
both parties are interested in pursuing such opportunity, negotiate in good
faith for a period of sixty (60) days to enter into a definitive written
agreement. In the event that no definitive agreement is reached during such
period (as such period may be extended by the parties in writing), then either
party may negotiate with any third party to produce such course or courses.
This Section 8.2 shall expire on the delivery of a notice of termination
pursuant to Article 15 or on the expiration of this Agreement.
Section 8.3. Confidentiality.
-----------------------------
8.3.1. Caliber acknowledges that, during the term of this Agreement
and in the course of performing its obligations hereunder, Caliber may be the
recipient of or become exposed to Confidential Information of Wharton. Caliber
acknowledges and agrees that Wharton's Confidential Information shall remain the
exclusive property of Wharton. Caliber shall use the same degree of care in
maintaining the confidential nature of Wharton's Confidential Information that
Caliber uses with respect to Caliber's own Confidential Information of a similar
nature.
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<PAGE>
8.3.2. Wharton acknowledges that, during the term of this Agreement
and in the course of performing its obligations hereunder, Wharton may be the
recipient of or become exposed to Confidential Information of Caliber. Wharton
acknowledges and agrees that Caliber's Confidential Information shall remain the
exclusive property of Caliber. Wharton shall use the same degree of care in
maintaining the confidential nature of Caliber's Confidential Information that
Wharton uses with respect to Wharton's own Confidential Information of a similar
nature.
Section 8.4. Non-Hire. During the term of this Agreement and for
------------------------
one (1) year thereafter, Caliber shall not hire any faculty of Wharton that has
participated in any Session under this Agreement.
ARTICLE 9
COMPENSATION
Section 9.1. Wharton's Right to Revenues. For and in consideration
-------------------------------------------
of the promises and covenants made herein by Wharton, Caliber acknowledges that
all enrollment fees, and any other gross revenues directly resulting from
delivery of any Course over the Caliber Learning Network, net of any refunds
granted by Wharton (collectively, "Revenues"), shall inure to the benefit of and
be paid over to Wharton, subject to Section 9.2.
Section 9.2. Caliber's Session Delivery Fee. For and in
----------------------------------------------
consideration of the promises and covenants made herein by Caliber, including
but not limited to the agreement of Caliber to deliver the Course Content over
the Caliber Learning Network, Wharton agrees to pay to Caliber a fee (the
"Session Delivery Fee") equal to /*/ of the Revenues derived from each Course.
Section 9.3. Distribution and Payment. Within five (5) days
----------------------------------------
following the broadcast of the first Session of a Course, Wharton shall deliver
to Caliber seventy-five percent (75%) of the Session Delivery Fee for such
Course. Within thirty (30) days following the broadcast of the final Session of
the Course, including any period during which enrolled Participants may withdraw
from the Course for a refund in accordance with Wharton's standard policies,
Wharton shall deliver to Caliber the remaining balance of the twenty-five
percent (25%) of the Session Delivery Fee for such Course, as adjusted for any
refunds given or enrollment fees received by Wharton after the initial payment
under this Section 9.3.
- ------------------
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
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<PAGE>
Section 9.4. Penalty for Late Distribution. Interest will accrue
---------------------------------------------
at a rate of 0.833 % per month on fees not distributed on a timely basis to
Caliber in accordance with this Article 9.
Section 9.5. Audit. Upon reasonable prior written notice, each
---------------------
party shall have the right to audit, review and copy at its sole expense and on
a confidential basis, the financial accounts and records and quality and other
performance records maintained by the other party related to payments and
performance under this Agreement. The auditing party shall take reasonable
steps to avoid any unnecessary disruption of the audited party's business.
Section 9.6. Expenses. Except as otherwise expressly provided in
------------------------
this Agreement, each party shall bear its own expenses in connection with the
performance of its obligations under this Agreement. Furthermore, neither party
shall be liable for any third party contracts or other obligations entered into
by the other party in connection with this Agreement.
ARTICLE 10
WHARTON AND CALIBER MARKS
Section 10.1. Wharton Marks. Caliber acknowledges that the
------------------------------
trademarks identified on Exhibit D attached hereto (the "Wharton Marks") are
---------
the registered or unregistered trademarks and/or service marks, as the case may
be, of Wharton. Wharton hereby grants to Caliber a non-exclusive, limited
license to use the Wharton Marks for and during the term of this Agreement in
connection with promotion, marketing, developing and delivering the Courses in
accordance with this Agreement. Caliber expressly acknowledges Wharton's rights
in and to the Wharton Marks and shall not represent in any manner that Caliber
has acquired any ownership rights in the Wharton Marks.
Section 10.2. Caliber Marks. Wharton acknowledges that the
------------------------------
trademarks identified on Exhibit E attached hereto (the "Caliber Marks") are the
---------
registered or unregistered trademarks and/or service marks, as the case may be,
of Caliber. Caliber hereby grants to Wharton a non-exclusive, limited license
to use the Caliber Marks for and during the term of this Agreement in connection
with promoting, marketing, developing and delivering the Courses in accordance
with this Agreement. Wharton expressly acknowledges Caliber's rights in and to
the Caliber Marks and shall not represent in any manner that Wharton has
acquired any ownership rights in the Caliber Marks.
Section 10.3. Misuse of Marks. Each party understands and agrees
--------------------------------
that any use of the other party's marks, other than as expressly authorized by
this Agreement, without the other party's prior written consent, is an
infringement of such other party's rights in and to its marks and that the right
granted herein to use the other party's marks does not extend beyond the
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termination or expiration of this Agreement. Each party expressly covenants
that, during and after the term of this Agreement, such party shall not,
directly or indirectly, commit any act of infringement or dilution or contest or
aid others in contesting the validity of such other party's right to use its
marks or take any other action in derogation thereof.
Section 10.4. Monitoring. Each party acknowledges an obligation to
---------------------------
monitor its own use of the other party's marks and agrees to do so. Each party
shall notify the other of any claim, demand, cause of action that the other
party may have based upon or arising from any unauthorized attempt by any person
or entity to use such other party's marks, any colorable variation thereof, or
any other mark, name or indicia in which such other party has or claims a
proprietary interest and shall assist such other party, upon its request and at
such other party's expense, in taking action including legal action, if any, as
such other party may deem appropriate to halt such activities, but shall take no
action nor incur any expenses on such other party's behalf without such other
party's approval.
Section 10.5. Requirements. Each party further covenants to: use
-----------------------------
the other party's marks solely in the manner prescribed by such other party;
observe all laws with respect to the registration of trade names and assumed or
fictitious names; include in any application therefor a statement that such
party's use of the other party's marks is limited by the terms of this
Agreement; provide such other party with a copy of any such application and
other registration document(s); and observe such requirements with respect to
trademark and service mark registrations and copyright notices as the other
party may, from time to time, require, including, without limitation, affixing
"_," "TM", or "(R)" adjacent to such other party's marks.
Section 10.6. Guidelines. Each party shall from time to time
---------------------------
provide written guidelines to the other party, regarding the proper depiction of
the party's marks. Press releases, catalog copy, copy and graphics for print
advertising, information booklets, and promotional literature that a party
proposes to use in conjunction with a Course or the marketing of a Course,
together with a description of the proposed publication method, shall be
submitted to the other party for review, editing and comment, at least ten (10)
days prior to intended use or reproduction (whichever is to occur first). If not
responded to within ten (10) days of presentation, the material shall be deemed
disapproved. Components or advertisements previously approved may be used
subsequently in the same publication method without further need for submission
and approval. Each party shall designate as the other party's contact a person
on its respective staff who shall have responsibility for the review and
response procedures described in this Section 10.6.
Section 10.7. Use of Wharton Name. Except as expressly permitted
------------------------------------
by this Article 10, during and after the term of this Agreement, Caliber and its
affiliates, employees, and agents shall not use either The University of
Pennsylvania's name or Wharton's name or any adaptation thereof, or any
University or Wharton seal, logotype, trademark, or service mark, or the name,
mark, or logotype of any University or Wharton representative or organization in
any
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way without the prior written consent of Wharton in its sole discretion. Without
limiting the foregoing, Caliber shall provide notice to Wharton, at least five
(5) business days in advance, containing a copy of the text of any Federal or
state securities law filing planned by Caliber that refers to any of The
University of Pennsylvania, Wharton, any University or Wharton representative or
organization, or this Agreement. During such five (5) business day period,
Wharton may elect to provide comments to Caliber regarding the text of any such
references. Caliber shall promptly implement all reasonable comments from
Wharton. With respect to any public filing of this Agreement required by law,
Caliber shall seek confidential treatment of the provisions of this Agreement
reasonably requested by Wharton from time to time, including, but not limited
to, Sections 8.1, 8.2, 9.1 and 9.2 and Exhibits C and D.
ARTICLE 11
USE OF PARTICIPANT AND PROSPECT NAMES
Section 11.1. Participants. The names of all Participants shall be
-----------------------------
proprietary to both Wharton and Caliber. During and after the term of this
Agreement, either party may use such names in connection with this Agreement and
its other business activities but shall maintain the confidentiality of such
names.
Section 11.2. Prospects. The names of all persons identified as
--------------------------
prospective Participants are proprietary to both Wharton and Caliber. During
and after the term of this Agreement, Caliber shall not use such names in
connection with this Agreement or its other business activities without the
prior written approval of Wharton. During and after the term of this Agreement,
Wharton may use such names in connection with this Agreement and its other
business activities, and each party shall maintain the confidentiality of such
names.
ARTICLE 12
LIMITATION OF LIABILITY
Section 12.1. Consequential Damages. NEITHER PARTY SHALL BE LIABLE
--------------------------------------
TO THE OTHER PARTY FOR ANY INCIDENTAL, CONSEQUENTIAL, SPECIAL, OR PUNITIVE
DAMAGES OR LOST OR IMPUTED PROFITS OR ROYALTIES ARISING OUT OF THIS AGREEMENT OR
ITS TERMINATION, WHETHER FOR BREACH OF WARRANTY OR ANY OBLIGATION ARISING
THEREFROM OR OTHERWISE, WHETHER LIABILITY IS ASSERTED IN CONTRACT OR TORT AND
IRRESPECTIVE OF WHETHER THE PARTY HAS ADVISED OR HAS BEEN ADVISED OF THE
POSSIBILITY OF ANY SUCH LOSS OR DAMAGE.
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ARTICLE 13
INDEMNIFICATION AND INSURANCE
Section 13.1. By Caliber. Caliber shall indemnify, defend and hold
---------------------------
harmless Wharton from and against any and all loss, damage, injury, liability or
suit, including any attorneys' fees and costs, incurred by Wharton as a result
of or arising from: any negligent act or omission by Caliber; any breach by
Caliber of any third party contract; any claims arising out of the Federal or
state securities laws; any Participant's claim of personal injury or property
damage while attending a Session at a Caliber Site; any claim that any
contribution by Caliber to any Session, Derivative Work, or Session Delivery
violates any patent, copyright, trade secret or other proprietary right; and any
claim that use by Wharton of the Caliber Marks in accordance with this Agreement
infringes the rights of a third party.
Section 13.2. Caliber's Insurance. Caliber shall procure and
------------------------------------
maintain a policy or policies of comprehensive general liability insurance,
including broad form and contractual liability, in a minimum of $1,000,000
combined single limit per occurrence and in the aggregate as respects personal
injury, bodily injury and property damage arising out of Caliber's performance
under this Agreement. The policy or policies of insurance described in this
Section 13.2 shall be issued by an insurance carrier with an A.M. Best rating
of "A" or better and shall name The Trustees of The University of Pennsylvania
as an additional insured with respect to Caliber's performance under this
Agreement. Caliber shall provide Wharton with certificates evidencing the
insurance coverage required herein and all subsequent renewals thereof. Such
certificates shall provide that the insurance carrier(s) shall notify Wharton in
writing at least thirty (30) days prior to cancellation or material change in
coverage. The parties may periodically review the adequacy of the minimum
limits of liability insurance specified in this Section 13.2, and Wharton
reserves the right to require Caliber to adjust the liability insurance
coverages. The specified minimum insurance amounts do not constitute a
limitation on the obligation of Caliber to indemnify Wharton under this
Agreement.
Section 13.3. By Wharton. Wharton shall indemnify, defend and hold
---------------------------
harmless Caliber from and against any and all loss, damage, injury, liability or
suit, including any attorneys' fees and costs, incurred by Caliber as a result
of or arising from: any claims that any Course Content provided by Wharton to
Caliber infringes or otherwise violates any copyright, trade secret or other
proprietary right; and any claims that use by Caliber of the Wharton Marks in
accordance with this Agreement infringes the rights of a third party.
-17-
<PAGE>
ARTICLE 14
TERM
Section 14.1. Expiration and Renewal. This Agreement commences on
---------------------------------------
the Effective Date and shall terminate on the fifth anniversary of this
Agreement, unless terminated earlier by either party pursuant to Section 15.
The parties may mutually agree to renew this Agreement upon its expiration.
ARTICLE 15
EARLY TERMINATION
Section 15.1. Voluntary Termination. Either party may elect to
--------------------------------------
terminate this Agreement for any reason or for no reason by giving a written
notice of Termination to the other party at least one hundred twenty (120) days
prior to the second anniversary of the Effective Date. Subject to Section 15.5,
any such voluntary termination shall become effective on the second anniversary
of the Effective Date.
Section 15.2. Default. This Agreement may be terminated by either
------------------------
party if the other party is in breach of any material provision of this
Agreement, but only after written notice of default and opportunity to cure has
been given to the breaching party. The notice of default must provide for an
opportunity to cure of at least thirty (30) days following receipt of the
notice. If the party receiving the notice has not cured the breach before the
cure date stated in the notice, then the party giving notice may terminate this
Agreement by giving the breaching party a written notice of termination, which
will be effective upon delivery. With respect to breaches stated herein or
otherwise determined to be incurable, a period of cure does not have to be
provided.
Section 15.3. Material Breaches That May Be Cured. The following
----------------------------------------------------
types of activity are acknowledged by the parties to jeopardize the offering of
Courses under this Agreement, and shall, unless cured as provided herein, be
cause for termination:
15.3.1 to fail to adhere to any material provision of this Agreement;
and
15.3.2 to fail to provide quality delivery of any Session.
Section 15.4. Material Breaches That Cannot Be Cured. The
-------------------------------------------------------
following types of activity are acknowledged by the parties to be incurable,
material breaches and are cause for immediate termination effective upon
delivery of written notice of termination:
-18-
<PAGE>
15.4.1 any willful breach of the other party's confidentiality
obligations under this Agreement;
15.4.2 any act of theft or embezzlement by the other party;
15.4.3 any breach of the other party's exclusivity obligations under
Sections 8.1 or 8.2 of this Agreement;
15.4.4 if the other party experiences a Trigger Event, at the
election of the party that is not experiencing a Trigger Event, provided that no
written notice of termination is required in such event; and
15.5.5 any material breach of the covenants of Article 10, including,
but not limited to, dilution of the other party's marks or damage to the other
party's reputation.
Section 15.6. Effect of Termination. Notwithstanding the delivery
--------------------------------------
of a notice of default or notice of termination by either party to the other
under this Article 15, all obligations to perform services shall continue in
effect and be duly observed and complied with by both parties until the later
of: the effective date of any termination; or until the completion of the last
Session of any Course that has commenced or is scheduled to commence less than
forty-five (45) days after the time of delivery of the notice of termination.
Section 15.7. Ownership After Termination. Early termination of
--------------------------------------------
this Agreement pursuant to this Section 15 for any reason shall not affect the
respective ownership rights of the parties set forth in Section 7. Upon
termination of this Agreement, all rights to use and promote the Courses in
conjunction with the other party's marks shall immediately cease.
ARTICLE 16
MISCELLANEOUS
Section 16.1. Notices. Any notices or other communications
------------------------
required or which may be given by either party to the other party under this
Agreement shall be in writing and may be sent by facsimile. However, the
original shall be sent either by overnight courier, with a verified receipt, or
by certified mail, return receipt requested, postage prepaid and addressed to
and at the address stated below or to such other address as the parties shall
subsequently designate to each other by notice given in accordance with this
Section 16.1. Such notice shall be deemed to be sufficiently given when the
original is received by the receiving party or five (5) days after mailing as
provided above, whichever first occurs.
-19-
<PAGE>
FOR WHARTON:
The Trustees of the University of Pennsylvania
acting through the Aresty Institute of Executive Education
at The Wharton School
255 South 38/th/ Street
Philadelphia, PA 19104-6359
Attn: Alison McGrath Peirce
Fax: 215-386-4304
with a required copy to:
Office of the General Counsel
The University of Pennsylvania
221 College Hall
Philadelphia, PA 19104-6303
Attn: Robert Terrell, Esq.
Fax: 215-898-8519
FOR CALIBER:
Caliber Learning Network, Inc.
1000 Lancaster Street
Baltimore, Maryland 21202
Attn: Chris L. Nguyen
Fax: 410-843-8054
with a copy to:
Sylvan Learning Systems, Inc.
1000 Lancaster Street
Baltimore, MD 21202
Attn: O. Steven Jones, Esq., Vice President and General Counsel
Fax: 410-843-8059
Section 16.2. Independent Contractors. In making and performing
----------------------------------------
this Agreement, the parties act and shall act at all times as independent
contractors, and nothing contained herein shall be construed or implied to
create an agency, association, partnership or joint venture between the parties.
At no time shall either party make any commitments or incur any charges or
expenses for or in the name of the other party.
-20-
<PAGE>
Section 16.3. Applicable Law and Jurisdiction. This Agreement
------------------------------------------------
shall be deemed to have been made in the Commonwealth of Pennsylvania and shall
be construed and enforced in accordance with, and the validity and performance
hereof shall be governed by, the laws of the Commonwealth of Pennsylvania,
without regard to conflict of laws principles of any jurisdiction. In the event
that a party perceives the existence of a dispute with the other party
concerning any right or duty provided for herein, the parties will, as soon as
practicable, confer in an attempt to resolve the dispute. If the parties are
unable to resolve such dispute amicably, then the parties hereby submit to the
exclusive jurisdiction of and venue in the state and federal courts located in
the Eastern District of Pennsylvania with respect to any and all disputes
concerning the subject of, or arising out of, this Agreement.
Section 16.4. Force Majeure. Neither party shall be liable for
------------------------------
delay or failure in performance of any of its obligations under this Agreement
when such delay or failure arises from events or circumstances beyond the
reasonable control of such party (including, without limitation, acts of God,
fire, flood, war, explosion, sabotage, terrorism, embargo, civil commotion, acts
or omissions of any government entity, or labor disputes).
Section 16.5. Waiver. No failure on the part of either party to
-----------------------
exercise, no delay in exercising, and no course of dealing with respect to any
right, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.
Section 16.6. Assignment. Neither party shall be permitted to
---------------------------
assign this Agreement or any part of it, either directly or by stock sale,
merger or operation of law, without the prior written consent of the other party
in its sole discretion. Any prohibited assignment of this Agreement or the
rights hereunder shall be null and void. No permitted assignment shall relieve
the assigning party of responsibility for the performance of any accrued
obligations which it has prior to such assignment.
Section 16.7. Survival beyond Termination. The rights and
--------------------------------------------
obligations arising under Sections 5.4, 7.1-7.5, 8.1, 8.3 and 8.4 and Articles
9-13 and 15 shall survive any termination or expiration of this Agreement in
accordance with the respective terms of such provisions.
Section 16.8. Compliance with Laws. Caliber and its affiliates
-------------------------------------
shall comply with all prevailing laws, rules and regulations that apply to its
activities or obligations under this Agreement. Without limiting the foregoing,
it is understood that this Agreement may be subject to the Family Educational
Rights and Privacy Act of 1974, as amended. Wharton and Caliber shall not
discriminate against any employee or applicant for employment because of race,
color, sex, sexual or affectional preference, age, religion, national or ethnic
origin, handicap, or because he or she is a disabled veteran or a veteran of the
Vietnam Era.
-21-
<PAGE>
Section 16.9. Binding Nature of Agreement. This Agreement shall be
--------------------------------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that any assignment must comply with Section 16.6
to be effective.
Section 16.10. Counterparts, Headings and Exhibits. 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. The headings used in this Agreement are for convenience only and
are not to be considered in construing or interpreting any term or provision of
this Agreement. All Schedules and Exhibits hereto are hereby incorporated in
this Agreement and made a part hereof.
Section 16.11. Integration and Amendment. This Agreement, together
-----------------------------------------
with all fully executed exhibits thereto, embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof. This Agreement may not be
changed, modified, extended or terminated except by written amendment executed
by an authorized representative of each party.
Section 16.12. Severability. If any provision of this Agreement
----------------------------
shall be held to be illegal, invalid or unenforceable, then such illegality,
invalidity or unenforceability shall attach only to such provision and shall not
in any manner affect or render illegal, invalid or unenforceable any other
provision of this Agreement, and this Agreement shall be carried out as if any
such illegal, invalid or unenforceable provision were not contained herein.
Section 16.13. Number of Days. Except as otherwise expressly
------------------------------
provided in this Agreement, in computing the number of days for purposes of this
Agreement, all days shall be counted, including Saturdays, Sundays and holidays;
provided that if the final day of any time period falls on a Saturday, Sunday or
holiday on which Federal banks are or may elect to be closed, then the final day
shall be deemed to be the next day which is not a Saturday, Sunday or such
holiday.
-22-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as at
the day and year first above written.
CALIBER LEARNING NETWORK, INC. THE TRUSTEES OF THE UNIVERSITY OF
PENNSYLVANIA acting through THE
ARESTY INSTITUTE OF EXECUTIVE
EDUCATION AT THE WHARTON SCHOOL
By: ______________________________ By: ______________________________
Chris L. Nguyen, President Michael L. Wachter
Interim Provost
The Trustees of the University of
Pennsylvania
By: ______________________________
Thomas P. Gerrity
Dean
The Wharton School
By: ______________________________
Robert E. Mittelstaedt, Jr.
Vice Dean and Director
The Aresty Institute of Executive
Education
-23-
<PAGE>
EXHIBIT INDEX
This Exhibit Index to the Master Course Development Agreement is dated
March 26, 1998. The following Exhibits are incorporated by reference into this
Agreement.
EXHIBITS:
Exhibit A-1 Description of Course 1
Exhibit A-2 Description of Course 2
Exhibit B Additional Course Form
Exhibit C Course Schedule
Exhibit D Wharton Marks
Exhibit E Caliber Marks
IN WITNESS WHEREOF, for adequate consideration and intending to be
legally bound, the parties hereto have caused this Exhibit Index to the Master
Course Development Agreement to be executed by their duly authorized
representatives on the date first above written.
CALIBER LEARNING NETWORK, INC. THE TRUSTEES OF THE UNIVERSITY OF
PENNSYLVANIA acting through THE ARESTY
INSTITUTE OF EXECUTIVE EDUCATION AT THE
WHARTON SCHOOL
By: ______________________________ By: ______________________________
Chris L. Nguyen, President Robert E. Mittelstaedt, Jr.
Vice Dean and Director
The Aresty Institute of Executive
Education
<PAGE>
EXHIBIT A-1
-----------
DESCRIPTION OF COURSE 1
. Title: "The Essentials of Management: Building a Business Case".
. Offered two times during the Fall, each six weeks in duration, thereafter
proposed to run once per quarter.
. Three hours per session from 7-10 pm EST.
. Target enrollment per offering is 350.
. Minimum classroom size at each Caliber Site per room is 6 and maximum is 12.
. Method of registration is submission of application to Wharton who then
enrolls students in conjunction with Wharton/Caliber enrollment system.
. Target Market: Entry and mid-level managers who need to develop specific
functional skills and who generally would not be considered candidates for
traditional executive education programs.
. Course Credit: none.
. Price: $2,500.
. Financial projections (based on 350 students at $2,500 price): /*/ in
Revenues (but with volume discounts of /*/ , projected net revenues of /*/
. Caliber Sites (30):
Cherry Hill, NJ Dallas, TX Seattle, WA
Paramus, NJ Minneapolis, MN Cincinnati, OH
Broad St, NY Cleveland, OH Milwaukee, WI
Park Ave, NY Detroit, MI Nashville, TN
Boston, MA Richmond, VA Penn Plaza, NY
Chicago, IL Denver, CO Salt Lake City, UT
Baltimore, MD Charlotte, NC Rochester, NY
San Jose, CA Kansas City, MO San Diego, CA
Atlanta, GA San Francisco, CA Houston, TX
Culver City, CA Indianapolis, IN St. Louis, MO
- -------------------
/*/ Text omitted pursuant to a request for confidential treatment and filed
seperately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT A-2
-----------
DESCRIPTION OF COURSE 2
. Title: "The Essentials of Management: Financial Statements".
. Offered once during the Winter of 1999, six weeks in duration, thereafter
proposed to run once per quarter.
. Three hours per session from 7-10 pm EST.
. Target enrollment is 375.
. Minimum classroom size at each Caliber Site per room is 6 and maximum is 12.
. Method of registration is submission of application to Wharton who then
enrolls students in conjunction with Wharton/Caliber enrollment system.
. Target Market: Entry and mid-level managers who need to develop specific
functional skills and who generally would not be considered candidates for
traditional executive education.
. Course Credit: none.
. Price: $2,500.
. Financial projections (based on 375 students at $2,500 price): /*/ in
Revenues (but with volume discounts of /*/ , projected net revenues of /*/
. Caliber Sites (40):
Cherry Hill, NJ Dallas, TX Seattle, WA Raleigh, NC
Paramus, NJ Minneapolis, MN Cincinnati, OH Jacksonville, FL
Broad St, NY Cleveland, OH Milwaukee, WI Orlando, FL
Park Ave, NY Detroit, MI Nashville, TN Washington, DC
Boston, MA Richmond, VA Penn Plaza, NY Tampa, FL
Chicago, IL Denver, CO Salt Lake City, UT Pittsburgh, PA
Baltimore, MD Charlotte, NC Rochester, NY Los Angeles, CA
San Jose, CA Kansas City, MO San Diego, CA Miami, FL
Atlanta, GA San Francisco, CA Houston, TX Palo Alto, CA
Culver City, CA Indianapolis, IN St. Louis, MO Phoenix, AZ
- -------------------
/*/ Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT B
ADDITIONAL COURSE FORM
Capitalized terms used in this Exhibit B shall have the same meaning given to
them in the Master Course Development Agreement between Caliber and Wharton
dated as of _______________, 1998 (the "Agreement"). In the event of any
conflict, inconsistency or ambiguity between this Exhibit and the Agreement,
this Exhibit shall prevail.
1. Course Title: [TO BE ADDED]
------------
2. Number of Sessions: ___.
------------------
3. Duration of Course: Approximately ___ weeks.
------------------
4. Number and Location of Caliber Sites: [TO BE ADDED]
------------------------------------
5. Target Enrollment: [TO BE ADDED]
-----------------
6. Minimum and Maximum Class Size: [TO BE ADDED]
------------------------------
7. Registration Fee and Discounts: $_________ [ANY DISCOUNTS TO BE ADDED].
------------------------------
8. Course Times: ______ to _______ pm EST.
------------
9. Course Schedule: [TO BE ADDED].
---------------
10. Course Credit: None.
-------------
11. Marketing Plan: See attached Schedule 1.
--------------
12. Financial Projections: [TO BE ADDED]
---------------------
13. Other Terms and Conditions: [TO BE ADDED AS NEEDED]
--------------------------
<PAGE>
EXHIBIT C
---------
SCHEDULE OF COURSES
-------------------
<TABLE>
<CAPTION>
COMMITTED COURSES:
- ------------------
1998 1998 1999 1999
Fall 1 Fall 2 Winter Spring
------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Business Case: X X X X
Financial Statements: X X
<CAPTION>
PROPOSED COURSES:
- -----------------------
1999 1999 1999 2000 2000 2000 2000
Spring Summer Fall Winter Spring Summer Fall
------ ------ ------ ------ ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
Business Case: X X X X X X
Financial Statements: X X X X X X
Drivers: X X X X X X X
Capital Budget: X X X X X
"New Course": X X X X X
</TABLE>
<PAGE>
EXHIBIT D
---------
WHARTON MARKS
-------------
"Wharton"
"Wharton" and logo (see attached)
"The Wharton School"
"EOM"
"Essentials of Management"
<PAGE>
EXHIBIT E
CALIBER MARKS
-------------
"BOSS"
"Broadcast Origination Support System"
"Caliber" and logo (see attached)
"Caliber Learning Campus"
"Caliber Learning Center"
"Caliber Learning Network"
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated March 5, 1998 (except
Note 16, as to which the date is April 10, 1998), in Amendment No. 2 to the
Registration Statement (Form S-1 No. 333-47565) and related Prospectus of
Caliber Learning Network, Inc. for the Registration of 5,400,000 shares of its
common stock.
/s/ ERNST & YOUNG LLP
Baltimore, Maryland
April 10, 1998